Why is the following statement incorrect: "A tax on all consumption goods is efficient because it equally taxes all goods and therefore does not distort their prices."
What will be an ideal response?
While the relative prices of consumer goods might not be distorted by such a tax, the trade-off between consumption (which is taxed) and leisure (which is not taxed) is distorted. Thus, the tax is a price-distorting tax that gives rise to substitution effects which in turn make the tax inefficient.
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Total utility increases if one more unit of a product is purchased and marginal utility is positive.
Answer the following statement true (T) or false (F)
A requirement for development is
a. an unreliable system of financial institutions b. a lack of saving by households and firms c. low confidence in domestic currency d. low and predictable inflation that encourages saving e. None of the answers is correct
It is impossible to conduct ________ policy and maintain a ________ exchange rate.
A. monetary; floating B. fiscal; fixed C. monetary; fixed D. fiscal; floating
Why is it important that the central bank be independent, or insulated from changes in political power?
What will be an ideal response?