The Weekend Quiz – February 17-18, 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. If the growth in wages (the money you get paid) keeps pace with inflation which is accelerating at the same rate as labour productivity is growing then the profit share in GDP remains constant.

2. The expansionary impact of deficit spending on aggregate demand is lower when the government matches the deficit with debt-issuance because then excess reserves are drained and the purchasing power is taken out of the monetary system.

3. A government is choosing between a tax cut that will reduce tax revenue at the current level of national income by $x (that is, increase private domestic disposable income by $x) and a public spending increase of $x. Which policy option will have the greater initial impact on aggregate spending?

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    8 Responses to The Weekend Quiz – February 17-18, 2018

    1. Lance says:

      Two out of three. Got no 1 wrong. I thought there had to be other factors involved.

    2. Tom says:

      2 out of 3.

      Got 3rd wrong.

      Would love to see the solution for the 3rd Q!

    3. Heim says:

      The profit share in GDP is calculated on labor and productivity factors solely?

    4. Simon Cohen says:

      Could I request that commenters don’t give away the answers ( I’m looking at you, Lance!) as it helps people like me cheat! Like Lance, I was assuming that the obvious answer was likely to be wrong due to some other factor I hadn’t thought about or something counter intuitive was involved (which is often the case) so I was about to answer ‘cannot tell…’ and then noticed Lance’s comment.

      So, not everything is counter intuitive and not all Bill’s questions are ‘trick’ ones leading us down the error-strewn path of one-dimensional thinking -so if counter-intuitiveness is the norm then the odd non-counter-intuitive question becomes counter intuitive???

      In the end you need to just understand it!

    5. Sam says:

      Warning: possible giveaway!

      For question 3, my reasoning was that govt spending is money spent whereas tax cuts do not necessarily lead to increased spending.

      Here in the US, MMTers such as Warren Mosler are saying Trumps recent tax cut will not have much effect because the benefits are primarily going to savers.

    6. Xenji says:

      3 for 3 five weeks straight! This blog has purged me of neoliberal thought!

    7. Lance says:

      Oops, Simon! Best not to read the comments before doing the quiz, though.

    8. Nigel Hargreaves says:


      “…the benefits are primarily going to savers.”

      That depends on to whom the tax cuts are directed. In the case of the Trump cuts they are to the higher-end taxpayers and corporations, so that statement is correct. If the cuts are directed to workers they may save some of it and/or pay down debt, but a higher proportion will be used for expenditure.

      I would like to hear some analysis as to what happens if the added expenditure ends up with increased imports, especially in a country with a trade deficit.

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