Which statement is true of a tax levied on one product in a general equilibrium model?
A. Taxes always distort the most efficient flow of resources in an economy.
B. Taxes will hurt efficiency unless they are designed to offset other inefficiencies in the system.
C. Taxes cannot distort efficient resource flows because they become part of the price.
D. Taxes on producers distort efficient resource flows but taxes on consumers do not affect efficiency.
Answer: B
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On the diagram to the right a movement from A to B (downward movement on the demand curve) represents a
A. decrease in demand B. change in demand C. change in quantity demanded D. movement up the demand curve
The nominal interest rate equals:
a. the real interest rate minus the inflation rate. b. the inflation rate minus the real interest rate. c. the real interest rate plus the inflation rate. d. none of the above.