Some economists believe that the high U.S. trade deficit should not be a concern because the:
A. long run effects of the trade deficit are correctly anticipated, and therefore, we will observe no serious disruptions in the economy.
B. inflow of financial capital will finance new investment that will produce more goods in the future, but the economy will face a significant economic distress.
C. inflow of financial capital will finance more consumption, and the trade deficit will correct itself.
D. inflow of financial capital will finance new investment, in turn producing more goods in the future to reverse the deficit without serious disruptions to the economy.
Answer: D
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For an oligopoly, when the quantity effect outweighs the price effect, firms may have the incentive to:
A. increase output. B. decrease output. C. not change the level of output. D. leave the industry.
If a country's saving rate increases, then in the long run
a. productivity is higher but real GDP per person is not higher. b. real GDP per person is higher but productivity is not higher. c. productivity and real GDP per person are both higher. d. neither productivity nor real GDP per person is higher.
According to the theory of purchasing-power parity, the nominal exchange rate between two countries must reflect the differing
a. price levels in those countries. b. resource endowments in those countries. c. income levels in those countries. d. standards of living between those countries.
Excessive use of monetary or fiscal policies to achieve stabilization may:
A) require the cooperation of firms and the public in order to be effective. B) backfire if the economy becomes destabilized through erratic application. C) never be necessary as long as the economy can rely on automatic stabilizers. D) be better than weaker measures that may not hit the target.