Quiz #594 answers

• 1. If the nation is running a current account deficit of 2 per cent of GDP and the government runs a surplus equal to 2 per cent of GDP, then we know that at the current level of GDP, the private domestic sector is spending more than they are earning.

Answer: True

• 2. In a stock-flow consistent macroeconomics, we know that flows during a period add to relevant stocks. Accordingly, if the flow of government spending rose by $100 billion in total, then if nothing else changes the stock of aggregate demand would also rise by $100 billion in the first instance (before the multiplier starts to work).

Answer: False

• 3. Modern Monetary Theory (MMT) demonstrates that mass unemployment arises from deficient aggregate demand which calls for an increase in the fiscal deficit to correct the deficiency. This observation is totally at odds with the mainstream view that unemployment can be reduced by cutting real wages relative to productivity.

Answer: False