ECON 214 exam 4 Liberty University complete answers

ECON 214 exam 4 Liberty University complete answers

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Question 1 Many people argue that certain industries, such as weapons, energy, and transportation, should be protected by trade barriers in the interest of:

Question 2 The figure below depicts the three possible aggregate demand curves. If the Bank of Canada (the Canadian central bank) ____________, the Canadian dollar will depreciate and the aggregate demand curve will shift from AD2 to ____________.

Question 3 Unexpected inflation harms workers and other resource suppliers who have _________ prices in the _________ run.

Question 4 Assuming the theory of purchasing power parity holds, what is the exchange rate between the United States and Mexico if the price of an identical Under Armour shirt costs $25 in the United States and 350 pesos in Mexico (rounded to the nearest penny)?

Question 5 Use the following scenario to answer the questions that follow: An economy has two workers, Smith and Ricardo. Every day they work, Smith can produce 4 computers or 16 smartphones, and Ricardo can produce 6 computers or 12 smartphones. What is the opportunity cost for Ricardo to produce one computer?

Question 6 Which of the following situations will arise in the domestic market following the removal of an import quota?

Question 7 Refer to the following figure to answer the questions that follow: According to the figure, if the policy is fully expected, expansionary monetary policy will cause an economy initially in full­employment equilibrium to see its price level:

Question 8 Assume that a country currently has a trade surplus. If that country experiences an expansion in economic activity, what would we expect to happen to the trade surplus?

Question 9 If a currency becomes ___________ valuable in world markets, then its price falls, and this decrease is called ____________.

Question 10 Expansionary monetary policy:

Question 11 The following two figures depict the demand and supply of U.S. dollars and the demand and supply of British pounds in the foreign currency exchange market. Use these figures to answer the questions that follow: Assume that the same event caused demand for U.S. dollars to decrease and demand for British pounds to increase and that both of these graphs describe that event. Approximately what is Y1?

Question 12 The United States feels that it has become too dependent on oil from Saudi Arabia, so it charges a tax of $10 per barrel on oil that can be imported from Saudi Arabia. This is an example of a(n):

Question 13 The following table shows the number of British pounds required to buy one U.S. dollar between September 3, 2012, and April 1, 2013. Use this table to answer the questions that follow: Between February 1, 2013, and March 1, 2013, the U.S. dollar __________ against the British pound, and the British pound __________ against the U.S. dollar.

Question 14 The national government or central bank of country X might take steps to purposefully depreciate their currency because:

Question 15 What will economists today likely state should have been done to limit the severity of the Great Depression?

Question 16 An increase in imports, ceteris paribus, indicates:

Question 17 Use the following graph to answer the questions that follow. If this is a nontrading (closed) economy, the number of TVs exchanged (in thousands) will be:

Question 18 When an employer is forced to increase wages at the same rate of inflation:

Question 19 Which of the following figures illustrates the effects of contractionary monetary policy on the loanable funds market?

Question 20 Expansionary monetary policy ____________ interest rates, which can be shown in the ______________________.

Question 21 Use the following scenario to answer the questions that follow: Amy can produce either 5,000 pounds of cheese or 20 houses per year. Jim can produce either 5,000 pounds of cheese or 10 houses per year. Amy’s opportunity cost of producing one pound of cheese is _____________ house(s).

Question 22 The following table shows the number of British pounds required to buy one U.S. dollar and the number of euros required to buy one U.S. dollar between September 3, 2012, and April 1, 2013: Between December 3, 2012, and January 1, 2013, the U.S. dollar ____________ against the British pound, and the U.S. dollar __________ against the euro.

Question 23 Only the short­run Phillips curve is downward sloping because:

Question 24 _____________ exchange rates are exchange rates that are fixed at a certain level through the actions of a government.

Question 25 The following figure depicts the supply of U.S. dollars in the foreign currency exchange market. Use this figure to answer the questions that follow: The U.S. central bank has the power to increase or decrease the supply of U.S. dollars. If the U.S. central bank increases the supply of U.S. dollars, the supply curve in the above figure will ____________; if the U.S. central bank decreases the supply of U.S. dollars, the supply curve in the above figure will ____________.

Question 26 The following table shows the number of U.S. dollars required to buy one British pound between September 3, 2012, and April 1, 2013. Use this table to answer the questions that follow: Between January 1, 2013, and March 1, 2013, the U.S. dollar ___________ against the British pound, and the British pound ___________ against the U.S. dollar.

Question 27 If the theory of purchasing power parity holds, then how much does an oil change for a Toyota Prius cost in Japan if the same oil change for the same Toyota Prius costs $29.95 in the United States and the exchange rate is $0.011 per Japanese yen?

Question 28 The following figure depicts the demand for Chinese yuan in the foreign currency exchange market. Use this figure to answer the questions that follow: If the interest rates in China rise relative to interest rates in the United States, the demand curve in the figure above:

Question 29 Use the following scenario to answer the questions that follow: An economy has two workers, Smith and Ricardo. Every day they work, Smith can produce 4 computers or 16 smartphones, and Ricardo can produce 6 computers or 12 smartphones. What is the opportunity cost for Smith to produce one computer?

Question 30 The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between January 1, 2013, and April 1, 2013. Use this table to answer the questions that follow: On April 1, 2013, Carlos paid 800,000 Japanese yen for a solid gold iPhone case in Fukushima, Japan. Because he only had Mexican pesos, he needed to exchange his pesos at a nearby bank in order to get the 800,000 yen he used to pay for the iPhone case. The bank is able to buy and sell U.S. dollars, Mexican pesos, and Japanese yen at the exchange rates shown in the table. Approximately how much did the iPhone case cost Carlos in terms of Mexican pesos?

Question 31 Which of the following would be entered into the U.S. current account?

Question 32 Which of the following explains contractionary monetary policy in the long run?

Question 33 To avoid the negative effects of unexpected inflation, workers have an incentive to:

Question 34 If interest rates in Australia decrease relative to the rest of the world, it means that (1) Australian bonds will provide a ___________ return than previously and (2) ___________ for these bonds will _____________.

Question 35 If the U.S. dollar ____________, it becomes ___________ valuable in world markets.

Question 36 As expected inflation decreases, the short­run Phillips curve:

Question 37 Use the following scenario to answer the questions that follow: Rosa and Dirk produce basketballs and footballs. Rosa can produce six basketballs per hour or two footballs per hour. Dirk can produce three basketballs per hour or four footballs per hour. Based on the scenario, Rosa’s opportunity cost of one basketball is:

Question 38 Use the following scenario to answer the questions that follow: Amy can produce either 5,000 pounds of cheese or 20 houses per year. Jim can produce either 5,000 pounds of cheese or 10 houses per year. Jim’s opportunity cost of producing one house is _____________ pound(s) of cheese.

Question 39 Central banks can use monetary policy to:

Question 40 Which of the following statements about expectations theory is true?

 

Question 1 Which of the following explains why the money supply is not completely controlled by the Federal Reserve?

Question 2 A tariff:

Question 3 Which of the following statements is true about monetary policy and the unemployment rate?

Question 4 An example of an import quota is:

Question 5 If the Central Reserve Bank of Peru (the Pervian central bank) were to take steps to devalue the sol (the Peruvian currency) in foreign currency markets, the Peruvian aggregate demand curve would ____________ in the short run and the Peruvian short­run aggregate supply curve would ____________ in the long run.

Question 6 The combination of high unemployment rates and high inflation is called:

Question 7 According to the principle of comparative advantage, trade between two countries will benefit:

Question 8 Use the following graph to answer the questions that follow. If this is a nontrading (closed) economy, how many cars (in thousands) will be exchanged?

Question 9 According to the Fisher equation, if a bank extends a loan for 3% and the inflation rate ends up being 2%:

Question 10 Under normal economic conditions, including the situation in which there is no surprise inflation, we expect the unemployment rate to:

Question 11 When a smaller country with fewer resources specializes its production and gains access to larger, international markets, this can create:

Question 12 The following two graphs depict the equilibrium price of a pound of grapes in California and West Virginia, respectively. Assume the type and quality of the grapes being sold in the two states are identical. Further, assume grape sellers incur zero costs to transport grapes between the two states and there are no other barriers to trade. Use these graphs to answer the questions that follow: Which of the following pairs of prices is consistent with the law of one price?

Question 13 The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between January 1, 2013, and April 1, 2013. Use this table to answer the questions that follow: According to the law of ____________, the quantity of yen demanded by U.S. consumers will ___________ when the price of yen in terms of U.S. dollars falls.

Question 14 Stagflation is:

Question 15 Use the following scenario to answer the questions that follow: Rosa and Dirk produce basketballs and footballs. Rosa can produce six basketballs per hour or two footballs per hour. Dirk can produce three basketballs per hour or four footballs per hour. Based on the scenario, which of the following is true?

Question 16 Suppose a Chinese citizen buys a box of Nestlé Kit Kat candy bars from America and Nestlé decides to hold on to the Chinese currency. How will this transaction enter into the U.S. balance of payments?

Question 17 Currency ___________ occurs when a currency decreases in value relative to other currencies.

Question 18 The arrows in Figures A–D represent possible movements of the exchange rate (euros per U.S. dollar) and the quantity of U.S. dollars buyers are willing and able to buy. Use these figures to answer the questions that follow: A deprecation of the euro against the U.S. dollar is represented by Figure ___________, and a depreciation of the U.S. dollar against the euro is represented by Figure _____________.

Question 19 The following table shows the number of various foreign currencies required to buy a U.S. dollar on April 12, 2008, and April 12, 2013. Use this table to answer the questions that  follow. On April 12, 2008, a haircut in Japan cost 2,000 yen. Using the exchange rates in the above table, that haircut cost approximately ____________ U.S. dollars or ____________ Australian dollars.

Question 20 Suppose that a Sony Playstation (manufactured in Japan) sells for a lower price in China than in the United States. What is the most likely reason for the difference in prices in the two locations?

Question 21 Use the following scenario to answer the questions that follow: Esther and Albert produce hamburgers and hot dogs. Esther can produce six hamburgers per hour or four hot dogs per hour. Albert can produce three hamburgers per hour or one hot dog per hour. Based on the scenario, Albert’s opportunity cost of one hot dog is:

Question 22 Contractionary monetary policy occurs when:

Question 23 The ability of one person or nation to produce more of a good while using the same quantity of resources as another is called a(n):

Question 24 Use the following scenario to answer the questions that follow: Rosa and Dirk produce basketballs and footballs. Rosa can produce six basketballs per hour or two footballs per hour. Dirk can produce three basketballs per hour or four footballs per hour. Based on the scenario, which of the following is true?

Question 25 Refer to the following figure to answer the questions that follow: According to the figure, if the policy is fully expected, expansionary monetary policy will cause an economy initially in full­employment equilibrium to see its price level:

Question 26 The following two graphs depict the equilibrium price of a pound of grapes in California and West Virginia, respectively. Assume the type and quality of the grapes being sold in the two states are identical. Further, assume grape sellers incur zero costs to transport grapes between the two states and there are no other barriers to trade. Use these graphs to answer the questions that follow: According to the law of one price, the supply curve in the California grape market will ______________, and the supply curve in the West Virginia grape market will _____________.

Question 27 Which of the following explains why resource prices are often the slowest prices to adjust?

Question 28 The following two graphs depict the equilibrium price of a pound of grapes in California and West Virginia, respectively. Assume the type and quality of the grapes being sold in the two states are identical. Further, assume grape sellers incur zero costs to transport grapes between the two states and there are no other barriers to trade. Use these graphs to answer the questions that follow: According to the law of one price, the price of grapes will:

Question 29 The United States feels that it has become too dependent on oil from Saudi Arabia, so it charges a tax of $10 per barrel on oil that can be imported from Saudi Arabia. This is an example of a(n):

Question 30 A limit imposed on the volume of total imports of a particular good is known as a(n):

Question 31 Use the following scenario to answer the questions that follow: RayRay and Andrew produce baseballs and golf balls. RayRay can produce six baseballs per hour or four golf balls per hour. Andrew can produce three baseballs per hour or one golf ball per hour. Based on the scenario, which of the following is true?

Question 32 An increase in imports, ceteris paribus, indicates:

Question 33 Which of the following aggregate demand–aggregate supply models illustrates the shortrun effects of expansionary monetary policy?

Question 34 Use the following scenario to answer the questions that follow: Karl and Pete produce cars and trucks. Karl can produce 10 cars per hour or 5 trucks per hour. Pete can produce 12 cars per hour or 4 trucks per hour. Based on the scenario, which of the following is true?

Question 35 Exporting nations often agree to voluntary export restraints in an attempt to:

Question 36 The following graph depicts the market for potatoes in West Virginia. Assume there are similar markets for potatoes in all other U.S. states and that the potatoes sold in all states are identical. Further, assume potato sellers incur zero costs to transport potatoes between any U.S. state and that there are no other barriers to trade. Use this graph to answer the questions that follow: Suppose the equilibrium price of a pound of potatoes in all U.S. states is initially $1.20. Further, suppose there is an increase in potato demand in all U.S. states except West Virginia. This increase in demand causes potato prices in all U.S. states, except West Virginia, to increase. If the law of one price holds, potato sellers will eventually adjust the relative quantity of potatoes they sell in all U.S. states, including West Virginia. After this adjustment:

Question 37 Assume there is a 35% tariff on bananas imported into the United States. Also, assume that the market competition is at its beginning and the law of one price is not in effect. If the domestic market price of Hawaiian bananas is one dollar per bunch, imported bananas will sell for:

Question 38 Many people argue that certain industries, such as weapons, energy, and transportation, should be protected by trade barriers in the interest of:

Question 39 When central banks purposefully choose to only stabilize money and price levels through monetary policy, it is known as:

Question 40 The following figure depicts the supply of U.S. dollars in the foreign currency exchange market. Use this figure to answer the questions that follow: The U.S. central bank has the power to increase or decrease the supply of U.S. dollars. If the U.S. central bank increases the supply of U.S. dollars, the supply curve in the above figure will ____________; if the U.S. central bank decreases the supply of U.S. dollars, the supply curve in the above figure will ____________.

 

Question 1 In 2011, 60% of goods imported by the United States came from just seven nations. Which of the following nations was one of those seven?

Question 2 The members of NAFTA are the United States, Canada, and:

Question 3 According to the principle of comparative advantage, trade between two countries will benefit:

Question 4 Before the development of expectations theory:

Question 5 If the United States experiences lower personal savings rates, then it must be the case that:

Question 6 The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Australian dollar between January 1, 2013, and April 1, 2013: Between March 1, 2013, and April 1, 2013, the U.S. dollar ____________ against the Mexican peso, and the U.S. dollar ____________ against the Australian dollar.

Question 7 Florida’s nice beaches and subtropical climate give the state ___________ in tourism.

Question 8 The following two graphs depict the equilibrium price of a pound of grapes in California and West Virginia, respectively. Assume the type and quality of the grapes being sold in the two states are identical. Further, assume grape sellers incur zero costs to transport grapes between the two states and there are no other barriers to trade. Use these graphs to answer the questions that follow: According to the law of one price, the price of grapes will:

Question 9 In the short run, expansionary monetary policy ___________ real gross domestic product (GDP), ___________ unemployment, and ___________ the price level.

Question 10 Use the following scenario to answer the questions that follow: Rosa and Dirk produce basketballs and footballs. Rosa can produce six basketballs per hour or two footballs per hour. Dirk can produce three basketballs per hour or four footballs per hour. Based on the scenario, which of the following is true?

Question 11 When demand for Canada’s exports falls:

Question 12 Use the following scenario to answer the questions that follow: Amy can produce either 5,000 pounds of cheese or 20 houses per year. Jim can produce either 5,000 pounds of cheese or 10 houses per year. Amy’s opportunity cost of producing one pound of cheese is _____________ house(s).

Question 13 When inflation is not a surprise:

Question 14 Use the following graph to answer the questions that follow. In a trading (open) economy, the price of a TV will be:

Question 15 Use the following scenario to answer the questions that follow: Amy can produce either 5,000 pounds of cheese or 20 houses per year. Jim can produce either 5,000 pounds of cheese or 10 houses per year. By the principle of comparative advantage, Jim should specialize in producing:

Question 16 When the Fed buys bonds from financial institutions, new money moves directly:

Question 17 If interest rates fall in the United States relative to the rest of the world, the demand for U.S. dollars will ____________ because there is lesser demand for assets with ___________ returns.

Question 18 In general, a nation can enjoy a higher standard of living by ___________ than by being selfsufficient.

Question 19 Which of the following explains why the money supply is not completely controlled by the Federal Reserve?

Question 20 Stagflation is:

Question 21 Which of the following statements would be true if the short­run Phillips curve relationship held in the long run?

Question 22 A tariff:

Question 23 Monetary policy has real effects only when:

Question 24 Use the following scenario to answer the questions that follow: Karl and Pete produce cars and trucks. Karl can produce 10 cars per hour or 5 trucks per hour. Pete can produce 12 cars per hour or 4 trucks per hour. Based on the scenario, which of the following is true?

Question 25 One of the reasons given for the imposition of a protectionist policy such as a tariff is to:

Question 26 If expectations are formed rationally:

Question 27 Central banks can use monetary policy to:

Question 28 According to the theory of monetary neutrality, in the long run:

Question 29 Use the following scenario to answer the questions that follow: An economy has two workers, Smith and Ricardo. Every day they work, Smith can produce 4 computers or 16 smartphones, and Ricardo can produce 6 computers or 12 smartphones. What is the opportunity cost for Smith to produce one computer?

Question 30 Use the following scenario to answer the questions that follow: Rosa and Dirk produce basketballs and footballs. Rosa can produce six basketballs per hour or two footballs per hour. Dirk can produce three basketballs per hour or four footballs per hour. Based on the scenario, Dirk’s opportunity cost of one basketball is:

Question 31 Monetary neutrality is:

Question 32 Use the following graph to answer the questions that follow. If this is a trading (open) economy, quantity supplied of cars (in thousands) by the domestic producers will be:

Question 33 Which country has the world’s biggest economy?

Question 34 The arrows in Figures A–D represent possible movements of the exchange rate (euros per U.S. dollar) and the quantity of U.S. dollars buyers are willing and able to buy. Use these figures to answer the questions that follow: A deprecation of the euro against the U.S. dollar is represented by Figure ___________, and a depreciation of the U.S. dollar against the euro is represented by Figure _____________.

Question 35 Assume that a country currently has a trade surplus. If that country experiences an expansion in economic activity, what would we expect to happen to the trade surplus?

Question 36 The following table shows the number of euros required to buy one U.S. Dollar between September 3, 2012, and April 1, 2013. Use this table to answer the questions that follow: Between November 1, 2012, and January 1, 2013, the U.S. dollar ___________ against the euro, and the euro ___________ against the U.S. dollar.

Question 37 The North American Free Trade Agreement (NAFTA) was intended to increase U.S. trade with which other countries?

Question 38 Holding all else constant, in the short run, a decrease in the money supply can cause:

Question 39 The following table shows the number of British pounds required to buy one U.S. dollar between September 3, 2012, and April 1, 2013. Use this table to answer the questions that follow: Between January 1, 2013, and March 1, 2013, the U.S. dollar __________ against the British pound, and the British pound _____________ against the U.S. dollar.

Question 40 The United States feels that it has become too dependent on oil from Saudi Arabia, so it places a limit on the amount of oil that is imported from Saudi Arabia. This is an example of a(n):

 

____ 1. Mandatory outlays are different than discretionary outlays because:

a. mandatory outlays usually change during the budget process, whereas discretionary outlays do not.

b. mandatory outlays have been decreasing as a percentage of the federal budget, whereas

discretionary outlays have been increasing as a percentage of the federal budget.

c. discretionary outlays can be changed during the annual budget process, whereas mandatory outlays cannot.

d. discretionary outlays include entitlement programs (such as Social Security and Medicare), whereas mandatory outlays include important government programs (such as defense).

e. discretionary outlays comprise the vast majority of the total budget, whereas mandatory outlays make up only a minor fraction.

____ 2. Why do Social Security and Medicare pose problems for the federal government budget?

a. The programs do not cover enough people.

b. The worker-to-retiree ratio is decreasing.

c. The number of retirees is decreasing.

d. The number of sick people is rising too quickly.

e. Social insurance taxes are capped and cannot be raised.

____ 3. If policymakers are concerned about the unequal distribution of income within society, then they should prefer a:

a. regressive income tax system.

b. progressive income tax system.

c. consumption tax system.

d. proportional income tax system.

e. per capita tax system.

Refer to the following table to answer the questions 4 and 5.

____ 4. Using the table, what is the total federal income tax bill for someone who makes $67,000 per year?

a. $16,750

b. $12,780

c. $11,169

d. $10,050

e. $6,700

____ 5. Using the table, what is the marginal income tax rate for someone who makes $67,000 per year?

a. 10.0%

b. 14.2%

c. 16.7%

d. 25.0%

e. 19.1%

____ 6. What is the most appropriate way to compare budget deficits/surpluses across time?

a. using nominal dollar figures

b. using real dollar figures

c. calculating figures as a portion of gross domestic product (GDP)

d. using per capita dollar figures

e. Budget figures cannot be compared across time.

____ 7. If government revenues in 2011 were $2.2 trillion and government outlays were $3.8 trillion:

a. the federal debt was unaffected.

b. the federal debt decreased $1.6 trillion.

c. the federal budget surplus was $1.6 trillion.

d. the federal budget deficit was $1.6 trillion.

e. the federal budget was balanced.

____ 8. In recent years, the growth in foreign-owned debt has:

a. substantially weakened the U.S. economy.

b. helped the U.S. economy by keeping the supply of loanable funds higher than it would be otherwise.

c. harmed the U.S. economy by driving up the cost of borrowing.

d. harmed the U.S. economy by sending jobs overseas.

e. not affected the U.S. economy.

____ 9. The goal of expansionary fiscal policy is to shift the _________ curve to the _________.

a. aggregate demand; left

b. aggregate demand; right

c. short-run aggregate supply; right

d. short-run aggregate supply; left

e. long-run aggregate supply; left

____ 10. If the unemployment rate falls below the natural rate of unemployment (u*):

a. the government will want to conduct expansionary fiscal policy.

b. the Federal Reserve will want to conduct expansionary monetary policy.

c. the economy is in a recession.

d. there will be no worries about inflation.

e. the government will want to conduct contractionary fiscal policy.

____ 11. If your income increases by $1,500 and you only consume $900 of it, your marginal propensity to consume would be equal to:

a. 600.00.

b. 0.50.

c. 0.75.

d. 0.40.

e. 0.60.

____ 12. If the spending multiplier is 5, what is the marginal propensity to consume in the economy?

a. 0.4

b. 0.8

c. 0.5

d. 0.75

e. 0.8

____ 13. An example of the multiplier effect is when:

a. the government increases government spending initially by $100 billion, and total income in the economy increases by less than $100 billion.

b. an increase in the price level leads to a shift in the aggregate demand curve.

c. the government increases government spending initially by $100 billion, and total income in the economy increases by more than $100 billion.

d. an increase in government spending leads to a decrease in private investment.

e. short-run aggregate supply shifts in a response to fiscal policy.

____ 14. A recognition lag happens because:

a. it takes time to recognize the true long-run growth rate in the economy.

b. it is difficult to determine when the economy is turning up or down.

c. in most nations, one or more governing bodies must approve government spending or new tax policies.

d. it takes time for the complete effects of monetary and fiscal policy to materialize.

e. it is difficult to recognize what the unemployment rate is.

____ 15. If the effects of contractionary fiscal policy hit when the economy is already contracting:

a. the effects could lead to even deeper recession.

b. the policy will have no effect.

c. the policy is called an automatic stabilizer.

d. it may lead to excessive aggregate demand and inflation.

e. it will lead to stagflation.

____ 35. According to the theory of monetary neutrality, in the long run:

a. monetary policy is always more effective than fiscal policy.

b. fiscal policy is always more effective than monetary policy.

c. expansionary monetary policy is more effective than contractionary monetary policy.

d. contractionary monetary policy is more effective than expansionary monetary policy.

e. there is a lack of real economic effects from monetary policy.

Refer to the following figure to answer question 36:

____ 36. According to the figure, if the policy is fully expected, expansionary monetary policy will cause an economy initially in full-employment equilibrium to move from:

a. point A to B.

b. point A to B and back to A.

c. point A to B to C.

d. point A to C and back to A.

e. point A to C.

____ 37. Only the short-run Phillips curve is downward sloping because:

a. in the long run, prices adjust, eliminating the relationship between inflation and unemployment.

b. in the long run, prices are sticky, eliminating the relationship between inflation and unemployment.

c. central banks have no influence over the economy in the short run.

d. central banks only have influence over the economy in the long run.

e. long-run effects of monetary policy are negated by fiscal policy.

____ 38. Studying alternative theories of how people form expectations is particularly relevant to monetary policy because:

a. if people fully expect inflation to occur, the effects of monetary policy are more widespread.

b. monetary policy can only have real effects on the economy if people fully expect inflation.

c. unexpected inflation cause prices to be flexible.

d. the effects of expected inflation are completely different from the effects of unexpected inflation.

e. expected inflation cause prices to become sticky.

____ 39. When inflation is not a surprise:

a. the Phillips curve is downward sloping.

b. activist monetary policy has a real effect on the economy.

c. the economy is not at full-employment output.

d. it does not affect the unemployment rate.

e. the economy is expanding.

____ 40. As expected inflation decreases, the short-run Phillips curve:

a. shifts to the left.

b. becomes flatter.

c. becomes steeper.

d. stays the same.

e. shifts to the right.

The following table shows the number of U.S. dollars required to buy one British pound between September 3, 2012, and April 1, 2013. Use this table to answer questions 41 and 42:

____ 41. Between February 1, 2013, and March 1, 2013, the U.S. dollar ___________ against the British pound, and the British pound ___________ against the U.S. dollar.

a. depreciated; appreciated

b. appreciated; depreciated

c. neither appreciated nor depreciated; depreciated

d. depreciated; neither appreciated nor depreciated

e. appreciated; neither appreciated nor depreciated

____ 42. On March 1, 2013, the price of a surfboard was 1,200 U.S. dollars in La Jolla, California. Based on the exchange rates quoted in the table, a surfboard was approximately __________ British pounds.

a. 1,931

b. 1,950

c. 1,883

d. 1,805

e. 798

____ 43. The figure below depicts the supply of U.S. dollars in the foreign currency exchange market.

A shift from D1 to D3 in the above figure could have been caused by:

a. a decrease in the exchange rate from £1.2/$1 to £1.1/$1.

b. an increase in the exchange rate from £1.1/$1 to £1.2/$1.

c. an increase in demand for U.S. assets relative to British assets.

d. an increase in U.S. interest rates relative to British interest rates.

e. a decrease in British consumers’ demand for U.S. goods.

____ 44. The national government or central bank of country X might take steps to purposefully depreciate their currency because:

a. country X wants its currency to command more respect from international news reporters.

b. consumers in country X would be able to purchase more goods from producers in country Y.

c. producers in country X would be able to sell more goods to consumers in country Y.

d. a depreciated currency would benefit both consumers and producers in country X.

e. an appreciated currency would harm both consumers and producers in country Y.

____ 45. In order to maintain a pegged exchange rate in China:

a. the Chinese government must prevent Chinese citizens from trading goods or services with other countries.

b. the Chinese government must prevent Chinese citizens from purchasing assets denominated in foreign currencies.

c. the Chinese government must adjust the supply of the yuan in world markets.

d. at least one foreign country must also maintain a pegged exchange rate.

e. no other country that China shares a geographical border with can maintain a pegged exchange rate.

____ 46. If the theory of purchasing power parity holds, then how much does an Egyptian tapestry cost in the United States if the same tapestry sells for 15,000 Egyptian pounds in Egypt and the exchange rate is $0.14 per Egyptian pound?

a. $12,000

b. $2,100

c. $107,143

d. $15,000

e. $3,148

____ 47. Suppose that sugar produced in Cuba sells for a lower price in Mexico than it does in the United States. What is the most likely reason for the difference in prices in the two locations?

a. The United States has more stringent trade restrictions on Cuba than Mexico.

b. Shipping the sugar to the United States is more expensive than shipping it to Mexico.

c. The sugar sold in Mexico is different from the sugar sold in the United States.

d. Americans prefer high fructose corn syrup, whereas Mexicans prefer sugar.

e. Mexico has a closer political relationship with Cuba, and so Mexico receives a discount on the sugar compared to the price charged the United States.

____ 48. Which of the following would be entered into the U.S. capital account?

a. champagne purchased from France to celebrate your college graduation

b. a share of Google stock purchased by a U.S. citizen

c. a vacation home in Mexico purchased by a U.S. citizen

d. a Ford Escape vehicle manufactured in the United States and purchased by a U.S. citizen

e. technical support received from a call center in India

____ 49. Suppose a Chinese citizen buys a box of Nestlé Kit Kat candy bars from America and Nestlé decides to hold on to the Chinese currency. How will this transaction enter into the U.S. balance of payments?

a. as an increase in current account, as a decrease in capital account

b. as a decrease in current account, as an increase in capital account

c. as an increase in current account, as an increase in capital account

d. as a decrease in current account, as a decrease in capital account

e. There will be no net change in current account or capital account.

____ 50. Suppose the United States experiences an increase in its trade deficit. Which of the following is a possible explanation for this growing trade deficit? There has been:

a. a decrease in U.S. interest rates.

b. an increase in the U.S. savings rate.

c. an economic expansion in the United States.

d. a decrease in the U.S. budget deficit.

e. an increase in foreign interest rates.

 

____ 16. Automatic stabilizers:

a. are government programs that automatically implement countercyclical monetary policy in response to economic conditions.

b. must be approved by Congress every time they are to be implemented.

c. experience recognition lags.

d. experience implementation lags.

e. are government programs that automatically implement countercyclical fiscal policy in response to economic conditions.

____ 17. Crowding-out occurs when:

a. supply-side fiscal policy does not increase total output.

b. consumption increases when government spending increases.

c. private spending falls in response to increases in government spending.

d. time lags crowd out the effects of fiscal policy.

e. increases in government spending and decreases in taxes are offset by increases in savings.

Refer to the following figure to answer question 18. The question assumes that the government borrows $50b.

____ 18. According to the figure, the amount of private investment after government borrowing is:

a. $50 billion.

b. $25 billion.

c. $100 billion.

d. $150 billion.

e. $275 billion.

____ 19. Lowering marginal income tax rates for individuals:

a. will always lead to more tax revenue.

b. will always lead to less tax revenue.

c. creates incentives for individuals to work and produce less.

d. creates incentives for individuals to work harder and produce more.

e. increases the incentives for corporations to undertake activities that generate more profit.

____ 20. If I were to give cash to my mother for her birthday and she kept the cash under her mattress, which of the following changes would take place?

a. M1 and M2 would remain unchanged.

b. M1 and M2 would increase.

c. M1 and M2 would decrease.

d. M1 would increase; M2 would decrease.

e. M1 would decrease; M2 would increase.

____ 21. I have decided to use my credit card to purchase a new television. What is the immediate consequence of this purchase?

a. There would be a decrease in M1 and an increase in M2.

b. There would be an increase in M1 and an increase in M2.

c. There would be no changes to M1 or M2.

d. There would be a decrease in M1 and a decrease in M2.

e. There would be an increase in M1 and a decrease in M2.

____ 22. If Ann were to convert some of her checkable deposits into a certificate of deposit, which of the following changes would take place?

a. M1 would decrease and then increase; M2 would increase and then decrease.

b. There would be no changes to M1 or M2.

c. M1 would decrease; there would be no change in M2.

d. M1 would increase; M2 would increase.

e. M1 would decrease; M2 would decrease.

____ 23. I have a checking account at the local bank, and my sister has a car loan at the same bank. How does each of these appear on the bank’s balance sheet?

a. The checking account is a liability, and the car loan is an asset.

b. The checking account is an asset, and the car loan is a liability.

c. Both the checking account and the car loan are assets.

d. Both the checking account and the car loan are liabilities.

e. Both the checking account and the car loan are net worth.

Use the following example to answer questions 24 and 25:

Imagine that you deposit $25,000 in currency (which you had been storing in your closet), you’re your checking account at the bank. Assume that this institution has a required reserve ratio of 25%.

____ 24. As a result of this deposit, by how much will the bank’s excess reserves increase?

a. $0

b. $18,750

c. $25,000

d. $31,250

e. $100,000

____ 25. As a result of this deposit, what is the maximum amount in loans that can be made by all the banks in the banking system?

a. $0

b. $18,750

c. $25,000

d. $31,250

e. $100,000

____ 26. If a bank has a required reserve ratio of 30%, excess reserves of $45,000,000, and deposits of $100,000,000, how much can the bank lend out?

a. $13,500,000

b. $30,000,000

c. $43,500,000

d. $45,000,000

e. $145,000,000

____ 27. To the extent a bank holds excess reserves, which of the following is a consequence?

a. The deposit multiplier is smaller.

b. The total amount of loans is larger.

c. The deposit multiplier is larger.

d. Owner’s equity for an individual bank is larger.

e. Owner’s equity for an individual bank is smaller.

____ 28. If the required reserve ratio is 10%, what is the simple deposit multiplier?

a. 20

b. 100

c. 5

d. 10

e. 2

____ 29. The purchase of existing U.S. Treasury securities by the Federal Reserve:

a. will have no effect on the money supply.

b. will decrease the money supply.

c. will increase the money supply.

d. will decrease the reserves at banks.

e. will increase the amount of U.S. Treasury securities held at banks.

____ 30. Expansionary monetary policy:

a. lowers interest rates, causing aggregate demand to shift to the right.

b. lowers interest rates, causing aggregate demand to shift to the left.

c. raises interest rates, causing aggregate demand to shift to the right.

d. raises interest rates, causing aggregate demand to shift to the left.

e. lowers interest rates, causing short-run aggregate supply to shift to the right.

____ 31. Changes in the quantity of money lead to real changes in the economy. If this is the case, why would the central bank ever stop increasing the money supply?

a. Although there is a short-run incentive to increase the money supply, these effects wear off in the long run as prices adjust and then drive up the value of money.

b. The government has rules in place on the maximum amount the money supply can be

increased in a given fiscal year.

c. Although there is a short-run incentive to increase the money supply, these effects wear off in the long run as prices adjust and then drive down the value of money.

d. Increasing the money supply is not a politically popular action and may lead to leaders of the central bank not getting reelected.

e. The short-run benefits are outweighed by the short-run costs of increases in the money supply.

____ 32. _______________________ would be hurt by unexpected inflation.

a. Someone who borrowed money at a fixed interest rate

b. A firm who hired a worker on a two-year wage contract

c. A worker who signed a two-year wage contract

d. A worker whose wage increases with inflation

e. A firm that purchased inputs with a two-year contract

____ 33. Which of the following explains why the money supply is not completely controlled by the Federal Reserve?

a. The actions of private individuals and banks can increase or decrease the money supply via the money multiplier.

b. The president can issue an executive order that can increase or decrease the money supply.

c. The treasury has say over when the Federal Reserve can increase or decrease the money supply.

d. The actions of private individuals and banks can increase or decrease the money supply via the spending multiplier.

e. Congress has authority to veto any monetary policy enacted by the Federal Reserve.

____ 34. Expectations:

a. have no effect on monetary policy.

b. have no effect on consumers’ spending habits.

c. play a role in fiscal policy but not in monetary policy.

d. can dampen the effects of monetary policy.

e. are easily studied in economics.

 

In the economy with efficient institutions, technological advancement

In 1950, Brazil’s economy was roughly the same size as Nicaragua’s. Today, Brazil’s economy is almost five times as large as Nicaragua’s. Which of the following best explains this difference?

Long-run per capita world income growth was basically flat until around what year?

Is having abundant resources an absolute guarantee of economic growth and prosperity?

Per capita real gross domestic product (GDP) is higher in the United States than in Mexico. Based on that, we could predict the United States to have a higher rate of ___________ and a lower rate of ___________.

According to modern growth theory, convergence in the level of wealth across countries depends mainly on:

What is the relationship between institutions, such as private property rights, and productive resources in terms of encouraging economic growth?

When the amount of physical capital is increased, then all else the same, the marginal product of capital will:

According to the textbook, which of the following countries is not considered a “wealthy nation”?

Suppose that in the economy the level of capital is 500 units, the depreciation rate is 4%, and the level of investment is 20 units. In this case:

Refer to the following figure to answer the questions that follow.
Based on the figure, starting at point A, if there is an increase in government spending, then in the short run we would move to point __________ and in the long run to point __________.

A decline in U.S. wealth would tend to cause:

When U.S. housing prices declined prior to and during the Great Recession, it caused aggregate demand to decrease because:

Use the following scenario to answer the questions that follow:
An economy has two workers, Smith and Ricardo. Every day they work, Smith can produce 4 computers or 16 smartphones, and Ricardo can produce 6 computers or 12 smartphones.
To maximize total output, Smith should specialize in producing ___________, whereas Ricardo should specialize in producing ____________.

Use the following scenario to answer the questions that follow:
Amy can produce either 5,000 pounds of cheese or 20 houses per year. Jim can produce either 5,000 pounds of cheese or 10 houses per year.
Amy’s opportunity cost of producing one pound of cheese is _____________ house(s).

 

The ability of one person or nation to produce more of a good while using the same quantity of resources as another is called a(n):

The ability of one person or nation to produce a good at a lower opportunity cost than another is called a(n):

Use the following scenario to answer the questions that follow

Rosa and Dirk produce basketballs and footballs. Rosa can produce six basketballs per hour or two footballs per hour. Dirk can produce three basketballs per hour or four footballs per hour

Based on the scenario, which of the following is true

Based on the scenario, Rosa’s opportunity cost of one football is

Based on the scenario, Rosa’s opportunity cost of one basketball is

Based on the scenario, Dirk’s opportunity cost of one football is

Based on the scenario, Dirk’s opportunity cost of one basketball is

Based on the scenario, which of the following is true

The North American Free Trade Agreement (NAFTA) was intended to increase U.S. trade with which other countries

A tariff is a tax imposed on _____________ good

A quota

An agreement by one country to limit the volume of exports to another country is known as a(n)

Why do politicians sometimes resist free trade and “globalization”?

The trade-restriction view assumes that free trade is __________ and should be _____________.

 

1.The ability of one person or nation to produce more of a good while using the same quantity of resources as another is called a(n

2.According to adaptive expectations theory, when inflation decelerates:
a) people underestimate inflation
b) people correctly estimate inflation
c) people change to rational expectations
d) unemployment must decrease
e) people overestimate inflation:

3.According to classical economists, changes in aggregate demand have little effect on the overall economy, and therefore

4.Adaptive Expectations Theory

5."A" has a comparative advantage over "B" in producing a good if

6.Are demographics an important factor when planning the federal budget

7.As credit card balances increase, what will be the consequence for M1 and M2

8.Assume that the government is currently balancing the national debt so they outlays equal tax revenue. Then the economy slips into recession, and the government decides to increase government spending by $50 billion. The government must pay for this by borrowing: it must sell $50 billion worth of Treasury bonds. As a result

9.Assume there is a 35% tariff on bananas imported in the US. Also, assume that the market competition is at its beginning and the law of one price is not in effect. If the domestic market price of Hawaiian bananas is one dollar per bunch, imported bananas will sell for

10.As the prices of goods and services increase, the value of money

11.The bank in your hometown has decided to double the number of its local branch offices. How will this affect the bank's balance sheet

12.Bans on imports, import quotas, voluntary quotas, and tariffs on goods

13.Based on the belief that prices are sticky and inflexible, Keynesian economists conclude that

14.Budget deficits tend to:
a) increase during expansions
b) increase during wars
c) decrease during recessions
d) increase over time
e) decrease over time

15.A budget is

16.Central banks can use monetary policy to:
a) reduce interest rates
b) decrease taxes
c) increase government spending
d) steer the economy out of every recession
e) prevent recessions

17.Changes in the quantity of money lead to real changes in the economy. If this is the case, why would the central bank every stop increasing the money supply

18.Classical economists believe that government intervention in the economy is unnecessary because

19.Contractionary monetary policy: (effect on aggregate demand): Raises interest rates, causing aggregate demand to shift to the left

20.The Coppock Bank began the day with $10,000,000 in its reserve account and ended the day with the same amount. If loans, other assets, and Treasury securities were $3,000,000 and owner's equity was $2,000,000, what is the bank's total amount of assets 
21.Countercyclical fiscal policy consists of

22.The "crowding-out" critique is based on the idea that

23.During a financial crisis hit hard by bank failures, the money supply

24.During the Great Depression, the U.S. aggregate demand curve shifted to the left, in part, because

25.During the Great Recession, a major financial crisis followed the collapse of housing prices, which led to

26.During the Great Recession, government outlays were _______ and government revenues were ________ their long-run averages over the period of 1960-2012

27.During the Great Recession, the U.S. aggregate demand curve shifted to the left, in part, because

28.During the Great Recession, the U.S. _______ curve shift to the _________

 29.During the Great Recession, the U.S. long-run aggregate supply curve shifted to the left, in part, because

30.An economy that does not trade with the rest of the world is a(n

31.An example of a voluntary quota is

32.An example of fiscal policy is:
a) lowering taxes
b) increasing taxes on everyone in the economy
c) decreasing the number of weeks an individual can receive unemployment
d) increasing taxes only on the top earnings in the economy
e) increasing minimum wage

33.An example of the multiplier effect is when:
a) the gov increases gov spending initially by $100 billion, and total income increases by less than $100 billion
b) an increase in the price level leads to shift in the aggregate demand curve
c) the gov increases gov spending initially by $100 billion, and total income increases by more than $100 billion
d) an increase in gov spending leads to a decrease is private investment
e) short-run aggregate supply shifts in a response to fiscal policy

34.Expansionary fiscal policy occurs when

35.Expansionary monetary policy can have immediate real short-run effects; initially, no prices have adjusted. But as prices adjust in the long run

During the Great Depression, aggregate demand in the U.S. economy decreased. As a result, the price level _________ and real gross domestic product (GDP) _________.

Which of the following economic statements would a classical economist tend to support?

The Great Recession lasted from _________ to _________.

Use the following graph to answer the questions that follow. The graph depicts an economy where aggregate demand and long-run aggregate supply (LRAS) have decreased, with no change in short-run aggregate supply (SRAS).
During the Great Recession, real gross domestic product (GDP) fell yet the price level was largely unchanged, as depicted in the graph. Because of this, we know that:

An increase in long-run aggregate supply can be expected to _________ the price level and _________ the natural rate of unemployment.

An increase in the general price level will lead to:

An economy has experienced a rightward shift of its long-run aggregate supply curve and is now producing on that new long-run aggregate supply curve. It is reasonable to expect that:

Keynesian economists believe that the economy is unstable and tends toward cyclical unemployment because:

The use of government spending and taxes to influence the economy is:

Excise taxes are levied on:

An illustration of the relationship between tax rates and tax revenues is called:

In regard to describing how the economy functions, Keynesian economists claim that:

Refer to the following table to answer the questions that follow.
Using the table, what is the marginal income tax rate of a $5,000 raise for someone who currently makes $67,000 per year?

During which of the following situations would you advise for expansionary fiscal policy?

____________ a mandated federal program that funds health care for retired persons.

Which of the following figures illustrates what happens when the government enters the loanable funds market in order to borrow?

It is difficult to determine when the economy is turning up or down. This is because there is ___________ that delays the effects of changes in fiscal policy.

_______________________ would be hurt by unexpected inflation.

When the Fed buys bonds from financial institutions, new money moves directly:

According to rational expectations theory, if the last three years of inflation were 0%, 2%, and 4%, respectively, one would expect inflation the following year to be:

The Federal Reserve actively worked to keep the federal funds rate at nearly _________ for several years following the Great Recession.

Stagflation is:

As financial intermediaries, how do commercial banks pay their expenses and earn a profit?

If a bank that faces a 10% reserve ratio received a deposit of $50,000 and makes a loan to a customer for $5,000, what is the consequence if the bank then deposits the rest of the funds at the Federal Reserve?

Injecting new money into the economy eventually causes:

Expansionary monetary policy can have immediate real short-run effects; initially, no prices have adjusted. But as prices adjust in the long run:

The Phillips curve:

Suppose market forces outside of the control of the Chinese government are causing the price of Chinese yuan in terms of Japanese yen to rise. In order to maintain the current value of the yuan, the Chinese government must:

The following table shows the number of U.S. dollars required to buy one British pound between September 3, 2012, and April 1, 2013. Use this table to answer the questions that follow:

Between January 1, 2013, and March 1, 2013, the U.S. dollar ___________ against the British pound, and the British pound ___________ against the U.S. dollar.

For country A, an export is a good produced in:

Use the following graph to answer the questions that follow.
In a trading (open) economy, the quantity supplied of TVs (in thousands) in the domestic market will be:

Suppose a Chinese citizen buys a box of Nestlé Kit Kat candy bars from America and Nestlé uses the currency to buy Chinese-produced machinery. How will this transaction enter into the U.S. balance of payments?

Which of the following situations will arise in the domestic market following the imposition of a voluntary quota?

In 2011, 60% of goods imported by the United States came from just seven nations. Which of the following nations was NOT one of those seven?

Use the following scenario to answer the questions that follow:
Rosa and Dirk produce basketballs and footballs. Rosa can produce six basketballs per hour or two footballs per hour. Dirk can produce three basketballs per hour or four footballs per hour.
Based on the scenario, which of the following is true?

 

36.Expectations:
a) have no effect on monetary policy
b) have no effect on consumers' spending habits
c) play a role in fiscal policy but not in monetary policy
d) can dampen the effects of monetary policy 
e) are easily studied in economics

37.Florida's nice beaches and subtropical climate give the state ________ in tourism

38.For country A, an export is a good produced in

39.For country A, an import is a good produced in

40.For something to be considered money, it must

41.Free trade is __________, because it _________ the size of the pie available to the economy

42.A graph shows a decrease in the price level due to a decrease in aggregate demand. Real GDP, however, does not change. The best explanation for the events is that

43.The Great Recession was different from other recessions since World War II in that

44.The Great Recession was similar to other recessions since World War II in that

45.Holding all else constant, in the short run, an increase in the money supply can cause

46.______________ holds that people form expectations on the basis of all available information

47.The idea that the money supply does not affect real economic variables is called

48.If a bank has a required reserve ratio of 15% and has required reserves of $225,000,000, how much does the bank hold in deposits
49.If a Keynesian economist were asked to make a statement about the relationship between the government and the economy, what might he say

50.If Ann were to convert some of her checkable deposits into a certificate of deposit, which of the following changes would take place

51.If current savings increase the same amount as the federal stimulus

52.If government revenues in 2000 were $2.0 trillion and government outlays were $1.8 trillion, this means that

53.If government revenues in 2011 were $2.2 trillion and government outlays were $3.8 trillion

54.If Hong Kong has an open economy, it _________ with other countries

55.If St. John has a closed economy, it ________ with other countries

56.If the economy begins to fall into a recession, one would expect Congress and the president to conduct

57.If the effect of contractionary fiscal policy hit when the economy is already contracting

58.If your marginal propensity to consume is 0.75 and you get an additional $400 in income, you would spend __________ on consumption

59.An impact lag happens because

60.An implementation lag happens because

61.In general, a nation can enjoy a higher standard of living by ___________ than by being self-sufficient

62.Injecting new money into the economy eventually causes

63.An institutional breakdown in U.S. financial markets would tend to cause

64._________ is/are considered a liability on a bank's balance sheet
a) cash in the vault
b) u.s. treasury securities
c) property owned by the bank
d) deposits
e) loans: 

 65.___________ is when a central bank acts to decrease the money supply in an effort to control an economy that is expanding too quickly

66.______________ is when a central bank acts to increase the money supply in an effort to stimulate the economy

67.Long-run aggregate supply shifts are caused by

68.The long-run Philips curve is:
a) upward sloping
b) downward sloping
c) horizontal
d) vertical
e) U-shaped

69.A major advantage of money over barter is that it is: 
a) a medium of exchange
b) fiat money
c) a unit of account
d) a store of value
e) currency

70.Monetary Policy is

71.Money does NOT function as:
a) a unit of account
b) a medium of exchange
c) a means to buy goods and services
d) an item to barter
e) a store of value

72.Money eliminated the need for the double coincidence of wants through its role as

73.Passive monetary policy is

74.Payroll taxes

75.Progressive tax rates, taxes on corporate profits, unemployment compensation, and welfare programs are all examples of

76.A recognition lag happens because

77.A rich nation will trade with a poor nation (and vice versa) because the

78.Should average citizens be concerned with the government's budget

79.A society could achieve a higher level of productivity if

80.The spending multiplier is

81.The strategic use of monetary policy to counteract macroeconomic expansions and contractions is known as

82.Supply-side fiscal policy:
a) has been proven not to work
b) takes time to affect aggregate supply
c) has immediate effects on aggregate supply
d) includes increases in government employee's pay and individual tax breaks
e) is emphasized as a short-run solution to growth problems: 

 83.Supply-side fiscal policy involves the use of

84.A tariff is a tax imposed on ________ good

85.A tax on imports is known as a(n

86.There is a 5% average tax on imported goods in the United States. This tax is known as a(n

87.The three time lags that accompany policy decisions are

88.To increase the money supply, the Federal Reserve could do which of the following?
a) increase the discount rate
b) increase the RR ratio
c) conduct an open market sale of u.s. treasury securities
d) discourage banks from lending money to borrowers
e) conduct an open market purchase of u.s. treasury securities

89.Total world exports of goods and services are now _______ about the size of world gross domestic product (GDP

90.The traditional short-run Philips curve implies that

 

  1. From 1982 to 2008, the economy experienced only two recessions, and they were neither lengthy nor severe. This time period is known as:

      a. the Great Depression.

      b. the Great Recession.

      c. the great expansion.

      d. the great moderation.

      e. the great economy.

  2. The Federal Reserve generally uses ___________________ to implement monetary policy.

      a. reserve requirements

      b. open market operations

      c. fiscal policy

      d. discount policies

      e. government spending and taxes

  3. Central banks can use monetary policy to:

      a. reduce interest rates.

      b. decrease taxes.

      c. increase government spending.

      d. steer the economy out of every recession.

      e. prevent recessions.

  4. Central banks can use monetary policy to:

      a. turn prices from inflexible to flexible.

      b. force private banks to lend out reserves.

      c. make it easier for people and businesses to borrow.

      d. print money.

      e. steer the economy out of overexpansion.

  5. In the short run, some prices are inflexible. Most often, the prices that are inflexible are:

      a. output prices.

      b. energy prices.

      c. food prices.

      d. product prices.

      e. wages for workers.

  6. __________________ is when a central bank acts to increase the money supply in an effort to stimulate the economy.

      a. Expansionary monetary policy

      b. Expansionary fiscal policy

      c. Contractionary monetary policy

      d. Contractionary fiscal policy

      e. Countercyclical monetary policy

  7. The two types of monetary policy are:

      a. monetary and fiscal.

      b. expansionary and contractionary.

      c. countercyclical and procyclical.

      d. positive and negative.

      e. pro and con.

  8. Expansionary monetary policy occurs when:

      a. a central bank acts to decrease the money supply in an effort to stimulate the economy.

      b. Congress and the president increase taxes in an effort to stimulate the economy.

      c. Congress and the president decrease taxes in an effort to stimulate the economy.

      d. a central bank acts to increase the money supply in an effort to stimulate the economy.

      e. a central bank acts to increase government spending in an effort to stimulate the economy.

28. Refer to the figure above. If this country is producing between point G and Q, it will gain by ______ its production of good A and importing more of _______. 
A. increasing; good B
B. increasing; good A
C. decreasing; good B
D. decreasing; good A

 

29. If the price of a good in a closed economy is lower than the world price, then with an open economy this country will be a ______ of that good. 
A. net importer
B. net exporter
C. price taker
D. price setter

 

30.  Suppose that, a country with a closed economy opens itself to international trade and becomes a net exporter. In that case, the producers of that good will be ____ and the consumers of that good will be ____ when the economy goes from closed to open for trade.  
A.  better off; worse off
B.  worse off; better off
C.  better off; better off
D.  neither better nor worse off; worse off

 

31. Suppose the automobile industry can import 10% of the total quantity demanded of cars in the U.S. This is an example of a(n) ________. 
A. tariff
B. quota
C. trade limit
D. import tax

 

32. One means of enforcing a quota is to require importers to ________. 
A. hire a lobbyist
B. pay an import tax
C. obtain a license
D. pay a sales tax

 

  9. If the interest rate on a loan is higher than the expected return from an investment:

      a. a rational firm will take out a loan for the investment.

      b. the Federal Reserve will conduct contractionary monetary policy.

      c. a rational firm will not take out a loan for the investment.

      d. the Federal Reserve will conduct expansionary monetary policy.

      e. the government will conduct expansionary fiscal policy.

10. Expansionary monetary policy makes the aggregate demand curve:

      a. shift to the left.

      b. become flatter.

      c. become steeper.

      d. shift to the right.

      e. stay static.

11. Expansionary monetary policy:

      a. lowers interest rates, causing aggregate demand to shift to the right.

      b. lowers interest rates, causing aggregate demand to shift to the left.

      c. raises interest rates, causing aggregate demand to shift to the right.

      d. raises interest rates, causing aggregate demand to shift to the left.

      e. lowers interest rates, causing short-run aggregate supply to shift to the right.

12. Holding all else constant, in the short run, an increase in the money supply can cause:

      a. an increase in unemployment.

      b. a lower rate of inflation.

      c. a decrease in the price level.

      d. a decrease in real gross domestic product (GDP).

      e. an increase in real GDP.

13. When the Fed buys bonds from financial institutions, new money moves directly:

      a. out of the loanable funds market.

      b. into the hands of consumers.

      c. into the loanable funds market.

      d. out of the hands of consumers.

      e. into short-run aggregate supply.

14. Expansionary monetary policy ____________ interest rates, which can be shown in the ______________________.

      a. raises; loanable funds market

      b. raises; aggregate demand–aggregate supply model

      c. lowers; aggregate demand–aggregate supply model

      d. lowers; loanable funds market

      e. raises; money market

15. Which of the following best describes how expansionary monetary policy affects the aggregate demand curve in the aggregate demand–aggregate supply model?

      a. Expansionary monetary policy directly pulls money out of the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right.

      b. Expansionary monetary policy directly puts money into the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right.

      c. Expansionary monetary policy directly puts money into the loanable funds market. This raises the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right.

      d. Expansionary monetary policy directly puts money into the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the left.

      e. Expansionary monetary policy directly pulls money out of the loanable funds market. This raises the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the left.

16. In the short run, expansionary monetary policy ___________ real gross domestic product (GDP), ___________ unemployment, and ___________ the price level.

      a. raises; lowers; raises

      b. raises; raises; raises

      c. lowers; lowers; raises

      d. lowers; lowers; lowers

      e. raises; lowers; lowers

17. Which of the following aggregate demand–aggregate supply models illustrates the short-run effects of expansionary monetary policy?

Refer to the following figure to answer the next two questions:

18. According to the figure, expansionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium ______ to equilibrium ______ in the short run.

      a. A; C

      b. A; B

      c. A; D

      d. C; B

      e. C; D

19. According to the figure, if the economy started at full-employment output, expansionary monetary policy would cause real gross domestic product (GDP) to ______________ in the short run.

      a. increase from Y1 to Y2

      b. increase from Y1 to Y3

      c. decrease from Y2 to Y1

      d. decrease from Y3 to Y2

      e. increase from Y2 to Y3

20. Which of the following figures illustrates the effects of expansionary monetary policy on the loanable funds market?

21. The Federal Reserve actively worked to keep the federal funds rate at nearly _________ for several years following the Great Recession.

      a. 2.5%

      b. 25%

      c. 7%

      d. 0%

      e. 5%

22. The Federal Reserve’s response to the Great Recession was an attempt to:

      a. increase aggregate demand.

      b. decrease aggregate demand.

      c. decrease the price level.

      d. increase short-run aggregate supply.

      e. decrease short-run aggregate supply.

23. What did the Federal Reserve do in response to the Great Recession?

      a. It conducted open market purchases to drive up interest rates.

      b. It conducted open market selling to drive up interest rates.

      c. It conducted open market purchases to drive down interest rates.

      d. It conducted open market selling to drive down interest rates.

      e. It decreased the reserve requirements to drive up interest rates.

24.  Injecting new money into the economy eventually causes:

      a. a recession.

      b. deflation.

      c. stagflation.

      d. unemployment.

      e. inflation.

25. As the prices of goods and services increase, the value of money:

      a. stays the same.

      b. increases.

      c. decreases.

      d. increases initially and then decreases.

      e. decreases initially and then increases.

26. As the prices of goods and services decrease, the value of money:

      a. stays the same.

      b. increases.

      c. decreases.

      d. increases initially and then decreases.

      e. decreases initially and then increases.

27. Changes in the quantity of money lead to real changes in the economy. If this is the case, why would the central bank ever stop increasing the money supply?

      a. Although there is a short-run incentive to increase the money supply, these effects wear off in the long run as prices adjust and then drive up the value of money.

      b. The government has rules in place on the maximum amount the money supply can be increased in a given fiscal year.

      c. Although there is a short-run incentive to increase the money supply, these effects wear off in the long run as prices adjust and then drive down the value of money.

      d. Increasing the money supply is not a politically popular action and may lead to leaders of the central bank not getting reelected.

      e. The short-run benefits are outweighed by the short-run costs of increases in the money supply.

28. Expansionary monetary policy can have immediate real short-run effects; initially, no prices have adjusted. But as prices adjust in the long run:

      a. the real impact of monetary policy is multiplied.

      b. the real impact of monetary policy is negative.

      c. the real impact of monetary policy is cut in half.

      d. the real impact of monetary policy dissipates completely.

      e. the real impact of monetary policy is unknown.

91.A U.S. federal government budget deficit occurs when

92.The U.S. government could reduce its budget deficit by:
a) borrowing funds from abroad
b) raising the eligible retirement age to receive social security benefits
c) expanding the income assistance programs
d) lowering income rates
e) decreasing the level of means-testing for medicare eligibility

93.The wealthiest 20% of households in the United States

94.What are federal funds

95.What does the X axis and Y axis of the Laffer curve represent

96.What function of money is highlighted when I am depositing a portion of my paycheck into my savings account to pay for my child's future education

97.When aggregate demand is high enough to drive unemployment below the natural rate

98.When the economy falters, people often look to the government to help push the economy forward again. In fact, the government uses many different tools to try to affect the economy. Economists classify these tools on the basis of two different types of policy

99.Which of the following best summarizes the main causes of the Great Depression

100.Which of the following economic statements would a Keynesian economists tend to support

101.Which of the following is an example of something that contains an excise tax?
a) property
b) income
c) clothing made and sold in Oregon (where the sales tax rate is 0%)
d) clothing imported from China and sold in Oregon
e) tobacco products: 

102.Which of the following is considered mandatory government spending?
a) funding the Environmental Protection Agency
b) payments to active military personnel
c) infrastructure maintenance spending
d) international aid to poor countries
e) payments to social security recipients: 

103.Which of the following situations will arise in the domestic market following the imposition of an import quota

104.Which of the following would NOT be an asset for a commercial bank?
a) loans
b) cash in the vault
c) borrowings
d) deposits at the federal reserve
e) u.s. treasury securities: 

105.While comparative advantage is the biggest reason many nations engage in trade, two other important reasons are

106.Why does the federal debt tend to increase during periods of recession

107.Why do Social Security and Medicare pose problems for the federal government budget

108.Why is a budget deficit not necessarily a bad thing

109.The World Trade Organization (WTO

 

29. _______________________ would be helped by unexpected inflation.

      a. Someone who lent money out at a fixed interest rate

      b. Someone who signed a two-year contract at a fixed wage

      c. Someone who borrowed money at a fixed interest rate

      d. A worker whose wage increases with expected inflation

      e. Elderly individuals on a fixed income

30. _______________________ would be hurt by unexpected inflation.

      a. Someone who borrowed money at a fixed interest rate

      b. A firm who hired a worker on a two-year wage contract

      c. A worker who signed a two-year wage contract

      d. A worker whose wage increases with inflation

      e. A firm that purchased inputs with a two-year contract

31. _______________________ would be hurt by unexpected inflation.

      a. Someone who lent money out at a fixed interest rate

      b. A firm that hired a worker on a two-year wage contract

      c. Someone who borrowed money at a fixed interest rate

      d. A worker whose wage increases with inflation

      e. A firm that purchased inputs with a two-year contract

32. According to the Fisher equation, if a bank extends a loan for 3% and the inflation rate ends up being 5%:

      a. the nominal interest rate is 2%.

      b. the real interest rate is 2%.

      c. the nominal interest rate is -2%.

      d. the real interest rate is -2%.

      e. the nominal interest rate is 8%.

33. According to the Fisher equation, if a bank extends a loan for 3% and the inflation rate ends up being 2%:

      a. the nominal interest rate is 1%.

      b. the real interest rate is 1%.

      c. the nominal interest rate is -1%.

      d. the real interest rate is -1%.

      e. the nominal interest rate is 5%.

34. _______________________ is when a central bank acts to decrease the money supply in an effort to control an economy that is expanding too quickly.

      a. Expansionary monetary policy

      b. Expansionary fiscal policy

      c. Contractionary monetary policy

      d. Contractionary fiscal policy

      e. Countercyclical monetary policy

35. Contractionary monetary policy occurs when:

      a. a central bank acts to decrease the money supply in an effort to control an economy that is expanding too quickly.

      b. Congress and the president increase taxes in an effort to control an economy that is expanding too quickly.

      c. Congress and the president decrease taxes in an effort to stimulate the economy.

      d. a central bank acts to increase the money supply in an effort to stimulate the economy.

      e. a central bank acts to increase government spending in an effort to stimulate the economy.

36. If the interest rate on a loan is lower than the expected return from an investment:

      a. a rational firm will take out a loan for the investment.

      b. the Federal Reserve will conduct contractionary monetary policy.

      c. a rational firm will not take out a loan for the investment.

      d. the Federal Reserve will conduct expansionary monetary policy.

      e. the government will conduct expansionary fiscal policy.

37. Contractionary monetary policy makes the aggregate demand curve:

      a. shift to the left.

      b. become flatter.

      c. become steeper.

      d. shift to the right.

      e. remain static.

38. Contractionary monetary policy:

      a. lowers interest rates, causing aggregate demand to shift to the right.

      b. lowers interest rates, causing aggregate demand to shift to the left.

      c. raises interest rates, causing aggregate demand to shift to the right.

      d. raises interest rates, causing aggregate demand to shift to the left.

      e. lowers interest rates, causing short-run aggregate supply to shift to the right.

39. Holding all else constant, in the short run, a decrease in the money supply can cause:

      a. a decrease in unemployment.

      b. a high rate of inflation.

      c. an increase in the price level.

      d. a decrease in real gross domestic product (GDP).

      e. an increase in real GDP.

54. Which of the following statements regarding the relationship between input prices and output prices is true?

      a. Input prices adjust slower than output prices.

      b. Output prices adjust slower than input prices

      c. Input prices and output prices adjust at the same rate.

      d. Input prices adjust before output prices.

      e. Input prices and output prices adjust at random times.

55. Monetary neutrality is:

      a. when a central bank acts to increase the money supply.

      b. when a central bank acts to decrease the money supply.

      c. the short-run inverse relationship between inflation and unemployment rates.

      d. the combination of high unemployment and high inflation.

      e. the idea that the money supply does not affect real economic variables.

56. Printing more paper money doesn’t affect the economy’s long-run productivity or its ability to produce; these outcomes are determined by:

      a. resources only.

      b. technology only.

      c. institutions only.

      d. resources, technology, and institutions.

      e. resources and technology only.

57. The idea that the money supply does not affect real economic variables is called:

      a. adaptive expectations theory.

      b. monetary neutrality.

      c. the Phillips curve.

      d. contractionary monetary policy.

      e. expansionary monetary policy.

58. According to the theory of monetary neutrality, in the long run:

      a. monetary policy is always more effective than fiscal policy.

      b. fiscal policy is always more effective than monetary policy.

      c. expansionary monetary policy is more effective than contractionary monetary policy.

      d. contractionary monetary policy is more effective than expansionary monetary policy.

      e. there is a lack of real economic effects from monetary policy.

59. Which of the following explains why resource prices are often the slowest prices to adjust?

      a. Resource prices are not affected by inflation.

      b. Resource prices are often set by lengthy contracts.

      c. Resource prices are often set by governments.

      d. Resource prices are not reported in the consumer price index (CPI).

      e. Resource prices are all tied to inflation.

60. An active monetary policy that attempts to smooth out the business cycle would involve conducting __________ monetary policy during recessions and __________ monetary policy during expansions.

      a. contractionary; contractionary

      b. expansionary; expansionary

      c. contractionary; expansionary

      d. expansionary; contractionary

      e. countercyclical; expansionary

61. Economists who discount the short-run expansionary effects of monetary policy focus on the problems of:

      a. inflation.

      b. government intervention.

      c. fiscal policy.

      d. unemployment.

      e. disinflation.

Refer to the following figure to answer the next two questions:

62. According to the figure, expansionary monetary policy starting at full-employment equilibrium will go from point _________ to point _________ in the short run and then to point _________ in the long run.

      a. A; B; A

      b. A; D; A

      c. A; D; C

      d. A; B; C

      e. C; B; A

63. According to the figure, contractionary monetary policy starting at full-employment equilibrium will go from point _________ to point _________ in the short run and then to point _________ in the long run.

      a. A; D; A

      b. C; B; A

      c. A; D; C

      d. C; D; C

      e. C; D; A

64. Which of the following explains expansionary monetary policy in the long run?

      a. Expansionary monetary policy shifts aggregate demand to the left, moving the economy from long-run equilibrium to a short-run equilibrium with a lower price level and a lower level of real gross domestic product (GDP). In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right, bringing the economy back to a long-run equilibrium where no real changes to GDP have occurred.

      b. Expansionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP. In the long run, as resource prices rise, the aggregate demand curve shifts back to the left, bringing the economy back to a long-run equilibrium where no real changes to GDP have occurred.

      c. Expansionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP. In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, bringing the economy back to a long-run equilibrium where no real changes to GDP have occurred.

      d. Expansionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP. In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right as well, causing the economy to expand.

      e. Expansionary monetary policy shifts aggregate demand to the left, moving the economy from long-run equilibrium to a short-run equilibrium with a lower price level and a lower level of real GDP. In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, causing the economy to contract.

65. Which of the following explains contractionary monetary policy in the long run?

      a. Contractionary monetary policy shifts aggregate demand to the left, moving the economy from long-run equilibrium to a short-run equilibrium with a lower price level and a lower level of real gross domestic product (GDP). In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right, bringing the economy back to a long-run equilibrium, where no real changes to GDP have occurred.

      b. Contractionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP. In the long run, as resource prices rise, the aggregate demand curve shifts back to the left, bringing the economy back to a long-run equilibrium, where no real changes to GDP have occurred.

      c. Contractionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP. In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, bringing the economy back to a long-run equilibrium, where no real changes to GDP have occurred.

      d. Contractionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP. In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right as well, causing the economy to expand.

      e. Contractionary monetary policy shifts aggregate demand to the left, moving the economy from long-run equilibrium to a short-run equilibrium with a lower price level and a lower level of real GDP. In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, causing the economy to contract.

66. A cost-of-living adjustment clause:

      a. is required in all government employee contracts.

      b. forces an employer to increase wages at the same rate of inflation.

      c. states that no raise can be less than the rate of inflation.

      d. is not allowed for private employees.

      e. forces an employer to increase wages at a rate higher than inflation.

67. When an employer is forced to increase wages at the same rate of inflation:

      a. the worker is receiving a cost-of-living adjustment.

      b. the economy is experiencing stagflation.

      c. the economy is experiencing hyperinflation.

      d. the economy is experiencing disinflation.

      e. the effects of expansionary monetary policy are amplified.

40. When the Fed sells bonds to financial institutions, new money moves directly:

      a. out of the loanable funds market.

      b. into the hands of consumers.

      c. into the loanable funds market.

      d. out of the hands of consumers.

      e. into short-run aggregate supply.

41. Contractionary monetary policy _________ interest rates, which can be shown in the _____________________.

      a. raises; loanable funds market

      b. raises; aggregate demand–aggregate supply model

      c. lowers; aggregate demand–aggregate supply model

      d. lowers; loanable funds market

      e. raises; money market

42. Which of the following best describes how contractionary monetary policy affects the aggregate demand curve in the aggregate demand–aggregate supply model?

      a. Contractionary monetary policy directly pulls money out of the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right.

      b. Contractionary monetary policy directly puts money into the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right.

      c. Contractionary monetary policy directly puts money into the loanable funds market. This raises the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right.

      d. Contractionary monetary policy directly puts money into the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the left.

      e. Contractionary monetary policy directly pulls money out of the loanable funds market. This raises the interest rate, which provides a lesser incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the left.

43. In the short run, contractionary monetary policy _________ real gross domestic product (GDP), _________ unemployment, and _________ the price level.

      a. raises; lowers; raises

      b. raises; raises; raises

      c. lowers; lowers; raises

      d. lowers; raises; lowers

      e. raises; lowers; lowers

44. Which of the following aggregate demand–aggregate supply models illustrates the short-run effects of contractionary monetary policy?

Refer to the following figure to answer the next two questions:

 

45. According to the figure, contractionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium __________ to equilibrium __________ in the short run.

      a. A; C

      b. A; B

      c. A; D

      d. C; B

      e. C; D

46. According to the figure, if the economy started at full-employment output, contractionary monetary policy would cause real gross domestic product (GDP) to __________ in the short run.

      a. increase from Y1 to Y2

      b. increase from Y1 to Y3

      c. decrease from Y2 to Y1

      d. decrease from Y3 to Y2

      e. increase from Y2 to Y3

47. Which of the following figures illustrates the effects of contractionary monetary policy on the loanable funds market?

         48.    Which of the following explains why the money supply is not completely controlled by the Federal Reserve?

      a. The actions of private individuals and banks can increase or decrease the money supply via the money multiplier.

      b. The president can issue an executive order that can increase or decrease the money supply.

      c. The treasury has say over when the Federal Reserve can increase or decrease the money supply.

      d. The actions of private individuals and banks can increase or decrease the money supply via the spending multiplier.

      e. Congress has authority to veto any monetary policy enacted by the Federal Reserve.

49. During a financial crisis hit hard by bank failures, the money supply:

      a. decreases because people start putting money into savings accounts.

      b. increases because people start putting money into savings accounts.

      c. increases because people start withdrawing their money from banks.

      d. decreases because people start withdrawing their money from banks.

      e. increases because people spend more instead of saving more.

50. What will economists today likely state should have been done to limit the severity of the Great Depression?

      a. The Fed should have done more to decrease the money supply at the onset.

      b. The Fed should have done more to decrease the inflation at the onset.

      c. The Fed should have reacted more quickly to decrease the money supply.

      d. The Fed should have waited longer before trying to raise the money supply.

      e. The Fed should have done more to offset the decline in the money supply at the onset.

51. Which of the following best explains how the money supply changed during the early part of the Great Depression?

      a. In the early part of the Great Depression, the money supply increased due to uncertainty and unemployment.

      b. In the early part of the Great Depression, the money supply decreased due to individuals withdrawing funds and holding more currency.

      c. In the early part of the Great Depression, the money supply increased due to individuals withdrawing funds and holding more currency.

      d. In the early part of the Great Depression, the money supply increased due to huge bond-buying programs by the Federal Reserve.

      e. In the early part of the Great Depression, the money supply decreased due to huge bond-buying programs by the Federal Reserve.

52. By shifting aggregate demand, monetary policy can affect __________ and __________.

      a. real gross domestic product (GDP); unemployment

      b. real GDP; interest rates

      c. interest rates; unemployment

      d. money supply; real GDP

      e. money supply; unemployment

53. Expectations:

      a. have no effect on monetary policy.

      b. have no effect on consumers’ spending habits.

      c. play a role in fiscal policy but not in monetary policy.

      d. can dampen the effects of monetary policy.

      e. are easily studied in economics.

 

68. To avoid the negative effects of unexpected inflation, workers have an incentive to:

      a. lock in their current wages for years.

      b. stay unemployed during years of inflation.

      c. never negotiate wage contracts.

      d. change jobs regularly.

      e. expect a certain level of inflation and to negotiate their contracts accordingly.

69. Unexpected inflation harms workers and other resource suppliers who have _________ prices in the _________ run.

      a. flexible; short

      b. fixed; short

      c. fixed; long

      c. flexible; short

      e. flexible; medium

70. Monetary policy has real effects only when:

      a. all prices are flexible.

      b. inflation is expected.

      c. some prices are sticky.

      d. the economy is at full-employment output.

      e. conducted by Congress.

71. If inflation is expected:

      a. the effects of monetary policy will be amplified.

      b. prices become sticky.

      c. the effects of monetary policy will be delayed.

      d. prices are not sticky.

      e. the effects of fiscal policy will be amplified.

72. When inflation is expected, the real effect on the economy is:

      a. amplified.

      b. positive.

      c. negative.

      d. limited.

      e. delayed.

Refer to the following figure to answer the next three questions:

89. Which of the following statements would be true if the short-run Phillips curve relationship held in the long run?

      a. A central bank has no control over unemployment.

      b. Only monetary policy, not fiscal policy, has any real effects on the economy.

      c. Prices fully adjust in the long run.

      d. A central bank can always steer an economy out of recession, simply through creating inflation.

      e. Expansionary monetary policy can decrease inflation at the expense of unemployment.

90. A __________ the aggregate demand curve is shown as a __________ the short-run Phillips curve.

      a. movement along; shift of

      b. shift of; movement along

      c. shift of; shift of

      d. movement along; movement along

      e. shift of; rotation of

91. The long-run Phillips curve is:

      a. upward sloping.

      b. downward sloping.

      c. horizontal.

      d. vertical.

      e. U-shaped.

92. The long-run Phillips curve has __________ on the x axis and __________ on the y axis.

      a. unemployment; inflation

      b. inflation; unemployment

      c. real gross domestic product (GDP); price level

      d. price level; real GDP

      e. real GPD; inflation

93. Which of the following diagrams represents the traditional long-run Phillips curve?

         94.    Under normal economic conditions, including the situation in which there is no surprise inflation, we expect the unemployment rate to:

      a. be increasing.

      b. increase and then decrease.

      c. be equal to the natural rate of unemployment.

      e. decrease and then increase.

      e. be decreasing.

95. Which of the following statements is true about monetary policy and the unemployment rate?

      a. Expansionary monetary policy can decrease the unemployment rate in the short run and in the long run.

      b. Expansionary monetary policy has no effect on the unemployment rate in the short run or in the long run.

      c. Contractionary monetary policy can decrease the unemployment rate in the short run but has no effect on the unemployment rate in the long run.

      d. Contractionary monetary policy has no effect on the unemployment rate in the short run or in the long run.

      e. Expansionary monetary policy can decrease the unemployment rate in the short run but has no effect on the unemployment rate in the long run.

96. The long-run Phillips curve is ____________ and equal to ____________.

      a. horizontal; the natural rate of unemployment

      b. vertical; the natural rate of unemployment

      c. vertical; full-employment output

      d. horizontal; full-employment inflation

      e. horizontal; full-employment output

97. The theory behind the long-run Phillips curve relationship is that:

      a. people’s expectations of future inflation are based on their most recent experience.

      b. people form expectations on the basis of all available information.

      c. monetary policy has real effects in the long-run.

      d. inflation stimulates the economy, and this outcome reduces the unemployment rate.

      e. prices are flexible in the long run, causing no relationship between unemployment and inflation.

98. A ___________ the short-run aggregate supply curve is shown as a ___________ the long-run Phillips curve.

      a. movement along; shift of

      b. shift of; movement along

      c. shift of; shift of

      d. movement along; movement along

      e. shift of; rotation of

99. Two alternative theories that hypothesize how people form expectations are:

      a. adaptive expectations theory and rational expectations theory.

      b. perfect expectations theory and adaptive expectations theory.

      c. rational expectations theory and perfect expectations theory.

      d. realistic expectations theory and perfect expectations theory.

      e. adaptive expectations theory and realistic expectations theory.

100.   Studying alternative theories of how people form expectations is particularly relevant to monetary policy because:

      a. if people fully expect inflation to occur, the effects of monetary policy are more widespread.

      b. monetary policy can only have real effects on the economy if people fully expect inflation.

      c. unexpected inflation cause prices to be flexible.

      d. the effects of expected inflation are completely different from the effects of unexpected inflation.

      e. expected inflation cause prices to become sticky.

101.   The combination of high unemployment rates and high inflation is called:

      a. disinflation.

      b. deflation.

      c. monetary neutrality.

      d. stagflation.

      e. adaptive inflation.

102.   Stagflation is:

      a. the theory that people’s expectations of future inflation are based on their most recent experience.

      b. the theory that people form expectations on the basis of all available information.

      c. the combination of high unemployment rates and high inflation.

      d. the combination of low unemployment rates and low inflation.

      e. the combination of high unemployment rates and low inflation.

103.   Adaptive expectations theory:

      a. holds that people form expectations on the basis of all available information.

      b. holds that people’s expectations of future inflation are based on their most recent experience.

      c. explains why prices are flexible in the long run.

      d. holds that people form expectations perfectly.

      e. explains the relationship between the unemployment rate and inflation.

104.   __________ holds that people’s expectations of future inflation are based on their most recent experience.

      a. Rational expectations theory

      b. The Phillips curve

      c. Adaptive expectations theory

      d. Stagflation theory

      e. Monetary neutrality

73. According to the figure, if the policy is fully expected, expansionary monetary policy will cause an economy initially in full-employment equilibrium to move from:

      a. point A to B.

      b. point A to B and back to A.

      c. point A to B to C.

      d. point A to C and back to A.

      e. point A to C.

74. According to the figure, if the policy is fully expected, expansionary monetary policy will cause an economy initially in full-employment equilibrium to see real gross domestic product (GDP):

      a. increase from Y2 to Y3.

      b. first increase from Y2 to Y3 but then decrease back to Y2.

      c. stay at Y2.

      d. decrease from Y2 to Y1.

      e. increase from Y1 to Y2.

75. According to the figure, if the policy is fully expected, expansionary monetary policy will cause an economy initially in full-employment equilibrium to see its price level:

      a. increase from P1 to P3.

      b. increase from P1 to P2.

      c. initially increase from P1 to P2 and over time increase to P3.

      d. decrease from P3 to P2.

      e. decrease from P3 to P1.

76. When supply shifts cause a downturn in the economy:

      a. monetary policy is more likely to restore the economy to its pre-recession conditions.

      b. inflation is not a concern.

      c. the natural rate of unemployment decreases.

      d. monetary policy can have no effect on the economy even in the short run.

      e. monetary policy is much less likely to restore the economy to its pre-recession conditions.

77. When both long-run and short-run aggregate supply shift leftward:

      a. monetary policy is more likely to restore the economy to its pre-recession conditions.

      b. inflation is not a concern.

      c. the natural rate of unemployment decreases.

      d. monetary policy can have no effect on the economy even in the short run.

      e. monetary policy is much less likely to restore the economy to its pre-recession conditions.

78. Which of the following statements best describes monetary policy during the Great Recession?

      a. During the wake of the Great Recession, there were significant expansionary monetary policy interventions.

      b. During the wake of the Great Recession, there were significant contractionary monetary policy interventions.

      c. During the wake of the Great Recession, there was a lack of monetary policy interventions.

      d. Monetary policy during the Great Recession was completely unexpected.

      e. Monetary policy during the Great Recession had no impact in the short run.

79. One explanation as to why monetary policy did not have the intended effects on the economy during the Great Recession is that:

      a. part of the recession was caused by a rightward shift in aggregate supply.

      b. monetary policy is ineffective in the short run.

      c. the monetary policy conducted during the Great Recession was mostly unexpected.

      d. part of the recession was caused by a leftward shift in aggregate supply.

      e. focus was on fiscal policy during the Great Recession.

80. The widespread problems in financial markets during the Great Recession negatively affected key institutions in the macroeconomy. In addition, the financial regulations that were put in place restricted banks’ ability to lend at levels equal to those in effect prior to 2008. This resulted in:

      a. a shift leftward of the aggregate demand curve.

      b. a shift leftward of the long-run aggregate supply curve.

      c. a shift rightward of the long-run aggregate supply curve.

      d. a shift rightward of the aggregate demand curve.

      e. a shift rightward of the short-run aggregate supply curve.

81. _________ indicates a short-run inverse relationship between inflation and unemployment rates.

      a. Stagflation

      b. Adaptive expectations theory

      c. The Phillips curve

      d. Monetary neutrality

      e. Rational expectations theory

82. The Phillips curve:

      a. holds that people’s expectations of future inflation are based on their most recent experience.

      b. is the combination of high unemployment rates and high inflation.

      c. holds that people form expectations on the basis of all available information.

      d. involves the strategic use of monetary policy to counteract macroeconomic expansions and contractions.

      e. indicates a short-run inverse relationship between inflation and unemployment rates.

83. The traditional short-run Phillips curve has _________ on the x axis and _________ on the y axis.

      a. unemployment; inflation

      b. inflation; unemployment

      c. real gross domestic product (GDP); price level

      d. price level; real GDP

      e. real GPD; inflation

84. The traditional short-run Phillips curve is:

      a. upward sloping.

      b. downward sloping.

      c. horizontal.

      d. vertical.

      e. U-shaped.

85. Which of the following diagrams represents the traditional short-run Phillips curve?

86. The theory behind the short-run Phillips curve relationship is that:

      a. people’s expectations of future inflation are based on their most recent experience.

      b. people form expectations on the basis of all available information.

      c. monetary policy has no real effects in the long-run.

      d. monetary expansion stimulates the economy, and this outcome reduces the unemployment rate.

      e. prices are flexible in the long run, causing no relationship between unemployment and inflation.

87. The traditional short-run Phillips curve implies that:

      a. a central bank has no impact on the unemployment rate.

      b. a central bank has no impact on inflation.

      c. a central bank can choose higher or lower unemployment rates simply by adjusting the rate of inflation in an economy.

      d. prices are completely flexible.

      e. unemployment and inflation are unrelated.

88. Only the short-run Phillips curve is downward sloping because:

      a. in the long run, prices adjust, eliminating the relationship between inflation and unemployment.

      b. in the long run, prices are sticky, eliminating the relationship between inflation and unemployment.

      c. central banks have no influence over the economy in the short run.

      d. central banks only have influence over the economy in the long run.

      e. long-run effects of monetary policy are negated by fiscal policy.

 

105.   Adaptive expectations theory came about in the:

      a. late 1960s.

      b. early 1910s.

      c. early 1980s.

      d. late 1800s.

      e. mid 1970s.

106.   Which two famous economists hypothesized that people would adapt their expectations about inflation to something consistent with their prior experience?

      a. Ben Bernanke and Alan Greenspan

      b. Milton Friedman and Edmund Phelps

      c. Adam Smith and David Ricardo

      d. John Maynard Keynes and F. A. Hayek

      e. Irving Fisher and Adam Smith

107.   According to adaptive expectations theory, when inflation accelerates:

      a. people underestimate inflation.

      b. people overestimate inflation.

      c. people correctly estimate inflation.

      d. people change to rational expectations.

      e. unemployment must increase.

108.   According to adaptive expectations theory, when inflation decelerates:

      a. people underestimate inflation.

      b. people correctly estimate inflation.

      c. people change to rational expectations.

      d. unemployment must decrease.

      e. people overestimate inflation.

109.   According to adaptive expectations theory, if the last three years of inflation were 3%, 3%, and 2%, respectively, one would expect inflation the following year to be:

      a. 0%.

      b. 3%.

      c. 1%.

      d. 4%.

      e. 2%.

110. Rational expectations theory:

      a. holds that people form expectations on the basis of all available information.

      b. holds that people’s expectations of future inflation are based on their most recent experience.

      c. explains why prices are flexible in the long run.

      d. holds that people form expectations perfectly.

      e. explains the relationship between the unemployment rate and inflation.

111. ____________ holds that people form expectations on the basis of all available information.

      a. Stagflation theory

      b. The Phillips curve

      c. Adaptive expectations theory

      d. Rational expectations theory

      e. Monetary neutrality

112. The short-run Phillips curve is built on the assumption that:

      a. prices are completely flexible.

      b. inflation expectations never adjust.

      c. the unemployment rate and inflation rate are not related.

      d. inflation expectations adjust over time.

      e. the natural rate of unemployment does not exist.

113. If expectations are formed rationally:

      a. then activist monetary policy may yield no gains whatsoever.

      b. then monetary policy has real effects in the long run.

      c. then inflation will only hurt lenders and not borrowers.

      d. then inflation will only hurt borrowers and not lenders.

      e. then individuals expect inflation equal to their most recent experience.

114. Which of the following statements about expectations theory is true?

      a. Adaptive expectations theory implies that people form expectations on the basis of all available information.

      b. Rational expectations theory implies that people’s expectations of future inflation are based on their most recent experience.

      c. Rational expectations theory does not imply that people always predict inflation correctly.

      d. Adaptive expectations theory identifies prediction errors as random.

      e. Rational expectations theory was developed before adaptive expectations theory.

115. According to rational expectations theory, if the last three years of inflation were 0%, 2%, and 4%, respectively, one would expect inflation the following year to be:

      a. 4%.

      b. 6%.

      c. 2%.

      d. 0%.

      e. 3%.

116. When inflation is not a surprise:

      a. the Phillips curve is downward sloping.

      b. activist monetary policy has a real effect on the economy.

      c. the economy is not at full-employment output.

      d. it does not affect the unemployment rate.

      e. the economy is expanding.

117. As expected inflation increases, the short-run Phillips curve:

      a. shifts to the left.

      b. becomes flatter.

      c. becomes steeper.

      d. stays the same.

      e. shifts to the right.

118. As expected inflation decreases, the short-run Phillips curve:

      a. shifts to the left.

      b. becomes flatter.

      c. becomes steeper.

      d. stays the same.

      e. shifts to the right.

119. The strategic use of monetary policy to counteract macroeconomic expansions and contractions is known as:

      a. active monetary policy.

      b. expansionary monetary policy.

      c. contractionary monetary policy.

      d. adaptive monetary policy.

      e. passive monetary policy.

120.   When central banks purposefully choose to only stabilize money and price levels through monetary policy, it is known as:

      a. active monetary policy.

      b. expansionary monetary policy.

      c. contractionary monetary policy.

      d. adaptive monetary policy.

      e. passive monetary policy.

121.   Before the development of expectations theory:

      a. monetary policy prescriptions were strictly passive.

      b. monetary policy had no real effects in the short run.

      c. monetary policy prescriptions were strictly activist.

      d. monetary policy only had real effects in the long run.

      e. economists did not understand the idea of sticky prices.

122.   Active monetary policy:

      a. is when central banks purposefully choose to only stabilize money and price levels through monetary policy.

      b. has a real effect on the economy in the long run.

      c. is when central banks take orders from the ruling party on how to conduct monetary policy.

      d. is the strategic use of monetary policy to counteract macroeconomic expansions and contractions.

      e. is when central banks only use fiscal policy to try to influence the economy.

123.   Passive monetary policy:

      a. is the strategic use of monetary policy to counteract macroeconomic expansions and contractions.

      b. is when central banks purposefully choose to only stabilize money and price levels through monetary policy.

      c. is when central banks take orders from the ruling party on how to conduct monetary policy.

      d. is when central banks only use fiscal policy to try to influence the economy.

      e. has a real effect on the economy in the long run.

124.   Since the early 1980s, the Federal Reserve has moved toward which type of monetary policy?

      a. active monetary policy

      b. expansionary monetary policy

      c. contractionary monetary policy

      d. adaptive monetary policy

      e. passive monetary policy

125.   If people anticipate the strategies of the central bank:

      a. the effects of monetary policy are amplified.

      b. the effects of monetary policy are extremely limited.

      c. prices become more sticky and monetary policy does not work.

      d. the unemployment rate will decrease.

      e. the unemployment rate will increase.

 

Amy has a comparative advantage in the production of ___________, and Jim has a comparative advantage in the production of _____________.

By the principle of comparative advantage, Jim should specialize in producing

The North American Free Trade Agreement (NAFTA) was intended to increase U.S. trade with which other countries?

A tax on imports is known as a(n):

The United States feels that it has become too dependent on oil from Saudi Arabia, so it places a limit on the amount of oil that is imported from Saudi Arabia. This is an example of a(n):

Which of the following situations will arise in the domestic market following the imposition of a voluntary quota?

When a foreign supplier tries to “dump” goods into another country in order to gain a foothold in a foreign market, this is often a result of ____________ within the foreign country

One of the reasons given for the imposition of a protectionist policy such as a tariff is to

Walter Williams argued that trade deficits do indeed have a negative impact on the economy

Williams (essay) and Boudreaux (video) would not agree on the topic of the trade deficit

 

Between January 1, 2013, and February 1, 2013, the U.S. dollar _____________ against the British pound, and the U.S. dollar ___________ against the euro

Trade balance is

An individual or country that has a comparative advantage in the production of one good

If the interest rates in China rise relative to interest rates in the United States, the demand curve in the figure above

The ability of one person or nation to produce more of a good while using the same quantity of resources as another is called a(n):

If the U.S. dollar ____________, it becomes _____________ valuable in world markets

Trade surplus is

Citizens can consume the largest quantities of goods and services in which of the following situations

If interest rates fall in the United States relative to the rest of the world, the demand for U.S. dollars will ____________ because there is lesser demand for assets with ___________ returns

The following figure depicts the supply of U.S. dollars in the foreign currency exchange market. Use this figure to answer the next question

The U.S. central bank has the power to increase or decrease the supply of U.S. dollars. If the U.S. central bank increases the supply of U.S. dollars, the supply curve in the above figure will ____________; if the U.S. central bank decreases the supply of U.S. dollars, the supply curve in the above figure will ____________.

 

Which two countries buy the most U.S. exports

Which of the following is a normative statement

Which of the following is a positive statement?

Which allocation point in the short-run production possibilities frontier (PPF) will lead to NO GROWTH in the long-run PPF?

Which allocation point in the short-run production possibilities frontier (PPF) will lead to the most significant growth in the long-run PPF?

For country A, an export is a good produced in

Use the following scenario to answer the questions that follow

Amy can produce either 5,000 pounds of cheese or 20 houses per year. Jim can produce either 5,000 pounds of cheese or 10 houses per year

 

Florida’s nice beaches and subtropical climate give the state ___________ in tourism

The trade-restriction view assumes that free trade is __________ and should be _____________.

An import quota

In the past decade, companies like Nike and Under Armour have set up manufacturing centers in Nicaragua in part due to the country’s establishment of _____________, allowing these companies to avoid standard corporate tax rates

What does NAFTA stand for

If Hong Kong has an open economy, it ____________ with other countries

A tariff is a tax imposed on _____________ good

Amy can produce either 5,000 pounds of cheese or 20 houses per year. Jim can produce either 5,000 pounds of cheese or 10 houses per year

If both Amy and Jim produce only cheese, how much cheese can they produce per year?

The argument that calls for the trade protection of only newly developing industries is known as the ______________ argument

 

1. A country's trade balance equals: 
A. the value of tariffs less the number of quotas.
B. the number of quotas less the value of tariffs.
C. the value of exports minus the value of imports.
D. the value of imports minus the value of exports.

 2. A trade surplus occurs when: 
A. exports exceed imports.
B. imports exceed exports.
C. tariffs exceed quotas.
D. quotas exceed tariffs.

 3. Purchases or sales of real and financial assets across international borders are called: 
A. imports.
B. exports.
C. international capital flows.
D. international trade.

 4. Capital inflows are: 
A. purchases of domestic goods or services by foreigners.
B. purchases of domestic assets by foreigners.
C. purchases of foreign goods or services by domestic households or firms.
D. purchases of foreign assets by domestic households or firms.

 5. When a Peruvian buys a U.S. government bond, from the perspective of Peru, this is a(n): 
A. import.
B. export.
C. capital outflow.
D. capital inflow.

 6. When an American buys stock in a French company, from the perspective of the United States this is a(n): 
A. import.
B. export.
C. capital outflow.
D. capital inflow.

 7. Net exports plus net capital inflows equal: 
A. net capital outflows.
B. the international trade gap.
C. zero.
D. the trade balance.

 8. When a U.S. oil company purchases oil from Saudi Arabia and the Saudi Arabian firm uses the proceeds from its sale of oil to the United States to buy U.S. government debt, U.S. _____ and there is a capital _____ to/from the United States. 
A. imports increase; outflow
B. imports decrease; inflow
C. imports increase; inflow
D. exports increase; outflow

17. The slope of the line tangent to a point on an economy's PPC equals 
A. the ratio of the world prices of the goods produced.
B. the opportunity cost of producing one more unit of the good measured on the horizontal axis.
C. the opportunity cost of producing one more unit of the good measured on the vertical axis.
D. the opportunity cost of producing one more unit of each good shown on the graph.

 

18. A country's economic welfare most directly depends on 
A. what it can produce.
B. what its citizen consume.
C. the production possibility curve.
D. how many goods and services it imports.

 

19. Autarky is a situation in which a country is economically 
A. dependent on trade.
B. self-sufficient.
C. underdeveloped.
D. dependent on a single firm.

 

 The following graph shows annual production and consumption possibilities for North Eastwood, a kingdom in which only grapes and bread are consumed.


   

 

20. If North Eastwood has a closed economy, the maximum amount of grapes its citizens can consume is ____ tons per year, and the maximum amount of bread its citizens can consume is ____ tons per year. 
A. 250; 500
B. 350; 175
C. 400; 200
D. 175; 350

 

21. If North Eastwood has a closed economy and is producing 125 tons of bread, its citizens will be able to consume _____ tons of grapes. 
A. 250
B. more than 100 but fewer than 250
C. 350
D. 400

 

22. If North Eastwood is an open economy, 
A. Point B is more efficient than either Point A or Point C.
B. Point A is more efficient than Point B, but equally as efficient as point C.
C. Point B is most efficient, and Point A is less efficient than Point B but more efficient than Point C.
D. Points A, B, and C are equally efficient.

 

23. The line that passes through points A and C describes 
A. consumption possibilities when North Eastwood is an autarky.
B. consumption possibilities when North Eastwood uses all of its productive resources to produce the item for which it has a comparative advantage.
C. consumption possibilities when North Eastwood imposes trade restrictions.
D. consumption possibilities when North Eastwood produces the combination given by Point C.

 

24. The slope of the line tangent to the PPC at point B is equal to 
A. the domestic opportunity cost of bread production when 250 tons of bread is produced.
B. the relative prices of grapes and bread in the world market.
C. the optimal ratio of bread and grapes that citizens of North Eastwood should consume.
D. the slope of the demand curve for bread in North Eastwood.

 

25. The residents of North Eastwood could increase their consumption possibilities from the line passing through Point A to the line passing through Point B by 
A. adopting new technologies.
B. specializing in grape production and then trading on the world market.
C. producing the quantity shown by Point B and then trading on the world market.
D. producing the quantity shown by Point A or Point C and then trading on the world market.

 

 Sheila and Jim live in an island where they are the only two workers. Sheila can either catch 10 fish or gather 40 pounds of berries each day, and Jim can either catch 8 fish or gather 24 pounds of berries each day. Both of them work 200 days per year. At current world prices 1 fish trades for 3.5 pounds of berries.

 

26. How much of each good can be produced in a year if each worker fully specializes according to comparative advantage? 
A. 1600 fish and 8000 pounds of berries
B. 2000 fish and 8000 pounds of berries
C. 3600 fish and 12800 pounds of berries
D. 1600 fish and 4800 pounds of berries

  9. If the United States has a $300 billion net capital inflow, then there must be a: 
A. trade surplus of $300 billion.
B. trade deficit of $300 billion.
C. trade surplus of $600 billion.
D. net capital outflow of $600 billion.

 10. In general, a nation can enjoy a higher standard of living by ______ than by being self-sufficient 
A. increasing its versatility
B. avoiding trade with other nations
C. specialization and trading
D. producing on the PPC curve

 11. The production possibility curve (PPC) shows the ______ production of one good for _______ production level of the other good. 
A. minimum; minimum
B. maximum; minimum
C. minimum; every possible
D. maximum; every possible

 

 An economy has two workers, Paula and Ricardo. Everyday they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts.

 

12. If both Paula and Ricardo spend one half of the time producing computers and the other half on producing shirt, what will be the total output per day? 
A. 4 computers and 12 shirts.
B. 5 computers and 14 shirts
C. 10 computers and 28 shirts
D. 8 computers and 22 shirts

 

13. What is the opportunity cost for Paula to produce one computer? 
A. ¼ shirt
B. ½ shirt
C. 4 shirts
D. 2 shirts

 

14. What is the opportunity cost for Ricardo to produce one shirt? 
A. ¼ computer
B. ½ computer
C. 1 computer
D. 2 computers

 

15. ________ has the comparative advantage in computers and _______ has the comparative advantage in shirts. 
A. Paula; Paula
B. Paula; Ricardo
C. Ricardo; Paula
D. Ricardo; Ricardo

 

16. To maximize total output, Paula should specialize in producing _____ while Ricardo should specialize in producing _______. 
A. computers; shirts
B. shirts; computers
C. computers; computers
D. shirts; shirts

 

 

27. If the opportunity cost of producing a good domestically is less than the opportunity cost of purchasing it on the world market, a country can gain by 
A. increasing production of that good and decreasing imports.
B. increasing production of that good and decreasing exports.
C. decreasing production of that good and increasing exports.
D. decreasing production of that good and increasing imports.

 

    
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