Fiscal policy is A) the selling of government bonds by the ...

[theo]

Fiscal policy is
 
  A) the selling of government bonds by the Treasury.
  B) the deliberate manipulation of the money supply designed to affect the interest rate.
  C) the deliberate manipulation of taxation and spending designed to affect the economy.
  D) the selling of foreign exchange reserves designed to change the exchange rate.

Question 2

Explain how a country with no absolute advantage can gain from trade.
 
  What will be an ideal response?

[ricroger]

Answer to Question 1

C

Answer to Question 2

Even if a country cannot produce absolutely more of a good, it can still have a comparative advantage. This means that it is relatively better at producing a given good. Thus if it specializes in producing the good that it produces at a relatively lower cost and trades for goods that it can only produce at a relatively higher cost, it will gain from trade.

[theo]

Correct answers!

[ricroger]

Great! Please up vote