Quiz #630

• 1. The reason that MMT economists favour flexible exchange rates over the Bretton Woods system of fixed exchange rates is because:
• (a) Fiscal and monetary policy tools can target domestic policy outcomes and not be compromised by having to defend a particular exchange rate as was the case under Bretton Woods system.
• (b) Taxes are not required to fund government spending.
• (c) Government debt is able to be paid back more easily.
• (d) Currency speculation is reduced.
• 2. The lesson that the Pompeii story taught us was that:
• (a) The old coins used in Pompeii were able to buy goods and services.
• (b) The government had to spend first before it could collect taxes.
• (c) The once thriving city was destroyed by a volcanic eruption.
• (d) Some people worked in the non-government sector.
• 3. If the expenditure multiplier is estimated to be 1.5, then if the government expands its spending by $100 billion, we expect GDP to rise by
• (a) $1500 billion.
• (b) $1.5 billion.
• (c) $150 billion.
• (d) $100 billion less 1.5 times $100 billion.
• 4. The expenditure multiplier will be largest in which case:
• (a) Households consume 70 cents of every extra dollar in disposable income received.
• (b) Households consume 80 cents of every extra dollar in disposable income received.
• (c) Households save 20 cents of every extra dollar in disposable income received.
• (d) Households save 10 cents of every extra dollar in disposable income received.
• 5. If you observed the following conditions, which would be consistent with a stable GDP level?
• (a) The government deficit is $10 (spending greater than tax revenue), household saving is $20, Import expenditure is $20, total investment expenditure is $20 and export sales equal $10. The unemployment rate is 10 per cent.
• (b) The government deficit is $15 (spending greater than tax revenue), household saving is $20, Import expenditure is $20, total investment expenditure is $15 and export sales equal $15. The unemployment rate is 5 per cent.
• (c) The government deficit is $10 (spending greater than tax revenue), household saving is $15, Import expenditure is $20, total investment expenditure is $10 and export sales equal $10. The unemployment rate is 12 per cent.
• (d) The government deficit is $10 (spending greater than tax revenue), household saving is $20, Import expenditure is $20, total investment expenditure is $20 and export sales equal $15. The unemployment rate is 10 per cent.

Quiz #630 answers

• 1. The reason that MMT economists favour flexible exchange rates over the Bretton Woods system of fixed exchange rates is because:

Answer: (a) Fiscal and monetary policy tools can target domestic policy outcomes and not be compromised by having to defend a particular exchange rate as was the case under Bretton Woods system.

• 2. The lesson that the Pompeii story taught us was that:

Answer: (b) The government had to spend first before it could collect taxes.

• 3. If the expenditure multiplier is estimated to be 1.5, then if the government expands its spending by $100 billion, we expect GDP to rise by

Answer: (c) $150 billion.

• 4. The expenditure multiplier will be largest in which case:

Answer: (d) Households save 10 cents of every extra dollar in disposable income received.

• 5. If you observed the following conditions, which would be consistent with a stable GDP level?

Answer: (a) The government deficit is $10 (spending greater than tax revenue), household saving is $20, Import expenditure is $20, total investment expenditure is $20 and export sales equal $10. The unemployment rate is 10 per cent.