Quiz #117

• 1. British real wages have fallen over the last year because the rate of growth in earnings has fallen behind the growth in labour productivity.
• False
• True
• 2. The US Federal Reserve's quantitative easing program ends this month. Most commentators agree it has not provided much stimulus. This reason for the lack of stimulus is because aggregate demand has not shown a sensitivity to interest rate reductions.
• False
• True
• 3. The Greek government has been accused of not pursuing its fiscal austerity program with sufficient commitment. The fact that the Greek government budget deficit continues to increase is evidence of this.
• False
• True
• 4. The inflation risk under a fiat monetary system is no different to that which prevailed under a convertible currency system backed by gold with fixed exchange rates.
• False
• True
• 5. Premium question: In Year 1, the economy plunges into recession with nominal GDP growth falling to minus -1 per cent. The outstanding public debt is equal to the value of the nominal GDP and the nominal interest rate is equal to 1 per cent (and this is the rate the government pays on all outstanding debt). The government's budget balance net of interest payments goes into deficit equivalent to 1 per cent of GDP and the debt ratio rises by 3 per cent. In Year 2, the government stimulates the economy and pushes the primary budget deficit out to 2 per cent of GDP and in doing so stimulates aggregate demand and the economy records a 4 per cent nominal GDP growth rate. All other parameters are unchanged in Year 2. Under these circumstances, the public debt ratio will rise but by an amount less than the rise in the budget deficit because of the real growth in the economy.
• False
• True
• Impossible to determine from the facts

Quiz #117 answers

• 1. British real wages have fallen over the last year because the rate of growth in earnings has fallen behind the growth in labour productivity.

Answer: False

• 2. The US Federal Reserve's quantitative easing program ends this month. Most commentators agree it has not provided much stimulus. This reason for the lack of stimulus is because aggregate demand has not shown a sensitivity to interest rate reductions.

Answer: True

• 3. The Greek government has been accused of not pursuing its fiscal austerity program with sufficient commitment. The fact that the Greek government budget deficit continues to increase is evidence of this.

Answer: False

• 4. The inflation risk under a fiat monetary system is no different to that which prevailed under a convertible currency system backed by gold with fixed exchange rates.

Answer: True

• 5. Premium question: In Year 1, the economy plunges into recession with nominal GDP growth falling to minus -1 per cent. The outstanding public debt is equal to the value of the nominal GDP and the nominal interest rate is equal to 1 per cent (and this is the rate the government pays on all outstanding debt). The government's budget balance net of interest payments goes into deficit equivalent to 1 per cent of GDP and the debt ratio rises by 3 per cent. In Year 2, the government stimulates the economy and pushes the primary budget deficit out to 2 per cent of GDP and in doing so stimulates aggregate demand and the economy records a 4 per cent nominal GDP growth rate. All other parameters are unchanged in Year 2. Under these circumstances, the public debt ratio will rise but by an amount less than the rise in the budget deficit because of the real growth in the economy.

Answer: Impossible to determine from the facts