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The Weekend Quiz – May 29-30, 2021

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. A rising government deficit will always allow the private domestic sector to increase its overall saving in nominal terms.

3. Assume the government increases spending by $100 billion in the each of the next three years from now. Economists estimate the spending multiplier to be 1.5 and the impact is immediate and exhausted in each year. They also estimate the tax multiplier (which captures the impact of rising tax rates on GDP) to be equal to 1 and the current average tax rate is equal to 30 per cent. What is the cumulative impact of this fiscal expansion on GDP after three years?

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