Quiz #56 answers

• 1. Mainstream economists use the notion of "crowding out" to argue that public spending squeezes out private spending and results in a less efficient allocation of resources overall. Modern Monetary Theory (MMT) argues that the mainstream economists do not understand that the government only borrows what it has already spent. But MMT still recognise that crowding out can occur.

Answer: True

• 2. One interpretation of the sectoral balances decomposition of the national accounts, is that it is impossible for all governments (in all nations) to run public surpluses without impairing growth because it is likely that the private domestic sector in some countries will desire to save overall.

Answer: False

• 3. A rising government deficit will always allow the private domestic sector to increase its saving in nominal terms.

Answer: False

• 4. A rising government deficit indicates an expansionary shift in policy and the challenge is to calibrate that expansion to ensure nominal demand growth does not exceed the real capacity of the economy to respond by increasing real output.

Answer: False

• 5. The lack of a close correspondence between the growth of bank reserves and the growth in the stock of money is evidence that credit creation has been tightly constrained by the recession.

Answer: True