A corrective tax equal to the external cost imposed on third parties levied on polluters will:
a. eliminate all pollution.
b. increase the level of pollution.
c. force polluters to internalize the external cost resulting from their actions.
d. usually have no impact whatsoever on pollution levels, but will generate tax revenue for the government.
Question 2
Which of the following is false?
a. If people can anticipate the plans of policy makers and alter their behavior quickly, their behavior could neutralize the intended impact of government action on real GDP.
b. The theory of rational expectations leads to optimistic conclusions regarding macroeconomic policy's ability to achieve its intended economic goals.
c. Rational expectation economists believe that wages and prices are flexible, and that workers and consumers incorporate the likely consequences of government policy changes quickly into their expectations.
d. Catching consumers and businessmen off-guard with macroeconomic policy changes gets harder the more you try to do it.
