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The Weekend Quiz – August 17-18, 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. For workers to maintain a constant share of a growing national income, the growth in wages (the money you get paid) must keep pace with inflation, if the latter, is accelerating at the same rate as labour productivity.

2. Central bankers are once again talking about the possible need for more quantitative easing to ease the aggregate spending losses associated with ongoing fiscal austerity programs in some countries. If calibrated correctly, QE can replace the net financial assets destroyed by the austerity.

3. Assume a government is attempting to stimulate the economy via an expansion in the fiscal deficit. The private market orientated advisors tell them to cut taxes and 'privatise' the expansion whereas the more civic-minded advisors argue that there is a need for improved public infrastructure which requires increases in government spending. So imagine that the government is choosing between a tax cut that will reduce tax revenue at the current level of national income by $x and a spending increase of $x. Which policy option will have the greater initial impact on aggregate demand?

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    This Post Has 13 Comments
    1. 2 out of 3 this time. Missed q1 that i.e reduced labour productivity at constant national income automaticly will reduce workers income relative capital. Is there really a linear relationsship? I do understand slowing productivity will sooner or later reduce workers share. At least for those in that sector of employment. Have to refresh my knowledge of the theory.

      We know very well from statistics that workers share of aggregate corporate incomes have gone down considerably since the 80s. Still productivity has been rising much more. Maybe I am mixing labour productivity with total productivity? Think that is the case here! If workers keep their income in line with total productivity their share of total national income will be intact. I.e if a worker is exchanged for a cheeper machine productivity will rise at the expense of workers. Labour productivity of workers are falling while capital productivity is rising.

      Will learn from Bill tomorrow!

    2. For Q1, which I got wrong, my thinking was – if there is inflation than wages need to increase at the same rate to maintain the same share of national income. That would be the case if productivity wasn’t increasing. But if productivity is increasing then the price of each unit of production sold will have a decreasing proportion allocated to wages. Hence, the wage increases need to be greater than inflation to maintain a constant share of national income. Where did I go wrong?

    3. I look forward to the discussion on q3 . By making the appropriate assumptions couldn’t one make any of the first 3 options correct? For example wouldn’t a tax cut aimed at poor people with a MPC of 90% provide more stimulus than a fiscal program of the same $ amount that involved hiring people with an MPC of 60% ? Therefore I am curious why ‘There is not enough information to answer this question’ is not the best answer.

    4. @Kevin

      The question is about maintaining workers share of a GROWING national income. Just keeping up with inflation is not enough to GROW workers real income. National income is always measured in real value (after inflation). To increase workers real income in a growing economy (national income) output (per labour hour worked) have to increase which is the same as productivity-increase. That is my (or one) interpretation of the question.

      But we will see tomorrow!

    5. To all readers

      I delete comments on the Quiz that exercise logic about the likely answer.

      I don’t think it is fair for those who have not yet done the quiz.

      best wishes

    6. Very strange reaction if I may say so Bill!

      I have seen lots of discussions before without you deleting them. Why should anyone look into possible “answers” before trying themselfes? I would not. This is no contest against others than yourself!


    7. Thorleif

      Bill does not want a discussion BTL that will give away the answers until those answers become available to all and sundry.

      It’s a “spoiler alert” kind of thing, which is in the spirit of the quiz. If you want to debate the answers to the questions asked, you wait a day or so until the answers enter the public domain and I’m sure Bill will oblige.

      Anyway this week it was 2/3 for me hich n the words on Meatloaf “ain’t bad”.

    8. Dear Thorleif (at 2019/08/17 at 9:30 am)

      Now that the analysis is available, I restored the premature input from yourself and others.

      Please wait until the analysis is available before commenting on logic and reasoning about the quiz.

      best wishes

    9. Dear Bill,

      Thank you! Then I can recall what I wrote which is good.

      Sorry if I missed any official rule about any premature input. I will follow your policy from now on.
      Nevertheless I think many of your followers would like to discuss answers and interpretations at once because it can be intellectually more stimulative doing just that before we get a your thorough and always educational answer.

      Best regards

    10. Dear Bill,

      Perhaps it would just be simpler to add a short note below the Quiz questions, to the effect that should you NOT wish to see any clues or read any spoilers – then make sure you DON’T read any of the Comments before answering!!!

      Yer only cheating yerself!

      Anyway, what do I know? I only scored 1 out of 3 this week :o(((((

    11. Is there really enough info to answer the last question? What if the tax cuts where all concentrated at the bottom and the spending was entirely in the top end of the financial sector?

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