Consider the United States' production of soy beans and running ...

[K@]

Consider the United States' production of soy beans and running shoes. If the United States has an absolute advantage in the production of both goods compared to China,
 
  A) only the United States can gain from trade.
  B) each country will be able to produce at a point beyond its PPF.
  C) only China can gain from trade.
  D) only the United States will be able to operate beyond its PPF.
  E) both countries can gain from trade.

Question 2

George purchased a 10,000 bond that pays a nominal interest rate of 8 percent per year. George's marginal income tax rate is 28 percent. Over the last year, inflation was 3 percent.
 
  Find George's before-tax real interest rate and his after-tax real interest rate.

[juliaf]

Answer to Question 1

E

Answer to Question 2

The before-tax interest rate equals the nominal interest rate minus the inflation rate, or . For the after-tax real interest rate, note that George must pay tax on the entire 8 percent (nominal) interest. Hence George pays (8 percent interest rate  28 percent tax rate) = 2.24 percent as taxes. Therefore his after-tax real interest rate equals his before-tax real interest rate, 5 percent, minus what he pays in taxes, or 5 percent - 2.24 percent = 2.76 percent as his after-tax real interest rate.

[K@]

Correct answers!

[juliaf]

Great! Please up vote