How do transfer payments function as negative taxes?
Transfer payments intervene between gross domestic product (Y) and disposable income (DI) in precisely the opposite way from income taxes. They add to earned income rather than subtract from it. Specifically, starting with the wages, interest, rents, and profits that constitute national income, we subtract income taxes to calculate disposable income. We do so because these taxes represent the portion of incomes that consumers earn but never receive. But then we must add transfer payments because they represent sources of income that are received although they were not earned in the process of production. Thus transfer payments function basically as negative taxes.
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Based on the model of the money market, if prices in the economy decrease, the equilibrium interest rate should
A) stay the same. B) increase. C) decrease. D) increase to the same extent that the supply of money increases.
A hedge is
A) a financial strategy that reduces the change of suffering losses arising from foreign exchange risk. B) an exchange rate arrangement in which a country pegs the value of its currency to the exchange value. C) the possibility that changes in the value of a nation's currency will result in variations in the market value of assets. D) active management of a floating exchange rate on the part of a country's government.
In the aggregate expenditures model, equilibrium occurs if:
a. aggregate expenditures (AE) are greater than GDP. b. aggregate expenditures (AE) are less than GDP. c. there is no unplanned inventory depletion or accumulation. d. consumption equals investment.
Domestic consumers gain and domestic producers lose when the government imposes a tariff on imports
a. True b. False Indicate whether the statement is true or false