Quiz #638

• 1. Central bankers are talking about retaining quantitative easing to ease the aggregate demand losses associated with the implementation of withdrawal of fiscal stimulus programs. If calibrated correctly, QE can replace the net financial assets destroyed by the withdrawal of the fiscal injection.
• False
• True
• 2. If the growth in wages (the money you get paid) keeps pace with inflation which is accelerating at the same rate as labour productivity is growing, then the profit share in GDP remains constant.
• False
• True
• 3. The 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 #638 answers

• 1. Central bankers are talking about retaining quantitative easing to ease the aggregate demand losses associated with the implementation of withdrawal of fiscal stimulus programs. If calibrated correctly, QE can replace the net financial assets destroyed by the withdrawal of the fiscal injection.

Answer: False

• 2. If the growth in wages (the money you get paid) keeps pace with inflation which is accelerating at the same rate as labour productivity is growing, then the profit share in GDP remains constant.

Answer: True

• 3. The 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