Week Two - Quiz Time

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Now, let's see if you were paying attention.

The following questions will be about the material that we have been unpacking and discussing this week. There is a little bit of number-crunching, so you might want to have your calculator ready.

So get your pencil and paper out and record your answers. Once you are finished you can check the answers and explanations. It is obviously best to do the quiz first to test your progress before checking the results. There are no prizes here.

Take your time, and best of luck!

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

1. 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. Taxes are not required to fund government spending.
3. Government debt is able to be paid back more easily.
4. Currency speculation is reduced.

Question 2: The lesson that the Pompeii story taught us was that:

1. The old coins used in Pompeii were able to buy goods and services.
2. The government had to spend first before it could collect taxes.
3. The once thriving city was destroyed by a volcanic eruption.
4. Some people worked in the non-government sector.

Question 3: If the output an economy can achieve when all resources are productively employed is $120 billion and in the current year actual real GDP is on $114 billion, the output gap would be:

1. $1500 billion.
2. $1.5 billion.
3. $150 billion.
4. $100 gazillion-trillion-billion.

Question 4: The expenditure multiplier will be largest in which case:

1. Households consume 70 cents of every extra dollar in disposable income received.
2. Households consume 80 cents of every extra dollar in disposable income received.
3. Households save 20 cents of every extra dollar in disposable income received.
4. Households save 10 cents of every extra dollar in disposable income received.

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

1. 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.
2. 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.
3. 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.
4. 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.

You can access the answers and detailed analysis from this page - The Weekend Quiz – October 22-23, 2022 – answers and discussion (October 22, 2022).