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 – March 14, 2015
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 #312
- 1. Start from a situation where the external surplus is the equivalent of 2 per cent of GDP and the fiscal surplus is 2 per cent of GDP. If the fiscal balance remains unchanged and the external surplus rises to 4 per cent of GDP then:
- National income rises and the private surplus moves from 4 per cent of GDP to 6 per cent of GDP.
- National income remains unchanged and the private surplus moves from 4 per cent of GDP to 6 per cent of GDP.
- National income falls and the private surplus moves from 4 per cent of GDP to 6 per cent of GDP.
- National income rises and the private surplus moves from 0 per cent of GDP to 2 per cent of GDP.
- National income remains unchanged and the private surplus moves from 0 per cent of GDP to 2 per cent of GDP.
- National income falls and the private surplus moves from 0 per cent of GDP to 2 per cent of GDP.
- 2. A rising fiscal deficit necessarily indicates that fiscal policy is expansionary.
- True
- False
- 3. If private households and firms decide to lift their saving ratio the national government has to increase its net spending (deficit) to fill the spending gap or else economic activity will slow down.
- True
- False
Sorry, quiz 312 is now closed.
You can find the answers and discussion here
Bill, how would you respond to this:
he ‘requirement’ is voluntary in the sense that they ‘could’ do away with bond sales, (just as they ‘could’ do away with taxation) but that’s not how the system works; taxes and bonds soak up purchasing power from the private sector and transfer it to the public sector. If they just created ‘unsterilised’ currency, both price and monetary inflation would explode. Government spending is now something like 50% of GDP; for them to just credit accounts with new money would mean an increase in the money supply of the same amount. Inflation, hyperinflation, and currency collapse would eventually follow.
@Bob:
What if you use bonds as collateral for a loan? Wouldn’t that totally negate the “soaking up of purchasing power” effect.
Tax increases could also increase the amount of government spending as % of GDP (if they slow down overall GDP growth), so I think taking that relationship as some kind of measure is misguided.
Ultimately I think, in a slacking economy, the primary way of using taxes to control inflation would be to shift inflation away from some types of goods and onto others. A more useful inflation management tool would be spending towards prevention of supply bottlenecks.