In a Two-Period Model, Holding Everything Else Constant, an Increase

question 27

Multiple Choice

In a two-period model, holding everything else constant, an increase in current taxes

• A)unambiguously increases the current account surplus.
• B)unambiguously decreases the current account surplus.
• C)increases the present value of taxes.
• D)has no effect on the current account surplus.
• E)has an uncertain effect on the current account surplus.

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Definitions:

Marginal Decision Rule

A principle stating that an action should be taken if, and only if, the marginal benefit of the action exceeds its marginal cost.

Marginal Revenue

The extra revenue gained from the sale of an additional unit of a product or service.

Perfect Competition

A market structure characterized by many buyers and sellers, freedom of entry and exit, and a homogeneous product.

Perfectly Elastic

A situation in economic theory where the quantity demanded or supplied of a good changes infinitely in response to any change in price.