Chapter 1 and 2 Quiz

As part of its monetary policy, the Federal Reserve controls -the prime rate (of interest) -the federal government's expenditures on goods and services -the (targeted) federal funds rate (of interest) -the (unified) overall corporate bond rate (of interest)

the (targeted) federal funds rate (of interest)

Peter Pundit, an economics reporter in the United States, states that the European Union (EU) is increasing its productivity very rapidly in all industries. He claims that this productivity advance is so rapid that output from the EU in these industries will soon exceed that of the United States and, as a result, the United States will no longer benefit from trade with the EU. Do you think Peter Pundit is correct or not? If not, what do you think is the source of his mistake? -Peter Pundit is correct. The United States will lose any absolute advantage it may have. -Peter Pundit is not correct. He confuses absolute and comparative advantage. -Peter Pundit is not correct. The United States will still have an absolute advantage in producing some products. -Peter Pundit is correct. The United States will lose any comparative advantage it may have.

Peter Pundit is not correct. He confuses absolute and comparative advantage.

Because of international trade, a country may: -consume inside its production possibility frontier. -find its production possibility frontier shifting outward. -consume outside its production possibility frontier. -avoid opportunity costs.

consume outside its production possibility frontier.

An economy is said to have a comparative advantage in the production of one good if it: -can produce more of all goods than another economy. -has the lowest opportunity cost of producing a particular good. -can produce fewer of all goods than another economy. -has the highest opportunity cost of producing a particular good.

has the lowest opportunity cost of producing a particular good.

As long as people have different _____, everyone has a comparative advantage in something. -utility -opportunity costs -benefits -direct costs

opportunity costs

The concept of comparative advantage is based on: -relative opportunity costs. -dollar prices of labor. -relative labor costs. -absolute labor productivity.

relative opportunity costs