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The Weekend Quiz – January 6-7, 2018

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 rising fiscal deficit indicates an expansionary shift in government policy and the challenge is to ensure the nominal demand stimulus does not exceed the real capacity of the economy to respond by increasing real output.

2. The imposition of taxes by the national government creates unemployment, other things equal.

3. The automatic stabilisers work in a counter-cyclical fashion and ensure that the government fiscal balance returns to its appropriate level following a recession.

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    This Post Has 5 Comments
    1. 3/3 again! Maybe I am getting better at reading the questions very very carefully.
      So number 1 – I am thinking a rising fiscal deficit might not be anything to do with expansionary fiscal policy – it might just be more unemployment benefits being paid out following an austerity push.
      Number 2 – at the dawn of time, the imposition of taxes created unemployment. You needed to work for the currency all of a sudden. You were unemployed. Also, taxing more without anything else changing, sucks demand out of economy, I am guessing.
      Number 3 – I am guessing that the automatic stabilisers do work in a counter cyclical fashion, but on their own, may not guarantee the appropriate fiscal deficit or surplus the government should run. The latter should be determined instead by the private sector’s propensity to save, unemployment levels and inflation.

    2. CS -probably better not to give away the answers-unless you are sure everyone has tried it (no way of verifying that!). You only tempt people like me to cheat!

      But I accept that getting 3/3 does tempt one to puff-out one’s chest a bit!

    3. Fair critique Mr Cohen. Taken on board. But I am never sure my reasoning is correct. Will limit discussion to answers column on future :-)

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