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President Alcazar announced an increase in the labor subsidy given to firms to try to boost employment and GDP. The subsidies received by a firm are in proportion to the number of workers it employs, that is equal to s N, where s is the subsidy rate and N the number of workers employed. The government pays subsidies to firms, whose post-subsidy profits are distributed to households as income. However, the subsidies are financed by a lump-sum tax on households. The lump-sum tax is such that the government budget is balanced. Show that, for any given level of real wages, the net direct effect of this policy, subsidies and corresponding lump-sum taxes, on household’s disposable income is negative.

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Retselisitsoe Pokothoane
Retselisitsoe PokothoaneLv10
28 Sep 2019

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Related questions

If you need to make any assumptions, state them clearly. President Alcazar announced an increase in the labor subsidy given to firms to try to boost employment and GDP. The subsidies received by a firm are in proportion to the number of workers it employs, that is equal to s N, where s is the subsidy rate and N the number of workers employed. The government pays subsidies to firms, whose post-subsidy profits are distributed to households as income. However, the subsidies are financed by a lump-sum tax on households. The lump-sum tax is such that the government budget is balanced. Show that, for any given level of real wages, the net direct effect of this policy, subsidies and corresponding lump-sum taxes, on household’s disposable income is negative.

Question 3

According to Joseph Schumpeter, the theory of creative destruction describes a process by which

A

some new products unleash a gale of destruction that drive other new products out of the market.
B

new products unleash a gale of destruction that drives old products out of the market.
C

new products are created by the destruction of capital.
D

the creation of new products never involves the destruction of old products.

Question 4

Which of the following countries had the highest GDP per capita in 2012?

A Qatar
B

United States
C

Japan
D

Norway

Question 5

________ save a ________ of their income. This ________ capital in their economy and raises economic growth.

A

Developing countries; large proportion; decreases
B

Developing countries; small proportion; increases
C

High-income countries; large proportion; increases
D

High-income countries; small proportion; increases

Question 6

The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects.

A

A

government
B

households
C

banks
D

firms

Question 7

The U.S. economy has been more stable since 1950.

True

False

Question 8

When the economy reaches a trough in a business cycle, which of the following will occur?

A

Income, production, and employment will continue to fall.
B

Income, production, and employment will begin to rise.
C

Income and production will rise, but employment will continue to fall.
D

Employment rises, but income and production will continue to fall.

Question 9

In a closed economy, what is the relationship between saving and investment?

A

Saving is greater than investment.
B

Investment is greater than saving.
C

Investment is equal to saving.
D

Investment may be greater or smaller than saving.

Question 10

The per-worker production function shows the relationship between ________ per hour worked and ________ per hour worked, holding ________ constant.

A

labor; real GDP; technology
B

capital; real GDP; technology
C

labor; capital; real GDP
D

capital; labor; real GDP

Question 11

New growth theory states that increases in ________ capital will result in ________ at the ________ level.

A

knowledge; increasing returns to scale; firm
B

physical; decreasing returns to scale; firm
C

knowledge; decreasing returns to scale; economy
D

knowledge; increasing returns to scale; economy

Question 12

Which of the following is not a reason why the Industrial Revolution occurred when and where it did?

A

The British government was committed to upholding private property rights.
B

The British government was able to eliminate arbitrary increases in taxes.
C

The British government was able to more easily seize wealth.
D

Institutional changes by the British government helped protect wealth.

Question 13

Growth in real GDP per capita for the world economy was greatest during

A

the seventeenth century.
B

the eighteenth century.
C

the nineteenth century.
D

the twentieth century.

Question 14

Which of the following is a normative statement about economic growth?

A

Economic growth is associated with higher labor productivity growth.
B

Economic growth increases GDP per capita.
C

Economic growth hurts developing countries.
D

Foreign direct investment stimulates economic growth.

Question 15

The effect of a recession on a company like Whirlpool Corporation is such that

A

sales decline more sharply for Whirlpool as compared to firms that do not produce durable goods.
B

profits fall less sharply as compared to firms that do not produce durable goods.
C

the decline in sales is more short-lived as compared to firms that do not produce durable goods.
D

there is no difference in the impact of the recession on its profits as compared to firms that do not produce durable goods.

Question 16

For the recessions in the United States since the 1950s,

A

cyclical unemployment has been non-existent.
B

unemployment rises on average by about 1.2 percentage points 12 months after a recession begins.
C

unemployment falls on average by 2 percentage points 12 months after a recession begins.
D

unemployment rises on average about 5 percentage points 12 months after a recession begins.

Question 17

You are an economic advisor to the president. You are asked to recommend a policy to promote long-term economic growth in the economy. Which of the following policies would you choose?

A

a reduction in sales taxes
B

an investment tax credit
C

a reduction in taxes on luxury yachts
D

All of these

Question 18

In comparison to a government that runs a balanced budget, when the government runs a budget deficit,

A

the equilibrium interest rate will fall.
B

business investment will fall.
C

household savings will fall.
D

None of these

Question 19

If labor productivity growth slows down in a country, this means that the growth rate in ________ has declined.

A

labor force participation
B

the quantity of goods or services that can be produced by one hour of work
C

the working-age population
D

nominal GDP

Question 20

Policies to promote growth by increasing saving and investment work through

A

decreasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.
B

increasing the supply of loanable funds, increasing the interest rate, raising the level of investment in physical capital.
C

increasing the supply of loanable funds, lowering the interest rate, lowering the level of investment in physical capital.
D

increasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.

Topic:
How would you explain the finding that people in high-income economies seem happier than people in low-income economies, but, over time, people in high-income economies do not seem to be any happier even if their country grows richer? Briefly discuss.

Optional Reading:

Income and Happiness

The Declaration of Independence in 1776 identified “certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness.” This did not guarantee happiness but did establish the pursuit of happiness as an “unalienable” right, meaning that right cannot be taken away, given away, or sold. Eighteenth century philosopher and social reformer Jeremy Bentham argued that government policy should promote the greatest happiness for the greatest number of people.

Many people today apparently agree. In recent polls, 77 percent of Australians and 81 percent of Brits believed that a government's prime objective should be promoting the greatest happiness rather than the greatest wealth. The United Nations in 2007 sponsored an international conference on “Happiness and Public Policy.” Thailand now compiles a monthly Gross Domestic Happiness Index. Even China has joined in the fun reporting a happiness index based on polling results about living conditions, income, the environment, social welfare, and employment. Australia, Canada, and the United Kingdom are also developing happiness indexes.

Economists have long shied away from asking people how they feel, preferring instead to observe their behavior. But more now see some value in asking questions. In the most extensive of polls, the Gallup organization asked people in 130 countries: “How satisfied are you with your life, on a scale of zero to ten?” The results, reported in 2007, are not surprising. Most people in the high income areas, such as the United States, Europe, and Japan, said they are happy. Most people in the poor areas, especially in Africa, said they are not. Also, within a given country, income and happiness are positively related. After evaluating all the results of the Gallup world poll, Angus Deaton of Princeton concluded: “The very strong international relationship between per capita GDP and life satisfaction suggests that, on average, people have a good idea of how income, or the lack of it, affects their lives.” 8

So these results are no surprise. What does puzzle economists is that other surveys suggest that in affluent countries people do not seem any happier over time even though each generation became richer than the last. For example, in the United States, the proportion of people who say they are happy has stayed about the same despite 60 years of economic growth. In Japan, happiness responses actually declined despite a substantial increase in real income over the last 50 years.

Here are two possible explanations. First, people begin taking for granted those luxuries they most desired. For example, two generations ago color TVs, automobiles, and major appliances were luxuries, but now they are must-items for most households. Computers and flat screen HDTVs will soon move from luxuries to necessities. As each generation attains a higher standard of living, people become less sensitive to the benefits, they take them for granted, and thus they say they are no happier.

Second, research suggests that what matters is not just the absolute level of income but income relative other people in the reference group. Imagine you have a choice between (1) earning $50,000 a year while others in your reference group make $25,000 or (2) earning $100,000 a year while others make $250,000 (suppose, too, that prices remain the same, so $100,000 is double the real income of $50,000). Which would you prefer? Studies show that when people face this hypothetical choice, most pick the $50,000 option. That is, they prefer to make more than others even if that means a lower real income. Thus, if all incomes rise on average over time, this does not affect that aspect of happiness linked to one’s relative standing. As the social critic H. L. Mencken long ago observed, "A wealthy man is one who earns $100 a year more than his wife's sister's husband."

SOURCES: Daniel Gilbert, Stumbling On Happiness, (New York: Knopf, 2006); Marina Kamenev, “Rating Countries for the Happiness Factor,” Business Week, 11 October 2006; Angus Deaton, “Income, Aging, Health, and Wellbeing Around the World: Evidence from the Gallup World Poll,” Princeton Working Paper, (August 2007); and “Where Money Seems to Talk,” Economist, 12 July 200

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