Eco 2301 Test 5
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
