Quiz #511 answers

• 1. If inflation rate remained equal to the nominal interest rate, then the government primary deficit could double (from say 2 to 4 per cent of GDP) without pushing up public debt as a proportion of GDP.

Answer: True

• 2. If the share of wages in national income falls then the workers' material standard of living also falls.

Answer: False

• 3. Assume that inflation is stable, there is excess productive capacity, and the central bank maintains its current interest rate target. If on average the government collects an income tax of 20 cents in the dollar, then total tax revenue will rise by 0.20 times $x if government spending increases (once and for all) by $x dollars and private investment and exports remain unchanged.

Answer: False