Quiz #172 answers

• 1. Modern Monetary Theory (MMT) recognises that the unemployed live of the hard work of those that are employed.

Answer: True

• 2. The automatic stabilisers operate in a counter-cyclical fashion and ensure that the government budget balance, which rises during a recession, returns to its appropriate level once growth returns to its long-term trend.

Answer: False

• 3. The accumulated spending build-up of annual budget deficits does not pose an inflation threat.

Answer: False

• 4. Which scenario represents a more expansionary outcome: (a) A budget deficit equivalent to 5 per cent of GDP (including the impact of automatic stabilisers equivalent to 3 per cent of GDP). (b) A budget deficit equivalent to 3 per cent of GDP. (c) You cannot tell because you do not know the decomposition between the cyclical and structural components in Option (b)

Answer: Option (a)

• 5. Premium Question: If private domestic investment is less than private domestic saving and the current account is draining aggregate demand then the government budget has to be in deficit no matter what level of GDP is produced.

Answer: True