Quiz #308

• 1. One important lesson to be drawn from Modern Monetary Theory (MMT), which is overlooked in the public call for austerity programs, is that when economic growth resumes, the automatic stabilisers work in a counter-cyclical fashion and ensure that the government fiscal balance returns to its appropriate level.
• False
• True
• 2. The IMF and its Troika partners claim that the recovery in Greece is dependent on internal devaluation and the austerity programs are designed to deflate nominal wages and prices which is claimed will make the economy more competitive as long as real unit labour costs fall faster than their trading partners. However, if wages and prices fall at the same rate, which of the following propositions must also follow if the IMF logic is to be consistent (ignoring whether the logic is correct or not):
• Labour productivity has to rise and employment remain constant or grow.
• Labour productivity has to rise and employment must grow.
• Labour productivity has to rise and what happens to employment is irrelevant.
• None of the above
• 3. The conservative Australian government recently scrapped the mining tax that had been introduced by the previous government. The conservatives argued that the higher taxes had distorted the allocation of resources by changing the rates of return on different uses of capital (and labour). The previous tax had taken the form of a Resource Super Profits Tax on mining companies. Leaving aside the arguments that the government does not need revenue to spend, a typical mainstream economist would agree with the conservative government's decision and conclude that the tax was bad because it reduced mining investment.
• False
• True

Quiz #308 answers

• 1. One important lesson to be drawn from Modern Monetary Theory (MMT), which is overlooked in the public call for austerity programs, is that when economic growth resumes, the automatic stabilisers work in a counter-cyclical fashion and ensure that the government fiscal balance returns to its appropriate level.

Answer: False

• 2. The IMF and its Troika partners claim that the recovery in Greece is dependent on internal devaluation and the austerity programs are designed to deflate nominal wages and prices which is claimed will make the economy more competitive as long as real unit labour costs fall faster than their trading partners. However, if wages and prices fall at the same rate, which of the following propositions must also follow if the IMF logic is to be consistent (ignoring whether the logic is correct or not):

Answer: Labour productivity has to rise and what happens to employment is irrelevant.

• 3. The conservative Australian government recently scrapped the mining tax that had been introduced by the previous government. The conservatives argued that the higher taxes had distorted the allocation of resources by changing the rates of return on different uses of capital (and labour). The previous tax had taken the form of a Resource Super Profits Tax on mining companies. Leaving aside the arguments that the government does not need revenue to spend, a typical mainstream economist would agree with the conservative government's decision and conclude that the tax was bad because it reduced mining investment.

Answer: False