Is a uniform per-unit tax on firms that cause an externality an optimal policy for correcting the externality? Explain
What will be an ideal response?
No. The concept of externality is about the economic costs rather than the amount of externality. The economic costs or damages can vary across different locations so that the optimal tax on pollution should also vary from location to location, depending on the size of economic damages.
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How did the international monetary system created at Bretton Woods in 1944 allow its members to reconcile their external commitments with their internal goals of full employment and price stability?
What will be an ideal response?
Which of the following policies followed by the Clinton administration were not Keynesian policies?
a. Reducing the budget deficit during a strong expansion. b. Concentrating tax increases on upper income households. c. Attempting to increase government spending in 1992 when the U.S. economy was below its natural rate of output. d. Adjusting capital gains taxes for inflation in order to encourage savings.
A government passes a new law allowing only 1,000 tons of pollution per day to be generated and simultaneously sells 1,000 transferable rights to emit one ton each of pollution per day. Which of the following is true?
a. The pollution will be created by those least willing and able to pay the damages. b. The pollution will be created by those most willing and able to pay for the right to pollute. c. The funds collected by the government will be enough to compensate any individuals harmed by the pollution. d. Pollution will increase from zero to 1,000 units per day. e. There will be no incentive for polluters to try to sneak emissions past government monitoring devices.
Which of the following is an example of a speculative attack on a currency?
a. National governments decide to engage in competitive devaluations against a given country. b. International organizations such as the WTO and the IMF attempt to reorder the currency's system. c. Private investors sell domestic currency and buy foreign currency, betting that the domestic currency will soon be devaluated. d. Casinos in Las Vegas allow the proliferation of bets for and against a given currency. e. A country is at war, and the enemy country "freezes" all the accounts denominated in the local currency.