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…
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.
- 1. Using national accounting rules which dictate that the government balance is always equal to the non-government balance with an opposite sign, we can conclude that if the public sector successfully achieves a fiscal surplus then the private sector must be spending more than it is earning (that is, running a deficit).
- 2. Modern Monetary Theory (MMT) denies that the stock of aggregate spending can exceed the capacity of the productive sector and cause inflation.
- 3. Assume that the government increases spending by $200 billion at the start of each year and maintains this policy for the next three years from now. Economists estimate the spending multiplier to be 2 and the impact is exhausted within each year (all induced consumption is completed within 12 months). The tax multiplier is estimated to be equal to 1 and the current average tax rate is equal to 25 per cent (so tax revenue rises by 25 cents for every extra dollar of GDP produced ). What is the cumulative impact of this fiscal expansion on GDP after three years?
- $400 billion.
- $1,200 billion.
- $300 billion.
- $900 billion.
Sorry, quiz 653 is now closed.
You can find the answers and discussion here