Quiz #465

• 1. If the growth in wages (the money you get paid) keeps pace with inflation which is accelerating at the same rate as labour productivity is growing then the profit share in GDP remains constant.
• False
• True
• Cannot tell from this information
• 2. The expansionary impact of deficit spending on aggregate demand is lower when the government matches the deficit with debt-issuance because then excess reserves are drained and the purchasing power is taken out of the monetary system.
• False
• True
• 3. A government is choosing between a tax cut that will reduce tax revenue at the current level of national income by $x (that is, increase private domestic disposable income by $x) and a public spending increase of $x. Which policy option will have the greater initial impact on aggregate spending?
• There is not enough information to answer this question
• Both will be equivalent
• Tax cut
• Spending increase

Quiz #465 answers

• 1. If the growth in wages (the money you get paid) keeps pace with inflation which is accelerating at the same rate as labour productivity is growing then the profit share in GDP remains constant.

Answer: True

• 2. The expansionary impact of deficit spending on aggregate demand is lower when the government matches the deficit with debt-issuance because then excess reserves are drained and the purchasing power is taken out of the monetary system.

Answer: False

• 3. A government is choosing between a tax cut that will reduce tax revenue at the current level of national income by $x (that is, increase private domestic disposable income by $x) and a public spending increase of $x. Which policy option will have the greater initial impact on aggregate spending?

Answer: Spending increase