Econ 101 Exam 3

When the nominal exchange rate changes from 4 francs per dollar to 6 francs per dollar, the dollar has: become overvalued. appreciated. become undervalued. depreciated.

appreciated.

A decrease in the value of a currency relative to other currencies is called a(n): devaluation. depreciation. revaluation. appreciation.

depreciation.

When using the AD-AS model to understand business cycles, the question, "what are the fundamental causes of business cycles?" can be thought of as the question: "what factors increase or decrease potential GDP?" "what factors move the economy away from long-run equilibrium?" "what factors move aggregate demand and aggregate supply in different directions?" "what factors increase or decrease the expected rate of inflation?"

"what factors move the economy away from long-run equilibrium?"

Dent 'n' Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in this table: Larry: 10 cars, 5 trucks Joe: 9 cars, 9 trucks Ralph: 3 cars, 12 trucks Based on last month's data, Joe's opportunity cost of selling a truck is selling: 1 car. 1/3 of a car. 4 cars. 9 cars.

1 car.

Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tracy 6 minutes to make a sandwich and 12 minutes to make a smoothie. What is the opportunity cost to Dan of making a sandwich? 3 smoothies 5 smoothies 1/3 of a smoothie 15 smoothies

1/3 of a smoothie

Refer to the table below. Corey's opportunity cost of delivering of a pizza is making: Corey: 12 made/hr 6 delivered/hr Pat: 10 made/hr 15 delivered/hr 2 pizzas. 6 pizzas. 12 pizzas. 1/2 of a pizza.

2 pizzas.

Refer to the table below. Martha's opportunity cost of making of a pie is: Martha: Pie=60 mins Cake=80 mins Julia: Pie=50 mins Cake=60 mins 80 cakes. 3/4 of a cake. 4/3 of a cake. 8 cakes.

3/4 of a cake.

Refer to the table below. Martha's opportunity cost of making a cake is: Martha: Pie=60 mins Cake=80 mins Julia: Pie=50 mins Cake=60 mins 6 pies. 60 pies. 4/3 of a pie. 3/4 of a pie.

4/3 of a pie.

Refer to the table below. Julia's opportunity cost of making a pie is: Martha: Pie=60 mins Cake=80 mins Julia: Pie=50 mins Cake=60 mins 6/5 of a cake 6 cakes 60 cakes 5/6 of a cake

5/6 of a cake

Refer to the table below. Julia's opportunity cost of making a cake is: Martha: Pie=60 mins Cake=80 mins Julia: Pie=50 mins Cake=60 mins 60 cakes 5/6 of a cake 6 cakes 6/5 of a cake

6/5 of a cake

A positive demand shock will shift the ______ curve to the ______. AD; left AD; right AS; right AS; left

AD; right

If households and firms expect higher rates of inflation, the ______ curve will shift _____. AS; leftward AS; rightward AD; rightward AD; until it becomes vertical

AS; leftward

Which of the following statements is true? Comparative advantage does not require absolute advantage. Comparative advantage requires absolute advantage. Absolute advantage requires comparative advantage. Absolute advantage implies comparative advantage.

Comparative advantage does not require absolute advantage.

Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tracy 6 minutes to make a sandwich and 12 minutes to make a smoothie. Which of the following statements is correct? Dan has the comparative advantage in sandwiches, but Tracy has the absolute advantage in sandwiches. Dan has the comparative and absolute advantage in sandwiches. Dan has the comparative and absolute advantage in smoothies. Dan has the comparative advantage in smoothies, but Tracy has the absolute advantage in smoothies.

Dan has the comparative and absolute advantage in sandwiches.

If Jane can produce 3 pairs of shoes per hour, while Bob can produce 2, then ______ has a(n) ______ advantage in producing shoes. Bob; absolute Bob; comparative Jane; comparative Jane; absolute

Jane; absolute

Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct? There are no gains from specialization and trade. Cathy should specialize in both pies and cakes. Cathy should specialize in pies, and Lewis should specialize in cakes. Lewis should specialize in pies, and Cathy should specialize in cakes.

Lewis should specialize in pies, and Cathy should specialize in cakes.

Refer to the table above. ______ has the comparative advantage in making pies and ______ the comparative advantage in making cakes. Martha: Pie=60 mins Cake=80 mins Julia: Pie=50 mins Cake=60 mins Julia; Julia Julia; Martha Martha; Julia Martha; Martha

Martha; Julia

A leftward shift of the AS curve indicates: an increase in potential GDP. a decrease in potential GDP. an increase in aggregate supply. a decrease in aggregate supply.

a decrease in aggregate supply.

When actual output is less than potential output, there is ______ output gap and the inflation rate will ____. a recessionary; be lower than the expected rate of inflation an expansionary; be lower than the expected rate of inflation an expansionary; exceed the expected rate of inflation a recessionary; exceed the expected rate of inflation

a recessionary; be lower than the expected rate of inflation

For a given inflation rate, if a resolution of international disputes leads to a cutback in government military spending, then the ______ shifts _____. aggregate demand curve; left aggregate demand curve; right aggregate supply curve; right aggregate supply curve; left

aggregate demand curve; left

For a given inflation rate, if a stock market crash makes consumers less willing to spend, then the ______ shifts _____. aggregate demand curve; right aggregate supply curve; right aggregate demand curve; left aggregate supply curve; left

aggregate demand curve; left

For a given inflation rate, if concerns about future weakness in the economy cause businesses to reduce their spending on new capital, then the ______ shifts _____. aggregate demand curve; right aggregate supply curve; right aggregate supply curve; left aggregate demand curve; left

aggregate demand curve; left

For a given inflation rate, if increasing threats to domestic security cause the government to increase military spending, then the ______ shifts _____. aggregate demand curve; right aggregate supply curve; left aggregate supply curve; right aggregate demand curve; left

aggregate demand curve; right

When actual output exceeds potential output, there is ______ output gap and the inflation rate will ____. an expansionary; be lower than the expected rate of inflation no; be equal to the expected rate of inflation a recessionary; exceed the expected rate of inflation an expansionary; exceed the expected rate of inflation

an expansionary; exceed the expected rate of inflation

If the exchange rate moves from 10 Mexican pesos per U.S. dollar to 8 Mexican pesos per U.S. dollar, then the Mexican peso has ______ and the U.S. dollar has _____. depreciated; depreciated depreciated; appreciated appreciated; appreciated appreciated; depreciated

appreciated; depreciated

An increase in the value of a currency relative to other currencies is called a(n): overvaluation. appreciation. devaluation. evaluation.

appreciation.

The AD curve can be shifted by: neither fiscal nor monetary policy. monetary policy only. fiscal policy only. both fiscal and monetary policy.

both fiscal and monetary policy.

Refer to the table below. According to the table, Julia has the absolute advantage in: Martha: Pie=60 mins Cake=80 mins Julia: Pie=50 mins Cake=60 mins cakes. neither pies nor cakes. pies. both pies and cakes.

both pies and cakes.

If a nation has the lowest opportunity cost of producing a good, that nation has a(n) ______ in the production of that good. comparative advantage and an absolute advantage absolute advantage absolute advantage and possibly a comparative advantage. comparative advantage

comparative advantage

Refer to the table below. Based on their comparative advantages, Pat should specialize in _______, and Corey should specialize in _______. Corey: 12 made/hr 6 delivered/hr Pat: 10 made/hr 15 delivered/hr making pizza; delivering pizza delivering pizza; making pizza both making pizza and delivering pizza; neither making pizza nor delivering pizza neither making pizza nor delivering pizza; both making pizza and delivering pizza

delivering pizza; making pizza

European firms wishing to purchase American goods and services are ______ the foreign exchange market. suppliers of U.S. dollars in demanders of Euros in supplied dollars by the European Central Bank for use in demanders of U.S. dollars in

demanders of U.S. dollars in

When the nominal exchange changes from 120 yen per dollar to 110 yen per dollar, the dollar has: become overvalued. become undervalued. appreciated. depreciated.

depreciated.

When the economy is in short-run equilibrium, there will be ______ output gap. only an expansionary no either a recessionary or an expansionary only a recessionary

either a recessionary or an expansionary

Shifts in ______ can return the economy to long-run equilibrium. the AD curve only the PAE line only either the AD curve or the AS curve the AS curve only

either the AD curve or the AS curve

Starting from potential output, if consumer confidence increases and consumers decide to spend more, then this will generate a(n) _____ gap and inflation will _____. expansionary; increase expansionary; decrease recessionary; decrease recessionary; increase

expansionary; increase

When the inflation rate increases, PAE ______, which in turn causes Y to ______ because of ______. falls; fall; the wealth effect rises; rise; the wealth effect falls; rise; the wealth effect rises; fall; the wealth effect

falls; fall; the wealth effect

The principal demanders of U.S. dollars in the foreign exchange market are: U.S. households or firms wishing to purchase foreign goods or assets. foreigners wishing to purchase U.S. goods or assets. U.S. households or firms wishing to purchase U.S. goods or assets. the Federal Reserve.

foreigners wishing to purchase U.S. goods or assets.

Larry has a comparative advantage over his classmates in writing term papers if he: can write term papers faster than his classmates. always earns an A on his term papers. has an absolute advantage in writing term papers. has a lower opportunity cost of writing term papers than his classmates.

has a lower opportunity cost of writing term papers than his classmates.

Holding all else constant, an increase in the preferences of Americans for Mexican goods will ______ the supply of dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S. dollar exchange rate. increase; increase increase; decrease decrease; increase decrease; decrease

increase; decrease

Holding all else constant, an increase in preferences by Mexicans for U.S. goods will ______ the demand for dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S. dollar exchange rate. increase; increase decrease; increase increase; decrease decrease; decrease

increase; increase

Inflation inertia is the result of the behavior of ____ and the existence of ______. inflation expectations; long-term wage and price contracts real and nominal interest rates; an output gap autonomous aggregate demand; the Fed's policy reaction function the central bank; automatic stabilizers

inflation expectations; long-term wage and price contracts

The aggregate supply curve shows the relationship between the amount of output firms want to produce and the ______. unemployment rate inflation rate nominal interest rate real interest rate

inflation rate

The aggregate demand curve shows the relationship between planned spending and the: nominal interest rate. real interest rate. inflation rate. unemployment rate.

inflation rate.

High expected inflation leads to ____ increases in wages and costs and to ____ actual inflation. large; low small; high large; high small; low

large; high

When actual output equals potential output and the inflation rate is equal to the expected rate of inflation, the economy is said to be in ______ equilibrium. long-run expansionary recessionary short-run

long-run

A low rate of expected inflation tends to lead to a ___ rate of actual inflation and a high rate of expected inflation tends to lead to a ____ rate of actual inflation. high; high low; high high; low low; low

low; high

Refer to the table below. According to the table, Corey has the absolute advantage in: Corey: 12 made/hr 6 delivered/hr Pat: 10 made/hr 15 delivered/hr making and delivering pizza. delivering pizza. making pizza. neither making nor delivering pizza.

making pizza.

Refer to the table below. According to the table, Martha has the absolute advantage in: Martha: Pie=60 mins Cake=80 mins Julia: Pie=50 mins Cake=60 mins pies. both pies and cakes. cakes. neither pies nor cakes.

neither pies nor cakes.

When actual output equals potential output, there is ______ output gap and the inflation rate will ____. no; be equal to the expected rate of inflation an expansionary; exceed the expected rate of inflation a recessionary; exceed the expected rate of inflation an expansionary; be lower than the expected rate of inflation

no; be equal to the expected rate of inflation

When actual output equals potential output there is ____ output gap and the rate of inflation will tend to ____. an expansionary; increase an expansionary; decrease a recessionary; increase no; remain the same

no; remain the same

A demand shock is a change in planned spending that is: caused by changes in output and changes in the real interest rate. caused by changes in the inflation rate. not caused by changes in output or changes in the inflation rate. caused by changes in output.

not caused by changes in output or changes in the inflation rate.

Changes in planned spending that shift the aggregate demand curve are those: caused by changes in output and changes in the real interest rate. caused by changes in the inflation rate. not caused by changes in output or changes in the inflation rate. caused by changes in output.

not caused by changes in output or changes in the inflation rate.

Refer to the table below. Based on their comparative advantage, Martha should specialize in _______ while Julia should specialize in _______. pies; cakes neither pies nor cakes; both pies and cakes cakes; pies both pies and cakes; neither pies nor cakes

pies; cakes

The aggregate demand curve shifts when there are changes in: planned spending that are not caused by changes in output or the inflation rate. the inflation rate. planned spending that are caused only by changes in output or the inflation rate. real GDP.

planned spending that are not caused by changes in output or the inflation rate.

A sudden increase in household wealth is an example of a ______ demand shock, which shifts the AD curve to the ______. negative; left positive; right negative; right positive; left

positive; right

The nominal exchange rate is the: rate at which two currencies can be traded for each other. market on which currencies of various nations are traded for one another. quantity of foreign currency assets held by a government for the purpose of purchasing the domestic currency in the foreign exchange market. price of the average domestic good or service relative to the price of the average foreign good or service, when prices are expressed in terms of a common currency.

rate at which two currencies can be traded for each other.

The U.S. dollar exchange rate, e, expressed as Japanese yen per U.S. dollar, will appreciate when: real GDP in the U.S. increases. real GDP in Japan increases. the U.S. Federal Reserve eases monetary policy. U.S. consumers increase their preference for Japanese cars.

real GDP in Japan increases.

The U.S. dollar exchange rate, e, expressed as Japanese yen per U.S. dollar, will depreciate when: the U.S. Federal Reserve tightens monetary policy. real GDP in Japan increases. U.S. consumers decrease their preference for Japanese cars. real GDP in the U.S. increases.

real GDP in the U.S. increases.

Changes in the expected rate of inflation will: cause the AS curve to become downward-sloping. not shift the AS curve. shift the AS curve leftward or rightward. cause the AS curve to become vertical.

shift the AS curve leftward or rightward.

The AD curve ______ because, holding all else constant, an increase in ______ causes C, IP and NX to fall. slopes upward; real GDP slopes downward; the inflation rate is horizontal; the inflation rate slopes downward; real GDP

slopes downward; the inflation rate

U.S. firms wishing to purchase European goods and services are ______ the foreign exchange market. supplied Euros by the Fed for use in suppliers of U.S. dollars in suppliers of Euros in demanders of U.S. dollars in

suppliers of U.S. dollars in

U.S. households wishing to purchase shares of stock in a European company are ______ the foreign exchange market. demanders of U.S. dollars in supplied Euros by the Fed for use in suppliers of Euros in suppliers of U.S. dollars in

suppliers of U.S. dollars in

The AD curve slopes downward because an increase in ______ causes ______ to fall, which in turn causes real GDP to fall. real GDP; the unemployment rate planned spending; the inflation rate the inflation rate; planned spending real GDP; planned spending

the inflation rate; planned spending

The economy is in short-run equilibrium: when the AD and AS curves intersect at a level of real GDP that is above or below Y*. when the AD and AS curves intersect at potential output Y*. at the peak of the business cycle. when the AD and AS curves become vertical.

when the AD and AS curves intersect at a level of real GDP that is above or below Y*.

The economy is in long-run equilibrium: only when the business cycle is eliminated. when the AD and AS curves become vertical. when the AD and AS curves intersect, regardless of the level of output. when the AD and AS curves intersect at potential output, Y*.

when the AD and AS curves intersect at potential output, Y*.

f you have a comparative advantage in a particular task, then: you are better at it than other people. you give up less to accomplish that task than do others. you give up more to accomplish that task than do others. you have specialized in that task, while others have not.

you give up less to accomplish that task than do others.