ECON exam 3

15. Economists call the changes in the composition of demand among industries and regions: A) insider-outsider conflicts. B) sectoral shifts. C) moral hazard. D) adverse selection.

B) sectoral shifts

36. Most spells of unemployment are ______ term, and most weeks of unemployment are attributable to ______-term unemployment. A) short; short B) short; long C) long; long D) long; short

B) short; long

34. Policies to substantially reduce the natural rate of unemployment should be targeted at: A) the short-term unemployed. B) the long-term unemployed C) discouraged workers. D) insiders and outsiders.

B) the long-term unemployed

27. Based on a Cobb-Douglas production function and perfect capital mobility, capital should flow to economies in which: A) capital is relatively scarce. B) capital is relatively abundant. C) technological production capabilities are inferior. D) labor is relatively scarce.

A) capital is relatively scarce

71. In a large open economy, an investment tax credit raises the real interest rate, ______ the trade balance, and ______ net capital outflow. A) decreases; decreases B) increases; increases C) decreases; increases D) increases; decreases

A) decreases; decreases

49. (Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the impact on the real exchange rate of contractionary fiscal policies at home? A) (A) B) (B) C) (C) D) (D)

A) (a)

53. (Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the impact on the real exchange rate of an increase in household saving? A) (A) B) (B) C) (C) D) (D)

A) (a)

10. If the steady-state rate of unemployment equals 0.125 and the fraction of unemployed workers who find jobs each month (the rate of job findings) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separations) must be: A) 0.08. B) 0.125. C) 0.22. D) 0.435.

A) 0.08

32. Suppose that over the course of a year 100 people are unemployed for 4 weeks each (the short-term unemployed), while 10 people are unemployed for 52 weeks each (the long-term unemployed). Approximately what percentage of the total spells of unemployment were attributable to the long-term unemployed? A) 9 percent. B) 10 percent. C) 43.5 percent. D) 56.5 percent.

A) 9 percent

18. (Exhibit: Saving and Investment in a Small Open Economy) In a small open economy, if the world interest rate is r1, then the economy has: A) a trade surplus. B) balanced trade. C) a trade deficit. D) negative capital outflows.

A) a trade surplus

25. Unions contribute to structural unemployment when collective bargaining results in wages: A) above the equilibrium level. B) below the minimum wage. C) below the equilibrium level. D) above the level of unemployment compensation.

A) above the equilibrium level

3. Net exports equal GDP minus domestic spending on: A) all goods and services. B) all goods and services plus foreign spending on domestic goods and services. C) domestic goods and services. D) domestic goods and services minus foreign spending on domestic goods and services.

A) all goods and services

44. An appreciation of the real exchange rate in a small open economy could be the result of: A) an increase in government spending. B) an increase in taxes. C) a decrease in the world interest rate. D) the expiration of an investment tax-credit provision.

A) an increase in government spending

74. Assume that a war breaks out abroad, and foreign investors choose to invest more in a large safe country, the United States. Then, the U.S. real interest rate: A) and net exports will both fall. B) will fall and net exports will rise. C) will rise and net exports will fall. D) and net exports will both rise.

A) and net exports will both fall

21. In a small open economy, starting from a position of balanced trade, if the government increases domestic government purchases, this produces a tendency toward a trade ______ and ______ net capital outflow. A) deficit; negative B) surplus; positive C) deficit; positive D) surplus; negative

A) deficit; negative

54. The percentage change in the nominal exchange rate equals the percentage change in the real exchange rate plus the: A) foreign inflation rate minus the domestic inflation rate. B) domestic inflation rate minus the foreign inflation rate. C) foreign exchange rate minus the domestic exchange rate. D) domestic interest rate minus the foreign interest rate.

A) foreign inflation rate minus the domestic inflation rate

4. If domestic spending exceeds output, we ______ the difference—net exports are ______. A) import; negative B) export; positive C) import; positive D) export; negative

A) import; negative

23. If wage rigidity holds the real wage above the equilibrium level, an increase in the supply of labor will ______ the number unemployed. A) increase B) decrease C) not change D) possibly increase, decrease, or leave unchanged

A) increase

14. If a U.S. corporation sells a product in Europe and uses the proceeds to purchase shares in a European corporation, then U.S. net exports ______ and net capital outflows ______. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

A) increase; increase

27. When insiders have a much greater impact on the wage-bargaining process than do outsiders, the negotiated wage is likely to be ______ the equilibrium wage. A) much greater than B) much less than C) almost equal to D) about one-half of

A) much greater than

41. Assume that a country experiences a reduction in productivity that shifts the labor demand curve downward and to the left. If the real wage were rigid, this would lead to: A) no change in the real wage and a rise in unemployment. B) no change in the real wage and no change in unemployment. C) no change in the real wage and a fall in unemployment. D) a decrease in the real wage.

A) no change in the real wage and a rise in unemployment

8. If domestic saving exceeds domestic investment, then net exports are ______ and net capital outflows are ______. A) positive; positive B) positive; negative C) negative; negative D) negative; positive

A) positive; positive

37. In a small open economy, when the government reduces national saving, the equilibrium real exchange rate: A) rises and net exports fall. B) rises and net exports rise. C) falls and net exports fall. D) falls and net exports rise.

A) rises and net exports fall

35. In the small open economy in equilibrium: A) saving is fixed, and investment is determined by the investment function and the world interest rate. B) investment is fixed, and saving is determined by the saving function and the world interest rate. C) saving is fixed, and investment is determined by the trade balance. D) investment is fixed, and saving is determined by the trade balance.

A) saving is fixed, and investment is determined by the investment function and the world interest rate

2. The natural rate of unemployment is: A) the average rate of unemployment around which the economy fluctuates. B) about 10 percent of the labor force. C) a rate that never changes. D) the transition of individuals between employment and unemployment.

A) the average rate of unemployment around which the economy fluctuates

20. When the real wage is above the level that equilibrates supply and demand: A) the quantity of labor supplied exceeds the quantity demanded. B) the quantity of labor demanded exceeds the quantity supplied. C) there is no unemployment. D) the labor market clears.

A) the quantity of labor supplied exceeds the quantity demanded

37. Spells of unemployment end when the unemployed person finds a job or: A) withdraws from the labor force. B) enters the labor force. C) runs out of unemployment insurance compensation. D) refuses to answer unemployment survey questions.

A) withdraws from the labor force

2. A country's exports may be written as equal to: A) GDP minus consumption minus investment minus government spending. B) GDP minus consumption of domestic goods and services minus investment of domestic goods and services minus government purchases of domestic goods and services. C) imports. D) GDP minus imports.

B) GDP minus consumption of domestic goods and services minus investment of domestic goods and services minus government purchases of domestic goods and services

50. (Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the impact on the real exchange rate of contractionary fiscal policies abroad? A) (A) B) (B) C) (C) D) (D)

B) (b)

9. In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals $25 billion, then net capital outflow equals: A) -$25 billion. B) -$10 billion. C) $10 billion. D) $25 billion.

B) -$10 billion

58.If the nominal exchange rate falls 10 percent, the domestic price level rises 4 percent, and the foreign price level rises 6 percent, the real exchange rate will fall: A) 0 percent. B) 8 percent. C) 10 percent. D) 12 percent.

B) 8 percent

3. If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million, the unemployment rate equals ______ percent (rounded to the nearest percent). A) 0 B) 9 C) 10 D) 20

B) 9

48. Which of the following would decrease the real exchange rate in a small open economy in the long run? A) a personal income tax cut B) a reduction in government spending C) a tariff on imports D) an increase in investment

B) a reduction in government spending

20. An increase in the trade deficit of a small open economy could be the result of: A) an increase in taxes. B) an increase in government spending. C) an increase in the world interest rate. D) the expiration of an investment tax-credit provision.

B) an increase in government spending

30. If the number of dollars per yen rises, this is called a(n): A) appreciation of the dollar. B) appreciation of the yen. C) increase in the terms of trade. D) decrease in the terms of trade.

B) appreciation of the yen

11. In a small open economy, if domestic saving equals $50 billion and domestic investment equals $50 billion, then there is ______ and net capital outflow equals ______. A) a trade deficit; $100 billion B) balanced trade; $0 C) a trade surplus; $100 billion D) balanced trade; $100 billion

B) balanced trade; $0

66. Net capital outflow in a large country: A) rises as the real domestic interest rate rises. B) declines as the domestic interest rate rises. C) depends on the foreign interest rate. D) depends only on domestic saving.

B) declines as the domestic interest rate rises

24. If wage rigidity holds the real wage above the equilibrium level, an increase in the demand for labor will ______ the number unemployed. A) increase B) decrease C) not change D) possibly increase, decrease, or leave unchanged

B) decrease

65. In a large but open economy, when a fiscal expansion takes place, the interest rate goes up and some investment is crowded out; the expansion also causes a trade: A) surplus and a fall in the real exchange rate. B) deficit and a rise in the real exchange rate. C) surplus and a rise in the real exchange rate. D) deficit and a fall in the real exchange rate.

B) deficit and a rise in the real exchange rate

26. In the case of unions, the conflict of interest between different groups of workers results in insiders wanting ______, while outsiders want ______. A) more hirings; high wages B) high wages; more hirings C) high wages; fewer hirings D) fewer hirings; high wages

B) high wages; more hirings

23. Starting from a trade balance, if the world interest rate falls, then, holding other factors constant, in a small open economy the amount of domestic investment will _____ and net exports will _____. A) increase; increase B) increase; decrease C) increase, not change D) decrease; increase

B) increase; decrease

38. In a small open economy with perfect capital mobility, a reduction in the government's budget deficit ______ net exports and the real exchange rate ______. A) increases; appreciates B) increases; depreciates C) decreases; appreciates D) decreases; depreciates

B) increases, depreciates

70. Expansionary fiscal policy in a large open economy ______ the real interest rate and ______ the real exchange rate. A) does not change; increases B) increases; increases C) increases; decreases D) decreases; increases

B) increases; increases

25. In a small open economy, policies that increase: A) investment tend to cause a trade surplus. B) investment tend to cause a trade deficit. C) saving do not affect the trade balance. D) saving tend to cause a trade deficit.

B) investment tend to cause a trade surplus

29. The real exchange rate: A) measures how many Japanese yen one really gets for a U.S. dollar. B) is equal to the nominal exchange rate multiplied by the domestic price level divided by the foreign price level. C) is equal to the nominal exchange rate multiplied by the foreign price level divided by the domestic price level. D) is the price of a domestic car divided by the price of a foreign car.

B) is equal to the nominal exchange rate multiplied by the domestic price level divided by the foreign price level

12. In a small open economy, if domestic saving exceeds domestic investment, then the extra saving will be used to: A) make loans to the domestic government. B) make loans to foreigners. C) repay the national debt. D) repay loans to the Federal Reserve.

B) make loans to foreigners

55. If a country has a high rate of inflation relative to the United States, the dollar will buy: A) less of the foreign currency over time. B) more of the foreign currency over time. C) the same amount of the foreign currency over time. D) an amount of foreign currency determined by the real exchange rate.

B) more of the foreign currency over time

28. The nominal exchange rate between the U.S. dollar and the Japanese yen is the: A) number of yen you can get for lending one dollar in Japan for one year. B) number of yen you can get for one dollar. C) price of U.S. goods divided by the price of Japanese goods. D) price of Japanese goods divided by the price of U.S. goods.

B) number of yen you can get for lending on dollar

38. Discouraged workers are counted as: A) part of the labor force. B) out of the labor force. C) employed. D) unemployed.

B) out of the labor force

4. In a steady state: A) no hiring or firings are occurring. B) the number of people finding jobs equals the number of people losing jobs. C) the number of people finding jobs exceeds the number of people losing jobs. D) the number of people losing jobs exceeds the number of people finding jobs.

B) the number of people finding jobs equals the number of people losing jobs

12. All of the following are reasons for frictional unemployment except: A) workers have different preferences and abilities. B) unemployed workers accept the first job offer that they receive. C) the flow of information is imperfect. D) geographic mobility takes time.

B) unemployed workers accept the first job offer that they receive

1. The macroeconomic problem that affects individuals most directly and severely is: A) inflation. B) unemployment. C) low savings. D) low investment.

B) unemployment

6. A policy that increases the job-finding rate _____ the natural rate of unemployment. A) will increase B) will decrease C) will not change D) could either increase or decrease

B) will decrease

7. A policy that decreases the job separation rate _____ the natural rate of unemployment. A) will increase B) will decrease C) will not change D) could either increase or decrease

B) will decrease

57.If the real exchange rate between the United States and Japan remains unchanged, and the inflation rate in the United States is 6 percent and the inflation rate in Japan is 3 percent, the: A) dollar will appreciate by 3 percent against the yen. B) yen will appreciate by 3 percent against the dollar. C) yen will appreciate by 6 percent against the dollar. D) yen will appreciate by 9 percent against the dollar.

B) yen will appreciate by 3 percent against the dollar

51. (Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the impact on the real exchange rate of an increase in investment demand? A) (A) B) (B) C) (C) D) (D)

C) (c)

8. If the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.01 and the fraction of the unemployed who find a job each month is 0.09 (the rate of job findings), then the natural rate of unemployment is: A) 1 percent. B) 9 percent. C) 10 percent. D) about 11 percent.

C) 10 percent

21. Which of the following is the best example of structural unemployment? A) Tim is looking for a job with flexible hours but has not been offered one yet. B) Vickie lost her job as a graphic artist at a movie studio because she did not have training in computer-generated animation. C) Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available. D) Fatima lost her job at a packing plant but has not looked very intensively for a new job because she still has 2 months of unemployment insurance benefits left.

C) Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available

19. (Exhibit: Saving and Investment in a Small Open Economy) In a small open economy, if the world interest rate is r3, then the economy has: A) a trade surplus. B) balanced trade. C) a trade deficit. D) positive capital outflows.

C) a trade deficit

59. If the purchasing-power parity theory is true, then: A) the net exports schedule is very steep. B) all changes in the real exchange rate result from changes in price levels. C) all changes in the nominal exchange rate result from changes in price levels. D) changes in saving or investment influence only the real exchange rate.

C) all changes in the nominal exchange rate result from changes in price levels

39. If the rate of separation is 0.02 and the rate of job finding is 0.08 but the current unemployment rate is 0.10, then the current unemployment rate is ______ the equilibrium rate, and in the next period it will move ______ the equilibrium rate. A) above; toward B) above; away from C) below; toward D) below; away from

C) below; toward

43. If the information technology boom increases investment demand in a small open economy, then net exports ______ and the real exchange rate ______. A) increase; appreciates B) increase; depreciates C) decrease; appreciates D) decrease; depreciates

C) decrease; appreciates

56. One consequence of high inflation is a(n): A) appreciating nominal exchange rate. B) decrease in the price of goods measured in terms of money. C) depreciating nominal exchange rate. D) decrease in the price of foreign currencies measured in terms of the domestic currency.

C) depreciating nominal exchange rate

31. Paying efficiency wages helps firms reduce the problem of moral hazard by: A) generating additional profits that can be used to improve working conditions. B) matching the wages each worker is paid to the number of units of output each worker produces. C) encouraging unsupervised workers to maintain a high level of productivity. D) providing an incentive for the best-qualified workers to remain with the firm.

C) encouraging unsupervised workers to maintain a high level of productivity

16. In a small open economy with perfect capital mobility, the real interest rate will always be: A) above the world real interest rate. B) below the world real interest rate. C) equal to the world real interest rate. D) equal to the world nominal interest rate.

C) equal to the world real interest rate

47. Protectionist policies in a small open economy do not alter the trade balance because the: A) quantity of imports and exports is fixed. B) interest rate adjusts to offset any reductions in imports. C) exchange rate appreciates to offset the increase in net exports. D) level of net capital outflow is fixed by the world interest rate.

C) exchange rate appreciates to offset the increase in net exports

72. In a small open economy, if consumer confidence falls and consumers decide to save more, then the real exchange rate: A) rises and net exports fall. B) and net exports both rise. C) falls and net exports rise. D) and net exports both fall.

C) falls and net exports rise

33. If the real exchange rate decreases, then net exports will _____. A) be positive. B) be negative. C) increase. D) decrease.

C) increase

73. If the nominal interest rates in the United States and Canada are 8 percent and 12 percent, respectively, the real interest rates are the same, and the real exchange rate is fixed, then the market's expectation about the number of Canadian dollars to be received for a U.S. dollar a year from now will be that it will: A) decrease by 8 percent. B) decrease by 4 percent. C) increase by 4 percent. D) increase by 5 percent.

C) increase by 4 percent

41. In a small open economy, if the world interest rate increases, then the supply of domestic currency on the foreign exchange market will _____ and the real exchange rate will _____, holding all else constant. A) decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase

C) increase; decrease

42. In a small open economy, if the government encourages investment, through, say, an investment tax credit, investment: A) increases and is financed through an increase in national saving. B) increases and is financed through an increase in exports. C) increases and is financed through an inflow of foreign capital. D) does not increase; the interest rate rises instead.

C) increases and is financed through an inflow of foreign capital

34. The lower the real exchange rate is, the ______ expensive domestic goods are relative to foreign goods, and the ______ the demand is for net exports. A) more; greater B) more; smaller C) less; greater D) less; smaller

C) less; greater

69. In a large open economy, the exchange rate adjusts so that net exports equal: A) domestic saving. B) domestic investment. C) net capital outflow. D) domestic investment plus net capital outflow.

C) net capital outflow

36. The real exchange rate is determined by the equality of: A) saving and the demand for net exports. B) investment and the demand for net exports. C) net capital outflow and the demand for net exports. D) the negative value of net capital outflow and the demand for net exports.

C) net capital outflow and the demand for net exports

61. If purchasing-power parity holds, then changes in domestic saving will _____ the real exchange rate. A) increase B) decrease C) not change D) either increase or decrease

C) not change

19. Wage rigidity: A) forces labor demand to equal labor supply. B) is caused by sectoral shifts. C) prevents labor demand and labor supply from reaching the equilibrium level. D) increases the rate of job finding.

C) prevents labor demand and labor supply from reaching the equilibrium level

11. Any policy aimed at lowering the natural rate of unemployment must either ______ the rate of job separation or ______ the rate of job finding. A) reduce; reduce B) increase; increase C) reduce; increase D) increase; reduce

C) reduce; increase

18. When there is structural unemployment, the real wage is: A) rigid at a level below the market-clearing level. B) rigid at the market-clearing level. C) rigid at a level above the market-clearing level. D) flexible.

C) rigid at a level above the market-clearing level

17. In a small open economy, if the world real interest rate is above the rate at which national saving equals domestic investment, then there will be a trade ______ and ______ net capital outflow. A) surplus; negative B) deficit; positive C) surplus; positive D) deficit; negative

C) surplus; positive

28. One efficiency-wage theory implies that firms pay high wages because: A) this practice increases the problem of moral hazard. B) in wealthy countries, it is important to pay workers high wages to improve their health. C) the more a firm pays its workers, the greater their incentive to stay with the firm. D) paying high wages promotes adverse selection.

C) the more a firm pays its workers, the greater their incentive to stay with the firm

13. Frictional unemployment is unemployment caused by: A) wage rigidity. B) minimum-wage legislation. C) the time it takes workers to search for a job. D) clashes between the motives of insiders and outsiders.

C) the time it takes workers to search for a job

6. If net capital outflow is positive, then: A) exports must be positive. B) exports must be negative. C) the trade balance must be positive. D) the trade balance must be negative.

C) the trade balance must be positive

22. All of the following are causes of structural unemployment except: A) minimum-wage laws. B) the monopoly power of unions. C) unemployment insurance. D) efficiency wages.

C) unemployment insurance

24. The adoption of an investment tax credit in a small open economy is likely to lead to: A) no change in either domestic investment or domestic saving in the small open economy. B) an increase in both domestic investment and domestic saving in the small open economy. C) an increase in domestic saving but no change in domestic investment in the small open economy. D) an increase in domestic investment but no change in domestic saving in the small open economy.

D) an increase in domestic investment but no change in domestic saving in the small open economy

52. (Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the impact on the real exchange rate of protectionist trade policies? A) (A) B) (B) C) (C) D) (D)

D) (d)

9. If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be: A) 0.02. B) 0.08. C) 0.10. D) 0.18.

D) 0.18

64. If purchasing-power parity held, if a Big mac costs $2 in the United States, and if 10 Mexican pesos trade for $1, then a Big Mac in Cancun, Mexico, should cost: A) 2 pesos B) 5 pesos C) 10 pesos D) 20 pesos

D) 20 pesos

33. Suppose that over the course of a year 100 people are unemployed for 4 weeks each (the short-term unemployed), while 10 people are unemployed for 52 weeks each (the long-term unemployed). Approximately what percentage of the total weeks of unemployment were attributable to the long-term unemployed? A) 9 percent. B) 10 percent. C) 43.5 percent. D) 56.5 percent.

D) 56.5 percent

63. The law of one price is enforced by: A) governments. B) producers. C) consumers. D) arbitrageurs.

D) arbitrageurs

31. If the real exchange rate is high, foreign goods: A) and domestic goods are both relatively expensive. B) and domestic goods are both relatively cheap. C) are relatively expensive and domestic goods are relatively cheap. D) are relatively cheap and domestic goods are relatively expensive.

D) are relatively cheap and domestic goods are relatively expensive

13. A trade deficit can be financed in all of the following ways except by: A) borrowing from foreigners. B) selling domestic assets to foreigners. C) selling foreign assets owned by domestic residents to foreigners. D) borrowing from domestic lenders.

D) borrowing from domestic lenders

68. In a large open economy, the interest rate adjusts so that domestic saving equals: A) domestic investment. B) net exports. C) net capital outflow. D) domestic investment plus net capital outflow.

D) domestic investment plus net capital outflow

32. When the real exchange rate rises: A) exports will decrease but imports will be unaffected. B) imports will decrease but exports will be unaffected. C) exports will increase and imports will decrease. D) exports will decrease and imports will increase.

D) exports will decrease and imports will increase

39. In a small open economy, when foreign governments reduce national saving in their countries, the equilibrium real exchange rate: A) rises and net exports fall. B) rises and net exports rise. C) falls and net exports fall. D) falls and net exports rise.

D) falls and net exports rise

35. Short-term unemployment is most likely to be ______ unemployment, while long-term unemployment is mostly likely to be _____ unemployment. A) structural; frictional B) structural; the natural rate of C) the natural rate of; frictional D) frictional; structural

D) frictional; structural

26. Two reasons why capital may not flow to poor countries are that the poorer countries may: A) have economies unlike those described by a Cobb-Douglas production function and not be subject to diminishing returns to capital. B) have already accumulated high levels of capital relative to labor and may already have access to advanced technologies. C) legally prevent the inflow of foreign capital and provide strong legal protection of private property. D) have inferior production capabilities and not enforce property rights.

D) have inferior production capabilities and not enforce property rights

46. An effective policy to reduce a trade deficit in a small open economy would be to: A) increase tariffs on imports. B) impose stricter quotas on imported goods. C) increase government spending. D) increase taxes.

D) increase taxes

40. In a small open economy, if the world interest rate falls, then domestic investment will _____ and the real exchange rate will _____, holding all else constant. A) decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase

D) increase; increase

15. The world interest rate: A) is equal to the domestic interest rate. B) makes domestic saving equal to domestic investment. C) is the interest rate charged on loans by the World Bank. D) is the interest rate prevailing in world financial markets.

D) is the interest rate prevailing in world financial markets

40. Assume that a country experiences a reduction in productivity that lowers the marginal product of labor for any given level of labor. In this case, the: A) labor supply curve shifts to the right. B) labor supply curve shifts to the left. C) labor demand curve shifts upward and to the right. D) labor demand curve shifts downward and to the left.

D) labor demand curve shifts downward and to the left

14. Sectoral shifts: A) lead to wage rigidity. B) explain the payment of efficiency wages. C) depend on the level of the minimum wage. D) make frictional employment inevitable.

D) make frictional employment inevitable

7. Net capital outflow is equal to: A) national saving minus the trade balance. B) domestic investment plus the trade balance. C) domestic investment minus national saving. D) national saving minus domestic investment.

D) national saving minus domestic investment

67. A statement that is generally true about capital in a large open economy is that it is: A) perfectly mobile, and the country does not influence world financial markets. B) perfectly mobile, and the country influences world financial markets. C) not perfectly mobile, but the country does not influence world financial markets. D) not perfectly mobile, but the country influences world financial markets.

D) not perfectly mobile, but the country influences world financial markets

30. Paying efficiency wages helps firms reduce the problem of adverse selection by: A) generating additional profits that can be used to pay for more proficient hiring managers. B) keeping labor unions from organizing workers in the firm. C) encouraging unsupervised workers to maintain a high level of productivity. D) providing an incentive for the best-qualified workers to remain with the firm.

D) providing an incentive for the best - qualified workers to remain with the firm

60.The idea that the amount of any currency that can buy a particular good in one country should be able to buy (after being exchanged for the local currency) the same quantity of the same good anywhere in the world is called: A) the theory of the real exchange rate. B) equal currency conversion. C) international monetary exchange. D) purchasing-power parity.

D) purchasing power parity

22. Holding other factors constant, legislation to cut taxes in an open economy will: A) increase national saving and lead to a trade surplus. B) increase national saving and lead to a trade deficit. C) reduce national saving and lead to a trade surplus. D) reduce national saving and lead to a trade deficit.

D) reduce national saving and lead to a trade deficit

29. Efficiency-wage theories suggest that a firm may pay workers more than the market-clearing wage for all of the following reasons except to: A) reduce labor turnover. B) improve the quality of the firm's labor force. C) increase worker effort. D) reduce the firm's wage bill.

D) reduce the firm's wage bill

62. According to purchasing-power parity, if the dollar price of oil is higher in New York than in London, arbitrageurs will ___ oil in New York and _____ oil in London to drive _____ the price of oil in New York. A) buy; sell; up B) buy; sell; down C) sell; buy; up D) sell; buy; down

D) sell; buy; down

16. Unemployment insurance increases the amount of frictional unemployment by: A) making workers more frantic in their search for new jobs. B) inducing workers to accept the first job offer that they receive. C) making employers more reluctant to lay off workers. D) softening the economic hardship of unemployment.

D) softening the economic hardship of unemployment

17. The unemployment resulting when real wages are held above equilibrium is called ______ unemployment, while the unemployment that occurs as workers search for a job that best suits their skills is called ______ unemployment. A) efficiency; inefficiency B) efficiency; structural C) frictional; efficiency D) structural; frictional

D) structural; frictional

10. In a small open economy, if exports equal $15 billion and imports equal $8 billion, then there is a trade ______ and ______ net capital outflow. A) deficit; negative B) surplus; negative C) deficit; positive D) surplus; positive

D) surplus; positive

45. A depreciation of the real exchange rate in a small open economy could be the result of: A) a domestic tax cut. B) an increase in government spending. C) a decrease in the world interest rate. D) the expiration of an investment tax-credit provision.

D) the expiration of an investment tax-credit provision

1. An "open" economy is one in which: A) the level of output is fixed. B) government spending exceeds revenues. C) the national interest rate equals the world interest rate. D) there is trade in goods and services with the rest of the world.

D) there is trade in goods and services with the rest of the world

5. In the model of the steady-state unemployment rate with a fixed labor force, the rate of job finding equals the percentage of the ______ who find a job each month, while the rate of job separation equals the percentage of the ______ who lose their job each month. A) labor force; labor force B) labor force; unemployed C) employed; labor force D) unemployed; employed

D) unemployed; employed

5. The value of net exports is also the value of: A) net investment. B) net saving. C) national saving. D) the excess of national saving over domestic investment.

D_ the excess of national saving over domestic investment