b. In this figure representing the market for oil, what are the total revenues generated by the tariff? They both target aggregate demand to overcome business fluctuations. Fiscal policy can BEST be defined as the use of: government expenditure, borrowing, and taxation to influence the business cycle. Democracy is associated with better institutions that lead to economic growth and high standard of living.III. Why do some voters choose to be rationally ignorant? Assume the government of an economy in recession at point Y in the diagram is aware of the expenditure multiplier when it formulates policy decisions. How much in capital gains tax will he pay? Let's check on whether you are rationally ignorant. In 2011, most of the 2009 federal stimulus package had been spent, but the unemployment rate remained exceptionally high at nearly 10%. _____ is federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations. an increase in the export of U.S. beef to China. Democracy leads to good institutions that help align self-interest with the social interest. less effective in dealing with real shocks than with aggregate demand shocks. Trade improves consumer choice and total welfare. Politicians have a strong incentive to support projects even when their costs outweigh their benefits if: the costs of the project are spread widely across taxpayers and the benefits are concentrated on a small group. If a decrease in investment spending causes a shift of the AD curve from AD1 to AD2, then the government can avoid a short-run recession by: increasing government spending so that the AD curve shifts back to AD1. Which of the following four items is the biggest expenditure in the federal government's budget? 3-816-17a international trade theory and policy winter 2019 problems from international economics : theory & policy /paul r. krugman, maurice obstfeld, marc j. The advantages of free trade are identical to the gains from international trade Why abolish barriers protecting domestic industries? The two lowest marginal tax brackets in the United States are: This table shows data on taxes paid by three individuals living in each of three countries: A, B, and C. The tax paid in dollars is based on the marginal tax rates assessed in each of the three countries. (Figure: Economic Freedom and Living Standards) Refer to the figure. both destroy jobs in the short run but increase the standard of living in the long run. Whereas _____ covers the elderly, _____ covers the poor and the disabled. The quota is imposed to protect both sugar consumers and producers. This story illustrates: Increases in government spending financed through additional borrowing will typically: Which is the MOST effective fiscal policy to fight a recession if people react to uncertainty by saving all additional money that they earn or receive? Which concept is best captured in this story? Small nondemocratic elites are more likely to consider the welfare of larger groups. Start studying ECON 202. If consumption growth decreases, the government spending "multiplier effect" means that in order to counter the recession: fiscal policy needs to raise by less G than the decrease in C . portfolio investment in the United States increases. And your friend agreed only if the perceived benefits (crackers gained) outweighed the perceived costs (grapes lost). And now, let's appreciate the gains from trade that they would both have here. [ECON 202] International Trade. Increased competition between political parties leads voters to educate themselves on the availability of such distribution systems. The government spends more on foreign aid than: economic conditions tend to improve immediately before elections but then worsen afterwards. Chapter 18 Gaining from International Trade True/False 1. False, generally benefits both countries benefits 2. Static Gains from Trade: The static gains from trade are as under: (i) Expansion in Production: International trade based on the principle of comparative cost advantage, according to classical economists, assures the benefits of international specialisation and division of labour. spending on construction of a new plant by foreigners in the United States. (Figure: International Trade 2) Refer to the figure. Most voters will tend to be concerned with: only a few special issues (those that have the most impact on the voters' personal welfare). The terms of trade determine the extent to which each country will specialize. Which of the following statements is TRUE? Only countries with low wages will export b. Which of the following statements is FALSE? She also sells 100 shares of Company Y and makes a profit of $1,200. Imposing a restrictive quota on the import of sugar will likely: increase the price of sugar and decrease the quantity consumed. The difference between foreign direct investment (FDI) and foreign aid is: FDI refers to foreign businesses opening factories or operations, while foreign aid is monetary assistance. 3-816-17a international trade theory and policy winter 2019 problems from international economics : theory & policy /paul r. krugman, maurice obstfeld, marc j. If the government lowers its spending growth so that the AD curve shifts from AD1 to AD2, the multiplier effect will cause the AD curve to: An increase in government spending can reduce real GDP growth if: decreases in private spending more than offset the increase in government spending. Which of the following statements is TRUE? the economy is hit by a shock to aggregate demand. consumer surplus. Some nations prefer to produce one thing while others produce another *b. If an increase in investment spending causes a shift of the AD curve from AD1 to AD4, then the government can avoid a short-run increase in inflation by: increasing taxes so that the AD curve shifts back to AD1. 2. No, the benefits of $600 are less than the costs of $2,000. Voter 3 supports government spending of $70. (Figure: Foreign Trade 2) Refer to the figure. In September 2009, President Obama placed high tariffs on imported tires from China. An economic union is a common market with coordinated fiscal and monetary policy. Chapter 17: International Trade. Start studying Econ 202 Chap. Advantages of International Trade . According to the figure, which of the following statements is TRUE? This behavior is known as: If voters care about two issues such as taxes and war, then politicians: Which of the following explains why extreme candidates rarely win political elections? When consumers save their tax cut for a future tax increase, they are adhering to: In the short run, a decrease in consumption growth will cause the inflation rate to: If $500,000 in new taxes is raised and spent on building a new school and $300,000 in private spending would have been spent anyway, how much is added to short-run aggregate demand? In the absence of trade, domestically in country A, IX = 0.5У. For each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Which of the following would be the most likely outcome if a college professor awards grades based on average test scores and assigns the same grade to everyone in the class? How much revenue does the tariff in this figure generate for the government? If a policy transfers $600 to the special interest at a cost of $100,000 to society, will the special interest group lobby for this policy? Econ exam 1 quizlet. the incumbent party has been in power for too many terms in a row. According to the median voter theorem, when do political outcomes change? Credits 3. 3 Lecture Hours. Total spending will rise more rapidly than the total revenue. Much to the chagrin of some Americans, conventional light bulbs were effectively banned in 2014 leaving only compact florescent lights (CFLs) on store shelves. Graph both PPFs with Brownies on the vertical axis and Cookies on the horizontal axis. When the U.S. government sells bonds, bond prices: decrease and bond interest rates increase. Trade should cause countries to specialize more in production and to export goods distinctly di⁄erent from … As a result of consumption smoothing, a temporary tax rebate tends to create a: small increase in spending over many years. A German automaker builds a factory in the United States. This conference was part of a NBER research project on the consequences of international trade for labor markets in the United States funded by the Smith-Richardson Foundation. Although domestic consumers gain more from free trade than domestic producers lose, the matter may not be that simple. They focus on economic conditions in the year of the election not over the entire term of the presidency. A multiplier effect is associated with changes in spending and taxation. Amy, for example, lost her job as a pharmaceutical salesperson. Which of the following statements about Medicare and Medicaid is NOT correct? We exploit this data to assess how offshoring impacts domestic firm-level aggregate employment, output, wages and productivity. (Figure: Smoking Ban Policy Spectrum) Refer to the figure. 7. To fight a recession, the federal government can: limits the increase in aggregate demand due to fiscal policy. Successes in one country can influence success in other adjacent countries, which can raise your company's profile in your market niche. If there are only two candidates, A and B, and an open market for kidney trading is the only issue being debated in this election, which candidate will win the election? An increase in the demand for a country's exports will cause the demand for its currency to: Which of the following transactions can be classified as foreign direct investment for the United States? The vast expansion in international trade that began in the 1990s with China's emergence as a major source of manufactured goods led to considerable research on trade… expansionary fiscal policy can reduce real growth. The first half of course, international trade, covers such topics as comparative advantage, protectionism (tariff and nontariff), impact on income distribution, and industrial policies. A decrease in consumers' confidence in banks would lead to _____ in the velocity of money and result in the AD curve shifting to the _____. Voter decisions seem to depend greatly on: economic conditions in the year of an election. Which of the following would NOT prevent purchasing power parity from holding? The size of the spending multiplier increases from: an increased response of consumption to a change in income. Which statement is NOT a major limit to the effectiveness of fiscal policy? Which is NOT true regarding the 2009 stimulus plan enacted under President Obama? According to public choice theory, a more democratic country: will have more policies that promote economic growth because it has a larger share of population that is brought into power. According to public choice theory, people do not always make informed choices because: the incentives to become informed are low as compared with the costs of being informed. At income levels above the limit for the lowest tax bracket, the average tax rate is: The main cause of higher government spending in the future will be: Under a flat tax system, a person earning an additional 10% in income has to pay: The earned income tax credit makes the U.S. federal income tax: Suppose you are a married person with one child but your whole family earns less than $20,000 a year. * If land endowment rises, then production of good that uses land intensively (food) increases by more and individual income taxes, corporate income taxes, and Social Security and Medicare taxes. You considered the costs and benefits of the transaction: The cost of the trade was the stack of crackers you would give up, and the benefit of the trade was the bag … 13.3. Why might domestic producers also gain from free trade policies over those that impose tariffs on all goods? A negative real shock causes the LRAS curve to: In order for fiscal policy to effectively offset a $1 million decrease in consumer spending, the government would MOST likely have to: increase spending by less than $1 million. However the implications of traditional trade theory were found to be at odds with data. the costs of becoming informed are greater than the benefits of being informed. The highest debt-to-GDP ratio in U.S. history occurred: The entire U.S. tax system is moderately: When the text refers to the current U.S. national debt, it means the: Which is NOT a lag associated with the implementation of fiscal policy? If it chooses to increase government spending growth by 4percentage points, it should expect the economy to: The time necessary for Congress to propose and pass a fiscal policy plan is called the: When consumers reduce spending, the reduction in the velocity of money is split between: a decrease in growth and a decrease in inflation. Access the answers to hundreds of International trade questions that are explained in a way that's easy for you to understand. But let's say they decide that they want, instead of those 20 pants, they would want to trade 15 of them away for shirts. Studies show that more openness to trade __________ income and _______ child labor. How much the autarky price differs from international terms of trade change c. The fact that a country must lose from trade. This leaves only those producers in those countries where they have the greatest comparative advantage in producing the product or service. During a recession, consumers hold more money by cutting back on their spending, resulting in _____ in inflation and _____ in real growth. An analysis of the main issues in international finance. 3. Economics 181: International Trade The Heckscher-Ohlin Framework, Part II I. Recap from last class, distribution of gains and losses Recap: * Edgeworth Box diagrams: what happens when the endowment of one factor increases? "Other investment" takes place in the United States when foreigners: shift bank deposits into the United States from other countries. Université . Which fiscal stimulus policy will provide a greater incentive to work? If you are a married man, you can expect: more in Social Security benefits than a single man. It should be noted that inventor of indifference curves, Y. F. Edgeworth applied them to explain exchange […] The Equilibrium Without Trade i. Marginal and Average Tax Rates) According to the tax rates shown in the figure, an individual who earns $150,000 a year has an approximate average tax rate of: The top 20% of all income earners pay almost _____ of all federal taxes in the United States. Nobel Prize-winning economist Amartya Sen argued that famine in the history of the world could have been eliminated by: the benefit of becoming fully informed is lower than the cost. With the tariff in this figure, the domestic quantity demanded is ______, and the quantity supplied domestically is ______. Table: Government SpendingVoterPreferred Level of Government SpendingAmy$0.5 trillion Bob1 trillion Cal2 trillion Dan3 trillion Eli4 trillion According to the median voter theorem and the data in this table, candidates will position their ideal level of spending at: (Figure: Smoking Ban Policy Spectrum) Refer to the figure. **comparative advantage** | the ability to produce a good at a lower opportunity cost than another entity. The primary concern of economists worried about the crowding out effect is the: upward pressure that increased borrowing places on interest rates. If the economy is in a recession, the most appropriate fiscal policy would be to: increase government spending and cut taxes, thus running a higher budget deficit. 1. According to the text, popular surveys about government programs show evidence that the majority of American voters are: One reason for the good record of democracies on economic growth is that: the public as a whole can become rich by supporting efficient policies that generate economic growth. The key formula for political success behind the sugar quota is: diffused costs and concentrated benefits. An appreciation of the Mexican peso would most likely be a result of: an increase of foreign investment in Mexico.  If there are only two candidates, A and B, and an open market for kidney trading is the only issue being debated in this election, which one of the voters is the median voter? (Figure: U.S. The economic, political, and social significance of international trade has been theorized in the Industrial Age. A country's balance of trade is the difference between its: An exchange rate is the cost, or price, of: (Table: Exchange Rates) Using the hypothetical exchange rate information in the table, which of the following statements is correct? Suppose a government is facing accusations of allowing domestic jobs to be lost to foreign labor in other countries. Which of the following would increase the demand for U.S. dollars? The biggest retail contributor to the 1990s productivity boom was: Those who say the growing current account deficit in the United States is a significant problem make the argument that: the United States is financing current expenditures by borrowing from foreigners and these debts will ultimately have to be paid off. International trade currently involves about $20 trillion worth of goods and services moving around the globe. Which of the following is the smallest component of U.S. federal government spending? Which is a hindrance in implementing fiscal policy to deal with a short-term economic downturn? International Trade Theory And Policy- Economics Questions And Answers Chapter 5. A capital deficit occurs when the value of a country's: domestic capital outflow exceeds the value of its foreign capital inflow. As a result of _____, a temporary tax rebate tends to create a small increase in spending over many years rather than a big increase in the present. International trade leads countries to specialize in goods and services in which they have a comparative advantage. Economic theory suggests that free trade between two countries generally benefits only one country, the other is harmed. The rise in the international trade is essential for the growth of globalization. Which of the following statements is TRUE about the removal of trade barriers? ADVERTISEMENTS: An important application of indifference curves is to explain the mutual exchange between two individuals of two goods possessed by each. If there is inflation in the country, then PPP predicts: no significant long run change in the real exchange rate. For example, in a single day, Owen can embroider $10$ pillows and Penny can embroider $15$ pillows, so Penny has absolute advantage in embroidering pillows. Assume the government cancels a large infrastructure program, causing construction firms in the area to earn less and lay off workers. After international trade, price falls by $4 and consumption increases by 4 units. In which of the following decisions is a person likely to be rationally ignorant? Refer to the figure. Agricultural interests seek a redistribution of income favoring themselves. Amartya Sen; famines don't happen in democracies. In economics, gains from trade are the net benefits to economic agents from being allowed an increase in voluntary trading with each other. If taxpayers use the tax rebate to pay off their debts, total spending will: As the recession continued in early 2009, consumer confidence most likely: In 2008, taxpayers used approximately _____ of their tax rebate checks to reduce their current debt instead of increasing their spending. Economics 181: International Trade The Heckscher-Ohlin Framework, Part II I. Recap from last class, distribution of gains and losses Recap: * Edgeworth Box diagrams: what happens when the endowment of one factor increases? Which of the following public policies does NOT fit the diffused costs and concentrated benefits story? longer for changes in government spending than for changes in taxation. Matière. Why did the President do this? P. 169. ii. Economists Besley and Burgess found that a government is more responsive to food crises when there is: both more political competition and more newspapers. Perhaps a friend across the table offered to trade her bag of grapes for your stack of crackers. Policy A is likely to be supported by politicians even though it makes society worse off. Why do studies show that food distribution is not better in economies with higher political competition? What quantity would be traded in a free-trade environment? If a country has $55 billion of net capital outflow and a $5 billion increase in its cash reserves and ownership of assets, then the country must be running a trade: a decrease in the price of a currency in terms of another currency. Assume that each individual earns an income of exactly $37,000 and there are no deductions or exemptions that need to be applied.Table: A Cross-Country Comparison. For example, we could harmonize international taxes on corporations and boost enforcement across countries to address the problem of tax havens. International trade results in an increase in efficiency and total welfare among consumers and producer in the countries that participate in it. temporary relief for unemployed borrowers. Yes, the benefits of $600 outweigh the costs of $500. A rising standard of living increases the demand for democracy.II. Downloadable! What is the dollar value of the deadweight loss created as a result of prohibiting trade in this market? The gain from international trade depends on the Terms of Trade i.e., the rate at which the goods of one country are exchanged for the goods of the other country. If official reserves are zero, a current account deficit of $1 million will cause a: What would cause a shift of the demand curve from D1 to D2 in the figure? is a separate income tax code that began in 1969 to prevent the rich from not paying income taxes. ... Gains from international trade are best characterized as potential gains from: ... * D. Gains from trade are fueled by differences in preferences and differences in … Policy A adversely affects 50 million people at a cost of $1 per person. 31> B.1 Brownies on the vertical axis and Cookies on the horizontal axis. people see that lower taxes today means higher taxes in the future. Assuming there is no crowding out, fiscal policy that shifts aggregate demand from AD0 to AD2 will move the economy to point: The time between which an economic shock is recognized and when the government passes a plan to carry out a policy response is called the: Expansionary fiscal policy can reduce real growth if the increase in government spending: causes a large enough decrease in private spending. The Smoot-Hawley Act introduced the highest tariffs set by the United States in the last 80 years. Now, if after trade, assuming the terms of trade to be IX — 1Y, country A gains 0.5 unit more. In the absence of any policy intervention, when falls the result will be: If government and consumers are spending more and taxes are unchanged, there will be: crowding out, as people will buy more government bonds, but fewer private bonds. (Figure: International Trade 2) Refer to the figure. A situation in which the value of a country's exports exceeds the value of its imports is called a(n): A capital surplus occurs when the value of a country's: inflow of foreign capital exceeds the outflow of its domestic capital. What is the dollar value of wasted resources as a result of prohibiting trade in this market? lack of incentive voters have to become well informed about candidates and issues because their vote is unlikely to affect the outcome of an election. 1-2 Test. Social Security and Medicare together make up about 15% of the federal budget. Learn how economists study the economy, and cover how the Production Possibility Frontier can demonstrate scarcity and efficiency. Chapter 4 Mindtap answers. The Net Effect of the Trans-Pacific Partnership Agreement on U.S. Wages By David Rosnick* Center for Economic and Policy Research 1611 Connecticut Ave. NW Suite 400 Washington, DC 20009 tel: 202-293-5380 fax: 202-588-1356 www.cepr.net Normative economics versus positive economics - Normative economic principle- one that says how people should behave, the cost benefit principle is an example of this Provides guidance on how we should behave Principles of Economics Chapter Exam Instructions. Under a progressive tax system, tax payments will _____ if a person's income doubles. Exports create jobs and boost economic growth, as well as give domestic companies more experience in producing for foreign markets. ... International Trade 2) Refer to the figure. A free trade association offers free trade between its members, but each country can determine its own trade policy outside the association. Higher standards of living are associated with. sugar barons who give considerable money to politicians who make decisions on sugar quotas. Refer to the figure. Raising taxes to finance increases in government spending will be an effective means of increasing aggregate demand only if: the private sector is saving a high percentage of its income. 202-663-5671 saisnondegree@jhu.edu ... Gain expertise in financial analytics, economic consulting, international trade, or market research to bolster your career. United States exports $5 million in corn to Canada. Under which scenario would expansionary fiscal policy work BEST? In this revision video we work through four examples of multiple choice questions on aspects of international trade. Governments can ensure that unemployment insurance and strong education programs exist to help workers retrain for new jobs.II. After a real negative shock, government spending only improves growth minimally and aggregate demand doesn't fully recover because of: Which could be sources of funding for a government that wants to increase government expenditures? , IX = 0.6 У domestically, after trade, assuming the terms of government spending sometimes increases?! More foreign competition a function of the following statements about Medicare and Medicaid is NOT a way that a interest! About cross-country evidence on the vertical axis and Cookies on the horizontal axis from. People at a lower opportunity cost than another entity, given the same resources infrastructure program, construction... Of cheese more foreign competition b ) the terms-of-trade gain exceeds the deadweight loss created a... Where they have the incentive to work in jobs with worse conditions and lower today than in the long change... 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