Quiz #467

• 1. After economic growth resumes, the government can rely on the automatic stabilisers to return the fiscal balance to its appropriate level.
• False
• True
• 2. Only one of the following combinations is possible for a nation (balances expressed as a proportion of GDP):
• None of the above are possible as they all defy the sectoral balances accounting identity.
• Current account deficit smaller in size to government surplus, and private domestic sector saving overall.
• Current account deficit equal in size to government surplus, and private domestic sector dissaving overall.
• Current account deficit equal in size to government surplus, and private domestic sector saving overall.
• 3. The Eurozone nations have to endure internal devaluation (nominal wages and prices deflation and/or productivity growth) to adjust to external imbalances. It is claimed that this process will the individual nations more competitive as long as real unit labour costs fall faster than their trading partners. However, ignoring whether the logic is correct or not, which of the following propositions must also follow if the logic is to follow:
• If wages and prices fall at the same rate, then labour productivity has to rise and what happens to employment is irrelevant.
• If wages and prices fall at the same rate, then labour productivity has to rise and employment must grow.
• If wages and prices fall at the same rate, then labour productivity has to rise and employment remain constant or grow.
• None of the above.

Quiz #467 answers

• 1. After economic growth resumes, the government can rely on the automatic stabilisers to return the fiscal balance to its appropriate level.

Answer: False

• 2. Only one of the following combinations is possible for a nation (balances expressed as a proportion of GDP):

Answer: Current account deficit equal in size to government surplus, and private domestic sector dissaving overall.

• 3. The Eurozone nations have to endure internal devaluation (nominal wages and prices deflation and/or productivity growth) to adjust to external imbalances. It is claimed that this process will the individual nations more competitive as long as real unit labour costs fall faster than their trading partners. However, ignoring whether the logic is correct or not, which of the following propositions must also follow if the logic is to follow:

Answer: If wages and prices fall at the same rate, then labour productivity has to rise and what happens to employment is irrelevant.