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The Weekend Quiz – March 23-24, 2019

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

1. Assume inflation is stable, there is excess productive capacity, and the central bank maintains its current monetary policy setting. It is then true that if government spending increases by $X dollars and private investment and exports are unchanged then nominal income will continue growing until the sum of taxation revenue, import spending and household saving rises by $X dollars.

2. While a sovereign government is not revenue constrained and voluntarily constrains itself to borrow to cover its net spending position, it remains the case that by substituting its spending for the borrowed funds it reduces the private capacity to borrow and spend.

3. The crucial difference between a monetary system based on the gold standard world and a fiat currency monetary is, that under the former system:

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    This Post Has 9 Comments
    1. Thanks, totaram, for the link to the Bloomberg article, which is actually not bad, certainly not another hit piece. The article does omit, however, a discussion of the demonstrated predictive value of MMT in comparison to mainstream economic thought. When a mode of thought like MMT is able to accurately anticipate future consequences of present actions and conditions, then you know it is grounded in reality. It would have been nice if the Bloomberg piece had at least touched upon MMT’s enviable predictive track record, but then the article’s “balance” would have been blown out the door by the brute facts.

    2. Man, I thought I had the right answer to Q1, but then I second-guessed myself and thought maybe it was one of Bill’s tricky questions!

    3. “Man, I thought I had the right answer to Q1, but then I second-guessed myself and thought maybe it was one of Bill’s tricky questions”

      It’s like a bath. The increase in government spending is water running in through a faucet (or tap). The increase in savings, taxation and imports is water draining out. The water level stabilizes when water running in = water draining out.

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