1. From the US National Accounts, you find that in 2006, the share of Personal consumption expenditure in real GDP was 69.9 per cent and by 2008 it had fallen to 69.8 per cent. Similarly, the share of Gross private domestic investment on real GDP was 17.2 per cent in 2006 and by 2008 had fallen to 14.9 per cent (and further to 11.8 per cent in 2009). The net export deficit over the same period (2006 to 2008) fell from -5.7 per cent of real GDP to -4.9 per cent in 2008. Finally, the share of Government consumption expenditures and gross investment in real GDP rose from 18.8 per cent in 2006 to 18.9 per cent in 2008 (and 19.7 per cent in 2009). These relative changes tell you that real GDP was lower in 2008 compared to 2006 because the increase in Government spending and the falling negative contribution of net exports were not sufficient to offset the declining contribution from consumption and investment.

2. The US Senate has recently debated whether to extend unemployment benefits given the lack of job opportunities currently available. One side of the debate says the proposal will reduce growth because it reduces the incentive to search for work although the evidence for this impact is weak. The other side of the debate says the proposal will maintain and perhaps stimulate growth because it will maintain spending capacity of those without work. Even if the former effect was strong, the proposal would not harm growth at present.

3. The suggestion to create a European Monetary Fund is motivated by the desire to prevent sovereign defaults among member countries who are having trouble covering their net spending positions with market-sourced finance. The solvency risk is however sourced in the restrictions imposed on deficit and debt ratios by the Stability and Growth Pact which member states voluntarily agreed to.

4. In the February Labour Force data for Australia released last Thursday, we learned that employment grew by only 400 in net terms during the month of February. Other highlights were that unemployment rose by 10,700 and that the labour force participation rate fell by 0.1 per cent indicating a rise in the proportion leaving the labour force. Taken together this data tells you that:

The labour force grew faster than employment but not as fast the working age population.
The working age population grew faster than employment and offset the decline in the labour force arising from the drop in the participation rate.
The labour force grew faster than employment but you cannot tell what happened to the working age population from the information provided.

5. If the household saving ratio rises and there is an external deficit then Modern Monetary Theory tells us that the government must increase net spending to fill the private spending gap or else national output and income will fall.

1. From the US National Accounts, you find that in 2006, the share of Personal consumption expenditure in real GDP was 69.9 per cent and by 2008 it had fallen to 69.8 per cent. Similarly, the share of Gross private domestic investment on real GDP was 17.2 per cent in 2006 and by 2008 had fallen to 14.9 per cent (and further to 11.8 per cent in 2009). The net export deficit over the same period (2006 to 2008) fell from -5.7 per cent of real GDP to -4.9 per cent in 2008. Finally, the share of Government consumption expenditures and gross investment in real GDP rose from 18.8 per cent in 2006 to 18.9 per cent in 2008 (and 19.7 per cent in 2009). These relative changes tell you that real GDP was lower in 2008 compared to 2006 because the increase in Government spending and the falling negative contribution of net exports were not sufficient to offset the declining contribution from consumption and investment.

Answer: False

2. The US Senate has recently debated whether to extend unemployment benefits given the lack of job opportunities currently available. One side of the debate says the proposal will reduce growth because it reduces the incentive to search for work although the evidence for this impact is weak. The other side of the debate says the proposal will maintain and perhaps stimulate growth because it will maintain spending capacity of those without work. Even if the former effect was strong, the proposal would not harm growth at present.

Answer: True

3. The suggestion to create a European Monetary Fund is motivated by the desire to prevent sovereign defaults among member countries who are having trouble covering their net spending positions with market-sourced finance. The solvency risk is however sourced in the restrictions imposed on deficit and debt ratios by the Stability and Growth Pact which member states voluntarily agreed to.

Answer: False

4. In the February Labour Force data for Australia released last Thursday, we learned that employment grew by only 400 in net terms during the month of February. Other highlights were that unemployment rose by 10,700 and that the labour force participation rate fell by 0.1 per cent indicating a rise in the proportion leaving the labour force. Taken together this data tells you that:

Answer: The labour force grew faster than employment but not as fast the working age population.

5. If the household saving ratio rises and there is an external deficit then Modern Monetary Theory tells us that the government must increase net spending to fill the private spending gap or else national output and income will fall.

Answer: False