Quiz #543

• 1. For workers to maintain a constant share of a growing national income, the growth in wages (the money you get paid) must keep pace with inflation, if the latter, is accelerating at the same rate as labour productivity.
• False
• True
• 2. Central bankers are once again talking about the possible need for more quantitative easing to ease the aggregate spending losses associated with ongoing fiscal austerity programs in some countries. If calibrated correctly, QE can replace the net financial assets destroyed by the austerity.
• False
• True
• 3. Assume a government is attempting to stimulate the economy via an expansion in the fiscal deficit. The private market orientated advisors tell them to cut taxes and 'privatise' the expansion whereas the more civic-minded advisors argue that there is a need for improved public infrastructure which requires increases in government spending. So imagine that the government is choosing between a tax cut that will reduce tax revenue at the current level of national income by $x and a spending increase of $x. Which policy option will have the greater initial impact on aggregate demand?
• Tax cut
• Spending increase
• Both will be equivalent
• There is not enough information to answer this question

Quiz #543 answers

• 1. For workers to maintain a constant share of a growing national income, the growth in wages (the money you get paid) must keep pace with inflation, if the latter, is accelerating at the same rate as labour productivity.

Answer: True

• 2. Central bankers are once again talking about the possible need for more quantitative easing to ease the aggregate spending losses associated with ongoing fiscal austerity programs in some countries. If calibrated correctly, QE can replace the net financial assets destroyed by the austerity.

Answer: False

• 3. Assume a government is attempting to stimulate the economy via an expansion in the fiscal deficit. The private market orientated advisors tell them to cut taxes and 'privatise' the expansion whereas the more civic-minded advisors argue that there is a need for improved public infrastructure which requires increases in government spending. So imagine that the government is choosing between a tax cut that will reduce tax revenue at the current level of national income by $x and a spending increase of $x. Which policy option will have the greater initial impact on aggregate demand?

Answer: Spending increase