1. Choose the correct response (all balances expressed as a per cent of GDP): (a) A nation can export less than the sum of imports, net factor income (such as interest and dividends) and net transfer payments (such as foreign aid) and run a government surplus of equal proportion to GDP, while the private domestic sector is spending less than they are earning. (b) A nation can export less than the sum of imports, net factor income (such as interest and dividends) and net transfer payments (such as foreign aid) and run a government sector surplus of equal proportion to GDP, while the private domestic sector is spending more than they are earning. (c) A nation can export less than the sum of imports, net factor income (such as interest and dividends) and net transfer payments (such as foreign aid) and run a government sector surplus that is larger, while the private domestic sector is spending less than they are earning. (d) None of the above are possible as they all defy the sectoral balances accounting identity.
Answer: Option (b)
2. For workers to regain a larger share of national income, nominal wages have to grow faster than inflation - that is, the real wage has to rise.
Answer: False
3. Economists use rules of thumb to make estimates of the future direction of key aggregates based upon assumptions about the movement in related aggregates. Say, we form the view that over the next year: (a) the average working week will be constant in hours; (b) real GDP growth rate will be 3 per cent; (c) output per unit of labour input (persons) grows at 1.5 per cent; and (d) the labour force maintains a growth rate of 1.5 per cent per annum. Using an appropriate rule of thumb we would project that the: