checkpoint exam UNIT 14

You should expect which of these to occur when the dollar strengthens against other currencies? I. Imports will become more expensive II. Imports will become less expensive III. Inflation will go down IV. Inflation will rise A) II and III B) I and IV C) I and III D) II and IV

A. II and III As the dollar gains strength against other currencies, the cost of imports goes down in dollar terms. Domestic producers will need to compete with the less expensive imports. That keeps prices overall from rising, reducing inflationary pressures.

All of the following would decrease the U.S. balance of payments deficit except A) a decrease in purchases of U.S. securities by foreign investors. B) an increase in exports of domestic goods from the United States. C) a decrease in dividend payments by U.S. companies to foreign investors. D) a decrease in imports of foreign goods into the United States.

A. decrease in purchase of U.S. securities by foreign investors Anything that will bring foreign money to the U.S. will decrease the balance of payments. Foreign investors pulling their money out of the U.S., or investing less in the U.S. will increase the U.S. deficit.

A supply-side approach to fiscal policy will use all of these tools except A) personal income tax rebates. B) decreasing government regulatory costs. C) providing tax credits to small business. D) decreasing tax rates on business entities.

A. personal income tax rebates Supply-side fiscal policy seeks to create a better environment for business to thrive. The end goal is a growing economy that creates jobs. Sometimes called trickle-downeconomics, the emphasis is on the business side much more than the consumer side.

Your client, Ann Porter, likes fast cars and has been saving for a high-end Italian sports car. She recently saw a report that said the dollar was likely to drop in the near future. She is concerned that this might affect her plans to buy her dream car next year. You tell her A) yes, it will likely cost her more to buy the car if the dollar drops. B) yes, it will likely cost her less if the dollar drops. C) she should not waste her money on a fancy car. D) no, it should have no impact on her plans at all.

A. yes, it will likely cost her more to buy the car if the dollar drops A weakening dollar will likely cause the cost of her foreign made car to increase in dollar terms.

It would be reasonable to expect an increase in exports from the United States if which of these occurred? I. The dollar strengthened against the euro II. The yen strengthened against the dollar III. The Swiss franc weakened against the dollar IV. The dollar weakened against the British pound A) I and III B) II and IV C) I and IV D) II and III

B. II and IV U.S. exports should increase when foreigners have greater purchasing power. That occurs when their currency is stronger than the dollar.

The principles of demand-side theory were laid out in the 1936 book, The General Theory of Employment, Interest, and Money written by who? A) Arthur Laffer B) John Keynes C) Milton Friedman D) Adam Smith

B. John Keynes John Maynard Keynes (later the first Baron Keynes) wrote the Magnum Opus of demand-side theory. All of the others listed here are great economists as well, and all had varying concerns with Keynesian theory. (Smith predates Keynes by a bit, but would have clearly disagreed with key points of the theory.)

Demand-side economics call on the federal government to do which of the following to encourage economic activity? A) Decrease government spending B) Lower personal income tax rates C) Decrease regulation D) Increase tax rates

B. lower personal income tax rates A demand-side approach would call for lower taxes on consumers and increased government spending. Little emphasis is placed on the regulatory burden.

Sparkly florescent earbuds made in the U.S. by Irksome, Inc., are suddenly popular in Asia. People from Canton to Calcutta are buying them in huge numbers. This is mostlikely to cause A) the trade surplus to decrease, or deficit to increase . B) the trade deficit to decrease, or surplus to increase. C) no effect on the balance of trade. D) something, but the impact is unpredictable.

B. the trade deficit to decrease, or surplus to increase The increased demand for a U.S. produced good will increase what is exported, causing a deficit to shrink, or a surplus to grow.

In regards to fiscal policy, which of these statements is correct? I. Fiscal policy is considered the most efficient means to solve short-term economic problems. II. Fiscal policy is not considered the most efficient means to solve short-term economic problems. III. Fiscal policy refers to governmental budget decisions enacted by the U.S. President and Congress. IV. Fiscal policy refers to governmental budget decisions enacted by the U.S. President and the cabinet. A) I and IV B) I and III C) II and III D) II and IV

C. II and III Because the political process determines fiscal policy, it takes time for conditions and solutions to be identified and implemented. Therefore, it is not considered an efficient way to solve short-term economic problems. Fiscal policy is the responsibility of the U.S. President and the Congress.

Fiscal policy seeks to encourage or discourage economic activity through the A) management of money supply and taxation. B) management of money supply and government spending. C) use of government spending and taxation. D) use of government spending and interest rate controls.

C. use of government spending and taxation Fiscal policy is the use of government spending and taxation to smooth out the business cycle. Interest rates and money supply are elements of monetary policy.