When analyzing the impact of government consumption and taxes in an open economy, we exclude transfer payments because:
a. they are not paid for by taxes.
b. in the aggregate, they do not generate a change in total spending on goods and services.
c. the sums are so large as to be incalculable.
d. the sums are so small as to be insignificant.
Ans: b. in the aggregate, they do not generate a change in total spending on goods and services.
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Some consumer electronics products such as plasma TVs, DVD players, and digital cameras, are introduced at very high prices but over time, their prices start falling (beyond what could be attributed to falling costs as companies take advantage of
economies of scale and cheaper technologies). Which of the following is the best explanation for this observation? A) Early adopters of these new products typically have a higher demand and higher income compared to those who are willing to wait. B) More firms are likely to enter the consumer electronics market over time, forcing market prices down. C) Early adopters are more quality conscious and are willing to pay higher prices for the initial production of these goods. D) After satisfying the demand for early adopters, firms lower price to attract the more price-sensitive consumers.
The equilibrium price and quantity in a free market usually reflect private marginal costs and benefits, not social ones
a. True b. False