Quiz #410 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 may fall even if the government deficit doubles (say, from 2 to 4 per cent of GDP).

Answer: True

• 2. The neo-liberal era has been characterised by a declining wage share in national income in many nations. This means that the real living standards of workers have been systematically eroded in these nations.

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 while 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