AP Econ Unit 6
49. The theory of Comparative advantage implies that Alpha would find it advantageous to (A) export grain and import steel (B) export steel and import grain (C) export both grain and steel and import nothing (D) import both grain and steel and export nothing (E) trade 1 ton of grain for 0.5 ton of steel
A
if the exchange rate between the United States dollar ($) and the British pound (£) changed from $2 per £1 to $3 per £1, and domestic prices in both countries stayed the same, then the United States dollar would (A) depreciate, making United States imports from Britain more expensive (B) depreciate, making united States imports from Britain cheaper (C) appreciate, making United States imports from Britain more expensive (D) appreciate, making United States imports from Britain cheaper (E) purchase 3 times more British goods than before the change occurred
A
Assume that Country A exports one bushel of wheat in exchange for 2.5 bushels of corn from Country B. If the terms of trade are beneficial to both countries, which of the following must be true? (A) Country A has an absolute advantage in the production of wheat. (B) The cost of producing a bushel of wheat in Country A is less than 2.5 bushels of corn. (C) The cost of producing a bushel of wheat in Country A is greater than 2.5 bushels of corn. (D) Country A is producing inside its current production possibilities curve. (E) Country A needs to use more resources to produce wheat than to produce corn.
B
Following a decrease in the real interest rate, there is an increase in financial capital outflows from Country A. The increase in capital outflows will most likely have which of the following effects on Country A's net exports and aggregate demand? Net Exports / Aggregate Demand (A) Decrease / Decrease (B) Decrease / No change (C) Increase / Increase (D) Increase / Decrease (E) Increase / No change
C
The table below indicates the number of labor hours required in Countries X and Y to produce one unit of food or one unit of clothing. Country/Food/Clothing X/20 hours/50 hours Y 10 hours/20 hours Given this information, which of the following statements is correct? (A) X has a comparative advantage in the production of both food and clothing (B) Y has a comparative advantage in the production of both food and clothing (C) X has a comparative advantage in food production, whereas Y has a comparative advantage in clothing production (D) Y has a comparative advantage in food production, whereas X has a comparative advantage in clothing production (E) Neither country has a comparative advantage in the production of either good
C
Comparative advantage implies that (A) no country should specialize completely in the production of any one good (B) every country should try to export more than it imports (C) developing countries should import raw materials and export manufactured goods (D) two countries should benefit from trade unless both have equal opportunity costs in every good (E) countries should impose tariffs to protect their domestic industries
D
If the Federal Reserve undertakes a policy to reduce interest rates, international capital flows will be affected in which of the following ways? (A) Long-run capital outflows from the U.S. will decrease (B) Long-run capital inflows to the United States will increase (C) Short-run capital outflows from the U.S. will decrease (D) Short-run capital inflows to the U.S. will decrease (E) Short-run capital inflows to the U.S. will not change
D
If the real interest rates in the U.S. rise relative to rates in other countries, what will happen to the international value of the U.S. dollar and the U.S. net exports? Value of the Dollar Net Exports (A) Depreciate Increase (B) Depreciate Decrease (C) Depreciate No change (D) Appreciate Decrease (E) Appreciate Increase
D
In a flexible system of exchange rates, an open market sale of bonds by the Federal Reserve will most likely change the money supply, the interest rate, and the value of the United States dollar in which of the following ways? Money Supply/Interest Rate/Value of the Dollar (A) Increase/Decrease/Decrease (B) Increase/Decrease/Increase (C) Decrease/Decrease/Decrease (D) Decrease/Increase/Increase (E) Decrease/Increase/Decrease
D
Suppose two countries are each capable of individually producing two given commodities. Instead, each specializes by producing the commodity for which it has a comparative advantage and then trades with the other country. Which of the following is most likely to result? (A) The two countries will become more independent of each other. (B) Unemployment will increase in one country and decrease in the other. (C) There will be more efficient production in one country but less efficient production in the other. (D) Both countries will become better off. (E) Both countries will be producing their commodity inefficiently.
D
Which of the following best explains why many United States economists support free international trade? (A) Workers who lose their jobs can collect unemployment compensation. (B) It is more important to reduce world inflation than to reduce United States unemployment. (C) Workers are not affected; only businesses suffer. (D) The long-run gains to consumers and some producers exceed the losses to other producers. (E) Government can protect United States industries while encouraging free trade.
D
Which of the following is most likely to benefit from an appreciation in the United States dollar in the short run? (A) United States investors holding European bonds (B) Importers in foreign countries seeking raw inputs at a lower price (C) United States exporters selling capital equipment (D) United States tourists traveling to foreign countries (E) European consumers buying United States goods
D
Which of the following would be a current account transaction? (A) India buys $10 billion of new U.S. Treasury bonds. (B) A U.S. firm buys 5% of the stock of another U.S. firm. (C) A U.S. firm buys 5% of the stock of another U.S. firm. (D) A U.S. firm sells $500 million of its products to a Chinese company. (E) The U.S. buys $8 billion worth of euros.
D
Which of the following would be most likely to occur if the United States placed high tariffs on imported goods? (A) Workers in the United States would have more jobs in the long run. (B) Income in the United States would be redistributed from the rich to the poor. (C) The United States standard of living would increase. (D) The United States economy would become less efficient. (E) United States exports would increase.
D
Tariffs are different from assigned import quotas in that tariffs will (A) restrict imports (B) increase the price of imported goods (C) benefit domestic consumers of imported goods (D) hurt domestic producers of goods facing import competition (E) generate additional revenue for the domestic government
E
Under a flexible exchange-rate system, the Indian rupee will appreciate against the Japanese yen when (A) India's inflation rate exceeds Japan's (B) India has a trade deficit with Japan (C) Japan's economy enters a recession, but India's does not (D) Japan's money supply decreases while India's money supply increases (E) real interest rates in india increase relative to those in Japan
E
An increase in the international value of the U.S. dollar will tend to cause (A) U.S. exports to fall (B) the national income of the U.S. to increase (C) employment in the manufacturing sector of the U.S. to increase (D) the inflation rate in the U.S. to increase (E) the growth rate of the U.S. economy to increase.
A
If a French firm buys computers from the U.S., there would be an increase in which of the following in the foreign exchange market? (A) Demand for U.S. dollars and supply of euros (B) Demand for both U.S. dollars and euros (C) Supply of U.S. dollars and demand for euros (D) Supply of both U.S. dollars and euros (E) International value of the euro relative to the U.S. dollar
A
48. At what real exchange ratio, also referred to as the terms of trade, between grain (G) and steel (S) would both Alpha and Beta find it mutually advantageous to specialize and trade? (A) 1G = 3.0S (B) 1G = 1.55 (C) 1G = 1.0S (D) 1G = 0.55 (E) There is no real exchange ratio that would enable both countries to benefit, since Alpha has an absolute advantage in both goods
B
Assume that the Federal Reserve pursues a contractionary monetary policy. Based on the resulting change in the interest rate, what will happen to the international value of the dollar, United States imports, and United States exports? International value of the dollar/U.S. imports/U.S. Exports (A) Increase/Increase/Increase (B) increase/increase/Decrease (C) Increase/Decrease/Increase (D) Decrease/Increase/Decrease (E) Decrease/Decrease/increase
B
Assume that the inflation rate in Country X is very high relative to the inflation rates in all of its trading partners. Which of the following is likely to happen to Country X's currency on the foreign exchange market? (A) The demand curve for the currency will shift to the right, and the currency will appreciate (B) The demand curve for the currency will shift to the left and the currency will depreciate. (C) The supply curve for the currency will shift to the left, and the currency will appreciate. (D) The supply curve for the currency will shift to the left, and the currency will depreciate. (E) There will be no shift in the demand curve for the currency, but the currency will depreciate.
B
Assume that the supply of loanable funds increases in Country X. The international value of Country X's exports will most likely change in which of the following ways? International Value of Country X's Currency/Country X's Exports (A) Decrease/Decrease (B) Decrease/Increase (C) Increase/Decrease (D) increase/Increase (E) Not change/Not change
B
If Country Alpha has been experiencing a higher inflation rate than Country Beta over the past decade, which of the following is true? (A) Alpha's currency will have appreciated relative to Beta's currency. (B) Alpha's currency will have depreciated relative to Beta's currency. (C) Alpha will have had lower nominal interest rates than Beta. (D) Alpha will have had slower growth in the money supply than Beta. (E) Alpha's economy will have grown at a faster rate than Beta's
B
If Mexicans increase their investment in the United States, the supply of Mexican pesos to the foreign exchange market and the dollar price of the peso will most likely change in which of the following ways? Supply of Pesos Dollar Price of Pesos (A) Increase Increase (B) Increase Decrease (C) Decrease Increase (D) Decrease Decrease (E) Decrease Not change
B
If higher United States interest rates cause foreign demand for the dollar to increase, which of the following will occur to the international value of the dollar and to United States exports? International Value of the Dollar/Exports (A) Increase/Increase (B) Increase/Decrease (C) Increase/No change (D) Decrease/Increase (E) Decrease/Decrease
B
If the real interest rate in the United States increases relative to that of the rest of the world, capital should flow (A) into the United States and the dollar will depreciate (B) into the United States and the dollar will appreciate (C) out of the United States and the dollar will depreciate (D) out of the United States and the dollar will appreciate (E) out of the United States and the value of the dollar will not change
B
The price of one nation's currency expressed in terms of another nation's currency is (A) the world price (B) the exchange rate (C) the law of one price (D) terms of trade (E) purchasing -power parity
B
The purchase of United States government bonds by Japanese investors will be included in Japan's (A) current account (B) financial account (formerly called capital account) (C) trade deficit (D) foreign direct investment (E) imports
B
If a country has a deficit in its current account, there will be a (A) surplus in the financial account (formerly called capital account) (B) surplus in the trade balance (C) surplus in the balance of payments (D) deficit in the financial account (formerly called capital account) (E) deficit in the balance of payments
A
If the international value of the United States dollar depreciates in comparison with the Japanese yen, which of the following is most likely to occur? (A) United States exports to Japan will increase. (B) The United States government will increase the tariff on Japanese imports. (C) The United States balance-of-trade deficit with Japan will become even larger. (D) United States tourists can be expected to visit Japan in greater numbers. (E) Trade between the United States and Japan will not be affected.
A
If the value of the United States dollar increases on the foreign exchange market, which of the following is most likely to occur in the short run? (A) Aggregate demand will decrease. (B) Aggregate demand will increase. (C) Aggregate supply will decrease. (D) Both aggregate demand and aggregate supply will decrease. (E) Both aggregate demand and aggregate supply will increase.
A
Mary Jane is a lawyer who can earn $150 per hour in her law practice. She is also an excellent carpenter who can build cabinets three times as fast as the best carpenter, whose hourly wage is $20 per hour. Which of the following is a correct economic statement? (A) Mary Jane has a comparative advantage in law so she should specialize in law and hire a carpenter to make her cabinets (B) Mary Jane has an absolute and comparative advantage in both law and carpentry, so she should make her own cabinets while continuing to practice law. (C) Mary Jane is three times faster than any carpenter so she should give up her law practice to become a carpenter. (D) When carpenters work for lawyers, they should charge $150 per hour instead of $20 per hour. (E) Because Mary Jane is an excellent carpenter, when the best carpenter works for Mary Jane, he can only charge one third as much, or $6.67 per hour.
A
The value of a country's currency will tend to appreciate if (A) demand for the country's exports increases (B) the country's money supply increases (C) the country's citizens increase their travel abroad (D) domestic interest rates decrease (E) tariffs on the country's imports decrease
A
Which of the following is an example of foreign direct investment? (A) A U.S. automobile manufacturer building a steel plant in Russia (B) A U.S. citizen purchasing corporate bonds issued by a French manufacturing firm (C) A Mexican citizen purchasing U.S. Treasury bills. (D) The Federal Reserve purchasing Japanese yen (E) Immigrant workers in the U.S. sending money to their native country
A
Which of the following is true in the short run if consumers buy more imported goods and fewer domestic goods? (A) The trade balance moves toward deficit, and equilibrium income decreases. (B) The trade balance moves toward deficit, and equilibrium income increases. (C) The trade balance moves toward surplus, and equilibrium income is unaffected. (D) The trade balance moves toward surplus, and equilibrium income decreases. (E) The trade balance is unaffected, and equilibrium income decreases.
A
Which of the following will cause the United States dollar to depreciate relative to the euro? (A) An increase in household income in the United States (B) An increase in interest rates in the United States (C) An increase in household income in Europe (D) A decrease in interest rates in Europe (E) A decrease in price level in the United States
A
Which of the following will increase the United States trade deficit? (A) United States firms buying technologically advanced computers from Germany (B) European citizens traveling in large numbers to the United States (C) A United States company being hired to build a production plant in another country (D) The United States dollar depreciating in the foreign exchange market (E) The United States selling one million tons of wheat to China
A
50. Before specialization and trade, the domestic opportunity cost of producing 1 ton of grain in Alpha and in Beta is which of the following? Alpha Beta (A) 1 ton of steel 1 ton of steel (B) 1 ton of steel 2 tons of steel (C) 2 tons of steel 1 ton of steel (D) 1 ton of steel 0.5 ton of steel (E) 0.33 ton of steel 1.5 tons of steel
B
A country can have an increased surplus in its balance of trade as a result of (A) an increase in domestic inflation (B) declining imports and rising exports (C) higher tariffs imposed by its trading partners (D) an increase in capital inflow (E) an appreciating currency
B
An appreciation of the United States dollar on the foreign exchange market could be caused by a decrease in which of the following? (A) United States interest rates (B) The United States consumer price index (C) Demand for the dollar by United States residents (D) Exports from the United States (E) The tariff on goods imported into the United States
B
Assume that the world operates under a flexible exchange rate system. If the central bank of Mexico increases its money supply but other countries do not change theirs, Mexico's inflation rate and the international value of the Mexican peso will most likely change in which of the following ways? Inflation Rate International Value of the Peso (A) Increase Appreciate (B) Increase Depreciate (C) Increase No change (D) Decrease Appreciate (E) Decrease Depreciate
B
The table below shows the production alternatives of Country A and Country B for producing computers and cars with equal amounts of resources that are fully and efficiently employed. Country/ Computers/ Cars A/ 24/ 12 B/ 45/ 15 Which of the following is true according to the data in the table? (A) Country A has an absolute and comparative advantage in the production of computers. (B) Country B has an absolute and comparative advantage in the production of computers. (C) Country B should import computers and export cars. (D) Since Country B has an absolute advantage in the production of both goods, it will not trade with Country (E) Neither country can benefit from trade.
B
63. Using equal amounts of labor hours, Country X & Y can each produce the number of watches and radios shown in the PPCs. (A) Country X has an absolute advantage in the production of both watches and radios and a comparative advantage in the production of watches. (B) Country Y has an absolute advantage in the production of both watches and radios and a comparative advantage in the production of radios. (C) Countries X&Y can engage in mutually advantageous trade by exchanging 1 W for 1 R. (D) Country Y is willing to give up 2 watches in exchange for 1 radio from Country X. (E) Country X is willing to give up 2 radios in exchange for 1 watch from Country Y.
C
An increase in United States imports will result in which of the following in foreign exchange markets? (A) Increased foreign demand for United States dollars (B) Decreased supply of United States dollars (C) Increased United States demand for foreign currencies (D) A decrease in the value of foreign currencies (E) An increase in the value of the United States dollar
C
Which of the following will lead to a depreciation of a nation's currency? (A) Lower inflation in the nation than in the rest of the world (B) Higher required reserve ratio in the nation than in the rest of the world (C) Decreased real interest rates in the nation compared with the rest of the world (D) increased demand for the nation's currency (E) Decreased supply of the nation's currency
C
With an increase in investment demand in the United States, the real interest rate rises. In this situation, the most likely change in the capital stock in the United States and in the international value of the dollar would be which of the following? Capital Stock in U.S. International Value of the Dollar (A) Increase Decrease (B) Increase No change (C) Increase increase (D) Decrease increase (E) No change Decrease
C
An increase in Japan's demand for United States goods would cause the value of the dollar to (A) depreciate because of inflation (B) depreciate because the United States would be selling more dollars to Japan (C) depreciate because the United States money supply would increase as exports rise (D) appreciate because Japan would be buying more United States dollars (E) appreciate because Japan would be selling more United States dollars
D
As nations specialize in production and trade in international markets, they can expect which of the following domestic improvements? I. Allocation of domestic resources II. Standard of living III. Self-sufficiency (A) I only (B) II only (C) III only (D) I and II only (E) I, II, and III
D
If other things are held constant, an increase in United States imports will (A) tend to cause the dollar to appreciate because the world supply of dollars will rise (B) tend to cause the dollar to appreciate because the world demand for dollars will rise (C) have no effect on the exchange rate for the dollar because exports will also increase (D) tend to cause the dollar to depreciate because the world supply of dollars will rise (E) tend to cause the dollar to depreciate because the world demand for dollars will rise
D
If two nations specialize according to the law of Comparative advantage and then trade with each other, which of the following would be true? (A) A smaller number of goods would be available in each trading nation (B) Total world production of goods would decrease. (C) Everyone within each nation would be better off. (D) Each nation would increase its consumption possibilities. (E) One nation would gain at the expense of the other nation.
D
The main benefit of free trade between two countries is that (A) income distribution in each country will become more equitable (B) employment in each country will increase (C) migration from one country to the other will increase (D) each country can consume beyond its constraints of resources and productivity (E) each country will become more self-sufficient
D
An increase in the international value of the United States dollar will most likely benefit (A) domestic producers of premium wines sold to people in other countries (B) currency traders holding large quantities of yen (C) German citizens vacationing in the United States (D) Canadian citizens expecting to purchase real estate in the United States (E) retired United States citizens living overseas on their social security checks
E
Suppose that Country A is experiencing high inflation relative to Country B, which is enjoying steady growth with a stable price level. Which of the following would occur in the foreign exchange market? (A) An increase in the demand for Country A's currency (B) An increase in the supply of Country B's currency (C) A decrease in the supply of Country A's currency (D) A decrease in the demand for Country B's currency (E) A depreciation of Country A's currency
E
Which of the following changes will occur to the demand for United States dollars and the international value of the dollar in the short run if investors in the United States and abroad increase their purchases of United States government bonds? Demand for Dollars/international Value of the Dollar (A) Decrease/Decrease (B) Decrease/Increase (C) Decrease/No change (D) increase/Decrease (E) Increase/increase
E
Assuming fixed exchange rates, if country Z's rate of inflation increases relative to its trading partners, Country Z's imports and exports will most likely change in which of the following ways? Imports Exports (A) Decrease Decrease (B) Decrease Increase (C) Increase Decrease (D) Increase Increase (E) No change No change
C
Country A can produce either 4 tons of cocoa or 4 cars with 10 units of labor. Country B can produce either 5 tons of cocoa or 25 cars with 10 units of labor. Based on this information, which of the following is true? (A) Country A has an absolute advantage in the production of cocoa, while Country B has a comparative advantage in the production of cocoa. (B) Country A has a comparative advantage in the production of cocoa, while Country B has a comparative advantage in the production of cars. (C) Country A has an absolute advantage in the production of cocoa, while Country B has a comparative advantage in the production of cars. (D) Country A has a comparative disadvantage in the production of both goods. (E) Neither country has a comparative advantage in the production of either good.
B
Country/Number of Computers/Units of Steel A/100/100 B/20/80 The table above indicates the production alternatives of two countries, A and B, which produce computers and steel using equal amounts of resources. If both countries always produce at full employment, which of the following statements must be correct? (A) Mutually advantageous trade can occur between the two countries when 1 unit of steel from Country A is exchanged for 2 computers from Country B. (B) Mutually advantageous trade can occur between the two countries when 2 units of steel from Country B are exchanged for 1 computer from Country A. (C) Country A has an absolute and comparative advantage in the production of computers, and Country B has an absolute and comparative advantage in the production of steel. (D) Country B has an absolute advantage in the production of both commodities, but a comparative advantage in the production of steel. (E) Country A has an absolute advantage in the production of both commodities, but a comparative advantage in the production of steel.
B
If a country has a current account deficit which of the following must be true? (A) It must also show a deficit in its capital account. (B) It must show a surplus in its capital account. (C) It must increase the purchases of foreign goods and services. (D) it must increase the domestic interest rates on its bonds. (E) it must limit the flow of foreign capital investment.
B
If the real interest rate in Country X increases relative to the real interest rate in Country Y and there are no trade barriers between the two countries, then for Country X which of the following will be true of its capital flow, the value of its currency,' and its exports? Capital Flow Currency Exports (A) Inflow Appreciation Increase (B) Inflow Appreciation Decrease (C) inflow Depreciation Decrease (D) Outflow Depreciation Increase (E) Outflow Appreciation Decrease
B
In an open economy, an increase in government budget deficit tends to cause the international value of a country's currency and its trade deficit to change in which of the following ways? Value of Currency Trade Deficit (A) Appreciate Become smaller (B) Appreciate Become larger (C) Depreciate Become smaller (D) Depreciate Become larger (E) Not change Not change
B
To protect high cost domestic producers, a country imposes a tariff on an imported commodity, Y. Which of the following is most likely to occur in the short run? I. A decrease in domestic production of Y II. An increase in domestic production of Y III. An increase in foreign output of Y (A) I only (B) II only (C) III only (D) I and III only (E) II and III only
B
Which of the following is likely to occur following the depreciation of the United States dollar? (A) United States imports will increase. (B) United States exports will increase. (C) Demand for the United States dollar will decrease. (D) United States demand for foreign currencies will increase. (E) United States goods will become more expensive in foreign markets.
B
Which of the following statements best describes the impact of a decrease in Japanese income on AD in the U.S. (A) There will be no change in AD because U.S. AD depends only on the income of U.S. consumers (B) AD will decrease because the demand for U.S. exports decreases. (C) AD will decrease because the value of the U.S. dollar decreases relative to the Japanese yen. (D) AD will increase because a decrease in income in Japan causes an increase in income in the U.S. (E) AD will increase because interest rates in the U.S. decrease.
B
Which of the following would cause the United States dollar to increase in value compared to the Japanese yen? (A) An increase in the money supply in the United States (B) An increase in interest rates in the United States (C) An increase in the United States trade deficit with Japan (D) The United States purchase of gold on the open market (E) The sale of $2 billion dollars worth of Japanese television sets to the United States
B
