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Exploring Macroeconomics 5th Edition Robert L. Sexton - Solutions
Mutually beneficial trade will occur whenever the exchange rate between the goods involved is set at a level wherea. each country can export a good at a price above the opportunity cost of producing the good in the domestic market.b. each country can import a good at a price above the opportunity
In Samoa the opportunity cost of producing one coconut is four pineapples, while in Guam the opportunity cost of producing one coconut is five pineapples. In this situation,a. if trade occurs, both countries will be able to consume beyond the frontiers of their original production possibilities.b.
Assume that the opportunity cost of producing a pair of pants in the United States is 2 pounds of rice, while in China, it is 5 pounds of rice. As a result,a. the United States has a comparative advantage over China in the production of pants.b. China has a comparative advantage over the United
Export subsidies lead nations to export products in which they do not have a comparative advantage. True or False.
With subsidies, producers export goods not because their costs are lower than those of a foreign competitor but because their costs have been artificially reduced by government action transferring income from taxpayers to the exporter. True or False.
Unlike import tariffs and quotas, export subsidies tend to increase efficiency. True or False.
Because resources being spent on lobbying efforts could have produced something instead, the measured deadweight loss from tariffs and quotas will likely understate the true deadweight loss to society. True or False.
Nations have sometimes used product standards ostensibly designed to protect consumers against inferior, unsafe, dangerous, or polluting merchandise as a means of restricting foreign competition. True or False.
Like tariffs, quotas directly restrict imports; but the U.S. government does not collect any revenue as the result of an import quota, as it does with tariffs. True or False.
From a national defense standpoint, rather than imposing import tariffs, it makes more sense to use foreign supplies in peacetime and perhaps stockpile “insurance” supplies so that large domestic supplies would be available during wars. True or False.
Exporters in a country would generally be supportive of their country’s imposing import tariffs. True or False.
If the imposition of a tariff leads to retaliatory tariffs by other countries, domestic employment outside the industry gaining the tariff protection will likely suffer. True or False.
The overall domestic employment effects of a tariff imposition are likely to be positive. True or False.
What may seem like dumping may in fact be comparative advantage. True or False.
When foreign countries are dumping, they are trying to gain a greater share of the world market for their products. True or False.
The history of infant-industry tariffs suggests that the tariffs often linger long after the industry is mature and no longer in need of protection. True or False.
Tariffs result in gains to domestic producers that are more than offset by losses to domestic consumers. True or False.
Tariffs are usually relatively large revenue producers for governments. True or False.
When a country does not produce a good relatively as well as other countries do, allowing international trade will increase consumer surplus less than producer surplus decreases. True or False.
When a country does not produce a good relatively as well as other countries do, international trade benefits domestic consumers but harms domestic producers. True or False.
When the domestic economy has a comparative advantage in a good, exporting that good increases domestic wealth because, while domestic consumers lose from the free trade, these negative effects are more than offset by the positive gains captured by producers. True or False.
When the domestic economy has a comparative advantage in a good, allowing international trade benefits domestic consumers but harms domestic producers. True or False.
The total gain to the economy from trade is the sum of consumer and producer surpluses. True or False.
Once the equilibrium output is reached at the equilibrium price, all of the mutually beneficial opportunities from trade between suppliers and demanders will have taken place. True or False.
Trading at the market equilibrium price generates both consumer surplus and producer surplus. True or False.
The difference between the least amount for which a supplier is willing to supply a quantity of a good or service and the revenues a supplier actually receives for selling it is called consumer surplus. True or False.
By specialization according to comparative advantage and trade, two parties can each achieve consumption possibilities that would be impossible for them without trade. True or False.
By specializing in products in which it has a comparative advantage, an area can have more goods and services if it trades the added output for other goods and services that others can produce at a lower opportunity cost. True or False.
If two nations with different opportunity costs of production specialize, total output of both products may be higher as a result. True or False.
A trading area may be a locality, a region, or a nation. True or False.
The principle of comparative advantage can be applied to regional markets. True or False.
Differences in opportunity costs provide an incentive to gain from specialization and trade. True or False.
An area should specialize in producing and selling those items in which it has an absolute advantage. True or False.
In voluntary trade, both participants in an exchange anticipate an improvement in their economic welfare. True or False.
In the global economy, imports equal exports because one country’s exports are another country’s imports. True or False.
When the United States runs a trade deficit in goods, it must run a trade surplus in services. True or False.
When the United States runs a trade deficit in goods and services with the rest of the world, the rest of the world must be running a trade surplus in goods and services with the United States. True or False.
Nations’ imports and exports of services are the largest component of the balance of payments. True or False.
Our imports provide the means by which foreigners can buy our exports. True or False.
U.S. imports are considered a credit item in the balance of payment because the dollars sold to buy the necessary foreign currency add to foreign claims against U.S. buyers. True or False.
Although the importance of the international sector varies enormously from place to place, the volume of international trade increased substantially. True or False.
The case for import quotas is ___________ than the case for import tariffs.
Why would foreign producers prefer import quotas to tariffs, even if they resulted in the same reduced level of imports?
What is producer surplus?
What is the principle of comparative advantage?1.What benefits are derived from specialization?
4. Answer the following questions:a. If the current budget shows a deficit, what would an increase in taxes do to it?b. What would that increase in taxes do to aggregate demand?c. When would an increase in taxes be an appropriate contractionary fiscal policy?
3. Answer the following questions:a. If the current budget shows a surplus, what would an increase in government purchases do to it?b. What would that increase in government purchases do to aggregate demand?c. When would an increase in government purchases be an appropriate countercyclical fiscal
2. Are increases in both government purchases and net taxes at the same time expansionary or contractionary? Would both changes together increase or decrease the federal government deficit?
1. Why are federal government actions that increase deficits considered expansionary fiscal policy and those that decrease deficits considered contractionary fiscal policy?
35. A decrease in government purchases will do which of the following in the long run?a. increase unemploymentb. decrease real outputc. decrease the price leveld. all of the above
34. Starting at full employment, if MPC 2/3, an increase in government purchases of $10 billion would lead AD to _____________ and _____________ real output in the long run.a. increase $30 billion; increaseb. increase $30 billion; not changec. decrease $30 billion; decreased. decrease $30 billion;
33. A policy which increased the federal government deficit would tend to increase which of the following in the short run, other things being equal?a. aggregate demandb. real outputc. the price leveld. employmente. all of the above
32. Deficit reduction will tend toa. decrease real output in both the short run and long run.b. decrease real output in the short run, but increase real output in the long run.c. increase real output in both the short run and long run.d. increase real output in the short run, but decrease real
31. If the government budget deficit became a budget surplus because of cuts in federal government spending, other things being equal, which of the following would fall in the short run?a. interest ratesb. investmentc. unemploymentd. the money supplye. None of the above would fall in the short run.
30. Higher budget deficits would tend toa. raise interest rates.b. reduce investment.c. reduce the growth rate of the capital stock.d. do all of the above.
29. After briefly running federal surpluses, in 2001 the budget returned to deficits because ofa. a recession.b. the war on terrorism.c. a tax cut.d. all of the above.
28. When government debt is financed internally, future generations willa. inherit a lower tax liability.b. inherit neither higher taxes nor interest payment liability.c. inherit higher taxes.d. do none of the above.
27. How does the government finance budget deficits?a. The Federal Reserve creates new money.b. It issues debt to government agencies, private institutions, and private investors.c. It is primarily financed by foreign investors.d. It does nothing to finance budget deficits.
26. When the crowding-out effect of an increase in government purchases is included in the analysis,a. AD shifts left.b. AD doesn’t change.c. AD shifts right, but by more than the simple multiplier analysis would imply.d. AD shifts right, but by less than the simple multiplier analysis would
25. If U.S. budget deficits (which require the borrowing of funds) raise interest rates and attract investment funds from abroad,a. the foreign exchange value of the dollar will appreciate, and U.S. net exports will decrease.b. the foreign exchange value of the dollar will depreciate, and U.S. net
24. During a recession, government transfer payments automatically _____________ and tax revenue automatically _____________.a. fall; fallsb. increase; fallsc. increase; increasesd. fall; increases
23. Automatic stabilizersa. reduce the problems caused by lags, using fiscal policy as a stabilization tool.b. are changes in fiscal policy that act to stimulate AD automatically when the economy goes into recession.c. are changes in fiscal policy that act to restrain AD automatically when the
22. According to the crowding-out effect, if the federal government borrows to finance deficit spending,a. the demand for loanable funds will decrease, driving interest rates down.b. the demand for loanable funds will increase, driving interest rates up.c. the supply for loanable funds will
21. One of the real-world complexities of countercyclical fiscal policy is thata. fiscal policy is based on forecasts, which are not foolproof.b. a lag occurs between a change in fiscal policy and its effect.c. how much of the multiplier effect will take place in a given amount of time is
20. According to the Laffer curve,a. decreasing tax rates on income will always increase tax revenues.b. decreasing tax rates on income will always decrease tax revenues.c. decreasing tax rates are more likely to increase tax revenues the higher tax rates are to start with.d. decreasing tax rates
19. Other things being constant, an increase in marginal tax rates willa. decrease the supply of labor and reduce its productive efficiency.b. decrease the supply of capital and decrease its productive efficiency.c. encourage individuals to buy goods that are tax deductible instead of those that
18. Lower marginal tax rates stimulate people to work, save, and invest, resulting in more output and a larger tax base. This statement most closely reflects which of the following views?a. the Keynesianb. the crowding-out theory of budget deficitsc. the aggregate demand theoryd. the supply-side
17. If the MPC is 0.5, a $1 million change in taxes will have _____________ effect as a $1 million change in government spending.a. the sameb. half thec. double thed. none of the above
16. When taxes are increased, disposable income _____________, and hence consumption _____________.a. increases; increasesb. increases; decreasesc. decreases; increasesd. decreases; decreasese. stays the same; stays the same
15. The federal government buys $20 million worth of computers from Dell. If the MPC is 0.60, what will be the impact on aggregate demand, other things being equal?a. Aggregate demand will increase $12 million.b. Aggregate demand will increase $13.33 million.c. Aggregate demand will increase $20
14. The expenditure multiplier isa. 1/MPC.b. 1/(1 [1] MPC).c. (1 [1] MPC)/1.d. 1/change in MPC.
13. The multiplier effect is based on the fact that _____________ by one person is (are) _____________ to another.a. income; incomeb. expenditures; expendituresc. expenditures; incomed. income; expenditures
12. If the marginal propensity to consume is two-thirds, the multiplier isa. 30.b. 66.c. 1.5.d. 3.
11. AD will shift to the right, other things being equal, whena. the government budget deficit increases because government purchases rose.b. the government budget deficit increases because taxes fell.c. the government budget deficit increases because transfer payments rose.d. any of the above
10. A combination of an increase in government purchases and a decrease in taxes woulda. increase AD.b. decrease AD.c. leave AD unchanged.d. have an indeterminate effect on AD.
9. An increase in taxes combined with a decrease in government purchases woulda. increase AD.b. decrease AD.c. leave AD unchanged.d. have an indeterminate effect on AD.
8. If the government wanted to offset the effect of a boom in consumer and investor confidence on AD, it mighta. decrease government purchases.b. decrease taxes.c. increase taxes.d. do either a or c.
7. In the short run, expansionary fiscal policy can cause a rise in real GDPa. in combination with a rise in the price level.b. in combination with no rise in the price level.c. in combination with a reduction in the price level.d. in combination with a rise or reduction in the price level,
6. If government policymakers were worried about the inflationary potential of the economy, which of the following would not be a correct fiscal policy change?a. increase consumption taxesb. increase government purchasesc. reduce government purchasesd. decrease government purchases of goods and
5. In order for the economy pictured here to return to RGDPNR, this economy could usea. decreased taxes and increased government purchases.b. increased taxes and increased government purchases.c. decreased taxes and decreased government purchases.d. decreased taxes and increased government
4. If the government wanted to move the economy out of a current recession, which of the following might be an appropriate policy action?a. decrease taxesb. increase government purchases of goods and servicesc. increase transfer paymentsd. any of the above
3. Budget deficits are created whena. government spending exceeds its tax revenues.b. government tax revenues exceed its spending.c. government spending equals its tax revenues.d. none of the above.
2. Contractionary fiscal policy consists ofa. increased government spending and increased taxes.b. decreased government spending and decreased taxes.c. decreased government spending and increased taxes.d. increased government spending and decreased taxes.
1. Traditionally, government has used _____________ to influence _____________.a. taxing and spending; the demand side of the economyb. spending; the supply side of the economyc. supply management; the demand side of the economyd. demand management; the supply side of the economy
58. If the federal debt rises as a result of increasing government spending, the burden of the debt will necessarily be greater than the benefit. True or False.
57. If the economy were in recession, a fiscal policy that decreased the budget deficit would make the recession worse. True or False.
56. If the economy were in an unsustainable boom, appropriate countercyclical policy would be to increase the budget deficit. True or False.
55. The U.S. federal government has never run a surplus in the last decade. True or False.
54. Sometimes special emergencies, such as military involvements and natural disasters, may lead governments to run deficits. True or False.
53. When the federal government spends more, other things being equal, it tends to increase both that year’s deficit and the federal debt. True or False.
52. One way the federal government can finance deficits is to print money. True or False.
51. If the U.S. government has a large current federal debt, it must be running a current year deficit. True or False.
50. If public debt is created intelligently, the “burden” of the debt should be less than the benefits derived from the resources acquired as a result. True or False.
49. Printing money to finance government activities is inflationary. True or False.
48. The sum total of the values of all bonds outstanding constitutes the federal debt. True or False.
47. After expansionary fiscal policy legislation is signed into law, it takes time to bring about the actual fiscal stimulus desired. True or False.
46. Time lags in the legislative process are a serious problem in the implementation of fiscal policy. True or False.
45. Sometimes fiscal policy designed to stabilize the economy may actually destabilize the economy. True or False.
44. Expansionary fiscal policy will tend to be partly crowded out by a reduction in net exports. True or False.
43. Expansionary U.S. fiscal policy will tend to move funds out of the United States. True or False.
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