Quiz #82

• 1. 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.
• True
• False
• Cannot tell from this information
• 2. Central bankers are talking about the possible need for more quantitative easing to ease the aggregate demand losses associated with the implementation of fiscal austerity programs. If calibrated correctly, QE can replace the net financial assets destroyed by the withdrawal of the fiscal injection.
• True
• False
• Maybe
• 3. The expansionary impact of deficit spending on aggregate demand is lower when the government matches the deficit with debt-issuance because then excess reserves are drained and the purchasing power is taken out of the monetary system.
• True
• False
• Maybe
• 4. The change in the net worth of the non-government sector when the government increases its net spending is invariant to government issuing debt which exactly matches ($-for-$) the increase in net public spending.
• True
• False
• Maybe
• 5. Premium Question: The government is attempting to stimulate the economy via an expansion in the budget 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 #82 answers

• 1. 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

• 2. Central bankers are talking about the possible need for more quantitative easing to ease the aggregate demand losses associated with the implementation of fiscal austerity programs. If calibrated correctly, QE can replace the net financial assets destroyed by the withdrawal of the fiscal injection.

Answer: False

• 3. The expansionary impact of deficit spending on aggregate demand is lower when the government matches the deficit with debt-issuance because then excess reserves are drained and the purchasing power is taken out of the monetary system.

Answer: False

• 4. The change in the net worth of the non-government sector when the government increases its net spending is invariant to government issuing debt which exactly matches ($-for-$) the increase in net public spending.

Answer: True

• 5. Premium Question: The government is attempting to stimulate the economy via an expansion in the budget 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