Eco 2301 Test 5

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Refer to Figure 18.4. With a tariff or​ quota, what is the equilibrium price of gloves in​ Duckland?

$10

Suppose the govemment's initial debt is $350 billion and that during the next two years the government runs deficits of S90 and $40 billion. If during the third year the government has a $70 billon surplus, the government's total debt at the end of the three years will be

$410 billion.

When the government imposes a limit on the quantity of​ children's toys that can be imported into the​ country, this is

an import quota.

Proponents of inflation targeting argue that it would make central banks more______ if they were committed to a​ long-run inflation target.

credible

Critics of a​ balanced-budget amendment argue that

it may not allow enough flexibility for the government to deal with recessions.

A country has a comparative advantage if it has a lower ________ cost of producing a good.

opportunity

Under a scheme of _____ pricing, a firm cuts its price to drive out rivals and then raises its price later.

predatory

Importers collect additional revenues from a and governments collect additional revenues from

quota; tariffs

Recall the Application about the possibility that the Federal Reserve's loose monetary policy was responsible for the housing boom during the 2000s to answer the following question(s) interest rates instead of interest rates. Recall the Application. When applying the Taylor Rule to the decade of 2000, economist John Taylor found that past experience showed that from 2001 to 2004, the Fed should have

raised; lowering

If a government runs a surplus​, it will______its outstanding debt.

reduce

Threatening to impose a tariff on a​ country's exports if it​ doesn't open up its markets to trade is an example of a _______policy.

retaliatory

Capital gains are profits investors earn when they

sell​ stocks, bonds, real​ estate, or other investments.

Why Has the U.S. Not Instituted a​ VAT? The U.S. differs from virtually all developed countries in that it does not have a ​value-added tax ​(​VAT). One reason that the U.S. does not have a VAT is that

states in the U.S. have taxing authority and already use it to levy a sales tax.

Automatic stabilizers are changes in that occur automatically as economic activity changes.

taxes and transfer payments

The rate at which nations will exchange goods and services is known as the

terms of trade.

he Fed on Autopilot. Some economists believe that the Federal Reserve should follow strict rules for the conduct of monetary policy. These rules would require the Fed to make adjustments to interest rates based on information that is fully available to the​ public, information such as the current unemployment rate and the current inflation rate.​ Essentially, they would put the Fed on autopilot and remove its discretion. Using this​ approach,

the Fed can offset shocks to the economy but must meet long run inflation targets

Which of the following tariffs resulted in worldwide retaliation against the United States during the Great Depression?

the Smoot Hawley tariff

NAFTA is a free trade agreement between Mexico, Canada​, and

the United States

The production possibilities curve shows

the combination of two goods that can be produced with a​ nation's resources.

If it rains very hard during a major​ storm, the drains in the streets may not be able to handle all the water and flooding will temporarily occur. Using this​ analogy, the pace of imports into a community may be important in the short run for economic adjustment because

the normal operations of the economy may not be sufficient to handle the volume of workers displaced.

The government debt is defined as

the sum of all past deficits and surpluses.

Refer to Figure 18.4. With an import​ ban, what is the equilibrium quantity of gloves in​ Duckland?

60

Refer to Figure 18.4. With a tariff or​ quota, what is the equilibrium quantity of gloves in​ Duckland?

80

The idea for one low tax rate that applies to everyone is called a

flat tax.

A restriction on imports is likely to lead to

further restrictions on trade and a retaliatory response.

Refer to Figure 18.4. With an import ban, how many gloves are produced domestically in Duckland?

60

Refer to Figure 18.4. With free​ trade, what is the equilibrium quantity of gloves in​ Duckland?

100

Suppose there is a consumption tax of 14 percent. An individual earns $125 and saves ​$30 Her tax will be equal to_____ ​

19

The average tariff rate in the United States is roughly _____percent.

5, because its 4.6

Which of the following statements is​ true?

A nation that decides to specialize and trade is no longer limited to the options shown by its production possibilities curve.

Which of the following statements strue?

B. As a result of specialization some workers will be displaced and harmed in the short run by free trade.

Which of the following statements is​ true

Import quotas are illegal under international trading rules.

Countries will always export the goods in which they have an absolute advantage.

False

In the United States, the Federal Reserve pursues an inflation targeting policy of keeping inflation below 2 percent.

False

Trade requires absolute advantage to make both parties better off.

False

Tariffs on Computer Chips. Suppose a country imposed tariffs on computer chips to protect its​ chip-making industries. What other types of firms in that economy might object to this​ policy?

Firms that use computer chips in production.

The first major international trade agreement following World War II was _____, which is enforced by the

GATT, WTO

The standard way to measure the effects of debt in an economy is to look at the stock of debt relative to

GDP.

Which of the following statements is​ true?

The United States does not have a statutory inflation target

Tax Smoothing or Strategic Tax​ Policy? Assume the pressures of an aging population and increases in​ health-care costs will increase total federal spending in the future significantly. a. Under the theory of tax​ smoothing, what should happen to the current level of taxes if future spending is scheduled to​ rise? b. Now suppose future spending increases are not inevitable and​ that, as a practical​ matter, you believe Congress will spend whatever revenue it collects. Would you still recommend tax​ smoothing?

The current level of taxes should gradually increase to pay for the increases in​ health-care costs as they occur. ​No, because the spending increases are not​ inevitable, and there is no reason to increase the tax revenue.

Which of the following statements is​ true

The government collects money from tariffs.

Tariffs and the Poor. ​Historically, apparel and textiles were subject to high tariffs. Which of the following best explains why this might hurt​ low-income consumers more than​ high-income consumers.

These goods represent a higher fraction of the consumption of​ lower-income consumers than higher income consumers

An industry has been operating for 10 years under protection. The government wants to remove the trade​ protection, but the industry claims that it needs the protection because of learning by doing. Which of the following could be​ true?

This could be true if the industry is complex and requires a long learning period.

A sales tax on furniture is an example of

a consumption tax.

The​ ________ issues government bonds in order to finance the deficit in the United States.

Treasury Department

In _____ inflation targeting was adopted in​ 1992, and elected officials determine the precise inflation targets that the central bank must meet.

United Kingdom

The _______was formed in 1995 to oversee GATT.

WTO

Which of the following statements is​ true?

With free​ trade, some workers in each nation will be harmed

Suppose a country has a comparative advantage in computer chips but not shirts. Workers in the shirt industry will be _______ with trade.

better off

Refer to Figure 18.4. With a​ tariff, how much does the government collect for each glove imported into​ Duckland?

between​ $2 and​ $3

Fiscally Troubled States Today. A number of major​ states, for example​ California, have been experiencing fiscal problems. Although no states have defaulted on their debts in recent​ years, a number of cities have. Should the federal government​ "bail out" the states and help them meet their​ debts? Providing a​ "bail out" for a state that has been experiencing fiscal problems

can make the U.S. a more fiscally sound country

National debt harms future generations by

causing higher taxes to pay the interest that accumulates on the debt.

Dumping occurs when a firm

charges a lower price to a foreign market than either the price charged in its home market or the production costs.

If a U.S. firm outsources production of products that use unskilled​ labor, the demand for unskilled labor in the United States will _____ and this will _______the gap between wages for the skilled and the unskilled.

decrease, increase

Pricing below production cost or selling at prices in foreign markets less than domestic markets is known as

dumping

The terms of trade is the rate at which two goods can be____ for one another

exchanged

If capital gains and other types of capital income were no longer​ taxed, then total tax revenue would _______ and the government would have to ________ tax rates elsewhere to maintain the same level of spending.

fall, raise

During a​ recession, income and tax payments will___ At the same​ time, transfer payments such as welfare will_____ As a​ result, the deficit will_____

fall, rise, rise

Automobile manufacturers are increasingly using foreign parts in their cars. There are differing perspectives on this issue from domestic parts​ manufacturers, automobile​ producers, and consumers of automobile products. Consumers Automobile firms Domestic parts manufacturers

favor it because it lowers car prices, favor it because they can produce less expensive cars., oppose it because they face global competition.

A consumption tax system is likely to benefit

higher income individuals.

Which of the following situations will arise in the domestic market following the removal of an import quota?

imports increase, domestic production decreases, prices decrease

A tariff—a tax on___, generates revenue to_____, whereas an import____, generates revenue for______

imports, the government, quota, importers

If a government runs a deficit​, it will ______its outstanding debt.

increase

An import quota

limits the amount of a good that can be imported, thus increasing prices.

Targeting​ Gold? Some observers have suggested that the Fed use gold as an indicator of inflation and tighten monetary policy when gold prices rise. This policy could

make monetary policy erratic and not responsive to either inflation or employment.

When a central bank purchases new government​ bonds, it is _____the deficit.

monetizing

As a whole, nations are better off after trade and specialization because

nations can consume along their consumption possibilities curve, which is outside of their production possibilities curve.

Budget deficits inevitably lead to inflation

nations that are unable to borrow from the public.

Budget deficits inevitably lead to inflation in

nations that are unable to borrow from the public.

A country running a budget deficit must print money to finance that deficit when the public is_______to buy bonds. Creating money this way will inevitably cause

unwilling, inflation

A sales tax that is levied at all stages of production is known as a

value-added tax.

Domestic producers of solar panels had a different view on tariffs on foreign manufactures than did firms that retailed and installed solar panels. Domestic producers of solar panels The sellers and installers

wanted to be able to set high prices without facing foreign competition. wanted to do business and they did not care who produced the panels.

​Historically, debt-GDP ratios increase during periods of

war

In a famous​ tale, the French economist​ Frédéric Bastiat ​(1801minus−​1850) wrote a fake petition for relief from trade for the candle makers. They were complaining that the sun was hurting their business. What lesson do you draw from this​ tale? The main lesson is that

we should take advantage of our natural endowments and adjust our production accordingly to best meet our needs.

Suppose a country has a comparative advantage in computer chips but not shirts Workers in the chip industry will be_____ with trade

worse off


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