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 – August 15, 2009
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 five questions. Your results are only known to you and no records are retained.
Quiz #21
- 1. Growth in private investment requires a pool of saving to draw upon. This means that if government net spending is also drawing on those savings (even if the borrowing is voluntary) then less will be available for private capacity building. That is appropriate though when investors are pessimistic.
- False
- True
- 2. Mainstream economic theory considers output per unit of person employed (labour productivity) to be counter-cyclical (rises when activity falls and vice versa) - given they think the demand for labour is inversely related to the real wage. That is, they believe that when firms employ more workers productivity drops and so the real wage also have to fall to make it profitable. The real world observation that hours worked are adjusted before persons employed in response to changes in sales volumes means that output per unit of person employed is pro-cyclical which renders the main insights of orthodox labour demand theory inapplicable.
- False
- True
- 3. If employment growth is 2 per cent per annum; labour force growth is 2 per cent per annum and labour productivity growth (in persons employed) is 1 per cent per annum, then you know GDP growth is insufficient to stop the unemployment rate from rising (assuming weekly hours worked is constant).
- False
- True
- 4. Irrespective of the government's policy intention, it will always be in deficit if the non-government sector desires to save in the currency of issue and acts accordingly.
- False
- True
- 5. Real unit labour costs (RULC) are measured by dividing the real wage by output per unit of employment (labour productivity) and tell us how much in labour terms each unit of output cost to produce. RULC always rise when employment falls which is a good empirical indicator that real wages are too high.
- False
- True
Sorry, quiz 21 is now closed.
scroll down to find the answers and explanation below.
Quiz #21 answers
- 1. Growth in private investment requires a pool of saving to draw upon. This means that if government net spending is also drawing on those savings (even if the borrowing is voluntary) then less will be available for private capacity building. That is appropriate though when investors are pessimistic.
- 2. Mainstream economic theory considers output per unit of person employed (labour productivity) to be counter-cyclical (rises when activity falls and vice versa) - given they think the demand for labour is inversely related to the real wage. That is, they believe that when firms employ more workers productivity drops and so the real wage also have to fall to make it profitable. The real world observation that hours worked are adjusted before persons employed in response to changes in sales volumes means that output per unit of person employed is pro-cyclical which renders the main insights of orthodox labour demand theory inapplicable.
- 3. If employment growth is 2 per cent per annum; labour force growth is 2 per cent per annum and labour productivity growth (in persons employed) is 1 per cent per annum, then you know GDP growth is insufficient to stop the unemployment rate from rising (assuming weekly hours worked is constant).
- 4. Irrespective of the government's policy intention, it will always be in deficit if the non-government sector desires to save in the currency of issue and acts accordingly.
- 5. Real unit labour costs (RULC) are measured by dividing the real wage by output per unit of employment (labour productivity) and tell us how much in labour terms each unit of output cost to produce. RULC always rise when employment falls which is a good empirical indicator that real wages are too high.
Answer: False
Explanation: You might like to review Twisted logic and just plain misinformation for further information or post a comment.
Answer: True
Explanation: You might like to review Dumbed down economy doesnt lose as many jobs for further information or post a comment.
Answer: False
Explanation: You might like to review The waves of recession for further information or post a comment.
Answer: True
Explanation: You might like to review Some myths about modern monetary theory and its developers for further information or post a comment.
Answer: False
Explanation: You might like to review Dumbed down economy doesnt lose as many jobs for further information or post a comment.
Well, I must say I disagree. If the government wishes to frustrate the outcome of private savings increasing when the private sector desires to increase private sector saving and acts upon that, it can certainly do so. It does not serve a public interest to do so, but its certainly possible.
Dear Bruce
As long as the non-government holds fast to their desire to save and keeps trying to save, income adjustments will drive the budget into deficit at very low levels of activity. The pursuit of surpluses at the same time that this is going on will make the transition quicker and uglier (in output and employment terms).
How might the government alter a manic desire to save as output is falling and end up with a surplus? Short of legislating that saving is illegal that is or imposing penalties on saving.
best wishes
bill
Hi Bill
For question number 4 , can the government be forced into deficit even if the government has a political suicidal policy of maintaining a surplus.
As for the concept about surplus not being a stock and is a flow , surpluses are not accumlated anywhere. Where can I read more about this ? I can’t seem to grasp this concept.
Dear Niravn
This is also Bruce’s concern (see his comment above). It is clear as a matter of national accounting (not my opinion) that if each person in the non-government sector is intent on saving that it will be able to do that although the consequences of that decision will be very bad unless the government “finances” that saving via deficits. If at the same time that the non-government saving desires are pursuing action to lift private saving, the government is also trying to run surpluses, then the contraction in income will be very significant and the government will (via the automatic stabilisers) be forced into deficit equal to the saving of the non-government sector. It would be a very parlous state.
So my view is that unless the government can stop the non-government sector from saving (overall) via decree or policy incentives then it will have to be in deficit – the budget balance is endogenous after all.
Bruce seems to disagree and we will have to wait until he appears next – he lives in the US and they are asleep at present.
On your second point – start with These blogs. If you are still struggling then I will write a special blog about it. Chances are that a lot of readers will also be wondering about that too. The short answer is that spending is a flow, a bank balance is a stock. But I know that won’t help you much.
best wishes
bill
Niravn,
Anything which is “per time period” is a flow.. If you attach a time dimension to these things, it becomes clearer. At the risk of confusing you, savinG is flow and savingS is stock. Anything new is flow, new+old is stock.