Topic 9 and 10 quiz questions
Why were some economists worried about the effects of a flexible exchange-rate system when it was first introduced?
They expected that changes in the exchange rate would interrupt trade.
Which is an advantage of international trade agreements?
Trade agreements increase consumer choice.
What has been the trend of the United States balance of trade in recent decades?
Trade deficits have been growing larger.
Which of the following distinguishes newly industrialized countries (NICs) from other LDCs?
NICs consume a greater amount of energy than most LDCs.
Which reason expresses one of the concerns about multinationals?
They might exploit local workers.
What is a major concern about Fed policies that lower interest rates and increase lending?
They might produce growing inflation.
What happened to China's total exports between 2003 and 2008?
They more than tripled.
Which of the following words BEST characterizes the economies that take part in globalization?
interconnected
What gives the federal government its enormous power to influence demand through spending?
its ability to levy taxes and borrow money
What is money creation?
the process by which money enters into circulation
How do developed nations differ from LDCs?
Developed nations, on average, have greater material well-being than LDCs.
What is an exchange rate?
The value of one nation's currency in relation to another nation's currency.
What are some of Mexico's main products?
coffee, cotton, oil, silver
How did President Reagan apply supply-side economics to promote economic recovery in the 1980s?
through increased spending
To whom does the government owe the national debt?
to investors who hold government bonds
Which of the following is an argument frequently given for protectionism?
to protect jobs
Which of the following is today the Fed's preferred monetary policy tool?
using open market operations
Fiscal policy is the use of government spending and revenue to influence
the economy.
Absolute advantage is based on the ability to produce a good with
the greatest efficiency.
Why did a crisis caused by risky loans in the United States lead to a worldwide recession?
the interconnectedness of the world's financial markets
What is one way in which voluntary export restraints and import quotas are different?
A VER is voluntary, and an import quota is mandatory.
How might a budget deficit be related to the national debt?
A deficit adds to the debt.
Which of the following is the BEST example of an effect of globalization?
A gardener in Iowa discovers that the manual for her new tiller has directions written in five languages.
If a farmer in a LDC cannot afford to purchase a tractor or a mechanized harvester, he or she lacks
the physical capital to increase farm output.
Which of the following is an example of internal financing?
Citizens of a country invest money in local banks.
Why does the consumption of a large amount of nonessential goods indicate a high level of development?
It suggests that the people have more than enough income to meet their basic needs.
Which of the following is TRUE of literacy rates in many LDCs?
Literacy rates in many LDCs are affected by the high rate of children leaving school at an early age.
Which of these economists believed strongly in monetarism, the idea that the money supply is the most important factor in economic performance?
Milton Friedman
What do monetarists believe about monetary policy?
Monetary policy is the most useful tool to improve macroeconomic performance.
Why is it difficult to time the use of monetary policy to control business cycles?
Monetary policy takes effect slowly, and business cycles are hard to predict.
What kind of government budget best reflects an expansionary fiscal policy?
a budget that increases government spending and reduces taxes
A nation with high energy consumption MOST LIKELY has
a high level of specialization.
What effect would expansion of Japanese auto production probably have on U.S. auto production?
a loss of jobs due to increased supply
Which of the following BEST describes economic development?
a process through which a nation improves its people's well-being
Which of the following goods should a country import?
a raw material that costs less to import than to extract
What is the main tool that the Federal Reserve uses to adjust the money supply?
adjusting the federal funds rate banks charge one another
What change led China to huge economic growth?
adopting free market policies
Agricultural productivity is high in developed nations MAINLY because of their
advanced technology.
Which commodities are among the leading U.S. imports from China?
computer equipment, communication devices Check Answer
What problems are likely to be caused by privatization of business?
displacement of workers
What would be the appropriate course of action for the Fed if it predicted that a recession would quickly turn into an expansion?
do nothing
Based on what you know about U.S. exports, which American industry benefits most from world trade?
entertainment
The use of the right monetary policy tools at the right time can help
even out the business cycle
What is the first step in the federal budget process?
federal agencies propose spending
Capital that originates in other countries is called
foreign investment.
Which of the following is considered a problem associated with a large national debt?
foreign ownership of debt
Which of the following is the MOST LIKELY result of poor diet and lack of clean water?
high infant mortality rates
Two areas of growth in India's economy are
high-technology industries and manufacturing.
Which of the following is contributing to rapid population growth in LDCs?
increased life expectancy
Which of the following factors contributed to the deficit spending of the 2000s?
increased spending on defense
What problem can result from expansionary monetary policy that takes effect after the economy has already begun to expand following a period of contraction?
inflation
What causes the crowding-out effect?
large government borrowing
Which of the following actions would the International Monetary Fund MOST LIKELY be funding?
lending money to a country with high inflation
Which of the following social indicators would an economist MOST LIKELY study to determine the level of technical skill of a nation's labor force?
literacy rate
According to the law of comparative advantage, what good should a producer specialize in making?
one for which a producer has a lower opportunity cost than other producers
Which of the following is a basic tool the Fed can use to implement monetary policy?
open market operations
What is the MAIN reason people are moving from rural to urban areas?
opportunities for jobs
Why is a single currency beneficial for trade purposes?
It allows nations to trade without using an exchange rate.
What is the most common method the federal government uses to pay for expenditures that exceed revenues?
It borrows more.
Why might it be a bad idea to create money to cover budget deficits?
It can cause inflation.
What is the effect of the decrease in demand for U.S. exports on the trade deficit?
It has contributed to a negative balance of trade.
How do producers identify a good in which they have a comparative advantage?
It is a good in which a producer has the lowest opportunity cost compared to other producers.
Why does the infant mortality rate relate to a country's level of development?
It is an indicator of nutrition and healthcare.
Which of the following does the government of a command economy do that is not done by the government in a free market economy?
It owns and controls the factors of production.
Why is per capita GDP a good tool for measuring different countries' relative levels of development?
It provides an average of the GDP across a whole population.
What action does the Federal Open Market Committee take if it wants to decrease the money supply?
It sells government securities to bond dealers.
Which of the following was an argument in favor of NAFTA?
It would increase exports to Canada and Mexico.
Which explains the role of the federal budget in fiscal policy?
It estimates government revenue and authorizes government spending for each year.
How might lowering income taxes during an economic downturn decrease the national debt?
by stimulating the economy, increasing revenues, and decreasing the deficit
Which is an example of how trade barriers can affect you as an American consumer?
A trade barrier increases the price of foreign goods Americans buy.
What impact did the United States trade imbalance in the 1980s have on the cost of imported goods?
American consumers had to pay more for imported goods.
What is a likely effect of a stronger dollar?
American exports would be more expensive for international consumers.
What would be likely to happen if the Fed raised reserve requirements?
Banks would call in loans.
Which of the following is TRUE of most LDCs, in comparison to developed countries?
Children are much less likely to receive a full primary education
What effect has recent economic growth in Russia had on consumer demand?
Consumer demand for goods and services has grown.
Why did colonialism slow the development of many LDCs?
Their dependency on European powers prevented the development of industry.
Which is a cost of participating in free trade agreements?
Domestic products may not be able to compete with imported goods.
What change did Mikhail Gorbachev make to the Soviet Union's economy?
He incorporated elements of a free market economy within a communist structure.
What would likely happen to interest rates if the supply of money were increased?
Interest rates would go down. Correct Answer Shown
If you lived across from Mexico, in El Paso, TX, what objection might you have to NAFTA?
Pollution from less-regulated factories in Mexico could cross the border.
Why does inside lag affect fiscal policy more than monetary policy?
The Federal Reserve can enact monetary policy more quickly than the federal government can enact fiscal policy.
Why are some less developed countries unenthusiastic about protecting the environment?
The cost of protecting the environment reduces funds available for development.
How do entitlement programs affect the creation of the federal budget?
Their funding is dictated by law, so policy-makers cannot change spending on them.
Describe one effect that diversifying their economies has had on Brazil and Mexico.
The majority of their labor force no longer farms.
How might the owner of a store selling imported food react to a rise in the value of the U.S. dollar?
The owner would be pleased because purchase prices on what she sells would fall, increasing profit.
How do you think a nation's balance of trade might be affected if its government instituted policies to support science education and give tax breaks to high-tech industries?
These policies would make the nation's high-tech products more competitive and decrease trade deficits or increase trade surpluses.
Why do the discount rate, federal funds rate, and prime rate have a limited impact on the long-term growth of the economy?
They are interest rates on short-term loans.
What effect would a reduction in the required reserve rate (RRR) have on banks?
They could lend and create more money.
What effect does a free trade agreement have on the countries that sign it?
They import and export goods among themselves with low or no trade barriers
Why are trade wars harmful?
They lead to a general economic slowdown because of reduced trade.
Which of the following describes offshoring?
Which of the following describes offshoring?
Under what circumstances might the Federal Reserve enact an easy money policy?
businesses are laying off workers and GDP goes down
How do banks create money by going about their ordinary business?
by making loans from a portion of customers' deposits
Which of the following is a KEY factor that allows companies to continue to succeed in the competitive global economy?
innovation
Which concept provides the economic reason for nations to specialize in what they produce?
scarcity
Who owns multinational corporations?
shareholders
Economic policies in many LDCs have traditionally favored
small minorities and city dwellers.
Comparative advantage leads countries to trade for what they need because it results in
specialization.
The scarcity of resources and resulting need for choice forces societies to
specialize in producing certain goods.
The dangers associated with having a large national debt are
the crowding-out effect, high interest payments, and the influence of foreign debt-holders.
