Quiz 3- Chapters 5, 18 & 19 (True/False)
A country is said to enjoy a comparative advantage over another country in the production of a product if it uses fewer resources to produce that product than the other country does.
False
A country's balance of trade must be balanced.
False
A quota is a tax on imports.
False
A recession is usually associated with high inflation.
False
A transfer payment is the revenue one receives when filing for a tax refund.
False
A transfer payment is the tax one pays when transferring real estate.
False
According to the Classical model, an excess supply of labor would drive up wages to a new equilibrium level and therefore unemployment would not persist.
False
Expansionary fiscal policy includes raising taxes.
False
Fiscal policy generally takes the form of regulations specifying the maximum amount by which the money supply can be changed.
False
For any pair of countries, there is only one single exchange rate that can lead automatically to both countries realizing the gains from specialization and comparative advantage.
False
If Belgium has exports of 50 billion euros and imports of 40 billion euros, then it is running a trade deficit.
False
If Spain decreases subsidies to its olive growers, the price of olives in the U.S. will fall.
False
If the exchange rate between the United States and Portugal changes from $1 = 1 euro to $1 = 2 euros, then holding everything else constant, the price of U.S. goods in Portugal will decrease.
False
In the Classical model, the level of employment is determined by the level of aggregate demand.
False
In the foreign exchange market between the Japanese yen and the U.S. dollar, an excess demand for Japanese yen will result in a depreciation of the Japanese yen relative to the U.S. dollar.
False
In the foreign exchange market between the Swiss franc and the U.S. dollar, if the supply of francs increases and the demand for francs decreases, the equilibrium quantity of Swiss francs will definitely increase.
False
Keynes believed that expansionary fiscal policy could help get an economy out of an inflation.
False
Keynesian economists believed that economic slowdowns are self-correcting.
False
Monetary policy includes changing the level of household taxes.
False
Only those products in which a country has an absolute advantage will be competitive in world markets.
False
Purchasing power parity theory holds that exchange rates are set so that the price of similar goods in different countries reflects the relative interest rates in those countries.
False
Stagflation occurs primarily during periods of rapid economic growth.
False
Stagflation occurs when there is a decline in the unemployment rate.
False
The Heckscher-Ohlin theorem explains why the U.S. both imports and exports cars.
False
The economic basis for trade is based on absolute advantage.
False
The following is a correct order in a business cycle: trough, recession, peak, expansion.
False
Trade allows the people of a country to produce outside their production possibility curve.
False
"Fine tuning" is any government attempt to regulate inflation or unemployment.
True
A capital gain is the increase in value of an asset above its initial cost.
True
A corporate bond is a promissory note issued by a firm when it borrows money.
True
A country enjoys a comparative advantage in the production of a good if that good can be produced at a lower cost in terms of other goods.
True
According to Keynes, the government's role during periods when private demand is low is to stimulate aggregate demand and, by so doing, lift the economy out of recession.
True
An expansion is usually associated with rising price levels.
True
An export subsidy raises the domestic price of the product.
True
Contractionary fiscal policy includes raising taxes.
True
For any pair of nations and goods, if each country has an absolute advantage in the production of one product, it is reasonable to expect that specialization and trade will benefit both countries.
True
If Holland decreases subsidies to its tulip growers, the price of tulips in the United States will rise.
True
If Japan has exports of 70 billion yen and imports of 60 billion yen, it is running a trade surplus.
True
If exchange rates end up in the right ranges, the free market will drive each country to shift resources into those sectors in which it enjoys a comparative advantage.
True
If the domestic price is below the world price of a certain product, the domestic country will export the product.
True
If the exchange rate between the British pound and the U.S. dollar was $1 = £0.67 last month, and the exchange rate is $1 = £0.72 this month, the U.S. dollar has appreciated relative to the British pound.
True
If the exchange rate between the United States and Greece changes from $1 = 1 euro to $1 = 2 euros, then holding everything else constant, the price of U.S. goods in Greece will increase.
True
If the opportunity cost of corn to wheat is 3:1 in the United States and 5:1 in France, both countries would benefit from trade if the actual terms of trade between corn and wheat were 4:1.
True
In general, for any two countries, there are many exchange rates that will lead to gains from trade, based on comparative advantage.
True
In the circular flow diagram everyone's expenditure is someone else's receipt.
True
In the foreign exchange market between the Brazilian real and the U.S. dollar, if U.S. interest rates fall relative to Brazilian interest rates, the Brazilian real will appreciate relative to the U.S. dollar.
True
In the foreign exchange market between the Thai baht and the U.S. dollar, if the supply of baht increases and the demand for baht decreases, the price of Thai baht in terms of U.S. dollars will definitely decrease.
True
The quantity and quality of a country's labor, land, and natural resources are that country's factor endowments.
True
Trade allows the people of a country to consume outside their production possibility curve.
True
Within the range of exchange rates that permits specialization and trade to take place, the exchange rate will determine which country gains the most from trade.
True
