ECO2013 FINAL

If a country has a fixed exchange rate A) central banks must buy and sell their holdings of currencies to maintain a given exchange rate. B) the equilibrium exchange rate in that market does not respond to changes in supply and demand for currency. C) the exchange rate is allowed to fluctuate in response to changes in the supply and demand for currency. D) central banks have more control over real GDP in the economy.

A) central banks must buy and sell their holdings of currencies to maintain a given exchange rate.

Because the value of the euro is determined by factors that affect the entire euro zone, during the recession of 2007-2009, individual countries using the euro A) experienced a greater increase in exports than did most countries. B) were able to use expansionary monetary policy to lessen the impact of the recession. C) were more insulated from unemployment increases than most countries. D) were unable to have their exchange rates depreciate.

A) experienced a greater increase in exports than did most countries.

When unemployment is below its natural rate, the inflation rate will eventually Question 15 options: A) increase. B) move to its natural rate. C) become equal to the natural rate of unemployment. D) decrease.

A) increase

Refer to the Article Summary. All else equal, if the Trump administration declines to enact protectionist measures, such as a tariff, against foreign solar panels, the price of solar panels in the United States will be ________ than it would be with a tariff, and the quantity of solar panels demanded in the United States will be ________ than it would be with a tariff. A) lower; higher B) higher; lower C) higher; higher D) lower; lower

A) lower; higher

Suppose the government cuts taxes. We would expect interest rates to ________ and the dollar to ________ in foreign exchange markets. A) rise; appreciate B) rise; depreciate C) fall; depreciate D) fall; appreciate

A) rise; appreciate

From the nineteenth century until the 1930s, the United states most consistently adhered to A) the gold standard. B) a freely-floating exchange rate. C) a managed-float exchange rate system. D) the Bretton Woods system.

A) the gold standard.

If Norwegian workers are more productive than Albanian workers, then trade between Norway and Albania A) will take place so long as each country has a comparative advantage in a good or service that buyers in the other country want. B) cannot take place because Norwegian goods and services will be less expensive than Albanian goods and services. C) can take place only if Albania has an absolute advantage in producing a good or service Norwegian buyers want. D) cannot take place until Albanian workers become more productive.

A) will take place so long as each country has a comparative advantage in a good or service that buyers in the other country want.

A persistent shortage or surplus of a currency under the Bretton Woods system was evidence of A) failure to support the existing fixed exchange rate by central banks. B) fundamental disequilibrium in the country's exchange rate. C) speculation against the currency by speculators in world exchange markets. D) All of these

B) fundamental disequilibrium in the country's exchange rate

Based on the following information from a balance of payments table, what is the balance on the financial account? Exports of goods and services = $12 billion Imports of goods and services = $14 billion Net income on investments = -$4 billion Net transfers = -$1 billion Increase in foreign holdings of assets in the United States = $5 billion Increase in U.S. holdings of assets in foreign countries = -$3 billion A) $8 billion B) $2 billion C) $1 billion D) -$1 billion

B) $2 billion (5 billion - 3 billion)

The Danish currency, the krone, is pegged to the euro at a rate of 7.46 kroner (kroner is the plural of krone) to the euro. At the pegged exchange rate, how many euros would be exchanged for one krone? A) 0.07 B) 0.13 C) 1.76 D) 7.46

B) 0.13

Suppose the U.S. Congress is successful in enacting tariffs large enough to eliminate the current account deficit. What would happen to the level of domestic investment? YJGHV A) It would rise to a level equal to net foreign investment. B) It would fall to a level equal to national saving. C) It would not change. D) It would rise and exceed national saving.

B) It would fall to a level equal to national saving.

Which of the following would decrease the value of the dollar in the long run? A) a decrease in the supply of dollars on the foreign exchange market B) a decrease in the demand for American goods relative to goods from other countries C) an increase in U.S. tariffs on foreign goods D) a decrease in inflation in the United States relative to other countries

B) a decrease in the demand for American goods relative to goods from other countries

Deflation refers to A) a decrease in the rate of inflation. B) a falling price level. C) Both a decrease in the rate of inflation and a falling price level are correct. D) None of these is correct.

B) a falling price level.

An economic principle that explains why people pursue different occupations is A) absolute advantage. B) comparative advantage. C) international trade. D) NAFTA.

B) comparative advantage.

Which of the following is not "crowded out" by higher interest rates as a result of expansionary fiscal policy? A) net exports B) government spending C) consumption D) private investment

B) government spending

Forward guidance refers to central banks A) telling the public what future monetary policy will be. B) simultaneously reducing unemployment and inflation. C) engaging in monetary policy to offset the negative side-effects of the government's fiscal policies. D) setting long-term interest rates.

B) simultaneously reducing unemployment and inflation.

If the Phillips curve represents a "structural relationship," then A) the trade-off between unemployment and inflation holds in the long run, but not in the short run. B) the trade-off between unemployment and inflation is permanent. C) the Phillips curve will be vertical in the long run. D) the trade-off between unemployment and inflation holds only for the short run.

B) the trade-off between unemployment and inflation is permanent.

You're traveling in Ireland and are thinking about buying a new digital camera. You've decided you'd be willing to pay $125 for a new camera, but cameras in Ireland are all priced in euros. If the camera you're looking at costs 115 euros, under which of the following exchange rates would you be willing to purchase the camera? (Assume no taxes or duties are associated with the purchase.) A) 0.56 euros per dollar B) 0.89 euros per dollar C) 0.92 euros per dollar D) You would purchase the new camera at Any of these exchange rates.

C) 0.92 euros per dollar

Which of the following statements is false? A) Imports and exports account for over one-half of the GDP of the Netherlands. B) Japan is less dependent on foreign trade than is the United States. C) Because the cost of labor used on farms is so high, the United States exports very little of its wheat, rice, and corn crops. D) China is the leading exporting country, accounting for 12.1 percent of total world exports.

C) Because the cost of labor used on farms is so high, the United States exports very little of its wheat, rice, and corn crops.

Countries gain from specializing in producing goods in which they have ________ and trading for goods in which other countries have ________. A) an absolute advantage; an absolute advantage B) an absolute advantage; a comparative advantage C) a comparative advantage; a comparative advantage D) a comparative advantage; an absolute advantage

C) a comparative advantage; a comparative advantage

A relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods is called a ________ relationship. A) dynamic B) cyclical C) structural D) frictional

C) structural

If currencies around the world are based on the gold standard, and Japan raises the amount of gold for which the yen will trade, then holding all else constant A) the yen will depreciate against the dollar. B) U.S. exports to Japan will decrease. C) the yen will appreciate against the dollar. D) the value of the yen relative to the dollar will stay constant.

C) the yen will appreciate against the dollar.

Monetary policy has a ________ effect on aggregate demand in a(n) ________ economy, and fiscal policy has a ________ effect on aggregate demand in a(n) ________ economy. A) stronger; closed; weaker; open B) stronger; open; weaker; closed C) weaker; closed; stronger; closed D) weaker; open; weaker; open

C) weaker; closed; stronger; closed

An increase in frictional unemployment will A) shift the long-run Phillips curve to the right. B) increase the natural rate of unemployment. C) shift the short-run Phillips curve to the right. D) All of these are correct. E) None of these is correct.

D) All of these are correct.

What factors are most important for determining exchange rate fluctuations in the long run? A) relative price levels across countries B) relative rates of productivity growth across countries C) preferences for domestic and foreign goods across countries D) All of these are correct.

D) All of these are correct.

If the government finances an increase in government purchases with an increase in taxes, which of the following would you not expect to see? A) a decrease in net exports B) an increase in the exchange rate C) an increase in aggregate demand D) a decrease in the interest rate

D) a decrease in the interest rate

If the purchasing power of a dollar is greater than the purchasing power of the yen, purchasing power parity would predict that A) in the long run, interest rates will move to equalize the purchasing power of the dollar and the yen. B) in the short run, exchange rates will move to equalize the purchasing power of the dollar and the yen. C) in the short run, interest rates will move to equalize the purchasing power of the dollar and the yen. D) in the long run, exchange rates will move to equalize the purchasing power of the dollar and the yen.

D) in the long run, exchange rates will move to equalize the purchasing power of the dollar and the yen.

The ________ curves are both vertical. A) long-run aggregate supply and short-run Phillips B) short-run aggregate supply and short-run Phillips C) aggregate demand and short-run Phillips D) long-run aggregate supply and long-run Phillips

D) long-run aggregate supply and long-run Phillips

What is the NAIRU? A) the nongovernmental agency of inflationary rate unions B) the new accrual index of real unemployment C) the natural accelerating inflation rate of unemployment D) the nonaccelerating inflation rate of unemployment

D) the nonaccelerating inflation rate of unemployment

Because the value of the euro is determined by factors that affect the entire euro zone, during the recession of 2007-2009, individual countries using the euro A) experienced a greater increase in exports than did most countries. B) were able to use expansionary monetary policy to lessen the impact of the recession. C) were more insulated from unemployment increases than most countries. D) were unable to have their exchange rates depreciate.

D) were unable to have their exchange rates depreciate.

A decrease in cyclical unemployment will A) shift the long-run Phillips curve to the left. B) decrease the natural rate of unemployment. C) shift the short-run Phillips curve to the left. D) All of these are correct. E) None of these is correct.

E) None of these is correct.

China's exchange rate system from 1994 through 2005 is an example of A) the Bretton Woods System. B) a floating exchange rate system. C) a managed float exchange rate system. D) a flexible exchange rate system. E) a fixed exchange rate system.

E) a fixed exchange rate system.