Eco 201 Final pt 2

(GRAPH)Suppose the world economy is composed of just two countries: Italy and Greece. Each can produce steel or chemicals, but at different levels of economic efficiency. The production possibilities curves for the two countries are shown in the graphs below. Refer to the graphs and information above. It can be deduced that: A. Greece has a comparative advantage in chemicals B. Greece has the absolute advantage in both products C. Italy has a comparative advantage in chemicals D. It is more costly in terms of resources to produce steel in Italy

A. Greece has a comparative advantage in chemicals

Which of the following actions by the Fed would cause the money supply to increase? A. Purchases of government bonds from banks. B. An increase in the reserve requirement. C. An increase in the discount rate. D. Sales of government bonds to the public.

A. Purchases of government bonds from banks.

The problem of cyclical asymmetry refers to the idea that: A. a restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply. B. the monetary authorities have been less willing to use an expansionary monetary policy than they have a restrictive monetary policy. C. cyclical downswings are typically of longer duration than cyclical upswings. D. an expansionary monetary policy can force an expansion of the money supply, but a restrictive monetary policy may not achieve a contraction of the money supply.

A. a restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply.

(GRAPH)The following diagram is a flexible exchange market for foreign currency: Refer to the diagram. Other things equal, a leftward shift of the supply curve would: A. appreciate the euro. B. cause a shortage of euros. C. increase the equilibrium quantity of euros. D. appreciate the dollar.

A. appreciate the euro.

One of the strengths of monetary policy relative to fiscal policy is that monetary policy: A. can be implemented more quickly. B. is subject to closer political scrutiny. C. does not produce a net export effect. D. entails a larger spending income multiplier effect on real GDP.

A. can be implemented more quickly.

A nation's official reserves: A. compensate for differences in the current and capital and financial accounts. B. consist of all domestic and foreign currency held by a nation's central bank. C. are always zero. D. are always negative.

A. compensate for differences in the current and capital and financial accounts.

A government may be able to reduce the international value of its currency by: A. selling its currency in the foreign exchange market. B. buying its currency in the foreign exchange market. C. selling foreign currencies in the foreign exchange market. D. increasing its domestic interest rates.

A. selling its currency in the foreign exchange market.

(GRAPH)Refer to the diagram showing the domestic demand and supply curves for a specific standardized product in a particular nation. If the world price for this product is $.50, this nation will experience a domestic: A. shortage of 160 units, which it will meet with 160 units of imports. B. shortage of 160 units, which will increase the domestic price to $1.60. C. surplus of 160 units, which it will export. D. surplus of 160 units, which will reduce the world price to $1.00.

A. shortage of 160 units, which it will meet with 160 units of imports.

Which of the following would contribute to a U.S. balance of payments deficit? A. Kawasaki builds a motorcycle manufacturing plant in Kansas City. B. U.S. tourists travel in large numbers to Europe. C. A wealthy Mexican citizen builds a mansion in Beverly Hills. D. Zaire pays interest on its debt to the United States.

B. U.S. tourists travel in large numbers to Europe.

In considering euros and dollars, the rates of exchange for the euro and the dollar: A. are directly related. B. are inversely related. C. are unrelated. D. move in the same direction.

B. are inversely related.

Open-market operations change: A. the size of the monetary multiplier but not commercial bank reserves. B. commercial bank reserves but not the size of the monetary multiplier. C. neither commercial bank reserves nor the size of the monetary multiplier. D. both commercial bank reserves and the size of the monetary multiplier.

B. commercial bank reserves but not the size of the monetary multiplier.

Countries engaged in international trade specialize in production based on: A. relative levels of GDP. B. comparative advantage. C. relative exchange rates. D. relative inflation rates.

B. comparative advantage.

In the U.S. balance of payments, foreign purchases of assets in the United States are a: A. foreign currency outflow. B. foreign currency inflow. C. current account item. D. debit, or outpayment.

B. foreign currency inflow.

If a nation has a comparative advantage in the production of X, this means the nation: A. cannot benefit by producing and trading this product. B. must give up less of other goods than other nations in producing a unit of X. C. has a production possibilities curve identical to those of other nations. D. is not subject to increasing opportunity costs.

B. must give up less of other goods than other nations in producing a unit of X.

The discount rate is the interest: A. rate at which the central banks lend to the U.S. Treasury. B. rate at which the Federal Reserve Banks lend to commercial banks. C. yield on long-term government bonds. D. rate at which commercial banks lend to the public.

B. rate at which the Federal Reserve Banks lend to commercial banks.

The terms of trade reflect the: A. rate at which gold exchanges internationally for any domestic currency. B. ratio at which nations will exchange two goods. C. fact that the gains from trade will be equally divided. D. cost conditions embodied in a single country's production possibilities curve.

B. ratio at which nations will exchange two goods.

If the dollar price of yen rises, then: A. the yen price of dollars also rises. B. the dollar depreciates relative to the yen. C. the yen depreciates relative to the dollar. D. the dollar will buy fewer U.S. goods.

B. the dollar depreciates relative to the yen.

The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would tend to offset each other in trying to achieve that objective? A. Selling government securities and raising the discount rate B. Selling government securities and raising the reserve ratio C. Buying government securities and raising the discount rate D. Buying government securities and lowering the reserve ratio

C. Buying government securities and raising the discount rate

(CHART)Answer the question on the basis of the following production possibilities data for Gamma and Sigma. All data are in tons. Gamma's production possibilities: Sigma's production possibilities: On the basis of the given information: A. Gamma should export both tea and pots to Sigma. B. Sigma should export tea to Gamma and Gamma should export pots to Sigma. C. Gamma should export tea to Sigma and Sigma should export pots to Gamma. D. Gamma should export tea to Sigma, but it will not be profitable for the two nations to exchange pots.

C. Gamma should export tea to Sigma and Sigma should export pots to Gamma.

Assume that the MPC is 0.75 and that the price level is "sticky". If the Federal Reserve increases the money supply and investment spending increases by $8 billion, then aggregate demand is likely to: A. Increase by $6 billion B. Increase by $8 billion C. Increase by $32 billion D. Decrease by $8 billion

C. Increase by $32 billion

Which of the following tools of monetary policy is considered the most important on a day-to-day basis? A. The discount rate. B. The reserve ratio. C. Open-market operations. D. Paying interest on reserves.

C. Open-market operations.

It may be misleading to label a trade deficit as unfavorable or adverse because: A. the multiplier does not apply to a trade deficit. B. a trade deficit increases a nation's aggregate output and employment. C. a nation's consumers benefit from a trade deficit during the period it occurs. D. a trade deficit precludes inflation.

C. a nation's consumers benefit from a trade deficit during the period it occurs.

Evidence of a chronic balance of payments deficit is: A. a decline in amount of the nation's currency held by other nations. B. an excess of exports over imports. C. diminishing reserves of foreign currencies. D. an increase in the international value of the nation's currency.

C. diminishing reserves of foreign currencies.

Under the managed floating system of exchange rates: A. all exchange rates vary with changes in the free-market prices of gold. B. industrialized nations meet once each year to negotiate readjustments in their exchange rates. C. exchange rates are essentially flexible, but governments intervene to offset disorderly fluctuations in rates. D. exchange rates are adjusted at the discretion of the IMF.

C. exchange rates are essentially flexible, but governments intervene to offset disorderly fluctuations in rates.

Monetary policy is thought to be: A. equally effective in moving the economy out of a depression as in controlling demand-pull inflation. B. more effective in moving the economy out of a depression than in controlling demand-pull inflation. C. more effective in controlling demand-pull inflation than in moving the economy out of a recession. D. only effective in moving the economy out of a depression.

C. more effective in controlling demand-pull inflation than in moving the economy out of a recession.

(GRAPH)Refer to the diagram showing the domestic demand and supply curves for a specific standardized product in a particular nation. If the world price for this product is $1.60, this nation will experience a domestic: A. shortage of 160 units, which it will meet with 160 units of imports. B. shortage of 160 units, which will increase the domestic price to $1.60. C. surplus of 160 units, which it will export. D. surplus of 160 units, which will reduce the world price to $1.00.

C. surplus of 160 units, which it will export.

(GRAPH)Refer to the diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The trading possibilities curves imply that: A. both countries have a trade surplus that will result in economic growth. B. the domestic production possibilities curves entail unemployment and/or the domestic misallocation of resources. C. world resources will be allocated more efficiently if the two nations specialize and trade based on comparative advantage. D. both nations will be worse off as a result of international specialization and trade.

C. world resources will be allocated more efficiently if the two nations specialize and trade based on comparative advantage.

In the recent financial and economic crises, the economy fell into a so-called liquidity trap, which means that: A. Banks did not have enough reserves to continue lending to banks B. The Fed injected reserves into the banking system, but the interest rates remained high C. Firms did not want to borrow from banks because they had little need for extra liquidity D. Banks held on to excess reserves and people chose to pay off loans rather than spend

D. Banks held on to excess reserves and people chose to pay off loans rather than spend

Which of the following combinations is plausible, as it relates to a nation's balance of payments? A. Current account = $+40 billion; capital account = $-10 billion; financial account = $-50 billion. B. Current account = $+50 billion; capital account = $-20 billion; financial account = $+30 billion. C. Current account = $+10 billion; capital account = $+40 billion; financial account = $+50 billion. D. Current account = $+30 billion; capital account = $-20 billion; financial account = $-10 billion.

D. Current account = $+30 billion; capital account = $-20 billion; financial account = $-10 billion.

Suppose the economy is at full employment with a high inflation rate. Which combination of government policies is most likely to reduce the inflation rate? A. Buy government securities in the open market and increase taxes B. Buy government securities in the open market and decrease taxes C. Sell government securities in the open market and increase government spending D. Sell government securities in the open market and decrease government spending

D. Sell government securities in the open market and decrease government spending

Which of the following statements is true? A. Comparative advantage means that total world output will be greatest when each good is produced by the nation that has the highest domestic opportunity cost of producing it B. Comparative advantage means that a nation can gain from trade only if it has a lower labor productivity than its trading partner C. Specialization will be complete among nations when opportunity costs increase as the nations produce more of a particular product D. Specialization will be less than complete among nations when opportunity costs increase as the nations produce more of a particular product

D. Specialization will be less than complete among nations when opportunity costs increase as the nations produce more of a particular product

The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that: A. the production possibilities curves of any two nations are identical. B. a nation's production possibilities and trading possibilities lines coincide. C. a nation's trading possibilities line lies to the right of its production possibilities line. D. a nation's production possibilities line lies to the right of its trading possibilities line.

D. a nation's production possibilities line lies to the right of its trading possibilities line.

Differences in production efficiencies among nations in producing a particular good result from: A. different endowments of fertile soil. B. different amounts of skilled labor. C. different levels of technological knowledge. D. all of these.

D. all of these.

Studies show that: A. it is impossible to estimate the benefits of trade barriers. B. costs and benefits of trade barriers are about equal. C. benefits of trade barriers exceed their costs in developing nations. D. costs of trade barriers exceed their benefits, creating an efficiency loss for society.

D. costs of trade barriers exceed their benefits, creating an efficiency loss for society.

The U.S. demand for British pounds is: A. downsloping because a higher dollar price of pounds means British goods are cheaper to Americans. B. downsloping because a lower dollar price of pounds means British goods are more expensive to Americans. C. upsloping because a lower dollar price of pounds means British goods are cheaper to Americans. D. downsloping because a lower dollar price of pounds means British goods are cheaper to Americans.

D. downsloping because a lower dollar price of pounds means British goods are cheaper to Americans.

A market in which the money of one nation is exchanged for the money of another nation is a: A. resource market. B. bond market. C. stock market. D. foreign exchange market.

D. foreign exchange market.

In effect, tariffs on imports are: A. special taxes on domestic producers. B. subsidies to domestic consumers. C. subsidies to foreign producers. D. subsidies for domestic producers.

D. subsidies for domestic producers.

(CHART)The following table contains hypothetical data for the 2012 U.S. balance of payments. Answer the question on the basis of this information. All figures are in billions of dollars. Refer to the given data. The United States has a balance of goods: A. deficit of $10 billion. B. surplus of $30 billion. C. deficit of $30 billion. D. surplus of $20 billion.

D. surplus of $20 billion.

The idea that freely floating exchange rates equate the buying power of national currencies is called: A. the equation of exchange. B. the balance of payments. C. Say's Law. D. the purchasing power parity theory.

D. the purchasing power parity theory.

If two nations have straight-line production possibilities curves: A. then their trading possibilities curves must lie inside the production possibilities curves. B. there will be no basis for mutually advantageous trade. C. there will be a basis for mutually advantageous trade whether the slopes are equal or not. D. there will be a basis for mutually advantageous trade provided the slopes differ.

D. there will be a basis for mutually advantageous trade provided the slopes differ.