Unit 3 Prep Exam

The imposition of trade barriers to increase domestic employment is?

A beggar-thy-neighbor policy.

A bond is?

A certificate acknowledging a debt and the amount of interest to be paid each year until repayment; an IOU.

External cost is?

A cost of a market incurred by a third party.

A tax imposed on imported goods is?

A tariff.

The opportunity cost of working is the?

Amount of leisure time that must be given up in the process.

Capital gains are?

An increase in the market value of an asset.

The demand for labor and other factors of production typically decline in a recession because those factors?

Are derived from the demand for final output, which also declines in a recession.

If the marginal tax rate is too high, it can cause?

Businesses to produce less, government tax receipts to decline, the rate of saving to decline, and work effort to decrease.

Specialization in production and then trading with other countries does what two things?

Change the mix of output for each country and increase total world output.

If the government imposed a green tax on gasoline, the amount of air pollution should?

Decrease as people switch to more fuel-efficient cars, find less fuel intensive alternatives, and drive less.

Imports of foreign goods by firms located in the United States generates?

Demand for foreign currencies.

An increase in the price of foreign currency in terms of dollars refers to?

Depreciation of the dollar.

The risk premium is the?

Difference in rates of return on safe and risky investments.

Taxes paid divided by total income is the?

Effective tax rate.

Exemptions and deductions included in the tax laws are designed to?

Encourage specific economic activities.

An increase in the price of the U.S. dollar in terms of euros will cause, ceteris paribus?

European goods to be cheaper to residents of the United States.

By altering market incentives, the government tries to shift?

External costs to the producer.

Comparative advantage in production is achieved by?

Having a lower opportunity cost of producing a good relative to that of other countries.

The labor supply curve starts to bend backward once the?

Income effect exceeds the substitution effect.

An emission does what?

Increases private marginal cost and reduces output.

A firm should hire an additional worker as long as the wage rate is?

Less than or equal to the MRP.

Without trade, a country's consumption possibilities are?

Limited to its domestic production possibilities.

An economy with nominal tax rates significantly higher than effective tax rates has?

Loopholes in the tax code.

If a firm that pollutes wants to maximize profits, it will produce where?

Marginal revenue and private marginal cost are equal.

When the market generates a suboptimal outcome of income distribution, what occurs?

Market failure.

Emission charges and user charges, green taxes, expectations of fines, and tradable pollution permits are all examples of what?

Market incentives.

As long as interest-earning opportunities exist, present dollars are worth?

More than future dollars.

If the wage rate increases, there will be a?

Movement up the labor supply curve to the right.

The effective tax rate is?

Never higher than the nominal tax rate.

The exchange rate is the price of?

One currency in terms of another.

The intersection of the demand for loanable funds and the supply of loanable funds determines the?

Prevailing interest rate.

The rate of interest represents the?

Price paid for the use of money.

External costs occur because?

Private costs do not reflect the full costs to society.

If social marginal cost is less than social marginal benefit, society can increase welfare by?

Producing more.

The U.S. federal income tax is classified as what kind tax?

Progressive tax only.

What kind of income tax system taxes those who earn more at higher marginal tax rates?

Progressive.

The U.S. tax system as a whole is basically?

Proportional.

Tradable pollution permits, when compared to command-and-control options, tend to?

Provide the same amount of pollution abatement at a lower cost.

If social marginal cost exceeds social marginal benefit, society should?

Reduce output.

A primary purpose of tradable pollution permits is to?

Reduce the cost of pollution control.

Financial intermediaries make the allocation of resources more efficient by?

Reducing search and information costs in the financial markets.

In general, state and local taxes are?

Regressive.

If a greater portion of income is distributed to those in the highest income quintile, the Lorenz curve does what?

Sags below the diagonal line of absolute equality.

A tax is progressive if it takes a?

Smaller fraction of income as income falls.

The total resource costs of an economic activity, including private and external costs are what?

Social costs.

A trade balance of zero indicates what?

That trade is balanced.

Dividends are?

The amount of corporate profit paid out for each share of stock.

The demand for dollars in the foreign exchange market depends partly on?

The foreign demand for U.S. goods.

The sum of the current account balance and the capital account balance is?

The net balance of payments.

The advantage to a corporation of issuing bonds instead of stock is that?

The owners keep control of the company.

For an upward-sloping labor supply curve, the quantity of labor supplied varies directly, ceteris paribus, with?

The wage rate.

Saving decisions and therefore the supply of loanable funds are influenced byy?

Time preferences, risk, and interest rates.

Exports minus imports define a country's?

Trade balance.

A negative trade balance value reflects a?

Trade deficit.

A positive trade balance value reflects a?

Trade surplus.

An emission charge in proportion to its pollution will increase the costs to the firm, shifting the MC curve?

Upward (supply curve leftward) and the ATC up, resulting in lower output, higher prices, and lower profits.

The number of hours that a worker is willing to work is determined by the trade-off between the increasing?

Value of leisure time and the decreasing marginal utility of income.

Except for a statistical discrepancy, the current account plus the capital account equals?

Zero; a surplus in one account means a deficit of equal size in the other.

The present discounted value of a future payment can be calculated using which formula?

(Future payment) ÷ [(1 + Interest rate) N].