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The Weekend Quiz – June 9-10, 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. Real wages growth has been non-existent or low in many advanced nations in recent years. However, if workers succeed in gaining real wages increases then this will squeeze the share of profits in national income.

2. The government has to issue debt to match an on-going fiscal deficit if the central bank is targetting, say a 2 per cent short-term interest rate and declines to pay a return on excess bank reserves.

3. Suppose that the government announced it intended to cut its deficit from 4 per cent of GDP to 2 per cent in the coming year and during that year net exports plus net income flows were projected to move from a deficit of 1 per cent of GDP to a surplus of 1 per cent of GDP. If private sector deleveraging resulted in it spending less than it earned to the measure of 5 per cent of GDP, then the fiscal austerity plans will undermine growth even if the net export surplus was realised.

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    This Post Has 4 Comments
    1. I am interested to see Bill’s answer to 2 tomorrow – I can see why some bond buying and/or selling will be needed to hit an IR target without IOR – but can’t see why that means the government has to issue debt to MATCH an on-going fiscal deficit.

    2. @Rob

      Exactly my thought. Surely the necessary level of debt-issuance is mediated by changes in the desire for government bonds, which was not posited as being constant.

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