MTTC MTTC Economics 5

Question 1

Which trade policy instrument involves placing a tax on imported goods to raise their price and protect domestic producers?

Accepted Answer

Tariff

Answer

A tariff is a tax levied on imported goods, raising their domestic price to protect domestic industries from foreign competition and generating government revenue.

Question 2

The crowding-out effect suggests that increased government borrowing may:

Accepted Answer

Reduce private investment by driving up interest rates

Answer

When the government borrows heavily, it competes with private borrowers for loanable funds, driving up interest rates and reducing private sector investment.

Question 3

A country running a current account deficit must simultaneously be running:

Accepted Answer

A capital and financial account surplus

Answer

By accounting identity, a current account deficit must be offset by a capital and financial account surplus, as foreign investors must finance the deficit by buying domestic assets.

Question 4

Which of the following best illustrates the concept of moral hazard?

Accepted Answer

A homeowner takes fewer fire precautions after buying full fire insurance

Answer

Moral hazard occurs when a party takes greater risks because they do not bear the full consequences, such as a fully insured homeowner reducing precautions against loss.

Question 5

Which economic school of thought argues that market economies are inherently self-correcting and that government intervention is generally counterproductive?

Accepted Answer

Classical/neoclassical economics

Answer

Classical and neoclassical economists believe flexible prices and wages allow markets to self-correct to full employment, making government intervention unnecessary and often harmful.

MTTC Test Practice Test

MTTC Test Practice Test

MTTC MTTC Economics 5