Saturday Quiz – October 5, 2013

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 questions. Your results are only known to you and no records are retained.

Quiz #237

• 1. A budget surplus equivalent to 1 per cent of GDP ratio necessarily reflects a more contractionary fiscal policy stance than a budget deficit equivalent to 1 per cent of GDP.
• False
• True
• 2. Any substantial increase in the monetary base can be sustained only if interest rates are pushed down to low levels, ultimately to zero.
• False
• True
• 3. In Year 1, the economy plunges into recession with nominal GDP growth falling to minus -1.0 per cent. The outstanding public debt is equal to the value of the nominal GDP and the nominal interest rate is equal to 1 per cent (and this is the rate the government pays on all outstanding debt). The inflation rate is stable at 1 per cent per annum. The government's primary budget balance records a deficit equivalent to 1 per cent of GDP and the public debt ratio rises by 3 per cent. In Year 2, the government pushes the primary budget deficit out to 2 per cent of GDP and in doing so stimulates aggregate demand and the economy records a 4 per cent nominal GDP growth rate. All other parameters are unchanged in Year 2. Under these circumstances, the public debt ratio will fall in Year 2.
• False
• True

Sorry, quiz 237 is now closed.

You can find the answers and discussion here