Quiz #612

• 1. This week's Australian National Accounts data saw the wage share fall further to 49 per cent, a record low. If workers cannot maintain nominal wages growth equal to the growth in labour productivity, then their real wages fall.
• False
• True
• 2. Assume the central bank keeps the inflation rate steady and equal to the nominal interest rate. Under these monetary conditions, a government can push the primary fiscal balance (the difference between spending and taxation net interest payments) into surplus and drive down the public debt ratio even if the fiscal austerity causes a recession.
• False
• True
• 3. Suppose a government announced it intended to cut its deficit from 4 per cent of GDP to 2 per cent in the coming year and during that year net exports were projected to move from a deficit of 1 per cent of GDP to a surplus of 1 per cent of GDP. If private domestic sector deleveraging resulted in it spending less than it earned to the measure of 5 per cent of GDP, then the fiscal austerity plans will undermine growth even if the net export surplus was realised.
• False
• True

Quiz #612 answers

• 1. This week's Australian National Accounts data saw the wage share fall further to 49 per cent, a record low. If workers cannot maintain nominal wages growth equal to the growth in labour productivity, then their real wages fall.

Answer: False

• 2. Assume the central bank keeps the inflation rate steady and equal to the nominal interest rate. Under these monetary conditions, a government can push the primary fiscal balance (the difference between spending and taxation net interest payments) into surplus and drive down the public debt ratio even if the fiscal austerity causes a recession.

Answer: True

• 3. Suppose a government announced it intended to cut its deficit from 4 per cent of GDP to 2 per cent in the coming year and during that year net exports were projected to move from a deficit of 1 per cent of GDP to a surplus of 1 per cent of GDP. If private domestic sector deleveraging resulted in it spending less than it earned to the measure of 5 per cent of GDP, then the fiscal austerity plans will undermine growth even if the net export surplus was realised.

Answer: True