Quiz #113 answers

• 1. Central banks provide reserves to the commercial banking system at some penalty rate. However, this compromises their capacity to control bank lending and target a given monetary policy rate.

Answer: True

• 2. If inflation is maintained at a rate equal to the interest rate, then the government deficit as a proportion of GDP could double (say from 2 to 4 per cent) without pushing up the public debt ratio.

Answer: True

• 3. The IMF are hoping that Greece will recover on the back of an export boom and this will provide the capacity for the government to reduce its budget deficit without compromising real economic growth. If Greece actually achieves positive net exports then the IMF strategy will be seen as working.

Answer: False

• 4. The wage share in national income in many nations has fallen over the neo-liberal period. A declining wage share does not mean the real standard of living for workers is falling.

Answer: True

• 5. Premium Question: Assume that inflation is stable, there is excess productive capacity, and the central bank maintains its current interest rate target. If on average the government collects an income tax of 20 cents in the dollar, then total tax revenue will rise by 0.20 times $x if government spending increases (once and for all) by $X dollars and private investment and exports remain unchanged.

Answer: False