Author Question: A country can never raise its standard of living by imposing a tariff. Indicate whether the ... (Read 44 times)

misspop · **on:** Jun 30, 2018

A country can never raise its standard of living by imposing a tariff.

Indicate whether the statement is true or false

Question 2

Explain the concept of Ricardian equivalence.

What will be an ideal response?

isabelt_18 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

FALSE
Explanation: Large countries can improve their terms of trade through tariffs. This can raise overall welfare, especially if there is no retaliation.

Answer to Question 2

This an economic theory of taxes and government deficits. It argues that when the government cuts taxes and raises its deficit, consumers anticipate higher taxes later to pay off the eventual government debt. Thus, they will raise their own private saving to offset the fall in government saving. Governments that lower their deficits will induce the private sector to lower its own saving. However, this doesn't hold in practice. Economists attribute only half of the decline in European private saving to Ricardian effects.