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(Solved) Q1. With an expansionary monetary policy, the Federal Reserve


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Q1. With an expansionary monetary policy, the Federal Reserve creates a business

 

environment in which the supply of credit increases.

 

a. true

 

b. false

 


 

Q2. An expansionary monetary policy results in lower interest rates, which in turn

 

a. lead to higher rates of taxation.

 

b. cause firms to invest more.

 

c. lead to lower bond prices.

 

d. cause consumers to save more.

 


 

Q3. The Open Market Committee of the Federal Reserve guides money supply growth.

 

a. true

 

b. false

 


 

Q4. When the Fed buys government securities on the open market,

 

a. it is engaging in expansionary monetary policy.

 

b. interest rates will increase.

 

c. the money supply will contract.

 

d. bond prices will fall.

 


 

Q5. The effect of expansionary monetary policy is to

 

a. increase real output and decrease the price level.

 

b. decrease real output and increase the price level.

 

c. increase real output and increase the price level.

 

d. decrease real output and decrease the price level.

 


 

Q6. A central bank that engages in inflation targeting is following a monetary rule.

 

a. true

 

b. false

 


 

Q7. The Federal Reserve increased the money supply significantly during the Great

 

Depression, but prices continued to fall anyway.

 

a. true

 

b. false

 


 

Q8. A contractionary monetary policy

 

a. will lead to an increase in aggregate demand.

 

b. will lead to a decrease in aggregate demand.

 


 

c. is brought about by a lowering of the required reserve ratio.

 

d. is brought about by lower interest rates.

 


 

Q9. If the Fed increases the reserve requirement,

 

a. banks will issue more loans.

 

b. consumers will save more.

 

c. banks will issue fewer loans.

 

d. consumers will save less.

 


 

Q10. Keynesian economists believe that monetary policy works through its effect on

 

a. long-run aggregate supply.

 

b. the interest rate.

 

c. consumer confidence.

 

d. the federal budget deficit.

 


 

Q11. A sale of bonds by the Fed generates

 

a. a decrease in the demand for money balances.

 

b. an increase in the demand for money balances.

 

c. an increase in the demand for bonds and a rise in bond prices.

 

d. an increase in the supply of bonds and a fall in bond prices.

 


 

Q12. There appears to be no long-term link between increases in the money supply and rates

 

of inflation.

 

a. true

 

b. false

 


 

Q13. Small differences in the annual growth rate of a country add up to large differences over

 

time because of compounding.

 

a. true

 

b. false

 


 

Q14. Economic growth occurs when

 

a. there is an increase in the inflation rate.

 

b. there is an increase in the amount of capital.

 

c. there is an increase in the unemployment rate.

 

d. the production possibilities curve becomes flatter.

 


 

Q15. A small increase in the annual rate of economic growth can lead to a larger increase in

 

growth over time due to the effects of

 


 

a. regression towards the mean.

 

b. compounding.

 

c. averaging.

 

d. the money supply.

 


 

Q16. The more certain property rights are, the more capital accumulation there will be, and

 

therefore the greater economic growth.

 

a. true

 

b. false

 


 

Q17. Economic growth is reflected in

 

a.

 


 

growth in total output.

 


 

b. an increase in tax revenue.

 


 

c. increases in the level of employment.

 


 

d. increase in per capita real GDP.

 


 

Q18. Studies indicate that

 

a. there is no relationship between economic growth and saving.

 


 

b. there is a negative relationship between economic growth and saving.

 


 

c. there is a positive relationship between economic growth and saving.

 


 

d. saving does not contribute to capital formation.

 


 

Q19. Economic growth can also be defined as the cumulative contribution of the rate of growth

 

of capital, the rate of growth of labor, and the rates of growth of capital and labor productivity.

 

a. true

 


 

b. false

 


 

Q20. Research has shown that the growth of developing countries is most strongly enhanced

 

by

 


 

a. providing a good secondary education.

 


 

b. increasing the money supply.

 


 

c. providing incentives to have large families.

 


 

d. providing colleges and universities.

 


 

Q21. When present, the threat of nationalization inhibits economic growth.

 

a. true

 


 

b. false

 


 

Q22. Labor productivity is defined as

 

a. the amount of input per worker.

 


 

b. the increase in output per unit of machinery.

 


 

c. the amount of output per worker.

 


 

d. the amount of workers per unit of input.

 


 

Q23. Which one of the following is FALSE?

 

a. Increases in the capital stock can improve the productivity of labor.

 


 

b. Increases in the size of the labor force improve labor productivity.

 


 

c. Increases in labor productivity can enhance economic growth.

 


 

d. Labor productivity contributes to economic growth.

 


 

Q24. Which of the following is the most important factor affecting economic growth?

 

a. the rate of interest

 


 

b. the exchange rate

 


 

c. the price level

 


 

d. the rate of saving

 


 

Q25. Table 16.6

 


 

Product

 

Gallons of Ice

 

Cream

 

Yards of Textiles

 


 

Country X Country Y

 

2,000

 

6,000

 


 

1,000

 

2,000

 


 

Table 16.6 shows the combinations of quantities of two goods, gallons of ice cream and yards

 

of textiles, that can be produced with all of the resources available in two countries, X and Y.

 

Refer to Table 16.6. Which of the following statements is TRUE?

 

a. Country X has a lower opportunity cost of producing ice cream than does Country Y.

 

b. Country Y has a comparative advantage in producing textiles.

 

c. Country X has a comparative advantage in producing ice cream.

 

d. In Country X, the opportunity cost of producing a gallon of ice cream is three yards of textiles.

 


 

Q26. Comparative advantage is related to the concept of opportunity cost.

 

a. true

 

b. false

 


 

Q27. The growth in world trade since the 1950s has been much less than the growth in world

 

GDP.

 

a. true

 

b. false

 


 

Q28. Countries engaged in international trade specialize in production based on

 

a. the differences in transportation costs.

 

b. comparative advantage.

 

c. relative price levels.

 

d. relative foreign exchange rates.

 


 

Q29. A country can enhance its wealth by restricting imports.

 

a. true

 

b. false

 


 

Q30. The law that created the high level of tariffs in United States in the 1930s is

 

a. the World Trade Act.

 

b. the North American Free Trade Agreement.

 

c. the Smoot-Hawley Act.

 


 

d. the Compromise Tariff.

 


 

Q31. The effect of a quota is to

 

a. increase quantity supplied and lower price.

 

b. reduce quantity supplied and raise price.

 

c. increase quantity supplied and increase price.

 

d. increase demand for the good and increase price.

 


 

Q32. Table 16.1

 

Alpha's Production Possibilities

 


 

Cookies

 

Coffee

 


 

A

 

4

 

0

 


 

B

 

3

 

5

 


 

C

 

2

 

10

 


 

D

 

1

 

15

 


 

E

 

0

 

20

 


 

C

 

4

 

12

 


 

D

 

2

 

18

 


 

E

 

0

 

24

 


 

Beta's Production Possibilities

 


 

Cookies

 

Coffee

 


 

A

 

8

 

0

 


 

B

 

6

 

6

 


 

Table 16.1 shows the quantities of cookies and coffee that can be produced with the full

 

amount of resources available in each of two countries, Alpha and Beta.

 

Refer to Table 16.1. If these two countries, Alpha and Beta, specialize based on comparative

 

advantage

 

a. Beta will specialize in producing both items.

 

b. Alpha will specialize in cookies, and Beta will specialize in coffee production.

 

c. Alpha will specialize in coffee, and Beta will specialize in cookies.

 

d. Alpha will specialize in producing both items.

 


 

Q33. Table 16.1

 

Alpha's Production Possibilities

 


 

Cookies

 

Coffee

 


 

A

 

4

 

0

 


 

B

 

3

 

5

 


 

C

 

2

 

10

 


 

D

 

1

 

15

 


 

E

 

0

 

20

 


 

C

 

4

 

12

 


 

D

 

2

 

18

 


 

E

 

0

 

24

 


 

Beta's Production Possibilities

 


 

Cookies

 

Coffee

 


 

A

 

8

 

0

 


 

B

 

6

 

6

 


 

Table 16.1 shows the quantities of cookies and coffee that can be produced with the full

 

amount of resources available in each of two countries, Alpha and Beta.

 

Refer to Table 16.1. The table shows the production possibilities of cookies and coffee in Alpha

 

and Beta measured in tons. In Alpha the domestic cost of 1 ton of cookies

 


 

a. is 5 tons of coffee.

 

b. changes with the level of coffee production.

 

c. changes with the level of cookie production.

 

d. averages 4 tons of coffee.

 


 

Q34. Which of the following is a true statement?

 

a. Exporters benefit from trade and importers do not.

 

b. Free trade harms domestic producers of goods that face import competition.

 

c. Consumers benefit from trade and producers do not.

 

d. Everyone benefits from free trade in the short run.

 


 

Q35. If there are two goods and two countries, then one country can have

 

a. an absolute advantage in both goods but a comparative advantage in only one good.

 

b. an absolute advantage in both goods and a comparative advantage in both goods.

 

c. an absolute advantage in neither good and a comparative advantage in both goods.

 

d. an absolute advantage in one good, an absolute disadvantage in the other good, and a

 

comparative advantage in neither.

 

Q36. Suppose an industry receives protection from the government in the form of tariffs. A

 

number of years later, it is observed that the quantity supplied by domestic firms had

 

decreased and that the domestic price was substantially greater than the world price. We

 

could conclude that

 

a. removal of the tariff would actually cause domestic output to increase and price to fall.

 

b. the tariff had been imposed to counteract dumping and had been successful.

 

c. removal of the tariff would cause domestic output to fall even further.

 

d. the tariff had been imposed to protect an infant industry and that the industry still needed

 

protection.

 

Q37. Protection should be withdrawn from an infant-industry when the companies in the

 

industry

 

a. reach a sufficient size to compete with foreign firms.

 

b. become profitable.

 

c. are listed on the domestic stock exchange.

 

d. double their sales revenues.

 


 

Q38. The effect of a tariff is to increase the price of the good.

 

a. true

 

b. false

 


 

Q39. Floating exchange rates are determined by

 


 

a. the predictions of currency speculators.

 

b. the government of the importing country.

 

c. the forces of supply and demand.

 

d. the government of the exporting country.

 


 

Q40. The fact that the United States has a trade deficit means that

 

a. U.S. workers cannot compete with workers overseas.

 

b. the United States has a surplus in its capital account.

 

c. interest rates in the United States are low compared to the world average.

 

d. the United States has a deficit in its capital account.

 


 

Q41. When a country intervenes in foreign currency markets to maintain a fixed exchange rate

 

a. it is engaged in hedging.

 

b. it increases the foreign exchange risk faced by its citizens.

 

c. it does so by using its foreign exchange reserves.

 

d. it smoothes out fluctuations in the level of business activity.

 


 

Q42. A financial strategy that reduces the chance of suffering losses arising from foreign

 

exchange risk is referred to as

 

a. hedging.

 

b. conversion depletion.

 

c. foreign exchange leverage.

 

d. transaction mitigation.

 


 

Q43. The possibility that changes in the value of a nation's currency will result in variations in

 

the market value of a businesses assets is referred to as

 

a. hedge risk.

 

b. conversion risk.

 

c. foreign exchange risk.

 

d. transaction risk.

 


 

Q44. The balance of payments consists of the

 

a. capital account, official reserve transactions account, and recent account.

 

b. current account, official reserve transactions account, and monetary account.

 

c. current account, capital account, and official reserve transactions account.

 

d. current account, capital account, and gold flows.

 


 

Q45. If a country is experiencing a trade surplus, then all of its trading partners will be

 


 

experiencing one also.

 

a. true

 

b. false

 


 

Q46. Capital account transactions occur

 

a. when a U.S. citizen purchases stock in a U.S. corporation.

 

b. because of foreign investments.

 

c. when you move money from one U.S. bank to another U.S. bank.

 

d. when a U.S. company purchases goods from a foreign company.

 


 

Q47. If there are no interventions by finance ministers or central banks in the international

 

market, then

 

a. the capital market will be greater than the current account.

 

b. the capital market will equal the current account.

 

c. the current account and the capital account must sum to zero.

 

d. the current account will be greater than the capital market.

 


 

Q48. If the capital account is in surplus, the current account will be in deficit.

 

a. true

 

b. false

 


 

Q49. Which of the following statements is true about the role of gifts given to U.S. citizens

 

from foreigners?

 

a. Gifts are only included in the balance of payments if the gift is over $1,000,000.

 

b. Gifts given to U.S. citizens are not included in the balance of payments, but gifts given to

 

foreigners are included as deficit items.

 

c. Gifts are included in the balance of payments.

 

d. Gifts are not included in the balance of payments.

 


 

Q50. Every transaction concerning the exportation of American goods constitutes a

 

a. demand for foreign currency and a supply of dollars.

 

b. demand for dollars, with no effect on markets for foreign currencies.

 

c. supply of foreign currency, with no effect on the market for dollars.

 

d. supply of foreign currency and demand for dollars.

 


 

 


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