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Saturday Quiz – May 8, 2010

Welcome to the billy blog Saturday quiz. So comrades – 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. Under current institutional arrangements, the change in the ratio of public debt to GDP will exactly equal the primary deficit plus the interest service payments on the outstanding stock of debt both expressed as ratios to GDP.

2. The public debt ratio will always fall when economic growth is positive because the primary deficit falls due to the automatic stabilisers (more tax revenue, less welfare spending) and the denominator GDP rises.

3. It would be impossible for the Reserve Bank of Australia to directly purchase Australian Treasury debt to facilitate the federal government's budget deficit while still targeting its policy rate of 4.5 per cent.

4. One important lesson to be drawn from Modern Monetary Theory (MMT), which is overlooked in the public call for austerity programs, is that when economic growth resumes, the automatic stabilisers work in a counter-cyclical fashion and ensure that the government budget balance returns to its appropriate level.

5. The money multiplier concept suggests that changes in the monetary base are transmitted by commercial bank lending in multiplied changes in the money supply. The fact is that in a modern monetary economy the monetary base adjusts to the changes in the money supply.

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    This Post Has 6 Comments
    1. Bill,

      Q1 is clearly wrong. You ask to compare ratio to something which you seem to assume to be another ratio. But since you have taught everybody here to READ every letter in your question and do NOT make any assumptions beyond explicitly written letters why do you make an assumption that something to be a ratio and not absolute amount?

      So my answer is FALSE. One can not compare a ratio to an absolute amount

    2. Dear Sergei

      Thanks very much for the comment and pointing out the illogical nature of the question. I was rushing to Sydney when I put the questions up and left an important phrase off the end of the question – “both as ratios of GDP”. Then all the component of the question are in commensurate units.

      Sorry for the error. I will award top points this week for a 4/4 disregarding question 1. But it is fixed now and so have another go.

      best wishes

    3. Never heard of MMT and found the questions confusing. Scored 60%.

      Not a “liberal” though. More of an Austrian gold bug.

    4. crjc

      “Not a “liberal” though. More of an Austrian gold bug.”

      Oh Sorry to hear that. We’ve got a cure for that here though! ; )

    5. The best thing about Austrian economics is that they provided us with Kaldor and Lerner. Other than that – I have nothing.

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