Quiz #96
- 1. If economy-wide average nominal wages fail to keep pace with the inflation rate then it means the profit share in GDP is rising.
- 2. The net worth of the non-government sector would not alter if the government issued bonds to exactly match ($-for-$) the increase in net public spending or not.
- 3. The wider the spread between the price the central bank sets on the reserves it provides the commercial banks on demand (so-called penalty rates) and the target policy rate the more difficult it becomes for the central bank to ensure the quantity of reserves is appropriate for maintaining its target policy rate.
- 4. Assume that a national is continuously running an external deficit of 2 per cent of GDP. In this economy, if the private domestic sector successfully saves overall, we would always find:
- Cannot tell because we don't know the scale of the private domestic sector saving as a % of GDP.
- A public budget deficit.
- A public budget surplus.
- 5. Premium question: At present inflation and nominal interest rates are low and constant) so assume they are both zero and constant. Consider a country with a public debt to GDP ratio of 100 per cent which the mainstream economists consider to be dangerously high. The mainstream prescription is to run primary budget surpluses to stabilise and then reduce the debt ratio. Under the circumstances given, this strategy will only work if there is real GDP growth.
Quiz #96 answers