Quiz #160 answers

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

Answer: True

• 2. If the real interest rate (difference between nominal interest rate and inflation) is constant, then a currency-isuing government, which matches its net spending $-for-$ with debt issuance, could double its budget deficit without pushing up the public debt ratio.

Answer: True

• 3. The wage share in national income in many nations has fallen significantly over the neo-liberal period which signals that the real standard of living for workers has been falling.

Answer: False

• 4. The Eurozone Troika's strategy for Greece is that domestic deflation will spark an export boom and provide the capacity for the government to run primary surpluses without compromising real economic growth. Although an export boom is unlikely, given current circumstances, if Greece actually achieved positive net exports then the government could push for a primary budget surplus knowing it will not compromise growth.

Answer: False

• 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