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Saturday Quiz – January 30, 2010

Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following five questions. Your results are only known to you and no records are retained.

1. Estimates of the sacrifice ratio that define a disinflation episode induced by tighter monetary policy as some finite period after which real output growth returns to its prior trend will always overstate the true cost of the policy because they ignore the persistence and hysteresis effects.

2. The IMF is forecasting that the US economy will grow by 2.7 per cent in real terms in 2010 and moderate to 2.4 per cent in 2011. At the end of 2009, the official unemployment rate in the US was 10 per cent. If real output per person employed grows constantly by 1.5 per cent in each of these years; the labour force grows by 1.2 per cent in 2010 and 1.3 per cent in 2011; and firms make no changes to average weekly hours overall, then you would expect the unemployment rate at the end of 2011 to be:

3. The Quantity Theory of Money cannot possibly be used to predict the movement in the general price level in an economy that has 10 per cent unemployment because firms do not face any wage pressures.

4. Quantitative easing of the type the Bank of England is currently engaged in cannot be compared to a net fiscal injection because it creates no new net financial assets in the currency of issue.

5. While the central bank unambiguously sets the short-term interest rate, it can also control all yields along the maturity curve by announcing explicit ceilings for yields on longer-maturity government debt and then offering an infinite capacity to purchase such bonds at prices consistent with the ceilings. This statement is clearly false because ratings agencies can influence spreads on government debt.

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    This Post Has 2 Comments
    1. «The Quantity Theory of Money cannot possibly be used to predict the movement in the general price level in an economy»

      THE QTM cannot be used to predict of explain anything because it is based on imaginary and extremely vague figures like the “quantity of money” (what is “money”?) and the “velocity of money” (how do you measure it?) and never mind ridiculous idea like the aggregate level of prices and the real value of production. it is a purely ideological tool to push and support policies that achieve a particular income redistribution.

      The MMT is of course much better, despite being ancient and well understood outside the USA. Its fatal flaw is that it is based on ex-post accounting identities, and based on particularly weirdly defined account definitions.

      What is really interesting in Political Economy studies are *ex-ante* theories and analysis of the impact on the distribution of income and wealth (thus the “Political”) of policies both by governments and private actors. In particular the distributive effects between net creditors/net debtors, high income/low income, and export/domestic market oriented sectors.

    2. Blissex,

      the fact that MMT “is based on ex-post accounting identities” gives it the power of physics to explain the world out there. Nowhere you find a claim that physics is a theory unless you go so deep that you start encountering difficulties testing it against previously defined “identities”. But for any regular observer it hardly ever matters

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