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The Weekend Quiz – August 3-4, 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. The more "money" there is in the economy the lower will be its value.

2. A balanced 'budget' fiscal rule eliminates the cyclical sensitivity of the fiscal outcome to the automatic stabilisers.

3. Consumption adds to aggregate spending and imports represent spending lost to the domestic economy. The marginal propensity to consume (MPC) is conceptually the extra consumption that is induced for every extra dollar of national income. The marginal propensity to import (MPM) is similarly the extra spending on imports that is induced for every extra dollar of national income. If the MPC and MPM both rise by 0.1 then the impact on aggregate demand for every new dollar of national income generated will be neutral.

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    This Post Has 10 Comments
    1. 3 out of 3. First 2 questions without a doubt. Qe 3 I found wrong in the first sentence “…imports representing spending lost to the domestic economy”. Will learn tomorrow if I was wrong!

    2. While on the subject of questions and answers, I wonder if someone can answer this question:

      We know * resources* (people, resources, technology), NOT finances (money), are the *real constraints* that currency issuing governments face.

      BUT…if the Australian government introduces a JG, this represents a real increase in the nation’s prosperity, correct? (ie no-one living below the poverty line).

      And that means the Australian nation will be able to increase its imports, ie increase Australians’ draw on the production of other nations, correct?

      Hence the basis of the concerns that my correspondent has, re devaluation of the Australian dollar.

      Now, devaluation in itself is no big deal (Philip Lowe wants some !), but hedge funds and currency traders with their fancy derivatives (“financial instruments of mass destruction”: Warren Buffet) might find a way to force a very disorderly devaluation.


    3. Neil Halliday- mostly maybe to your questions.
      If a jobs guarantee brings people into doing more useful work than before for other Australians then yes- that’s an increase in prosperity for Australians as I understand the term ‘prosperity’.

      That has nothing to do with the ability of Australia to import goods from other countries. The ability to ‘draw’ on the production of other nations (think that is a great way to express that, by the way) well that is going to be set at a range where the minimum is what the value of the stuff you export is, and goes up until who knows what depending on if the exporters or their countries want to save in your currency. If you figure it out please let me know!

    4. Hi Jerry,

      what if I wrote: “if the Australian government introduces a JG, this represents a real increase in the nation’s *money* , correct? (including no-one living below the poverty line)…..look at question 1 in today’s quiz; the answer to that question is *false*, because the resource constraint facing Australia is not breached.

      So if Australia decides to build eg, some more public housing with that extra money, no doubt some of the resources (screws, door handles, whatever) will come from overseas….. but I admit I haven’t got my head around the points you raise re the relative attractiveness of imports and exports, for the nations involved in the transactions.

    5. Re: Qe 3

      I was wrong here. Really learned, again, how import-leakages could be a big drainer on the economy.
      Instead of thinking in terms of national accounting and income I was wrongly thinking of the money-process and credit and how real wealth of a nation is created (Mosler: imports a benefit and exports a real cost).

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