In the presence of free trade, how are the effects of economic growth different for a large country than for a small country?
What will be an ideal response?
POSSIBLE RESPONSE: If a country is small, then its growth and the subsequent change in its international trade volumes will have no impact on the international price ratio or its terms of trade. Small countries gain from growth. Their citizens reach a higher community indifference curve as a result of growth and the expansion of the country's production-possibilities curve.
If a country is large, however, then its growth and willingness to trade can have an impact on the equilibrium international price ratio. The change in the international price ratio is also a change in the country's terms of trade.
If the large country's terms of trade improve (an increase in the international relative price of its export products), then the well-being of the country increases because of both the growth and the better terms of trade.
If the large country's terms of trade deteriorate, then the well-being of the country tends to increase because of the growth but to decrease because of the decline in the terms of trade. If the terms of trade decline a great deal in response to growth, the well-being of a large country may decline. This possibility is referred to as an immiserizing growth.
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Suppose policy makers want to increase GDP by $450 billion. If the marginal propensity to consume is 0.9, by how much must taxes decrease to achieve this target?
What will be an ideal response?
Jeremy is thinking of starting up a small business selling NASCAR memorabilia. He asks his friend, Carmen, if she'd like to join him in setting up a partnership to start the business
What is one disadvantage in joining the partnership that Carmen should consider? A) Carmen should realize that profits in the partnership will be reduced by dividend payments to shareholders. B) Carmen should realize that the Jeremy will have complete control over the business because it was his idea. C) Carmen should realize that, as an owner of the business, she will be personally responsible for the debts of the business. D) Carmen should realize that the profits of the business will also be taxed as dividend income, so she faces the potential for double taxation of that business income.
The income tax requires that taxpayers pay 10 percent on the first $50,000 of income and 20 percent on all income over $50,000 . Andy paid $9,000 in taxes. What were his marginal and average tax rates?
a. 20 percent and 13 percent, respectively b. 20 percent and 15 percent, respectively c. 10 percent and 13 percent respectively d. 10 percent and 15 percent respectively
Factors that cause the short-run supply curve to change are factors that affect
A) demand. B) fixed costs. C) variable costs. D) the market but not the individual firm.