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The Weekend Quiz – July 6-7, 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. Mainstream economists use the notion of "crowding out" to argue that public spending squeezes out private spending and results in a less efficient allocation of resources overall. Modern Monetary Theory (MMT) denies that crowding out can occur.

2. Larger fiscal deficits as a percentage of GDP typically mean that there are less real resources available for other productive uses.

3. For a nation running a current account deficit, income adjustments will ensure government fiscal position is in deficit if the domestic private sector successfully increases its overall saving as a percentage of GDP.

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    This Post Has 10 Comments
    1. “Larger fiscal deficits as a percentage of GDP typically mean that there are less real resources available for other productive uses.”

      Either I don’t understand this, or I don’t agree with this.

      The size of the gov deficit is a reflection on how much the non-government are able to save

      If the government runs a larger fiscal deficit, then this means the non-government sector are running a larger surplus, which means that people can more easily buy things from abroad.

      Smaller deficits means people have less money, so they will have to use the resources the country has, which makes them more scarce. They will also be more compelled to work for the foreign sector, where foreign demand uses up the domestic resource.

      Take Germany, who are running a fiscal surplus. They have low unemployment…since everyones making BMW’s for the rest of the world, leaving little resource left for the country to make use of.

    2. Tony Weston @1:26- That is a very different perspective from the way I approached the question. And very interesting. I hope Bill’s answers address your point. Cause I don’t know how to answer your question.

    3. @Tony

      Money is a medium of exchange, not a resource. If there’s a (bigger) deficit, the government is utilizing more resources and thus there are less available to be used. In your case, the state and the private sector are buying different things; if they wanted the same thing, then there would a potential problem.
      Whether the higher abundance of resources could be mobilized is another question, but there would be more available.

    4. Now now dudes! I’m pretty sure Bill doesn’t like discussion about answers on the quiz page as it can give away the answer. The place for debate is on the following answers blog.

    5. I’m so looking forward to your comments about Lagarde becoming head of the ECB: sure you will have something caustic and fitting to say.

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