Quiz #276 answers

• 1. If the inflation rate is steady and the central bank maintains a constant nominal interest rate, then under current institutional arrangements where governments match deficit spending with debt issuance to the private sector, the public debt ratio will rise if the government deficit doubles (say, from 2 to 4 per cent of GDP).

Answer: False

• 2. The real material living standards of workers are systematically eroded when the wage share in national income declines in favour of a higher profit share.

Answer: False

• 3. Suppose that the government announced as part of a fiscal austerity strategy that 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. In that situation we would not be able to conclude that the fiscal austerity plans would undermine growth if the net export projection was realised.

Answer: True