Quiz #247 answers

• 1. If workers cannot maintain nominal wages growth equal to the growth in labour productivity, then their real wages fall.

Answer: False

• 2. Assume the central bank keeps the inflation rate steady and equal to the nominal interest rate. Under these monetary conditions, a government can push the primary budget balance into surplus and drive down the public debt ratio even if the fiscal austerity causes a recession.

Answer: True

• 3. Suppose a government announced it intended to cut its deficit from 4 per cent of GDP to 2 per cent in the coming year and during that year net exports were projected to move from a deficit of 1 per cent of GDP to a surplus of 1 per cent of GDP. If private sector deleveraging resulted in it spending less than it earned to the measure of 5 per cent of GDP, then the fiscal austerity plans will undermine growth even if the net export surplus was realised.

Answer: True