In considering the net effect of expansionary fiscal policy on the trade deficit, the
A. Income and price effects work in the same direction, so the trade deficit is increased

B. Income and price effects work in the same direction, so the trade deficit is decreased

C. Income effect offsets the price effect

D. Price effect offset the income effect

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Casey DurganLv2

12 Apr 2019

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1.US manufacturers receive news that profits from current-period investments will be taxed at a higher rate. What effect will this have on the present US current account deficit? NOTE: A decrease in the current account deficit means the current account becomes less negative.

A. The current account deficit will likely decrease (become less negative)

B. The current account deficit will likely increase (become more negative)

C. This will have no effect on the US current account deficit

D. It's impossible to tell what effect this will have on the US current account deficit

2.Which of the following would be consistent with the hypothesis that US productivity growth is causing trade deficits:

A. Increases in stock prices over and above current earnings

B. Increased consumption as a ratio of GDP

C. Both

D. Neither

3.Evaluate the following statement using the model of trade deficits we learned in class: "Our country's trade deficit means that future generations will have to pay other countries back and will have less to consume than if we ran a balanced trade account". This statement is

A False: we can renege on our debts if they become too high.

B True: trade deficits means absolutely less consumption in future periods

C False: while in the future we will have to run trade surpluses if we run a trade deficit in the current period, increased investment means our absolute future consumption may be higher.

D True: trade deficits shift the share of consumption towards the current period and therefore the absolute consumption level in the future must be lower.

4.If a basket of goods in Home costs PH and PF in Foreign, and E is the price of the home currency in terms of the Foreign currency, which of the following is the Purchasing Power Parity equation?

A. PH = PF * E

B. PH / E = PF

C. PH * E = PF

D. PH / PF = E

blackminnow717

23) 23) Suppose the price of potatoes falls and there is a decrease in the purchases of potatoes, what can we infer? A) The income effect is positive and exceeds the substitution effect. B) The income effect is negative and just about offsets the substitution effect. C) The income effect is negative and reinforces the substitution effect. D) The income effect is negative and exceeds the substitution effect. E) The income effect is positive and reinforces the substitution effect.

6) Which statement is true for an inferior good? A) The income effect works in the opposite direction to the substitution effect. B) The good is of poor workmanship. C) The substitution effect is positive; as price rises, consumption increases. D) The income effect is absent; as income increases, consumption remains constant. E) The income effect works in the same direction as the substitution effect.