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 – July 12, 2014
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 #277
- 1. Over a given business cycle (peak to peak), if a nation's external sector is on average balanced and the government gap between its tax revenue and spending is, on average, equal to 1 per cent of GDP, then the private domestic sector's spending-income balance will on average be in:
- Deficit of 1 per cent of GDP
- Surplus of 1 per cent of GDP
- 2. Considering only the initial impact on national income (ignoring multiplier effects), fiscal austerity will have a greater negative effect on real GDP if it manifests as a spending cut of $x than if the government chose to raise a value added tax to generate $x revenue at the current level of national income.
- False
- True
- 3. During a recession, if the government uses expansionary fiscal policy to restore trend real GDP growth it will restore full employment.
- False
- True
Sorry, quiz 277 is now closed.
You can find the answers and discussion here
Question 1 does not make it clear if tax revenue is greater than government spending, or government spending is greater than tax revenue.
In regards to question 3, it makes me wonder why government deficit spending would bother with any policy tool outside of direct job creation. Sure, you could socialize some basic foodstuffs, housing, healthcare and education as a method of raising readiness for participation as well as securing greater human rights goals, but without the job creation necessary to ensure full employment, capital expenditure only ensures that profits end up in the hands of business owners. Companies that post multi billion dollar profits year after year is proof that greater profitability does not always equal increased employment. In fact, at least in the manufacturing industry, injections of capital these days tends to UNemploy workers because of ever-increasing automation.
Dear Gregory Long (at 2014/07/12 at 7:03)
Thanks very much for your comment. I disagree with your assertion. The question says “… and the government gap between its tax revenue and spending is, on average, equal to 1 per cent of GDP …” There is only a reference here to a positive number “equal to 1 per cent of GDP”, which, given tax revenue is named first suggests a surplus.
If I wanted it to be the other way round I would have said the gap between government spending and its tax revenue is, on average, equal to 1 per cent.
I hope that helps.
best wishes
bill
“If I wanted it to be the other way round I would have said the gap between government spending and its tax revenue is, on average, equal to 1 per cent.”
i also think that the wording is ambiguous. the phrase “gap between” does not indicate which is bigger.
also, it’s possible to misread spending-income as spending”minus”income.
@jeff:
I”n regards to question 3, it makes me wonder why government deficit spending would bother with any policy tool outside of direct job creation. … In fact, at least in the manufacturing industry, injections of capital these days tends to UNemploy workers because of ever-increasing automation.”
let’s say you were already at a high employment rate. increasing automation in one industry would free up workers which you could direct towards addressing the supply shortages of another industry.
hamstray,
I agree with the premise, but it does not scale too well for the individual. The luddites didn’t try to break the machines because they feared technology, they did so because they had spent a massive portion of their lives honing a skill which had been made virtually redundant overnight. In a capitalist society, for someone over 40 without substantial capital or a relevant skill in high demand, this sort of automation is a one way ticket to relative poverty, or at least quite a few rungs down the social ladder.
At this stage, politicians and policymakers have zero answers or ideas.
“without substantial capital or a relevant skill in high demand, this sort of automation is a one way ticket to relative poverty”
the primary goal in economics still is to maximize overall wealth (in terms of real goods and services).
sure, wealth was more evenly distributed in pre-industrial times, but the average living standard nowadays is still higher than that of a medieval king.
i think if we’d neglect the growth of overall wealth (and technological progress) in favor of equalizing relative wealth, we’d be stuck in this “redistribution” thinking that people in the left/right spectrum think economics is all about.
I too was confused by the wording of question one and answered wrongly. I understand that given a government surplus under the conditions specified the private sector must be running a deficit. Not a big deal, really, just probably a consequence of different ways of interpreting words in a world wide language when local ways of speaking are different.
My problem for me is that I conceive of a gap as a negative, a lack, to begin with, not the same as a difference.
Of course, I didn’t realize I thought that way until I got question 1 wrong.
When it comes to linguistics, I must be lexdysic.