Econ 201- 2

Which of the following is not a reason why purchasing power parity fails to provide a complete explanation of exchange rates? A. Countries have different wage rates. B. Countries impose barriers to trade. C. Not all products can be traded internationally. D. Products and consumer preferences are different across countries.

A. Countries have different wage rates.

What is the name given to the sale of a product for a price below its cost of production? A. dumping B. bargain pricing C. cut-throat pricing D. grim-trigger pricing

A. Dumping

Which of the following is an example of positive economic analvsis? A. Measuring the effect of the sugar quota on the U.S. economy. B. Justifying the profits of U.S. sugar companies based on the number of workers they employ. c. Asserting that the sugar quota is bad public policy and should be eliminated. D. All of the above are examples of positive economic analysis.

A. Measuring the effect of the sugar quota on the U.S. economy.

What is the long-run effect of a permanent increase in government spending? A. The decline in investment, consumption, and net exports exactly offsets the increase in government spending; therefore, real GDP remains unchanged. B. Investment, consumption, and net exports decline but by more than the increase in government spending; therefore, real GDP decreases. C. Investment, consumption, and net exports remain unchanged; therefore, there is no change in real GDP. D. Investment, consumption, and net exports decline but by less than the increase in government spending; therefore real GDP increases

A. The decline in investment, consumption, and net exports exactly offsets the increase in government spending; therefore, real GDP remains unchanged.

Which of the following statements is true about the importance of trade in the U.S. economy? A. While exports and imports have been steadily rising as a fraction of GDP, not all sectors of the U.S. economy have been affected equally by international trade B. Only a few U.S. manufacturing industries depend on trade. C. Exports and imports have steadily declined as a fraction of U.S. GDP. D. None of the above

A. While exports and imports have been steadily rising as a fraction of GDP, not all sectors of the U.S. economy have been affected equally by international trade

Currency __ occurs when the market value of a country's currency__occurs when the market value of a country's currency declines relative to value of another country's currency. A. appreciation; depreciation B. inflation; deflation C. depreciation; appreciation D. deflation; inflation

A. appreciation; depreciation

Economists use the term fiscal policy to refer to changes in taxing and spending policies A. only by the federal government. B. by all levels of government, federal, state, and local. C. only by state and local governments. D. by none of the above. Next

A. only by the federal government.

When the exchange rate (measured as foreign currency per dollar) is above the equilibrium exchange rate, there is a __of dollars and, consequently,__ pressure on the exchange rate. A. surplus; downward B. shortage; downward C. shortage; upward D. surplus; upward

A. surplus; downward

Crowding out refers to A. the decline in private expenditures that result from an increase in government purchases. B. the ever-decreasing amount of induced expenditures that eventually stop the multiplier process resulting from an increase in government purchases. c. the problem arising from the president having to consult with a large number of senators and representatives to get fiscal policy approved in time to help the economy. D. the reduction in government expenditures following an increase in consumption or investment expenditures.

A. the decline in private expenditures that result from an increase in government purchases.

What is a quota? A. An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country. B. A numerical limit a government imposes on the quantity of a good that can be imported into a country. C. A quota is the same thing as a voluntary export restraint. D. All of the above.

B. A numerical limit a government imposes on the quantity of a good that can be imported into a country.

Which of the following statements about the federal debt is correct? A. Interest payments are currently about 60 percent of total federal expenditures. B. If the debt becomes very large relative to the economy, then the government may have to raise taxes to high levels or reduce other types of spending to make the interest payments on the debt. C. The federal government is in danger of defaulting on its debt. D. Given the current interest payments as a percent of total federal expenditures, there is a great need for immediate tax increases or significant cutbacks in other types of federal spending.

B. If the debt becomes very large relative to the economy, then the government may have to raise taxes to high

The opponents of globalization contend that A. globalization means that workers in poor countries lose jobs. B. globalization destroys cultures. c. globalization causes factories to relocate from low-income to high-income countries. D. All of the above occur as a result of globalization

B. globalization destroys cultures.

A depreciation in the domestic currency will A. decrease exports and increase imports, thereby decreasing net exports. B. increase exports and decrease imports, thereby increasing net exports. C. increase both exports and imports, thereby increasing net exports. D. decrease both exports and imports, thereby decreasing net exports.

B. increase exports and decrease imports, thereby increasing net exports.

If a tax cut has supply-side effects, then A. it will affect only aggregate supply. B. it will affect both aggregate demand and aggregate supply. C. it will affect only aggregate demand. D. it will definitely not increase the federal budget deficit.

B. it will affect both aggregate demand and aggregate supply.

A recession in the United States will A. leave the supply curve of dollars unchanged. B. shift the supply curve of dollars to the left. C. shift the demand curve for dollars to the right. D. shift the supply curve of dollars to the right.

B. shift the supply curve of dollars to the left.

Economists believe that the smaller the tax wedge for any economic activity, such as working, saving, investing, or starting a business, A. the greater the marginal tax rate. B. the more of that economic activity that will occur. C. the greater the difference between the pretax and postax return to those activities. D. The lower the equilibrium interest rate

B. the more of that economic activity that will occur.

Holding other factors constant, if the average productivity of Mexican firms increases faster than the average productivity of U.S. firms, then A. Mexican products will become relatively more expensive than U.S. products. B. the value of the Mexican peso should rise against the dollar. c. the demand for Mexican products will fall relative to U.S. products. D. All of the above.

B. the value of the Mexican peso should rise against the dollar.

The goal of expansionary fiscal policy is A. to decrease long-run aggregate supply. B. to increase aggregate demand. c. to decrease short-run aggregate supply. D. All of the above.

B. to increase aggregate demand.

You and your neighbor pick apples and cherries. If you can pick apples at a lower opportunity cost than your neighbor, which of the following statements is true? • A. Your neighbor is better off specializing in picking cherries. • B. You have a comparative advantage in picking apples. C. You can trade some of your apples for some of your neighbor's cherries, and both of you will end up with more D. All of the above

D. All of the above

In the real world, specialization is not complete. Why do countries not completely specialize? A. Because production of most goods involves increasing opportunity costs. B. Because tastes for products differ. C. Because not all goods are traded internationally. D. All of the above.

D. All of the above.

What is a voluntary export restraint? A. A quota imposed by the WTO. B. A numerical limit on the quantity of a good that can be imported. C. The same thing as a tariff. D. An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country.

D. An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country.

How does the World Trade Organization (WTO) allow countries to determine whether dumping has occurred? The WTO allows countries to determine that dumping has occurred if A. a product is imported for a lower price than it sells for on the home market. B. some brands in the country sell for lower prices than other brands in the same country. C. firms are selling products for a price that exceeds the cost of production. D. a product is exported for a lower price than it sells for on the home market.

D. a product is exported for a lower price than it sells for on the home market.

Which of the following factors cause both the demand curve and the supply curve for dollars in the foreign exchange market to shift? A. changes in the expectations of currency traders about the likely future value of the dollar and the likely future value of foreign currencies B. changes in the demand for U.S.-produced goods and services and changes in the demand for foreign produced goods and services c. changes in the desire of investors to invest in the United States and changes in the desire of investors to invest in foreign countries D. All of the above.

D. all of the above

The effect on the economy of tax reduction and simplification is A. higher employment and real GDP but also a higher price level. B. a decrease in consumption and investment spending, and a shift to the left of the aggregate demand curve. C. a change in the costs to firms, as shown by the short-run aggregate supply curve shifting to the left.arginal tax rate. D. an increase in the quantity of real GDP supplied at every price level, and a shift in the long-run aggregate supply curve.

D. an increase in the quantity of real GDP supplied at every price level, and a shift in the long-run aggregate supply curve.

According to the crowding-out effect, if the federal government increases spending, the demand for money and the equilibrium interest rate will__ which will cause consumption, investment, and net exports to__ A. increase; increase B. decrease; decrease C. decrease; increase D. increase; decrease

D. increase; decrease

Over time; potential GDP__ which is shown by the __ curve shifting to the right A. increases; short-run aggregate supply B. increases; aggregate demand C. decreases; long-run aggregate supply D. increases; long-run aggregate supply

D. increases; long-run aggregate supply

The use of trade barriers to shield domestic companies from foreign competition is called A. globalization B. dumping. C. patriotism. D. protectionism.

D. protectionism.

The national debt is best measured as A. the total value of stocks issued in a country. B. the difference between federal government spending and federal taxes. c. the value of all debts of private citizens and businesses. D. the total value of U.S. Treasury securities outstanding.

D. the total value of U.S. Treasury securities outstanding.

The long-run growth rate of real GDP depends primarily on A. the growth in the number of hours worked. B. the growth in the population. c. the growth rate of labor productivity as measured by the growth in real GDP per hour worked. D. All of the above. E. A and C only.

E. A and C only.

A simplified tax code would reduce economic efficiency by increasing the number of decisions households and firms make solely to reduce their tax payments True or false

False

As long as countries only produce goods in which they have a comparative advantage and trade those goods for ones in which they do not have a comparative advantage, everyone gains and no one loses as a result of international trade. True or false

False

Countries gain from specializing in producing goods in which they have an absolute advantage and trading for goods in which other countries have an absolute advantage True or false

False

The United States is the leading exporting country in the world. True or false

False

The higher the tax rate, the larger the multiplier effect. True or false

False

When an industry receives tariff or quota protection, there is no effect on other domestic industries. True or false

False

As a result of the effect of the sugar quota, the U.S. price of sugar is higher than the world price of sugar. True or false

True

Few economists believe the federal government should attempt to balance its budget every year. True or false

True

The actual change in real GDP resulting from an increase in government purchases or a cut in taxes will be less than the simple multiplier effect indicates. True or false

True

According to purchasing power parity, A. countries can gain from trading. B. inflation rates should be the same in all countries. c. exchange rates move to equalize the purchasing power of different currencies. D. exchange rates will not change.

c. exchange rates move to equalize the purchasing

When will the demand curve for dollars in exchange for yen shift to the right? A. when incomes in Japan fall B. when interest rates in the United States fall c. when speculators decide that the value of the dollar will rise relative to the value of the yen D. All of the above.

c. when speculators decide that the value of the dollar will rise relative to the value of the yen