The Weekend Quiz – January 13-14, 2018

Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blogs I post.

See how you go with the following questions. Your results are only known to you and no records are retained.

1. The net worth of the non-government sector rises immediately as a result of the government issuing bonds to exactly match ($-for-$) the increase in net public spending.

2. Assume that a national is continuously running an external deficit of 2 per cent of GDP. In this economy, if the private domestic sector successfully saves overall, we would always find:

A fiscal deficit
A fiscal surplus
Cannot tell because we don't know the scale of the private domestic sector saving as a % of GDP.

3. At present inflation and nominal interest rates are low and constant (so for this question, assume they are both zero and constant). Consider a country with a public debt to GDP ratio of 100 per cent, which the mainstream economists consider to be dangerously high. The mainstream prescription is to run primary fiscal surpluses to stabilise and then reduce the debt ratio. Under the circumstances given, this strategy will only work if there is real GDP growth.

You can find the answers and discussion here

Lance says:

January 12, 2018 at 19:51

Two out of three again! Got no 3 wrong.
Tom says:

January 13, 2018 at 04:44

Oh come on Lance.

When you see the word “mainstream” in the question, just choose false!

=)
cs says:

January 13, 2018 at 06:49

2/3 but guessed the last one. The first one – “net worth” – is that different to “net financial assets” I wonder? Only comfortable with number two this week. Hmmmmmm.