Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern…
Saturday Quiz – April 25, 2009
Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days.
Given this is April 25 – I pause to recognise the commitment and personal sacrifices made by our past (brave) generations in various wars however misplaced their logic was under the colonial smokescreen.
Back to the quiz! See how you go with the following five questions. Your results are only known to you and no records are retained.
Quiz #6
- The Australian (or US, for that matter) government's net spending is
- similar in impact to money created by commercial bank credit creation.
- unique because spending derived from private credit creation cannot add to the private sector's net worth.
- unique because the Government can always pay for goods and services by crediting bank accounts.
- While it is likely that the GDP (output) gap will be around 5 per cent this year, the national government's capacity to fill this gap
- will be constrained by nothing but its political will.
- will be constrained by how much private bank lending is available to facilitate spending by consumers and firms.
- will be constrained by its ability to access capital in the global markets given the lack of credit available domestically at present.
- From the perspective of aggregate demand, creating a minimum wage private sector job
- will probably be better than creating a minimum wage public sector job because the private sector job is likely to be more productive.
- will probably be better than creating a minimum wage public sector job because the private sector job reflects market choices of what people want to buy.
- will probably have the same impact as creating a minimum wage public sector job.
- If the Government introduced a permanent Job Guarantee (offer of minimum wage job to anyone who wanted it) then
- it would have no inevitable implications for future deficits or aggregate demand levels.
- it would mean that aggregate demand would always be higher than otherwise.
- it would lock itself into budget deficits forever.
- The losses that the Futures Fund (or any sovereign fund) has made on its share holding
- suggest that public and hence national saving has declined which will diminish the capacity of the national government to net spend in the future.
- are similar in concept to any depreciating publicly-held asset and have no implications for the national government's future capacity to net spend.
- may need future taxation revenue offsets to restore the capacity of the national government to net spend in the future.
Sorry, quiz 6 is now closed.
scroll down to find the answers and explanation below.
Quiz #6 answers
- The Australian (or US, for that matter) government's net spending is
- While it is likely that the GDP (output) gap will be around 5 per cent this year, the national government's capacity to fill this gap
- From the perspective of aggregate demand, creating a minimum wage private sector job
- If the Government introduced a permanent Job Guarantee (offer of minimum wage job to anyone who wanted it) then
- The losses that the Futures Fund (or any sovereign fund) has made on its share holding
Answer: unique because spending derived from private credit creation cannot add to the private sector's net worth.
Explanation: Please see Money multiplier and other myths or post a question via the comments page.
Answer: will be constrained by nothing but its political will.
Explanation: Please see How large should the deficit be? or post a question via the comments page.
Answer: will probably have the same impact as creating a minimum wage public sector job.
Explanation: Please see Boondoggling and leaf-raking or post a question via the comments page.
Answer: it would have no inevitable implications for future deficits or aggregate demand levels.
Explanation: Please see Boondoggling and leaf-raking or post a question via the comments page.
Answer: are similar in concept to any depreciating publicly-held asset and have no implications for the national government's future capacity to net spend.
Explanation: Please see The Futures Fund scandal or post a question via the comments page.
Why would offering a minimum wage job to everyone have no implication on aggregate demand in the future? I said I thought it would have been higher because more people would be employed.
Hmm. I can keep getting 4 and 5 out of 5 without referring back to the weeks posts yet I still have trouble wrapping my head around some concepts.
Ah well, keep plugging away. If you ever stop learning, it’s for one reason only – it’s because you’re dead.
Dear K
I guess you are referring to Question 4 and the option that you presumably chose is “it would mean that aggregate demand would always be higher than otherwise.” The correct answer as you now realise is “it would have no inevitable implications for future deficits or aggregate demand levels.” The reason is that the Government could run surpluses and have a very harsh contractionary fiscal and monetary policy yet still run a Job Guarantee. While this would be stupid the point of the question is to separate the issues of levels of aggregate demand from the JG policy. An offer of a minimum wage to anyone who wants it will obviously boost the incomes of those employed but it could be brought in as the current generally is cutting back. If you want more in depth analysis of this you might like to read an article I wrote with Randy Wray in the the Journal of Economic Issues (a US academic journal) in 2005 (last edition of that year). It explains why a JG approach is not the same as a Keynesian fiscal expansion, which can, in some situations, be inflationary.
best wishes
bill
Dear Lefty
Which one did you miss this week?
best wishes
bill
My thinking was the same as K’s was Bill.
Dear Lefty
The point is that even a neo-liberal should be able to support a Job Guarantee given that it could be run with generalised cutbacks elsewhere. Not that I recommend that.
best wishes
bill