In an open economy, an increase in saving might not cause an increase in domestic investment. Why not? Does that mean that an increase in saving is undesirable?
What will be an ideal response?
An increase in saving can affect the domestic real interest rate only by changing the world interest rate. If the world interest rate does not change, domestic investment is not affected. More saving means less consumption, which reduces both imports and domestic demand for domestic output, so exports (and net exports) rise. The increase in saving must correspond to investment somewhere, but not necessarily in the economy where the saving originates. Nonetheless, wealth rises for those who accomplish the higher saving.
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Provisions of the 2009 Economic Recovery Act (i.e., President Obama's "Stimulus Package") calling for tax credits for first-time home buyers and hybrid cars confirm that the
A. Obama Administration believes that taxes can alter the spending decisions of taxpayers. B. Obama Administration is committed to across-the-board reductions in personal income tax rates. C. Bush Administration's tax cuts were too costly. D. credo of Congress is "No Good Deed Will Go Untaxed."
Corporate income is taxed twice—once in the form of corporate income tax and the second time when the owner must pay income tax on dividends. What are the effects of this double taxation?
What will be an ideal response?
In the market for bottled water, Fresh Springs has a 30 percent share of the market, Swiss Springs has a 27 percent share, L'eau de France has a 13 percent share, and Mountain Water has a 10 percent share
The rest of the market consists of 20 firms with a 1 percent share of the market each. What is the value of the Herfindahl-Hirschman index? A) 2,418 B) 80 C) 1,918 D) 2,818
When the supply of bubble gum increases while the demand for bubble gum decreases, the equilibrium ________ of bubble gum will definitely ________, ceteris paribus.
A. price; increase B. price; decrease C. quantity; increase D. quantity; decrease