Econ unit 9&10

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Which of the following is true about income inequality?

An economic system with significant income inequality can lead to political inequalities.

We can probably never eliminate poverty completely. However, the following are common ways to help avoid poverty, except one. According to our text, which of these is NOT a common factor in reducing a person's chances to become poor?

Become a home owner.

The United States recently put tariffs on tires manufactured in China and imported into the United States. As a result:

China increased tariffs on products it buys from the United States. Consequently, prices rise, competition lessens and the overall standard of living of both countries decreases.

Let's assume that Germany produces one piece of furniture in 20 hours and Ethiopia produces the same product in 10 hours. Also, Germany produces a piece of clothing in 8 hours and Ethiopia produces the same product in 2 hours. Then:

Ethiopia has a comparative advantage in making clothing and should specialize in and sell clothing to Germany in exchange for furniture.

According to our text, which of the following is a common misconception (something not true) about income inequality?

Greater income inequality means a higher absolute standard of living for the wealthy and a lower one for the poor.

Which of the following is incorrect (not true) about marginal and average tax rates?

In a proportional income tax system, the marginal tax rate is higher than the average tax rate.

You are an economic advisor visiting a Less-Developed Country. What kind of advice would NOT be helpful to the country?

Increase government spending, increase the money supply, and increase imports in order to stimulate overall economic growth.

Country A has a Gini coefficient of .8 (point 8), and country B has a Gini coefficient of .2 (point 2). Which of the following can we conclude?

None of the listed choices is correct. Both countries have relatively equal income distributions. Both countries have equal income distributions, because their Gini coefficients are less than 1. If you add the incomes of the populations of country A and country B, you will end up with a perfectly equal income distribution.

Which of the following represents an example of a regressive income tax?

Someone with an income of $20,000 pays $2,000 in taxes to the government, and a person with income of $80,000 pays $7,000 in taxes.

Which of the following is true about poverty in the United States?

The government determines the poverty threshold amount for households. If the government increases the threshold considerably, then the poverty rate most likely increases, even though the overall household incomes of the poor haven't changed.

Which is a commonly-heard argument in favor of protectionism?

The infant industry argument.

The US Census Bureau defines the amount of money at the poverty line, or the poverty threshold (according to the text) as:

Three times what the average family spends on food each year.

According to our text, when countries restrict free trade through tariffs, quotas, or other forms of protectionism, it generally leads to:

a decrease in productivity and a lower standard of living.

The United States can produce one cell phone in 10 hours and one barrel of ethanol fuel in 15 hours. Canada, on the other hand, produces one cell phone in 20 hours and one barrel of ethanol fuel in 25 hours. According to the Law of Comparative Advantages, Canada would benefit by specializing in:

ethanol fuel

A system of income inequality:

generally leads to a higher average standard of living than a system of income equality. provides those who are more productive the ability to reap higher rewards. provides incentives for individuals and businesses to be productive and efficient.

The Law of Comparative Advantages states that:

if a country has an absolute advantage in producing multiple goods, it should specialize and trade in those goods in which it is comparatively most efficient.

In the United States, the gap between the higher-income groups and the lower-income groups, as a percentage of what they earn relative to the country's total earnings, has widened the past several decades. Therefore, we can conclude that:

in relative (comparative) terms, the rich have gotten richer and the poor have gotten poorer.

According to our text, free international trade:

in the long run raises total world output and the standard of living of the individual trading countries.

Tariffs and quotas:

in the short run, provide a competitive advantage to domestic producers of the protected good.

The Lorenz Curve is a curve that illustrates a country's income inequality. The straighter the curve:

the more income equality exists.


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