Econ: test 2

If high tariffs, such as Smooth Hawley trade bill, reduce imports of the US, what will occur?

US exports will decline because foreigners earn less

Can US workers compete with foreigners who make as little as $2 or $3 per day?

Yes, because wages reflect productivity

A decrease in marginal tax rates will

allow taxpayers to keep more of what they earn

Private ownership allows people to decide how they will use their property:

as long as they do not invade or damage property of others

When nation specializes in areas where it has comparative advantage and trades freely

both nation and trading partners will achieve high output

As a result of the 1930 Smoot Hawley trade bill

both volume of trade and tariff revenues decreased

When government regulations in a country determine which businesses can enter market

bribes, political favoritism and corruption are widespread

Which of the following is true of market competition?

businesses do not like competition and seek protection from it

Construction and development of machines, buildings and equipment that produce consumer goods

capital investment

Mechanism market economy uses to attract savings and channel into good investments is

capital market

High marginal tax rates will

cause people to work, earn and invest less

Lobbying efforts that erect roadblocks that limit entry into markets

consumer valuable resources that could be used productively

What will be the effect of an increase in payroll tax rate?

cost of hiring workers will increase, leading to low employment

Which of the following most important if monetary policy is going to create growth/prosperity

expansionary monetary policy that keeps interest rates low

How will foreign competition influence the domestic economy

foreign competition forced domestic produces improved quality

When political authority overrides the rule of law and freedom of contract

gains from trade will be undermined and diminished

When property is privately owned, people have incentive to use property in valuable ways because

generates higher revenues

The Economic Freedom of the World index indicates that countries with more economic freedom:

grow more rapidly than those less free

Competition is vitally important in market economy because

helps inefficient producers earn profits for high quality

The Economic Freedom of the World index indicates that countries with more economic freedom

higher levels of per capital income than those less free

Innovation and technological advancements are most likely to occur

in a competitive market economy

Efficient and unbiased enforcement of contracts will:

increase the volume of trade and decrease risk of trade

Which of the following describes relationship between interest rates and interest sensitive goods

interest rates decline, demand for goods increases

Which of the following is most important aspect of monetary policy that will promote growth?

keeping inflation low and general price level stable

Which of the following would most likely improve the efficiency of capital market?

legal system that clearly defines and enforces property rights

Trade restrictions

neither create nor destroy jobs, just reallocate them

When whale oil was in high demand in 19th century, whales were hunted to excess because

no one owned whales/hunting rights, so no incentive to conserve

In a market economy, if the supply of oil declines relative to demand:

oil prices rise, increasing incentive to conserve

Marginal tax rate is

percentage of tax paid on additional dollar of income earned

When investment funds are directed by political decision makers rather than by market:

political influence rather than market returns will decide

How do high tariffs and other restrains on international trade affect a nation's prosperity?

prevent nation from realizing gains from exchange and competition

Which of the following is the best way to assure property is well kept and managed wisely?

private ownership, because failure to maintain lowers value

To bee successful in a market economy, a firm must

provide goods valued by consumers at economical prices

What is the source of persistent inflation

rapid growth of money supply

Regulations that make it costly to dismiss workers

reduce total employment because it is costly to hire workers

If a country is going to reach its full economic potential

restrictions that limit trade must be kept to a minimum

If people work less hours, retire early, forego risky business venture due to high marginal tax

size and productivity of labor supply will be reduced

Which are most important elements fro economic growth?

sound institutions and sound government policies

Which of the following is most important if money is going to promote trade?

stability of its purchasing power

When price controls push price of a good or resource above market equilibrium

surplus of resource will develop

Monetary policy in the US is conducted by

the Federal Reserve

Government regulations that limit entry into markets and favor some businesses over others

undermine competitive process and retard economic progress

Which of the following occurred during the year following Smoot Hawley trade bill?

volume of trade declined sharply, unemployment rate rose