Economics 38-40

Of trade barriers

All manufacturing is not done in Mexico and other low-wage countries because-

U.S. workers are more productive

In 2013, manufacturing workers in the United States earned average compensation of $36.34 per hour. That same year, manufacturing workers in Mexico earned average compensation of $6.82 per hour. U.S. manufacturers can possibly compete if-

Benefits consumers of the product

When a tariff or quota is removed, this policy action-

Monetarist Economics

the school of economic thought that focused on the effects of monetary policy and argued that governments should aim for steadiness in the money supply rather than play an active role

Mainstream Economics

widely accepted economics as taught across prominent universities, in contrast to heterodox economics. does not assume a priori that markets are preferable to other forms of social organization

The government loses tax revenue

A quota that results in the same level of imports as a tariff is more detrimental to an economy because-

Quota

American apparel makers complain to Congress about competition from China. Congress decides to impose either a tariff or a quota on apparel imports from China. Which policy would Chinese apparel manufacturers prefer?

Foreign consumers of the product

An export subsidy for a product will benefit-

Policy responses

For macroeconomists, the distinction between the long run and the short run is important because of the differences in-

Do not respond to price-level changes

For macroeconomists, the short run is a period in which wages-

Hold that, left alone, the economy gravitates to its full-employment level of output

New classical economists-

Higher than it is now

Suppose that AD and AS intersect at an output level that is higher than the full-employment output level. After the economy adjusts back to equilibrium in the long run, the price level will be:

9 percent

Suppose that firms are expecting 6 percent inflation while workers are expecting 9 percent inflation. How much of a pay raise will workers demand if their goal is to maintain the purchasing power of their incomes?

Active and countercyclical, whereas Friedman's rule is passive

The difference between the market monetarist 5-percent target for nominal GDP growth and the older, simpler monetary rule advocated by Milton Friedman is that the market monetarist 5-percent target for nominal GDP growth is-

Can increase domestic output and employment in the short run, but that is not likely to last in the long run

The use of artificial trade barriers, such as tariffs and import quotas-

Rational expectations

expectations formed by using all available information about an economic variable

Far exceed their benefits for society

From an economic perspective, studies of the costs of trade barriers show that they-

Households and businesses will reduce spending

How will households and businesses react if the central bank reduces the money supply by $25 billion?

Tax revenues expanded rapidly

In 1993 the federal government boosted income tax rates. In the seven years that followed-

Superior to an import quota for Americans because a tariff generates revenue for the U.S. Treasury

Other things equal, a tariff is-

$95

Suppose that if Iceland and Japan are both closed economies, the domestic price of fish would be $100 per ton in Iceland and $90 per ton in Japan. If the two countries decided to open up to international trade with each other, which of the following could be the equilibrium international price of fish once they begin trading?

Lower

Suppose that the current international price of wheat is $6 per bushel and that the United States is currently exporting 30 million bushels per year. If the United States suddenly became a closed economy with respect to wheat, would the domestic price of wheat in the United States end up higher or lower than $6?

In the short run, as aggregate demand increases, unemployment is reduced

Suppose the government misjudges the natural rate of unemployment to be much lower than it actually is, and thus undertakes expansionary fiscal and monetary policies to try to achieve the lower rate. These policies might at first succeed because-

In the long run, as aggregate demand increases and unemployment is reduced, workers will demand higher wages, the aggregate supply curve will shift left, and the economy will return to the natural rate of unemployment

Suppose the government misjudges the natural rate of unemployment to be much lower than it actually is, and thus undertakes expansionary fiscal and monetary policies to try to achieve the lower rate. These policies might at first succeed, but eventually-

False

T/F If a country is open to international trade, the domestic price for a homogenous good can differ from the international price for the same good

False

T/F The Laffer Curve shows the trade-off between the price level and tax rates

Foreign countries could impose nontariff barriers on U.S. goods, reducing jobs in an export industry

Tariffs and import quotas can reduce unemployment in a U.S. import industry, but-

Other things being equal, and increase in V will increase P and/or Q

The equation of exchange indicates that-

Both relay on monetary policy, but the monetary rule advocated by Friedman is not adaptable to changing economic conditions

The market monetarist 5-percent target for nominal GDP growth and the older, simpler monetary rule advocated by Milton Friedman

Negative, since the costs to consumers substantially exceed the gains to producers and government

The net outcome of either tariffs or quotas for the world economy is-

Wage rates in a nation are largely determined by productivity, not trade tariffs

Which of the following is a valid counterargument against using tariffs to protect high wages from cheap foreign labor?