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Saturday Quiz – April 24, 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. Higher levels of taxation permit the government to spend more.



2. If there is a current account deficit, and the domestic private sector seeks to increase its saving as a percentage of GDP, then income adjustments will ensure the government budget is in deficit.



3. For nations facing strong terms of trade (such as Australia), if the net exports boom is strong enough to push the budget into surplus and the economy to full employment then it is sensible for the government to accumulate the surpluses in a sovereign fund to create more space for non-inflationary spending in the future.



4. Larger fiscal deficits as a percentage of GDP typically mean that there are less real resources available for other productive uses.



5. The reason estimates of structural budget deficits are to be treated with suspicion relates to the fact that typically the implicit estimates of potential GDP are too optimistic.





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    This Post Has 12 Comments
    1. Billy,

      What! Your answer to #1 is True???? Are you kidding me? What are you, some kind of debt hawk?

      What!!! Your answer to #4 is True???? Now I know you’re some kind of debt hawk. Immediately step down from the April 28th: Fiscal Sustainability Teach-In and Conference. Do not go anywhere near it. I’m reporting you to Warren and Randy, immediately. Read http://rodgermmitchell.wordpress.com/2009/09/07/introduction/

      Rodger Malcolm Mitchell
      rmmadvertising@yahoo.com

    2. Dear Rodger

      Thanks for your confidence in me.

      I would just recommend you read the questions carefully and apply some brain power to the process.

      best wishes
      bill

    3. My first 5/5 for some time. Phew, I was beginning to embrace my inner neoliberal tendencies…

      Rodger, I think q.1 relates to practical, rather than theoretical, limits to govt spending. My reading of the question is that taxation, by reducing aggregate demand, allows space for the govt to spend without creating inflationary pressures.

      And I think 4 refers to crowding out of real resources, as opposed to financial crowding out.

      But I could be wrong, have to wait and see tomorrow..

    4. I’m a bit unsure about your answer to question 2. Does it hold true if the private sector’s attempts to increase its saving as a percentage of GDP come to nothing?

    5. Number 1 is true ONLY when we reach the point where resource limitations (in quantity or rate of availability) would cause inflation. Even at that, taxation would ONLY allow additional spending if the taxes levied specifically lessened demand for those same constrained resources. Given that the question specified neither of these to be the case, could we grant that the wording of the question leaves something to be desired?

    6. Rodger, here’s a hint. If the answer seems obvious, it’s a trap.

      Alan, you really need to see your shrink about those subliminal neo-liberal tendencies. :)

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