Quiz #194 answers

• 1. A national government can run a balanced budget over the economic cycle (peak to peak) as long as it accepts that, after all the spending adjustments are exhausted, their strategy will ensure that households and firms overall spend more than they earn - that is, run down previous savings or accumulate more net debt.

Answer: False

• 2. A basic understanding of Modern Monetary Theory (MMT) would argue that mass unemployment is due to a deficiency in aggregate demand which would then lead one to reject the conclusion that excessive real wage demands by workers can cause such unemployment.

Answer: False

• 3. Modern Monetary Theory (MMT) teaches us that a sovereign government does not have to issue debt to finance its spending. But the more public debt it voluntarily issues:

Answer: the greater is non-government wealth held in the form of public debt.

• 4. A budget surplus indicates that the national government is:

Answer: you cannot conclude anything about the government's policy intentions.

• 5. Premium Question: The Australian National Accounts data came out this week and the federal government maintained its assertion that the annualised growth rate revealed (3.1 per cent) was around the trend established over the last decade (3.2 per cent). They reaffirmed their policy aim, which is to keep real GDP growth at that trend rate. If labour productivity grows at 1.5 per cent per annum and the labour force grows at 2 per cent per annum and the average working week is constant in hours, then this policy (if successful) will see the unemployment rate rising.

Answer: True