1. Real wages are falling in many economies as a result of austerity measures because the rate of growth in earnings has fallen behind the growth in labour productivity.
Answer: False
2. The increasing French government fiscal deficit is evidence that it has not pursued the European Commission's austerity program with sufficient commitment.
Answer: False
3. In Year 1, the economy plunges into recession with nominal GDP growth falling to minus -1 per cent. The outstanding public debt is equal to the value of the nominal GDP and the nominal interest rate is equal to 1 per cent (and this is the rate the government pays on all outstanding debt). The government's fiscal balance net of interest payments goes into deficit equivalent to 1 per cent of GDP and the debt ratio rises by 3 per cent. In Year 2, the government stimulates the economy and pushes the primary fiscal deficit out to 2 per cent of GDP and in doing so stimulates aggregate demand and the economy records a 4 per cent nominal GDP growth rate. All other parameters are unchanged in Year 2. Under these circumstances, the public debt ratio will rise but by an amount less than the rise in the fiscal deficit because of the real growth in the economy.