A nation has a comparative advantage in producing a good if it has a lower opportunity cost of producing that good than other countries have

Assume the economy is in a recession and the Federal government decides to cut personal income tax rates. All else equal, the cut in tax rates should

A) increase consumption expenditures and cause real GDP to increase relative to potential GDP. B) increase the nominal interest rate and cause potential GDP to increase relative to real GDP. C) decrease the real interest rate and decrease expectations of inflation. D) increase the target interest rate and cause real GDP to fall relative to potential GDP.

The external costs of alcohol consumption are related to, among other things, death and injury related to auto accidents caused by drunk drivers. These costs have been estimated to be about 47 cents per ounce of alcohol consumed. Taxes on alcohol amount to 23 cents per ounce. This suggests that alcohol consumption is (i) greater than the efficient or optimal amount; (ii) should be reduced to zero to eliminate the externality.

A. i and ii B. i not ii C. ii not i D. neither i nor ii