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The Weekend Quiz – November 25-26, 2017

Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.

1. A fiscal rule that forces governments to run fiscal surpluses each year would equally force the private sector to run deficits and accumulate increasing levels of indebtedness as a result.

2. If a government is running an austerity program and learns that the estimated output gap was smaller than they originally thought, then other things equal, the government’s discretionary fiscal austerity would have to be intensified to balance the structural fiscal balance.

3. Opponents of continuous fiscal deficits often agree that a short-period of deficit spending when the private demand is weak is not likely to be inflationary. Their main concern is that it is the accumulated stock of spending associated with continuous fiscal deficits that eventually increases the risk of inflation. Their concern has some validity.

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    This Post Has 4 Comments
    1. So 1. I am guessing is about what the external sector is doing. 2. Is about the them overestimating the amount of the deficit that was cyclical and 3. Is about inflation only occurring when spending outstrips the real capacity in the economy.. 2/3 still. Grrrr

    2. CS. You are wrong about 1. NB: It says governments as in plural so there is no external sector if all governments are forced to run fiscal surpluses.

    3. The answer to question 3 (false) assume the non government sector desires to save forever? Is this a fair assumption given the ageing demographic?

    4. Dear Chris (at 2017/11/27 at 11:50 am)

      The question was about stocks and flows rather than the realities that might beset a future economy as demographic changes occur.

      There can never be an accumulation of spending given that the latter is a flow.

      best wishes

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