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The Weekend Quiz – August 31-September 1, 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 private domestic sector can save overall, even if the government fiscal balance is in surplus, as long as net exports are positive.



2. There is talk among central bankers of renewed programs of quantitative easing to fight off fears of recession as a result of the trade tensions. Fiscal stimulus is also being proposed. The two work in different ways but have the same ultimate impact on net worth in the non-government sector.



3. While continuous national governments deficits are possible if the non-government sector desires to save overall, they do imply continuously rising public debt levels as a percentage of GDP (under current debt-issuance arrangements).





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    This Post Has 3 Comments
    1. I thought that In the case of Norway the govt sector can be in surplus as well as the private sector because Norway runs a surplus with the rest of world.?

    2. Mike Kimm @ 6:51- you are correct there if I understand anything about what MMT has said about the sectoral balances.

      Bill often uses a definition of the word ‘can’ that seems to mean ‘must always be able to’. Which is somewhat different than what most others mean by that word- at least in my experience. I have found that awarding myself the correct answer when my answer was ‘wrong’ purely because of that particular definition of the word to be very helpful. I highly recommend that solution if you also get distressed about it.

      And also, the quiz answer does indicate that you are correct and that it is true that the private sector can save overall in situations where the government runs a budget surplus as long as the external surplus is greater in magnitude than the government budget surplus.

      And then there is the very strange way that the word ‘save’ itself is used in economics generally. The private domestic sector can always save in real terms, say by buying (or making) cans of soup and storing them up in their basements, even if there was an external deficit and a government budget surplus. But maybe it is safer to say that I don’t see why it couldn’t do that.

    3. I answered True to Q 3 because if people / business save and are not spending, then the government has to spend to stimulate the economy. Or perhaps I’m thinking wrongly about the relationship with GDP.
      If the govt runs a surplus that is taking money out of the economy, which would lower GDP, Surely, I would think. So a deficit puts money into the economy and would that not raise GDP? And there would be a percentage of GDP involved in either case, no?

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