Assume that prices and wages adjust rapidly so that the markets for labor, goods, and assets are always in equilibrium
What are the effects of each of the following on output, the expected real interest rate, and the current price level? (a) a temporary increase in taxes (b) a reduction in the effective tax rate on capital (c) an increase in expected inflation
(a) Under Ricardian equivalence, no effect on output, real interest rate, or price level. Without Ricardian equivalence, higher national saving means a lower expected real interest rate. Output is unchanged because of no change in labor supply or demand. The lower expected real interest rate increases real money demand, thus reducing the price level.
(b) The lower tax rate on capital increases desired investment, thus raising the expected real interest rate. No effect on the labor market, so output is not changed. The higher expected real interest rate reduces real money demand, thus increasing the price level.
(c) The increase in the expected inflation rate has no effect on the labor market or goods market, so output and the expected real interest rate do not change. The higher expected inflation rate reduces real money demand, thus increasing the price level.
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By and large, small countries tend to benefit the most from international trade because
a. their citizens tend to be the most different from the rest of the world. b. they are unable to achieve self-sufficiency. c. they can collect large amounts of tariff revenue from trading with larger countries. d. their citizens are more likely to prefer the high-quality, capital-intensive goods available only from larger countries.
In the economy of Iota, 9 people have jobs, 1 person is not working but is searching for work, and 10 people don't work and don't seek work. The unemployment rate is
A) 10 percent. B) 25 percent. C) 33 percent. D) 50 percent. E) none of the above.
Economic development encompasses which of the following measures?
a. The political environment b. All of the answers are correct. c. Education d. Economic growth
Measured in 1990 dollars, the GDP per person of the world was $667 in 1813. By 2003, the world's income per person had risen to
What will be an ideal response?