Micro Econ Exam #4
When the price of yen in terms of dollars increases, Honda automobiles from Japan become cheaper to U.S. residents.
False
Appreciation of the U.S. dollar can be caused by
B) An increase in the demand for dollars.
Under a system of fixed exchange rates where the foreign exchange market is in equilibrium and neither country has a balance-of- payments deficit or surplus, an increase in imports of French goods by Japanese consumers, ceteris paribus, would result in a
B) Balance-of-payments deficit for Japan.
When foreign residents increase their demand for U.S. dollars, ceteris paribus,
B) The dollar will appreciate in value.
A change in the exchange rate for a country's currency alters the prices of A) Exports only. B) Imports only. C) Both exports and imports. D) Only domestic goods and services. MacBook
C
A currency bailout A) Is considered to be a dangerous move by the central banks of the strongest economies worldwide. B) Is considered to be a dangerous move by the International Monetary Fund. C) Can help avoid a situation in which a weakness in one currency undermines other currencies. D) Occurs when money is borrowed from an economy to increase the value of its currency.
C
A market failure exists when an imperfection in A) Federal government policies prevents an optimal outcome. B) State government policies prevents an optimal outcome. Vo C) The market mechanism prevents an optimal outcome. D) Welfare programs prevents an optimal outcome.
C
A summary record of a country's international economic transactions in a given time period is the A) Exchange rate balance. B) Current account. C) Balance of payments. D) Capital account.
C
An excess demand for domestic currency at current exchange rates is known as a A) Trade surplus. B) Balance-of-payments deficit. C) Balance-of-payments surplus. D) Trade deficit.
C
As trade restrictions are eliminated, increased imports A) Leave the composition of the GDP unchanged. B) Lower competition in product markets. C) Shift the allocation of resources away from import-competing industries.
C
Foreign exchange reserves are A) Used by the Federal Reserve in open market operations. B) Held illegally by many countries. • C) Holdings of foreign exchange by official government agencies. D) Holdings of foreign exchange by individual citizens.
C
In foreign exchange markets, the supply of U.S. dollars is determined by all of the following except A) American investments in foreign nations. B) American demand for imports. C) Foreign demand for American exports. D) Speculation.
C
The benefits from international trade include A) A rightward shift of the production possibilities curve. B) A higher rate of population growth. C) Greater efficiency in the use of the world's limited resources. D) A higher standard of living for every person.
C
The capital account balance is equal to the A) Current account balance plus U.S. purchases of foreign assets. B) U.S. purchases of foreign assets minus foreign purchases of U.S. assets. C) Foreign purchases of U.S. assets minus U.S. purchases of foreign assets. D) Current account balance plus foreign purchases of U.S. assets.
C
The capital account balance is equal to the negative of A) Trade balance + current account balance + services balance. B) Current account balance + exports + unilateral transfers. C) Trade balance + unilateral transfers + net investment income. D) Unilateral transfers 7 exports + imports.
C
The elimination of import restrictions will A) Alter the mix of output from export industries toward domestic industries. B) Alter the mix of output from expcht industries to import-competing industries. C) Redistribute income from import-competing industries to export industries. D) Redistribute income from domestic to foreign producers.
C
The terms of trade between two countries refer to A) The rules governing trade between the two countries. B) The terms set by the World Trade Organization for trade. C) The amount of good A given up for good B. D) What price the two countries agree upon for their imports and exports.
C
Two countries will have zero incentive to trade if their production possibilities curves are parallel straight lines because A) One country has an absolute advantage in the production of both goods, thus providing that country with no incentive for trade. B) One country has a comparative advantage in the production of both goods, thus providing that country with no incentive for trade. C) The opportunity costs for both countries are the same. D) An intersection of the two lines is not possible, and therefore a trade equilibrium is not possible.
C
Two countries with differing comparative Idvantages may engage in trade because A) They will achieve an absolute advantage with one another. B) They are required to because they are part of the World Trade Organization. C) They will be able to consume more goods in total due to specialization and trade.
C
When a country participates in international trade, its consumption possibilities A) Must still equal its production possibilities. B) Will increase if it is a rich country and will decrease if it is a poor country. C) Always exceed its production possibilities. D) May increase, but its trading partners consumption possibilities will decrease.
C
When foreigners come to the United States as tourists, they are generating a A) Supply of U.S. dollars and a supply of a foreign currency. B) Supply of U.S. dollars and a demand for a foreign currency. C) Demand for U.S. dollars and a supply of a foreign currency. D) Demand for U.S. dollars and a demand for a foreign currency.
C
Which of the following best describes the comparative advantage of the two countries illustrated in Figure 35.1? A) Japan has a comparative advantage in both goods. B) The United States has a comparative advantage in both goods. C) Japan has a comparative advantage in motorcycles, the United States in DVD players. D) Japan has a comparative advantage in DVD players, the United States in motorcycles.
C
Which of the following can a nation use to shift the supply or demand for its currency? A) Fiscal policy but not monetary policy. (B) Trade policies such as tariffs but not fiscal policy. C) Fiscal, monetary, and trade policies. D) Monetary policy but not trade policy.
C
Which of the following is not a reason to restrict trade? A) Preservation of national security. B) Concerns about dumping. C) Concern about high prices for consumers. D) protection of infant industries.
C
Which of the following is true? A) Japan has a high export ratio. B) The European nations tend to have lower export ratios. C) The United States has a very low export ratio.
C
Which of the following statements concerning higher marginal tax rates is correct? A) They encourage work effort and make more people eligible for welfare benefits. B) They encourage work effort and make fewer people eligible for welfare benefits. C) They discourage work effort and make fewer people eligible for welfare benefits. D) They discourage work effort and make more people eligible for welfare benefits.
C
With flexible exchange rates A) Foreign exchangè reserves are used to offset balance-of-payment deficits. B) All countries will run either a trade surplus or trade deficit. C) The equilibrium exchange rate is determined in a foreign exchange market. D) The balance of trade is zero.
C
tax elasticity of supply equal to 0.21 indicates that A) Employers will hire more workers if tax rates increase. B) Employers will not hire any workers if tax rates increase. C) Workers will cut back on the number of hours worked if tax rates increase. D) Workers will not cut back on the number of hours worked if tax rates increase.
C
Suppose a poverty program has a basic benefit of $10,000, zero deductions, and a breakeven level of income of $25,000. The marginal tax rate is percent.
0.40
Using Figure 35.2, the opportunity cost of producing 1 pair of golf shoes in the United States is
3 baseballs
Suppose both countries illustrated in Figure 35.1 specialized completely in the good they could produce with the lowest opportunity cost. What would the total production of matorcycles be?
4,000
If a country does not engage in trade with other countries, it is known as
A closed economy.
Specialization in production and then trading with other countries A) Change the mix of output for each country and increase total world output. B) Mean that every citizen in every country is better off. C) Increase the standard of living for rich countries but not for poor countries.
A
Suppose a men's suit produced in Moldavia sells for 250 euros. If the exchange rate between euros and dollars is €1 = $1.38, how much will an American pay for the suit? A) $345.00. B) $250.00 C) $181.16. D) $138.00.
A
The amount of good A given up for good B in trade is the A) Terms of trade. B) Absolute advantage. C) Exploitation of consumers. D) Comparative advantage.
A
The flat tax was originally proposed by A) Milton Friedman. B) Bill Clinton. C) Ronald Reagan. D) Paul Romer.
A
Under a system of fixed exchange rates, excess demand by Germans for the Swiss franc represents a potential A) German balance-of-payments deficit with Switzerland. B) German balance-of-payments surplus with Switzerland. C) German trade surplus with Switzerland. D) Swiss trade surplus with Germany.
A
Which of the following generates a demand for dollars in the foreign exchange market? • A) Travel by foreign visitors in the United States. B) Transfers of money by foreign workers in the United States to relatives abroad. C) Foreign aid given by the United States. D) U.S. military installations abroad.
A
Which of the following might cause a depreciation of the U.S. dollar versus the Japanese yen? A) A recession in Japan B) More Japanese visitors to Hawaii. C) A greater demand for U.S. coal by Japan. D) A recession in the United States.
A
Which of the following taxes is most likely to reduce inequity? V A) The federal income tax. B) A gasoline tax. C) A sales tax. D) A local property tax.
A
The U.S. demand for foreign currency arises from speculation and the A) Foreign demand for U.S. goods, services, and financial assets. B) U.S. demand for foreign goods, services, and financial assets. C) Foreign demand for U.S. holdings of gold. D) Supply of goods and services from the United States.
B
The capital account balance equals A) The balance of payments plus the sum of the merchandise balance, the services balance, and unilateral transfers. B) The negative of the current account balance. C) The current account balance minus imports. D) Foreign purchases of U.S. assets plus U.S. purchases of foreign assets.
B
The demand for U.S. dollars in the foreign exchange market is determined by all of the following except A) Foreign demand for American investments. B) American demand for American products. C) Europeans who would rather hold U.S. dollars than euros. D) Foreign demand for American exports.
B
The imposition of a payroll tax A) Reduces the nominal cost of labor. B) Shifts the labor supply curve to the left. C) Increases the net wage paid to employees. D) Shifts the labor demand curve to the right.
B
The primary purpose of NAFTA is to A) Encourage the development of the Mexican and Canadian economies at the expense of U.S. workers and consumers. B) Increase income in Mexico, Canada, and the United States by encouraging free trade. C) Ensure that there are no losers as the result of trade agreements between Mexico, Canada, and the United States. D) Protect U.S. and Canadian workers from unfair competition from Mexico.
B
The size distribution of income A) Reflects the distribution of financial assets. B) Tells how personal income is divided up among households or income classes. C) Focuses on the distribution of income to different factors of production. D) Is the same thing as the functional distribution of income.
B
The taxation principle that says people with equal incomes should pay equal taxes is called A) A regressive tax system. • B) Horizontal equity. C) Vertical equity. D) A progressive tax system.
B
Theoretically, the net balance of payments is A) Exports minus imports. B) The current account plus the capital account. C) A country's capital inflow minus its capital outflow. D) Foreign demand for a country's currency minus foreign supply.
B
Which of the following events would result in a greater demand for U.S. dollars in the foreign exchange market, ceteris paribus? A) Higher tariffs imposed by the United States on imports. B) An increase in interest rates in the United States. C) Higher quotas imposed by the United States on imports. D) An increase in interest rates in Japan.
B
Which of the following is not a determinant of eligibility for Social Security benefits? A) Being too disabled to work. • B) Having low income. • C) Reaching retirement age. D) Being the survivor of a deceased worker.
B
Which of the following is not likely to occur because of exchange rate fluctuations? A) An increase in the demand for imports. B) An end to flexible exchange rates worldwide. C) A decrease in the demand for exports.
B
Which of the following statements is true for the two countries illustrated in Figure 35.1? A) Japan has an absolute advantage in motorcycles. B) The United States has a comparative advantage in DVD players. C) The United States has a comparative advantage in motorcycles, Japan in DVD players. D) Japan has an absolute advantage in motorcycles, the United States in DVD players.
B
If a country engages in trade with other countries, it is known as
C) An open economy.
The existence of income transfer programs can
C) Increase the wage rate as the labor supply decreases.
If welfare benefits equaled the poverty gap for each household in poverty, then
C) Poverty would be eliminated.
Based on the comparative cost ratios implied in Figure 35.2, it is clear that
C) The United States has a comparative advantage in baseballs and Mexico has a comparative advantage in golf shoes.
Excess demand for a specific foreign currency, such as the pound, implies a A) Balance-of-payments surplus for the United States. B) Capital account deficit for the United States. C) Capital account surplus for the United States. D) Balance-of-payments deficit for the United States.
D
In the World View article on new tariffs on imported steel from China, the tariff is designed to A) Protect Chinese workers who produce steel. B) Protect U.S. steel distributors. C) Protect U.S. steel consumers. D) Protect U.S.-based import-competing industries.
D
In the article on China holding $4 trillion in dollars, for every dollar it holds in reserves, it prints A) 10 additional yuan for the domestic money supply. B) 6.5 fewer yuan for the domestic money supply. C) 10 fewer yuan for the domestic money supply. V•) D) 6.5 additional yuan for the domestic money supply.
D
International trade A) Reduces the level of income for export industries. B) Causes prices of products to rise because of the transportation costs. C) Benefits the domestic industries that compete with the imported products. D) Redistributes income from import-competing industries to export industries.
D
It's not likely that a country will specialize completely in one good even if it has a lower opportunity cost because A) Comparative advantage is not a workable concept in the world economy. B) The country would want to save some of the good for its own citizens. C) The country would end up inside its production possibilities curve. D) Opportunity costs increase as more of a good is produced.
D
One World View article is titlèd "Top Tax Rates." The highest marginal tax rates in the world in 2015 were found in A) Monaco. B) Canada. C) France. D) Denmark.
D
Refer to Figure 35.4 for the production possibilities curve for Chile: Chile's production and consumption of wine and wheat without trade are represented by point A. Suppose that Chile has a comparative advantage in the production of wine compared to the United States and specialization and trade take place between the two countries. The most likely new combination of wine and wheat available to Chile would be
D
Refer to Figure 36.3 for the dollar-Swiss franc foreign exchange market. Which of the following is true? A) The U.S. dollar appreciates in value compared to the franc when supply increases from S1 to S2. B) The Swiss franc appreciates in value compared to the U.S. dollar when supply decreases from S2 to 51. C) An increase in supply from Sp to S2 could be caused by an increase in Swiss demand for U.S. corn. D) An increase in supply from S, to Sy could be caused by an increase in the U.S. demand for Swiss chocolate.
D
Suppose that today 1 British pound exchanges for $1.60. If next week 1 pound exchanges for $1.70, it is clear that A) The pound has depreciated relative to the dollar. B) The dollar has appreciated relative to the pound. C) Both currencies have appreciated. D) The dollar has depreciated relative to the pound.
D
The U.S. federal income tax is classified as a A) Regressive or flat tax, but not a progressive tax. B) Regressive tax only. C) Flat tax only. D) Progressive tax only.
D
The capital account includes A) Unilateral transfers. B) Trade in services. C) Trade in goods. D) Foreign purchases of U.S. assets.
D
The depreciation of a country's currency causes the price of imports to A) Rise and the prices of exports to rise. B) Fall and the prices of exports to fall. C) Fall and the prices of exports to rise. • D) Rise and the prices of exports to fall.
D
The expansion of world output as a result of trade is mainly due to the effects of A) Improved terms of trade. B) Higher trade barriers. C) Specialization according to absolute advantage. D) Specialization according to comparative advantage.
D
What should happen to the equilibrium price and quantity in a market as a result of a quota on imports? A) Equilibrium price and quantity should both go up. B) Equilibrium price and quantity should both go down. C) Equilibrium price should go down, and equilibrium quantity should go up. D) Equilibrium price should go up, and equilibrium quantity should go down.
D
When foreigners buy U.S. dollars because they are a more stable currency than the currencies in their countries, they are generating a A) Supply of U.S. dollars and a demand for a foreign currency. B) Supply of U.S. dollars and a supply of a foreign currency. C) Demand for U.S. dollars and a demand for a foreign currency. ) D) Demand for U.S. dollars and a supply of a foreign currency.
D
When quotas are eliminated, losers include A) Foreign producers. B) There are no losers when free international trade is established c) Domestic consumers. D) Domestic producers.
D
When the Census Bureau counts the number of poor Americans, it counts A) Personal income plus transfer payments. B) Only in-kind income. C) Both in-kind and money income. V D) Only money income.
D
Which of the following could be responsible for the depreciation of a country's currency? A) The country experiences a sudden drop in the rate of inflation while other nations do not. B) Speculators anticipate economic growth in that nation. C) The country expands its tourist industry. MO D) The country defaults on bonds held by foreigners.
D
With regard to international trade, A) Rich countries benefit at the expense of poor countries. B) Some countries do not have a comparative advantage in producing anything. C) The production possibilities exceed the consumption possibilities. D) The market mechanism determines the terms of trade.
D
Compute the tax rates for the three taxpayers shown in Table 33.1. Then use the table to answer the indicated question. In Table 33.1, the effective tax rate for taxpayer 3 is
D 20.0 percent
Figure 34.3 Refer to Figure 34.3. If a welfare recipient did not work, he or she would receive welfare benefits of
D) $10,000.
In Figure 35.1, what is the opportunity cost of motorcycles in Japan?
D) 1/2 of a DVD player per motorcycle.
Refer to Figure 34.1. Suppose the production possibilities curve PP represents the goods and services produced in the U.S. economy, If the current welfare system discourages people from seeking work, and laws change so that more people receive welfare benefits, the most likely result would be
D) A shift from PP to PPy.
Refer to Figure 35.6: If S represents the U.S. domestic supply of a good, what does S2 most likely represent?
D) U.S. supply under quota-restricted trade.
A trade deficit means that exports exceed imports over some relevant time period.
False
Comparative advantage refers to the ability to produce output with fewer resources than any other country.
False
Foreign demand for U.S. dollars also represents a supply of dollars.
False
If the Russian ruble depreciates relative to the U.S. dollar, Russian steel becomes more expensive for American firms to purchase.
False
Industrial countries are not usually involved in currency bailouts since they are not likely to be affected by the devaluation of another country's currency.
False
To be eligible for a welfare program, a recipient must be elderly.
False
Trade restrictions designed to benefit the import-competing industries will benefit the entire country.
False
Suppose a U.S. firm purchases some English china. The china costs 1,000 British pounds. At the exchange rate of $1. 45 = 1 pound, the dollar price of the china is
$1450
Lower marginal tax rates for welfare programs will A) Make more people eligible for welfare. B) Decrease the incentive to work. C) Increase the moral hazard associated with welfare. D) Decrease total welfare costs. MacBook
A
Compute the tax rates for the three taxpayers shown in Table 33.1. Then use the table to answer the indicated question. In Table 33.1, the nominal tax rate for taxpayer 2 is
10.0 percent
If one euro is equal to 0. 60 U.S. dollars, what would be the euro price of a car that costs $10,000?
16,667 euros.
By 2030 in the United States there will be ______ workers for every retired person.
2
You have decided to purchase, directly from the French manufacturer, a helicopter that costs 800,000 euros. At the equilibrium exchange rate between dollars and euros in Figure 36.1, this purchase will cost you
400,000
Based on the information in Table 35.1, assume China and the United States have the same amount of resources with which to produce soybeans and computers and they produce no other goods. The opportunity cost of producing 1 ton of soybeans in the United States is
5 computers
According to the text, which of the following is true? A) The United States imports baseballs and exports corn. B) The United States imports auto parts and cars, but it doesn't export cars. C) The United States imports paper, but not computers since it exports computers.
A
An excess demand for foreign currency at current exchange rates is known as a A) Balance-of-payments deficit. B) Balance-of-payments surplus. C) Trade deficit. D) Trade surplus.
A
Comparative advantage in production is achieved by A) Having a lower opportunity cost of producing a good relative to that of other countries. B) Being able to produce a good with fewer inputs than in other countries. C) Having terms of trade that are better than the terms of trade faced in other countries. D) Subsidizing, specializing, and lowering the price of an exported good.
A
If U.S. quotas on imported sugar were eliminated, A) The supply of sugar in the United States would shift to the right and sugar prices would fall. B) The demand for sugar in the United States would shift to the left and prices would fall. C) The world price of sugar would rise. D) The supply of sugar in the United States would shift to the left and prices would rise.
A
A welfare recipient receives $10,000 in benefits when he does not work but receives an income of $15,000 when he works part-time and earns $6,000 in wages. What is the implicit marginal tax rate the recipient faces?
A) 16.6 percent.
Use the following formula to answer the indicated question: Welfare benefit = Maximum benefit - 0.7 [Wages - (Work expenses + Child care costs)] Based on the information given, the marginal tax rate is
A) 70 percent.
Refer to Figure 34.4. The implied marginal tax rate in this example is
A) Between O and 100 percent.
A country has a comparative advantage in a good if
A) It can produce a good at a lower opportunity cost relative to another country.
Based on the information in Table 35.1, assume China and the United States have the same amount of resources with which to produce soybeans and computers and they produce no other goods. From the information in Table 35.1, it is clear that
A) The United States has an absolute advantage in both goods.
Suppose a taxpayer has an income of $100,000 and a taxable income of $80,000, and pays taxes of $10,000. If the taxpayer talks of being taxed at a 10 percent rate, she is referring to the A) Average tax rate. B) Effective tax rate. C) Nominal tax rate. D) Marginal tax rate.
B
A marginal tax rate of zero for welfare programs will A) Increase the risk of moral hazard. B) Increase work effort. C) Reduce welfare costs. D) Will make everyone eligible for welfare.
D
In-kind transfers are A) Programs for job relocation and training of poor people who wish to work in other geographic areas. B) The transfer of goods and services rather than cash. C) paid to individuals in a form that gives them the maximum flexibility to buy what they need. D) A means to allow the poor to make financial transactions between private providers of their own choosing.
B
Question 41 The Social Security program is financed by A) Sales taxes. B) Taxes on payrolls. C) Corporate profit taxes. D) Charitable contributions.
B
A good time for an American to hold German stocks, ceteris paribus, is when the A) Euro is stable compared to the U.S. dollar. B) U.S. dollar depreciates in value compared to the euro. C) U.S. dollar appreciates in value compared to the euro. D) The return in the German stock market has no relationship to the value of the dollar compared to the euro.
B
A principal objective of the World Trade Organization is to A) Protect import-competing producers. B) Reduce barriers to trade. C) Assist in retraining workers displaced by imports. D) Equalize income tax structures in various countries.
B
All of the following are true regarding flexible exchange rates except A) The quantity of foreign exchange demanded equals the quantity supplies B) Speculators typically push exchange rates away from the long-term equilibrium. C) Some people are hurt while others are helped by exchange rate movements. D) Exchange rate movements alter relative prices and may disrupt import and export flows.
B
An increase in the price of the U.S. dollar in terms of euros will cause, ceteris paribus, A) A lower European inflation rate. B) European goods to be cheaper to residents of the United States. C) Higher interest rates in the United States. D) European goods to be more expensive to residents of the United States.
B
Flat tax critics A) Point out that it would increase the government's ability to alter the mix of output. B) Believe it would create additional vertical and horizontal inequities. C) Believe it would make it easier for state and local governments to raise their own revenues. D) Point out that it would increase home values significantly.
B
If Luis makes $50,000 per year as a computer programmer and pays $6,000 in taxes while Hector makes $50,000 per year as a roofing contractor and pays $7,000 in taxes, this is an example of A) A flat tax. B) Horizontal inequity. C) A regressive tax system. D) Vertical inequity.
B
In Figure 33.4, what is the burden of the tax on workers? A) The wage reduction from W3 to W1. B) The wage reduction from W to W2. C) The wage reduction from W, to W3. D) The wage reduction from W, to W2.
B
American citizens planning a vacation abroad that would require foreign currency would welcome: A) Appreciation of the foreign currency. B) Depreciation of the dollar. C) Devaluation of the dollar. D) Appreciation of the dollar.
D
Assume that the marginal tax rate is 10 percent for the first $10,000 of income, 20 percent for income between $10,000 and $40,000, and 30 percent for any income over $40,000. If Jerome has taxable income equal to $60,000 for the year, what is his tax bill? ( A) $6,000. B) $18,000. C) $15,000. D) $13,000.
D
Depreciation of the dollar refers to A) Intervention in international money markets. B) A loss of foreign exchange reserves. C) A fall in the dollar price of a foreign currency. • D) An increase in the price of foreign currency in terms of dollars.
D
Dumping is said to occur when A) Some foreign countries have trade surpluses and others have a trade deficit. B) Foreign producers sell their goods abroad at prices lower than their marginal cost of production. C) Foreign producers sell their goods abroad at prices lower than our average cost of production. D) Foreign producers sell their goods in export markets at prices below domestic prices.
D
A country could correct a balance-of-payments surplus by A) Increasing tariffs on imported goods. B) Contractionary monetary policy. C) Decreasing the money supply. D) Expansionary fiscal policy.
D
A depreciation of the South Korean won against the U.S. dollar will A) Lower the won price of Korean goods. B) Lower the dollar price of U.S. goods. C) Raise the dollar price of Korean goods. D) Raise the won price of U.S. goods.
D
Suppose the United States can produce 2,000 cars or 2,000 trucks. Japan can produce either 2,000 cars or 1,000 trucks. In terms of car production, we can conclude that
Japan has a comparative advantage.
Without trade, a country's' consumption possibilities are
Limited to its domestic production possibilities.
A system in which governments intervene in foreign exchange markets to limit but not eliminate exchange rate fluctuations is referred To as
Managed exchange rates
Suppose that Brazil has a comparative advantage in coffee and Mexico has a comparative advantage in tomatoes. Which of the following groups would be worse off if these countries specialize and trade?
Mexican coffee producers.
If the percentage of income paid in taxes increases as income rises, then the tax system is
Progressive
A balance-of-payments surplus for the United States can be corrected by
Reducing tariffs on foreign goods.
Which of the following countries has the lowest export ratio?
Samoa.
Almost every U.S. household receives some form of income transfer payments.
True
An embargo is a prohibition against trading particular goods.
True
Free trade benefits the nation as a whole but may hurt specific industries and workers.
True
If every country specializes in what it produces best and then trades, more will be produced than if each country tries to produce everything for its own needs.
True
Loopholes, exemptions, and deductions cause an erosion of the tax base.
True
Reducing protectionism allows greater gains from free trade.
True
Under a flexible exchange rate system, there is no need for foreign exchange reserves.
True
A World View titled "Export Ratios" examines the openness of trade for several countries based on the trade to GDP ratio. Of the countries listed below, which exports the least (as measured as a percentage of GDP)?
United States
Refer to Figure 34.4. If an individual does not work, she or he will receive welfare benefits of
$7,500.
Use the following formula to answer the indicated question: Welfare benefit = Maximum benefit - 0.4 [Wages - (Work expenses + Child care costs)] Suppose Shanika works 2,000 hours per year at a wage of $6 per hour, has child care expenses of $3,000 per year, and has work expenses of $900. If the state maximum welfare benefit is $11,000 per year, based on the welfare formula given, Shanika'swelfare benefit will be
$7,760
Use the following formula to answer the indicated question: Benefit amount = Maximum award - 0.6 (Wages in excess of ceiling) Charles is retired and earns $10,000 per year working part-time. He is entitled to a maximum Social Security retirement benefit of $14,000. Social Security regulations allow him to earn $8,000 and still get maximum benefits. If he increases the number of hours he works and thus increases his earnings to $20,000, his total income will increase by
4,000
A tax system in which tax rates fall as incomes rise is A) Regressive. B) Flat. C) Progressive. D) Proportional.
A
Wherfa program is means-tested, it means that A) To be eligible, the recipient must have little income. B) The target efficiency is high. C) It is a social insurance program. (D) It is an in-kind program.
A
In general, lower marginal tax rates provide incentives to A) Invest less. • B) Produce more output. ) C) Work less. D) Find more tax loopholes.
B
Refer to Figure 34.3. The disincentive to work caused by this welfare program A) Ends at $5,000 where benefits equal wages B) Ends at $10,000. C) Ends as soon as any income is earned. D) Exists at all income levels.
B
The Bush tax cuts of 2001-2010 reduced
B) The marginal tax rate for the highest income class to 10 percent.
A mathematical summary of inequality based on the Lorenz curve is known as the A) Lorenz coefficient. B) Okun coefficient. V• C) Gini coefficient. D) Income distribution share.
C
Wealth refers to A) The purchasing power this year. B) A flow of money over time. C) The market value of assets people own. D) The way personal income is divided among households.
C
Use the following formula to answer the indicated question: Welfare benefit = Maximum benefit - 0.7 [Wages - (Work expenses + Child care costs)] Suppose Ramirez works 1,800 hours per year at a wage of $7 per hour, has no child care expenses, and has work expenses of $600. If the state maximum welfare benefit is $13,000 per year, based on the welfare formula given, Ramirez's welfare benefit will be
C) $4,600
Figure 34.2 illustrates two labor supply curves. If in-kind payments become readily available in this economy and marginal tax rates increase significantly, we would expect a shift from
C) S2 to Sy and a movement down S1.
In Figure 33.4, what is the wage rate received by workers after the imposition of the payroll tax?
C) W2
A flat tax A) Encourages economic activity through deductions and credits. B) Completely eliminates potential vertical inequities. C) Includes many tax brackets. D) Reduces the government's ability to alter the mix of output.
D
Greater equality in income is supported by the argument that it A) Stimulates consumption. B) Strengthens the link between effort and reward. C) Increases horizontal equity. D) Increases incentives to work for low-income earners.
D
If the tax elasticity of supply is 0.6 and tax rates increase by 10 percent, the quantity of labor supplied will (A) Decrease by 1.67 percent. B) Increase by 6 percent. C) Increase by 1.67 percent. D) Decrease by 6 percent.
D
Large in-kind benefits tend to increase the incentive to seek employment.
False
Low marginal tax rates discourage work effort but make fewer people eligible for welfare.
False
Medicaid provides cash to the poor so that they may purchase medicine and doctors' services.
False
The Social Security payments received by retired persons are an in-kind transfer payment.
False
The earnings test reduces the amount of Social Security payments a retiree can collect unless she or he is under 60.
False
The effective tax rate refers to the actual taxes paid as a percentage of taxable income.
False
Public education is an in-kind benefit.
True
Social Security payments depend on an individual's wages, but the benefits formula is progressive.
True
Use the following formula to answer the indicated question: Benefit amount = Maximum award - 0.6 (Wages in excess of ceiling) Jarrett is retired and earns $10,000 per year working part-time. He is entitled to a maximum Social Security retirement benefit of $14,000. Social Security regulations allow him to earn $8,000 and still get maximum benefits. Jarrett's total income, including Social Security benefits is
• B) $22,800.
Tax incidence most accurately refers to • A) The distribution of the real burden of a tax. 1 / 1 point B) Those from whom a tax is collected. C) The relative tax burdens of state and local governments. D) The taxes paid divided by taxable income.
A
Additional loopholes in the personal income tax law tend to A) Increase the tax base. B) Increase horizontal equity. C) Make the system less progressive.
C
Use the following formula to answer the indicated question: Welfare benefit = Maximum benefit - Wages Suppose Parker works 2,000 hours per year at a wage of $12 per hour. If the state maximum welfare benefit is $14,000 per year, based on the welfare formula given, Parker's welfare benefit will be A) $14,000. B) $7,000. J• C) Zero. D) $28,000.
C
In general, state and local taxes are A) Flat. B) Progressive. C) Proportional. D) Regressive.
D
In-kind transfers A) Are a payment for work. B) Increase the poverty index. C) Are one way to reduce the moral hazards of the welfare system. • D) Provide the direct transfer of goods and services.
D
A tax is progressive if it takes a A) Smaller fraction of income as income rises. B) Smaller number of dollars as income rises. C) Smaller fraction of income as income falls. D) Larger number of dollars as income falls.
C
Additional loopholes in the personal income tax law tend to A) Increase the tax base. B) Increase horizontal equity. C) Make the system less progressive. D) Increase vertical equity.
C
If the marginal tax rate is too high, it can cause all of the following except A) Government tax receipts to decline. B) The rate of saving to decline. C) Businesses to produce more. D) Work effort to decrease.
C
The impact of a decrease in the marginal tax rate on labor supply will be larger as the tax elasticity of supply gets smaller.
False
The tax incidence of a payroll tax results in an increase in net wages.
False
Vertical equity can be determined by comparing the A) Marginal tax rate of the taxpayer with the highest nominal income to the marginal tax rates of taxpayers with lower nominal incomes. B) Effective tax rates for two taxpayers with the same nominal incomes. Ve C) Marginal tax rates for two taxpayers with the same nominal incomes. D) Effective tax rate of the taxpayer with the highest nominal income to the effective tax rates of taxpayers with lower nominal
D
The creation of a retirement program, such as the Social Security program, will cause an increase in the wage rate, ceteris paribus,
True
The creation of the Social Security program caused a decrease in the labor force participation rate.
True
The impact of a decrease in the marginal tax rate on labor supply depends on the tax elasticity of labor supply.
True
The nominal tax rate refers to the actual taxes paid as a percentage of taxable income.
True
The principle of horizontal equity is violated if two people who earn the same amount of income actually pay a different amount in Taxes
True
In Figure 33.4, what is the burden of the tax on employers? A) The wage increase of W5 - W3. B) The wage increase of W5 - W2. C) The wage increase of W3 - W2. D) The wage increase of W5 - W1.
A
As exemptions are raised and allowable deductions are increased, there is Ve A) Greater vertical inequity. 1 / 1 point B) A smaller gap between gross income and taxable income. C) Greater horizontal equity. D) A smaller gap between effective and nominal tax rates.
A
Assume the marginal tax rate is 10 percent for the first $30,000 of income, 15 percent for income between $30,000 and $70,000, and 20 percent for any income over $70,000. If Emily has taxable income equal to $80,000 for the year, what is her tax bill? A) $11,000. B) $16,000. C) $8,000.
A
If income is distributed equally, the A) Lorenz curve is a straight line. B) Line of equality sags below the Lorenz curve. C) Lorenz curve sags below the line of equality. D) Gint coefficient is greater than zero.
A
Income is measured as A) A flow only. B) Both a flow and a stock. C) Neither a flow nor a stock. D) A stock only.
A
Social Security annual benefits to retirees A) Are higher for high-income workers and lower for low-income workers. B) Are higher for low-income workers and lower for high-income workers. C) Are equal to the retirees average annual salaries when they were working. D) Do not depend on prior earnings. MacBook
A
Transfer payments are A) Payments to individuals for which no current goods or services are exchanged. B) Government expenditures on goods and services. C) Social Security taxes paid by employers. D) Government tax receipts.
A
Welfare costs can be reduced by A) Decreasing the breakeven level of income. B) Increasing earnings disregards. C) Decreasing the tax elasticity of labor supply. D) Reducing the marginal tax rate.
A
Welfare support creates a moral hazard by Ve A) Reducing the need to work. B) Encouraging workfare. C) Encouraging individuals to help themselves. D) Solving the equity and efficiency conflict.
A
Which of the following is least likely to be the case? A) Medicare changes the mix of output away from medical services. B) Student loans change the mix of output in favor of educational services. C) Housing subsidies encourage the production of additional housing D) Food stamps encourage the production of more food.
A
Suppose Mr. Lee has total income of $120,000, has taxable income of $90,000, and pays $30,000 in taxes. Considering the information what is Mr. Lee's nominal tax rate?
B 33.3 percent
Government failure A) Occurs whenever there is market failure. B) Occurs whenever the government intervenes in the market. C) Results when government intervention fails to improve market outcomes. D) Does not occur; only market failure occurs.
C
In Omega the lowest 40 percent of families receive approximately what percentage of income? (See Figure 33.1)17 percent. B) 20 percent. C) 10 percent. D) 40 percent.
C
Medicaid and food stamps are received by A) Only the elderly. B) Mostly upper-income households in the United States due to inequities in the system. V• c) Only the poor. D) Anyone that applies.
C
Suppose Mr. Lee has total income of $120,000, has taxable income of $90,000, and pays $30,000 in taxes. Considering the information, what is Mr. Lee's effective tax rate? ( A) 66.7 percent. • B) 72 percent. C) 25 percent. D) 33.33 percent.
C
Suppose a taxpayer has an income of $90,000 and a taxable income of $75,000, and pays $7,500 in taxes. If the taxpayer says he is taxed at a 10 percent tax rate, he is referring to the A) Effective tax rate. B) Marginal tax rate. C) Nominal tax rate. D) Vertical tax rate.
C
The Social Security program tends to A) Decrease work incentives for older workers but not younger workers. B) Increase work incentives for older workers but not younger workers. C) Decrease work incentives for both older and younger workers. D) Increase work incentives for both older and younger workers.
C
The breakeven level of income equals the A) Need standard with a marginal tax rate of zero percent. B) Minimum amount of income society considers desirable for households to have. C) The highest level of income at which a household ceases to receive welfare benefits. D) Amount of income a family may earn without losing any welfare benefits.
C
The changes contained in the Tax Relief Act of 2001 included A) A partial shift from corporate to personal taxes. B) Narrowing the tax base. C) New loopholes to encourage education x • D) More tax brackets to increase vertical equity.
C
The effective tax rate is A) The percentage of tax payable on the last dollar of income received. B) Equaf to the taxes paid divided by taxable income. C) Always equal to the marginal tax rate. D) Never higher than the nominal tax rate.
D
The percentage of the working-age population that is working or seeking work is the A) Employment rate. 1/ 1 point B) Worker participation rate. C) Social Security rate. D) Labor force participation rate.
D
Transfer payments include all of the following except A) Social Security benefits for retirees. B) Federal crop assistance for farmers. C) Government-subsidized loans for students. D) A church-run thrift store for the poor.
D
An assistance program that guarantees a minimum income, regardless of the family's earned income, has a A) Zero disregard. B) High tax elasticity of labor supply. C) Breakeven income level equal to the need standard.
D) Marginal tax rate of zero percent.
A transfer program that uses means testing to identify who is eligible for benefits is known as
B) Welfare.
