The Weekend Quiz – September 22-23, 2018

Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blog posts that I post. See how you go with the following questions. Your results are only known to you and no records are retained.

Quiz #496

  • 1. If there is more "money" in the economy its value inevitably declines.
    • False
    • True
  • 2. If there was a fiscal rule imposed such that the national government had to match its expenditure and taxation revenue at all times then this would also eliminate the sensitivity of the fiscal outcome to the automatic stabilisers.
    • False
    • True
  • 3. Consumption adds to aggregate demand and imports drain aggregate demand. The marginal propensity to consume (MPC) is conceptually the extra consumption that is induced for every extra dollar of national income. The marginal propensity to import (MPM) is similarly the extra spending on imports that is induced for every extra dollar of national income. If the MPC and MPM both rise by 0.1, then the impact on aggregate demand for every new dollar of national income generated will be neutral.
    • False
    • True

Sorry, quiz 496 is now closed.

You can find the answers and discussion here

This Post Has 6 Comments

  1. Hello,

    It has taken about 2 years to complete the re-education process, but I get 3 out of 3 every week now and the answers come intuitively with no agonized contradictory thinking given my mind no longer rails against voodoo neoliberal economic theories and dogma that once filled it.

    Thank you, Professor.

  2. 2/3

    After rereading q3, i think i know where i went wrong. I assumed that we were at some kind of equilibrium and equated equal increases with equal levels.

  3. For question 2 – I get it – but I have one query: is the assumption that the automatic stabilisers wouldn’t be cut? So say if tax revenue fell due to a recession, presumably a government could also choose to extend its austerity drive to slash benefits to ‘match’ the reduced revenue (a bit like the National government did in early 90s in NZ with the “mother of all budgets” cutting welfare payments significantly).

    But then I suppose the contractionary effect of those cuts on aggregate demand would push even more people onto benefits thus increasing the deficit in the next period…

  4. It is most troubling regularly to get the answers right, but often for mistaken reasons! (I call that the Krugman dilemma.) I guess I shall have to pay more attention to the details of the answers, as opposed to the summary statements/conclusions.

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