Econ Quiz 7

Which of the following would reduce a country's Economic freedom of the World rating?

• competitive markets and minimal government regulation

• a legal system that secures private property rights and provides even-handed enforcement of contracts

• free trade and low taxes

• monetary instability and trade restrictions

In order to achieve a high economic rating, a country must

• elect political officials democratically.

• provide citizens with housing, health care, and other basic goods free of charge.

• protect private property rights, enforce contracts even-handedly, and rely extensively on markets to allocate goods and services.

• use the taxing power of the state to redistribute income from the rich to the poor and thereby promote income equality.

Politicians will often be able to gain support of trade restrictions because

• the restrictions will lead to lower prices and substantial benefits for consumer groups.

• foreigners benefiting from the restrictions will be a major source of political contributions.

• the restrictions will generate substantial benefits for consumer groups at the expense of well-organized labor and industrial interests.

• organized interest groups benefiting from the restrictions will make large contributions to political campaigns while most others will not feel strongly about the restrictions.

"Trade restrictions such as tariffs and quotas are like a blockade that a nation imposes on its own people." Is this statement true?

• Yes, both the trade restrictions and a blockade will reduce the gains from specialization and trade.

• No, trade restrictions will help the residents of a nation achieve a higher income level; trade restrictions will not.

• No, a blockade will help the residents of a nation achieve a higher income level; trade restrictions will not.

• Uncertain, the statement is true if the gains of the residents exceed those of foreigners; otherwise it is false.

Trade restrictions like tariffs and quotas will

• make all Americans better off

• reduce the value of goods and services that we will be able to produce and consume.

• Protect American jobs and increase employment.

• ensure that more dollars stay in the United States

The Smoot-Hawley trade bill of 1930, designed to save jobs and increase revenue for the federal government, resulted in

• a decline in the volume of trade, but an increase in revenue from tariffs, which made it possible for the federal government to balance its budget.

• the protection of jobs while maintaining the level of trade, but it did not increase federal revenues from tariffs.

• an increase in both employment and federal revenues from tariffs.

• a sharp reduction in trade and a decline in federal revenues from tariffs.

How do high tariffs and other restraints on international trade affect a nation's prosperity?

• They prevent the nation from fully realizing the potential gains from specialization, exchange, and competition, but they also protect domestic producers and thereby promoting economic growth as a whole.

• They increase employment and thereby promote the growth of real GDP.

• They prevent the nation from fully realizing the potential gains from specialization, exchange, and competition.

• They protect domestic producers and thereby promote economic growth.

An increase in marginal tax rates will

• increase the incentive of individuals to earn additional income.

• reduce the share of additional earnings that individuals are permitted to keep.

• allow taxpayers to keep more of what they earn.

• make tax deductible purchases more expensive.

The experience of the 1930s indicates that substantial tax increases during a severe recession will result in

• a reduction in output and employment.

• a increase in the incentive to earn.

• an increase in tax revenues that will lead to a balanced budget.

• smaller budget deficits, which will speed an economic recovery.

If the government levies $20 billion to finance additional spending on military weapons, the net impact on total employment will be

• a substantial increase in employment because the additional spending will create lots of jobs.

• a substantial decrease in employment because the higher taxes will destroy lots of jobs.

• small because the higher taxes will reduce spending in the private sector, which will tend to offset any jobs created by the government spending.

• a substantial expansion in employment, but only if the additional spending leads to an increase in the general level of prices.