Unit 5 Test Review

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The table gives the values of selected accounts in a nation's balance of payments in millions of dollars. Based on the table, the nation's trade balance is equal to which of the following?

$100 million

The exchange rate is €1.2 heard United States dollar if a restaurant meal costs €30 in Paris FranceWhat is it dollar cost to the us Tourist

$25

In 2007 the nominal GDP was 50 billion in the GDP deflator was 200 thus real GDP was

$25 billion

If the required reservation is planned to a $1 billion increase in bank reserves can lead to an increase In M1 of at most

$5 billion

The diagram below shows the production alternatives of two countries, Alpha and Beta, producing two goods, grain and steel, using all of their available resources. At what real exchange ratio, also referred to as the terms of trade, between grain (G) and steel (S) would both Alpha and Beta find it mutually advantageous to specialize and trade?

1G = 1.5S

The country's gross domestic product is

220 billion

The exchange rate is 1.2 euros per United States dollar. If a restaurant meal costs 30 euros in Paris, France, what is its dollar cost to a United States tourist?

Assume that the marginal propensity to consume out of disposable income is 0.8 and that the government taxes all income at a constant rate of 30 percent. If gross income increases by $100, consumption will initially increase by

The opportunity cost of moving production from point R to point T is

6 units of good Y

assume that the reserve requirement is 10%. Mara deposited $1 million dollars in cash into her checking account at First Bank The deposit will initially increase excess reserves at First Bank by

900,000

49. The theory of Comparative advantage implies that Alpha would find it advantageous to (A) export grain and import steel (B) export steel and import grain (C) export both grain and steel and import nothing (D) import both grain and steel and export nothing (E) trade 1 ton of grain for 0.5 ton of steel

A contraction in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run?

An increase in the international value of the U.S. dollar will tend to cause (A) U.S. exports to fall (B) the national income of the U.S. to increase (C) employment in the manufacturing sector of the U.S. to increase (D) the inflation rate in the U.S. to increase (E) the growth rate of the U.S. economy to increase.

If a French firm buys computers from the U.S., there would be an increase in which of the following in the foreign exchange market? (A) Demand for U.S. dollars and supply of euros (B) Demand for both U.S. dollars and euros (C) Supply of U.S. dollars and demand for euros (D) Supply of both U.S. dollars and euros (E) International value of the euro relative to the U.S. dollar

If a country has a deficit in its current account, there will be a (A) surplus in the financial account (formerly called capital account) (B) surplus in the trade balance (C) surplus in the balance of payments (D) deficit in the financial account (formerly called capital account) (E) deficit in the balance of payments

If the international value of the United States dollar depreciates in comparison with the Japanese yen, which of the following is most likely to occur? (A) United States exports to Japan will increase. (B) The United States government will increase the tariff on Japanese imports. (C) The United States balance-of-trade deficit with Japan will become even larger. (D) United States tourists can be expected to visit Japan in greater numbers. (E) Trade between the United States and Japan will not be affected.

If the value of the United States dollar increases on the foreign exchange market, which of the following is most likely to occur in the short run? (A) Aggregate demand will decrease. (B) Aggregate demand will increase. (C) Aggregate supply will decrease. (D) Both aggregate demand and aggregate supply will decrease. (E) Both aggregate demand and aggregate supply will increase.

Mary Jane is a lawyer who can earn $150 per hour in her law practice. She is also an excellent carpenter who can build cabinets three times as fast as the best carpenter, whose hourly wage is $20 per hour. Which of the following is a correct economic statement? (A) Mary Jane has a comparative advantage in law so she should specialize in law and hire a carpenter to make her cabinets (B) Mary Jane has an absolute and comparative advantage in both law and carpentry, so she should make her own cabinets while continuing to practice law. (C) Mary Jane is three times faster than any carpenter so she should give up her law practice to become a carpenter. (D) When carpenters work for lawyers, they should charge $150 per hour instead of $20 per hour. (E) Because Mary Jane is an excellent carpenter, when the best carpenter works for Mary Jane, he can only charge one third as much, or $6.67 per hour.

The value of a country's currency will tend to appreciate if (A) demand for the country's exports increases (B) the country's money supply increases (C) the country's citizens increase their travel abroad (D) domestic interest rates decrease (E) tariffs on the country's imports decrease

Which of the following is an example of foreign direct investment? (A) A U.S. automobile manufacturer building a steel plant in Russia (B) A U.S. citizen purchasing corporate bonds issued by a French manufacturing firm (C) A Mexican citizen purchasing U.S. Treasury bills. (D) The Federal Reserve purchasing Japanese yen (E) Immigrant workers in the U.S. sending money to their native country

Which of the following is true in the short run if consumers buy more imported goods and fewer domestic goods? (A) The trade balance moves toward deficit, and equilibrium income decreases. (B) The trade balance moves toward deficit, and equilibrium income increases. (C) The trade balance moves toward surplus, and equilibrium income is unaffected. (D) The trade balance moves toward surplus, and equilibrium income decreases. (E) The trade balance is unaffected, and equilibrium income decreases.

Which of the following will cause the United States dollar to depreciate relative to the euro? (A) An increase in household income in the United States (B) An increase in interest rates in the United States (C) An increase in household income in Europe (D) A decrease in interest rates in Europe (E) A decrease in price level in the United States

Which of the following will increase the United States trade deficit? (A) United States firms buying technologically advanced computers from Germany (B) European citizens traveling in large numbers to the United States (C) A United States company being hired to build a production plant in another country (D) The United States dollar depreciating in the foreign exchange market (E) The United States selling one million tons of wheat to China

if the exchange rate between the United States dollar ($) and the British pound (£) changed from $2 per £1 to $3 per £1, and domestic prices in both countries stayed the same, then the United States dollar would (A) depreciate, making United States imports from Britain more expensive (B) depreciate, making united States imports from Britain cheaper (C) appreciate, making United States imports from Britain more expensive (D) appreciate, making United States imports from Britain cheaper (E) purchase 3 times more British goods than before the change occurred

Which of the following is an example of foreign direct investment?

A United States automobile manufacturer building a steel plant in Russia

Which of the following would be a current account transaction?

A United States firm sells $500 million of its products to a Chinese company.

And increase in money demand will cause which of the following

A decrease in bond prices

Which of the following will cause an increase in real output in the short run

A decrease in wages

Is the central bank holds interest rate constant an Autonomous decrease of $10 million dollars in investment spending will most likely result in

A decrease of more than 10 million in GDP

A depreciation of Country A' s currency

A depreciation of Country A's currency

Increase in consumer confidence Will result in which of the following in the short run

A rightward shift of the aggregate demand curve

The short run Phillips curve shows

A trade off between the unemployment rate and rate of inflation

A lender will realize unexpected benefit when the

Actual inflation rate is lower than the anticipated inflation rate

Which of the following statements best describes the impact of a decrease in Japanese income on aggregate demand in the United States?

Aggregate demand will decrease because the demand for United States exports decreases

As nations specialize in production and trade in international markets, they can expect which of the following domestic improvements?

Allocation of domestic resources and standard of living

If Country Alpha has been experiencing a higher inflation rate than Country Beta over the past decade, which of the following is true?

Alpha's currency will have depreciated relative to Beta's currency

If Country Alpha has been experiencing a higher inflation rate than Country Beta over the past decade, which of the following is true?

Alpha's currency will have depreciated relative to Beta's currency.

Following a decrease in exports, what fiscal policy would restore the economy to the original equilibrium?

An increase in government transfer payments

Which of the following will cause the United States dollar to depreciate relative to the euro?

An increase in household income in the United States

Which of the following is most likely to promote long-run economic growth

An increase in tax credits for business spending on research and development

Assuming a country has an open economy any flexible exchange rate systemAnd increase in the country's government budget deficit would most likely cause

And increase in real interest rate and a decrease in net exports

In an open economy, an increase in government budget deficit tends to cause the international value of a country's currency and its trade deficit to change in which of the following ways?

Appreciate; Become larger

The equilibrium real interest rate in Britain increases to 8% while the equilibrium real interest rate in Australia remains at 4% As a result financial capital will flow from

Australia to Britian decreasing the interest rate in Britain and increasing the interest rate in Australia

48. At what real exchange ratio, also referred to as the terms of trade, between grain (G) and steel (S) would both Alpha and Beta find it mutually advantageous to specialize and trade? (A) 1G = 3.0S (B) 1G = 1.55 (C) 1G = 1.0S (D) 1G = 0.55 (E) There is no real exchange ratio that would enable both countries to benefit, since Alpha has an absolute advantage in both goods

50. Before specialization and trade, the domestic opportunity cost of producing 1 ton of grain in Alpha and in Beta is which of the following? Alpha Beta (A) 1 ton of steel 1 ton of steel (B) 1 ton of steel 2 tons of steel (C) 2 tons of steel 1 ton of steel (D) 1 ton of steel 0.5 ton of steel (E) 0.33 ton of steel 1.5 tons of steel

A country can have an increased surplus in its balance of trade as a result of (A) an increase in domestic inflation (B) declining imports and rising exports (C) higher tariffs imposed by its trading partners (D) an increase in capital inflow (E) an appreciating currency

An appreciation of the United States dollar on the foreign exchange market could be caused by a decrease in which of the following? (A) United States interest rates (B) The United States consumer price index (C) Demand for the dollar by United States residents (D) Exports from the United States (E) The tariff on goods imported into the United States

An increase in inflationary expectations will most likely affect nominal interest rates and bond prices in which of the following ways in the short run?

Assume that Country A exports one bushel of wheat in exchange for 2.5 bushels of corn from Country B. If the terms of trade are beneficial to both countries, which of the following must be true? (A) Country A has an absolute advantage in the production of wheat. (B) The cost of producing a bushel of wheat in Country A is less than 2.5 bushels of corn. (C) The cost of producing a bushel of wheat in Country A is greater than 2.5 bushels of corn. (D) Country A is producing inside its current production possibilities curve. (E) Country A needs to use more resources to produce wheat than to produce corn.

Assume that the Federal Reserve pursues a contractionary monetary policy. Based on the resulting change in the interest rate, what will happen to the international value of the dollar, United States imports, and United States exports? International value of the dollar/U.S. imports/U.S. Exports (A) Increase/Increase/Increase (B) increase/increase/Decrease (C) Increase/Decrease/Increase (D) Decrease/Increase/Decrease (E) Decrease/Decrease/increase

Assume that the inflation rate in Country X is very high relative to the inflation rates in all of its trading partners. Which of the following is likely to happen to Country X's currency on the foreign exchange market? (A) The demand curve for the currency will shift to the right, and the currency will appreciate (B) The demand curve for the currency will shift to the left and the currency will depreciate. (C) The supply curve for the currency will shift to the left, and the currency will appreciate. (D) The supply curve for the currency will shift to the left, and the currency will depreciate. (E) There will be no shift in the demand curve for the currency, but the currency will depreciate.

Assume that the supply of loanable funds increases in Country X. The international value of Country X's exports will most likely change in which of the following ways? International Value of Country X's Currency/Country X's Exports (A) Decrease/Decrease (B) Decrease/Increase (C) Increase/Decrease (D) increase/Increase (E) Not change/Not change

Assume that the world operates under a flexible exchange rate system. If the central bank of Mexico increases its money supply but other countries do not change theirs, Mexico's inflation rate and the international value of the Mexican peso will most likely change in which of the following ways? Inflation Rate International Value of the Peso (A) Increase Appreciate (B) Increase Depreciate (C) Increase No change (D) Decrease Appreciate (E) Decrease Depreciate

Country A can produce either 4 tons of cocoa or 4 cars with 10 units of labor. Country B can produce either 5 tons of cocoa or 25 cars with 10 units of labor. Based on this information, which of the following is true? (A) Country A has an absolute advantage in the production of cocoa, while Country B has a comparative advantage in the production of cocoa. (B) Country A has a comparative advantage in the production of cocoa, while Country B has a comparative advantage in the production of cars. (C) Country A has an absolute advantage in the production of cocoa, while Country B has a comparative advantage in the production of cars. (D) Country A has a comparative disadvantage in the production of both goods. (E) Neither country has a comparative advantage in the production of either good.

Country/Number of Computers/Units of Steel A/100/100 B/20/80 The table above indicates the production alternatives of two countries, A and B, which produce computers and steel using equal amounts of resources. If both countries always produce at full employment, which of the following statements must be correct? (A) Mutually advantageous trade can occur between the two countries when 1 unit of steel from Country A is exchanged for 2 computers from Country B. (B) Mutually advantageous trade can occur between the two countries when 2 units of steel from Country B are exchanged for 1 computer from Country A. (C) Country A has an absolute and comparative advantage in the production of computers, and Country B has an absolute and comparative advantage in the production of steel. (D) Country B has an absolute advantage in the production of both commodities, but a comparative advantage in the production of steel. (E) Country A has an absolute advantage in the production of both commodities, but a comparative advantage in the production of steel.

If Country Alpha has been experiencing a higher inflation rate than Country Beta over the past decade, which of the following is true? (A) Alpha's currency will have appreciated relative to Beta's currency. (B) Alpha's currency will have depreciated relative to Beta's currency. (C) Alpha will have had lower nominal interest rates than Beta. (D) Alpha will have had slower growth in the money supply than Beta. (E) Alpha's economy will have grown at a faster rate than Beta's

If Mexicans increase their investment in the United States, the supply of Mexican pesos to the foreign exchange market and the dollar price of the peso will most likely change in which of the following ways? Supply of Pesos Dollar Price of Pesos (A) Increase Increase (B) Increase Decrease (C) Decrease Increase (D) Decrease Decrease (E) Decrease Not change

If a country has a current account deficit which of the following must be true? (A) It must also show a deficit in its capital account. (B) It must show a surplus in its capital account. (C) It must increase the purchases of foreign goods and services. (D) it must increase the domestic interest rates on its bonds. (E) it must limit the flow of foreign capital investment.

If higher United States interest rates cause foreign demand for the dollar to increase, which of the following will occur to the international value of the dollar and to United States exports? International Value of the Dollar/Exports (A) Increase/Increase (B) Increase/Decrease (C) Increase/No change (D) Decrease/Increase (E) Decrease/Decrease

If the real interest rate in Country X increases relative to the real interest rate in Country Y and there are no trade barriers between the two countries, then for Country X which of the following will be true of its capital flow, the value of its currency,' and its exports? Capital Flow Currency Exports (A) Inflow Appreciation Increase (B) Inflow Appreciation Decrease (C) inflow Depreciation Decrease (D) Outflow Depreciation Increase (E) Outflow Appreciation Decrease

If the real interest rate in the United States increases relative to that of the rest of the world, capital should flow (A) into the United States and the dollar will depreciate (B) into the United States and the dollar will appreciate (C) out of the United States and the dollar will depreciate (D) out of the United States and the dollar will appreciate (E) out of the United States and the value of the dollar will not change

In an open economy, an increase in government budget deficit tends to cause the international value of a country's currency and its trade deficit to change in which of the following ways? Value of Currency Trade Deficit (A) Appreciate Become smaller (B) Appreciate Become larger (C) Depreciate Become smaller (D) Depreciate Become larger (E) Not change Not change

The price of one nation's currency expressed in terms of another nation's currency is (A) the world price (B) the exchange rate (C) the law of one price (D) terms of trade (E) purchasing -power parity

The purchase of United States government bonds by Japanese investors will be included in Japan's (A) current account (B) financial account (formerly called capital account) (C) trade deficit (D) foreign direct investment (E) imports

The table below shows the production alternatives of Country A and Country B for producing computers and cars with equal amounts of resources that are fully and efficiently employed. Country/ Computers/ Cars A/ 24/ 12 B/ 45/ 15 Which of the following is true according to the data in the table? (A) Country A has an absolute and comparative advantage in the production of computers. (B) Country B has an absolute and comparative advantage in the production of computers. (C) Country B should import computers and export cars. (D) Since Country B has an absolute advantage in the production of both goods, it will not trade with Country (E) Neither country can benefit from trade.

To protect high cost domestic producers, a country imposes a tariff on an imported commodity, Y. Which of the following is most likely to occur in the short run? I. A decrease in domestic production of Y II. An increase in domestic production of Y III. An increase in foreign output of Y (A) I only (B) II only (C) III only (D) I and III only (E) II and III only

Which of the following is likely to occur following the depreciation of the United States dollar? (A) United States imports will increase. (B) United States exports will increase. (C) Demand for the United States dollar will decrease. (D) United States demand for foreign currencies will increase. (E) United States goods will become more expensive in foreign markets.

Which of the following statements best describes the impact of a decrease in Japanese income on AD in the U.S. (A) There will be no change in AD because U.S. AD depends only on the income of U.S. consumers (B) AD will decrease because the demand for U.S. exports decreases. (C) AD will decrease because the value of the U.S. dollar decreases relative to the Japanese yen. (D) AD will increase because a decrease in income in Japan causes an increase in income in the U.S. (E) AD will increase because interest rates in the U.S. decrease.

Which of the following would cause the United States dollar to increase in value compared to the Japanese yen? (A) An increase in the money supply in the United States (B) An increase in interest rates in the United States (C) An increase in the United States trade deficit with Japan (D) The United States purchase of gold on the open market (E) The sale of $2 billion dollars worth of Japanese television sets to the United States

Both countries will become better off.

If the government implement in expansionary fiscal policy what action can the central bank take to maintain a stable interest rate

Buy government bonds

Which of the following is a monetary policy that can be used to counteract a recession and

Buying bonds in the open market

63. Using equal amounts of labor hours, Country X & Y can each produce the number of watches and radios shown in the PPCs. (A) Country X has an absolute advantage in the production of both watches and radios and a comparative advantage in the production of watches. (B) Country Y has an absolute advantage in the production of both watches and radios and a comparative advantage in the production of radios. (C) Countries X&Y can engage in mutually advantageous trade by exchanging 1 W for 1 R. (D) Country Y is willing to give up 2 watches in exchange for 1 radio from Country X. (E) Country X is willing to give up 2 radios in exchange for 1 watch from Country Y.

An increase in United States imports will result in which of the following in foreign exchange markets? (A) Increased foreign demand for United States dollars (B) Decreased supply of United States dollars (C) Increased United States demand for foreign currencies (D) A decrease in the value of foreign currencies (E) An increase in the value of the United States dollar

Assuming fixed exchange rates, if country Z's rate of inflation increases relative to its trading partners, Country Z's imports and exports will most likely change in which of the following ways? Imports Exports (A) Decrease Decrease (B) Decrease Increase (C) Increase Decrease (D) Increase Increase (E) No change No change

Following a decrease in the real interest rate, there is an increase in financial capital outflows from Country A. The increase in capital outflows will most likely have which of the following effects on Country A's net exports and aggregate demand? Net Exports / Aggregate Demand (A) Decrease / Decrease (B) Decrease / No change (C) Increase / Increase (D) Increase / Decrease (E) Increase / No change

The table below indicates the number of labor hours required in Countries X and Y to produce one unit of food or one unit of clothing. Country/Food/Clothing X/20 hours/50 hours Y 10 hours/20 hours Given this information, which of the following statements is correct? (A) X has a comparative advantage in the production of both food and clothing (B) Y has a comparative advantage in the production of both food and clothing (C) X has a comparative advantage in food production, whereas Y has a comparative advantage in clothing production (D) Y has a comparative advantage in food production, whereas X has a comparative advantage in clothing production (E) Neither country has a comparative advantage in the production of either good

Which of the following will lead to a depreciation of a nation's currency? (A) Lower inflation in the nation than in the rest of the world (B) Higher required reserve ratio in the nation than in the rest of the world (C) Decreased real interest rates in the nation compared with the rest of the world (D) increased demand for the nation's currency (E) Decreased supply of the nation's currency

With an increase in investment demand in the United States, the real interest rate rises. In this situation, the most likely change in the capital stock in the United States and in the international value of the dollar would be which of the following? Capital Stock in U.S. International Value of the Dollar (A) Increase Decrease (B) Increase No change (C) Increase increase (D) Decrease increase (E) No change Decrease

Capital Stock in United States: Increase International Value of the Dollar: No change

Gross private domestic investment includes which of the following

Changes in business inventories

Using equal amounts of labor hours, Country X and Country Y can each produce the number of watches and radios shown in the production possibilities curves above. Based on the information, which of the following is true?

Countries X and Y can engage in a mutually advantageous trade by exchanging 1 watch for 1 radio.

Country A can produce either 2 tons of cocoa or 4 cars with 10 units of labor. Country B can produce either 5 tons of cocoa or 25 cars with 10 units of labor. Based on this information, which of the following is true?

Country A has a comparative advantage in the production of cocoa, while Country B has a comparative advantage in the production of cars.

Country B has an absolute and comparative advantage in the production of computers.

Supply side economics are most likely to favor which of the following short run policies

Cutting marginal tax rates to promote savings, investment, and work

An increase in Japan's demand for United States goods would cause the value of the dollar to (A) depreciate because of inflation (B) depreciate because the United States would be selling more dollars to Japan (C) depreciate because the United States money supply would increase as exports rise (D) appreciate because Japan would be buying more United States dollars (E) appreciate because Japan would be selling more United States dollars

As nations specialize in production and trade in international markets, they can expect which of the following domestic improvements? I. Allocation of domestic resources II. Standard of living III. Self-sufficiency (A) I only (B) II only (C) III only (D) I and II only (E) I, II, and III

Comparative advantage implies that (A) no country should specialize completely in the production of any one good (B) every country should try to export more than it imports (C) developing countries should import raw materials and export manufactured goods (D) two countries should benefit from trade unless both have equal opportunity costs in every good (E) countries should impose tariffs to protect their domestic industries

If other things are held constant, an increase in United States imports will (A) tend to cause the dollar to appreciate because the world supply of dollars will rise (B) tend to cause the dollar to appreciate because the world demand for dollars will rise (C) have no effect on the exchange rate for the dollar because exports will also increase (D) tend to cause the dollar to depreciate because the world supply of dollars will rise (E) tend to cause the dollar to depreciate because the world demand for dollars will rise

If the Federal Reserve undertakes a policy to reduce interest rates, international capital flows will be affected in which of the following ways? (A) Long-run capital outflows from the U.S. will decrease (B) Long-run capital inflows to the United States will increase (C) Short-run capital outflows from the U.S. will decrease (D) Short-run capital inflows to the U.S. will decrease (E) Short-run capital inflows to the U.S. will not change

If the real interest rates in the U.S. rise relative to rates in other countries, what will happen to the international value of the U.S. dollar and the U.S. net exports? Value of the Dollar Net Exports (A) Depreciate Increase (B) Depreciate Decrease (C) Depreciate No change (D) Appreciate Decrease (E) Appreciate Increase

If two nations specialize according to the law of Comparative advantage and then trade with each other, which of the following would be true? (A) A smaller number of goods would be available in each trading nation (B) Total world production of goods would decrease. (C) Everyone within each nation would be better off. (D) Each nation would increase its consumption possibilities. (E) One nation would gain at the expense of the other nation.

In a flexible system of exchange rates, an open market sale of bonds by the Federal Reserve will most likely change the money supply, the interest rate, and the value of the United States dollar in which of the following ways? Money Supply/Interest Rate/Value of the Dollar (A) Increase/Decrease/Decrease (B) Increase/Decrease/Increase (C) Decrease/Decrease/Decrease (D) Decrease/Increase/Increase (E) Decrease/Increase/Decrease

Suppose two countries are each capable of individually producing two given commodities. Instead, each specializes by producing the commodity for which it has a comparative advantage and then trades with the other country. Which of the following is most likely to result? (A) The two countries will become more independent of each other. (B) Unemployment will increase in one country and decrease in the other. (C) There will be more efficient production in one country but less efficient production in the other. (D) Both countries will become better off. (E) Both countries will be producing their commodity inefficiently.

The main benefit of free trade between two countries is that (A) income distribution in each country will become more equitable (B) employment in each country will increase (C) migration from one country to the other will increase (D) each country can consume beyond its constraints of resources and productivity (E) each country will become more self-sufficient

Which of the following best explains why many United States economists support free international trade? (A) Workers who lose their jobs can collect unemployment compensation. (B) It is more important to reduce world inflation than to reduce United States unemployment. (C) Workers are not affected; only businesses suffer. (D) The long-run gains to consumers and some producers exceed the losses to other producers. (E) Government can protect United States industries while encouraging free trade.

Which of the following is most likely to benefit from an appreciation in the United States dollar in the short run? (A) United States investors holding European bonds (B) Importers in foreign countries seeking raw inputs at a lower price (C) United States exporters selling capital equipment (D) United States tourists traveling to foreign countries (E) European consumers buying United States goods

Which of the following would be a current account transaction? (A) India buys $10 billion of new U.S. Treasury bonds. (B) A U.S. firm buys 5% of the stock of another U.S. firm. (C) A U.S. firm buys 5% of the stock of another U.S. firm. (D) A U.S. firm sells $500 million of its products to a Chinese company. (E) The U.S. buys $8 billion worth of euros.

Which of the following would be most likely to occur if the United States placed high tariffs on imported goods? (A) Workers in the United States would have more jobs in the long run. (B) Income in the United States would be redistributed from the rich to the poor. (C) The United States standard of living would increase. (D) The United States economy would become less efficient. (E) United States exports would increase.

A country can have an increased surplus in its balance of trade as a result of

Declining imports and rising exports

When in economy producing two goods is operating efficiently and at full employment increasing the production of one good will result in

Decrease in the amount of the other goods that can be produced

If country X imposes a terrif on its imports how are the supply of its currencyAnd its exchange rateBe affected in foreign exchange market

Decrease/appreciate

The table that shows the current entries in the T a count of XYZ bank. Kim purchasesA bond issued by the Federal Reserve bank for $50,000And pays for the bond by drawing on her companies account at XYZ Bank. What is the effect of Kim's purchase of the bond under required in excess reserves of XYZ bank in the total Money supply

Decrease/decrease/decrease

Assuming that the government finances it spending by borrowing from the public If the government increases deficit spendingThe price of the previously issued bonds and the real interest rateWill change in which of the following ways

Decrease/increase

When a central bank conducts open market bond salesHe money supply, the interest rate, and aggregate demand will change and which of the following ways in the short run

Decrease/increase/decrease

In an economy the NPC is .9 nine M GDP is $100 billion it's A gross private domestic investmentDeclined by $2 billionThen GDP will

Decreased by a maximum of 20 billion

Which of the following will lead to a depreciation of a nation's currency?

Decreased real interest rates in the nation compared to the rest of the world

If a French firm buys computers from the United States, there would be an increase in which of the following in the foreign exchange market?

Demand for United States dollars and supply of euros

The value of a country's currency will tend to appreciate if

Demand for the country's exports increases

If the exchange rate between the United States dollar and the British pound changed from $2 per £1 to $3 per £1, and domestic prices in both countries stayed the same, then the United States dollar would

Depreciate, making United States imports from Britain more expensive

Which of the following will lead to an increase in US net exports

Depreciation of the US dollar on the foreign exchange market

Which of the following will lead to an increase in United States net exports?

Depreciation of the United States dollar on the foreign exchange market

An increase in the international value of the United States dollar will most likely benefit (A) domestic producers of premium wines sold to people in other countries (B) currency traders holding large quantities of yen (C) German citizens vacationing in the United States (D) Canadian citizens expecting to purchase real estate in the United States (E) retired United States citizens living overseas on their social security checks

If country X imposes a tariff on its imports, how will the supply of its currency and its exchange rate be affected in foreign exchange markets?

Suppose that Country A is experiencing high inflation relative to Country B, which is enjoying steady growth with a stable price level. Which of the following would occur in the foreign exchange market? (A) An increase in the demand for Country A's currency (B) An increase in the supply of Country B's currency (C) A decrease in the supply of Country A's currency (D) A decrease in the demand for Country B's currency (E) A depreciation of Country A's currency

Tariffs are different from assigned import quotas in that tariffs will (A) restrict imports (B) increase the price of imported goods (C) benefit domestic consumers of imported goods (D) hurt domestic producers of goods facing import competition (E) generate additional revenue for the domestic government

Under a flexible exchange-rate system, the Indian rupee will appreciate against the Japanese yen when (A) India's inflation rate exceeds Japan's (B) India has a trade deficit with Japan (C) Japan's economy enters a recession, but India's does not (D) Japan's money supply decreases while India's money supply increases (E) real interest rates in india increase relative to those in Japan

Which of the following changes will occur to the demand for United States dollars and the international value of the dollar in the short run if investors in the United States and abroad increase their purchases of United States government bonds? Demand for Dollars/international Value of the Dollar (A) Decrease/Decrease (B) Decrease/Increase (C) Decrease/No change (D) increase/Decrease (E) Increase/increase

If two nations specialize according to the law of comparative advantage and then trade with each other, which of the following would be true?

Each nation would increase its consumption possibilities

The circular flow model indicates that final goods are produced by

Firms installed in the product market

Melanie quit her job to look for a better one that has opportunity for advancement Melanie will be classifying in which category of unemployment

Frictional

Tariffs are different from assigned import quotas in that tariffs will

Generate additional revenue for the domestic government

An increase in which of the following is most likely to increase employment And promote long-run economic growth

Government spending on education

The data above indicates labor-hours needed to produce a single unit of each of two commodities in each of two countries. If labor is the only factor used to produce the commodities, which of the following statements must be correct? I. Country A has an absolute advantage in the production of both commodities, but a comparative advantage in the production of wheat. II. Country B has an absolute advantage in the production of both commodities, but a comparative advantage in the production of fish. III. Mutually advantageous trade can occur between the two countries when 2.5 units of fish are exchanged for 1 unit of wheat.

I and III only

Assuming fixed exchange rates, if country Z's rate of inflation increases relative to its trading partners, Country Z's imports and exports will most likely change in which of the following ways?

Imports: Increase Exports: Decrease

Which of the following changes would most likely caused an increase in interest rates in the short run

In increase in government spending finance by borrowing

Which of the following mixes of fiscal and monetary policy would reduce inflation

Increase taxes/sell bonds

In the long run a fully anticipated increase in the inflation rate will

Increase the nominal interest rate

In a closed economy with lump sum taxes if that NPC increased from .5 .75 Simple spending multiplier in the MPS would change in which of the following ways

Increase/decrease

An increase in the money supply Will affect the price levelIn real GDP In which of the following ways in the long

Increase/no change

Increase; Decrease

Increase; Depreciate

With an increase in investment demand in the United States, the real interest rate increases. In this situation, the most likely change in the capital stock in the United States and in the international value of the dollar would be in which of the following?

Increase; Increase

Increase; Increase; Decrease

If higher United States interest rates cause foreign demand for the dollar to increase, which of the following will occur to the international value of the dollar and to United States exports?

Increase; No change

An increase in United States imports will result in which of the following in foreign exchange markets?

Increased United States demand for foreign currencies

The technological progress promotes long run economic growth primarily by

Increasing labor productivity

In increase in government deficit spending can crowd out private investment by

Increasing the real interest rate

the AS and AD graph above shows the current macro economic equilibrium of an economy. Half the price level in real output change if there is a sharp increase in productivity And a simultaneous increase in government purchases

Indeterminate/increase

Inflation Rate: Increase International Value of the Peso: Depreciate

Inflow; Appreciation; Increase

Assume that the supply of loanable funds increases in Country X. The international value of Country X's currency and Country X's exports will most likely change in which of the following ways?

International Value of Country X's Currency: Decrease Country X's Exports: Increase

If higher United States interest rates cause foreign demand for the dollar to increase, which of the following will occur to the international value of the dollar and to United States exports?

International Value of the Dollar: Increase Exports:Decrease

If the real interest rate in the United States increases relative to that of the rest of the world, capital should flow

Into the United States and the dollar will appreciate

Which of the following is true about the expected real interest rate

It is negative if the expected inflation rate exceeds the nominal interest rate

If a country has a current account deficit, which of the following must be true?

It must show a surplus in its capital account.

Assuming a country government has a balanced budget if the economy goes into a recessionWhat will happen to the government budget in the short run

It will be in deficit because there will be an automatic decrease in tax receipts

Money Supply: Decrease Interest Rate: Increase Value of the Dollar: Increase

Nation a and B reduce only chairsAnd bicycles.If each laborer in the nation aCan't produce twice as many chairs as each labor in nation b Then which of the following is Necessarily true

Nation a has an absolute advantage in chairs

In the short run cost push inflation can because by

Negative supply shocks

Giving a constant velocity of money in the short run a 5% increase in money supply will translate to a 5% increase in

Nominal GDP

The table below gives the number of Japanese yen needed to buy a United States dollar ($) and the number of Japanese yen needed to buy a euro (€). Given the currency values, which of the following must be true?

One euro is worth $0.50.

Brazil and Peru produce both coffee and wheat using labor as the only input the table below shows the labor hours required to produce a unit of coffee and a unit of wheat in each country, Which of the following is true

Peru has a comparative advantage in producing coffee

Following a decrease in aggregate demand and increasing unemployment role results if

Price is in nominal wages are slow to adjust in the short run

If the interest rate on short-term government bonds declined as a result of the open market operations by a central bank, The central bank must-have

Purchased government bonds

Which of the following necessarily occurs during an economic recession

Real GDP decreases

The table above shows the nominal GDP And the price index for an economy During the period 2012 and 2013 Which of the following would have occurred from 2012 two 2013

Real GDP did not change

If fiscal policy is used to correct a recessionary gap, which of the following would most likely occur in the absence of crowding out in the short run?

Real Output will increase; UE will decrease

Under a flexible exchange-rate system, the Indian rupee will appreciate against the Japanese yen when

Real interest rate in India increase relative to those in Japan

the graph above shows aggregate demand short run aggregate supply in the long-run aggregate supply curves for an economyBased on the grassCost push inflation is caused by movement from

SRAS1 to SRAS2

To reduce insulation the central bank would be most likely to

Sell government securities

If the Federal Reserve undertakes a policy to reduce interest rates, international capital flows will be affected in which of the following ways?

Short-run capital inflows to the United States will decrease.

Which of the following describes a major difference between stocks and bonds

Stocks represent ownership in a corporation and bonds represent a loan to a corporation

Assume that Canadian consumers increase their demand for Mexican financial assets How would the international supply of Canadian dollars, the value of the Mexican peso relative to the Canadian dollar, and Canadian net exports to Mexico change?

Supply of Canadian Dollars: Increase Value of the Peso: Increase Canadian Net Exports: Increase

Supply of Pesos: Increase Dollar Price of Peso: Decrease

If other things are held constant, an increase in United States imports will

Tend to cause the dollar to depreciate because the world supply of dollars will rise

An appreciation of the United States dollar on the foreign exchange market could be caused by a decrease in which of the following?

The United States consumer price index

Which of the following would be most likely to occur if the United States placed high tariffs on imported goods?

The United States economy would become less efficient.

The table gives the values of selected accounts in a nation's balance of payments in millions of dollars. Based on the table, which of the following describes the balance in the current account and in the capital and financial account?

The current account is in deficit and the capital and financial account is in surplus.

The demand curve for the currency will shift to the left, and the currency will depreciate

The demand curve for the currency will shift to the left, and the currency will depreciate.

Which of the following accurately describes the federal funds rate

The interest rate banks charge other banks for overnight loans

If the country's production possibilities curve is shifting outward which of the following must be true

The long run aggregate supply curve is shifting to the right

Which of the following best explains why many United States economists support free international trade?

The long-run gains to consumers and some producers exceed the losses to other producers.

If the central bank buys government bonds from individuals on the open marketIn banks do not loan out any excess reserves created by the open market purchaseWhich of the following will happen

The money supply will increase

As soon an economy is any long run equilibrium following a decrease in aggregate demand which of the following is true in the short run

The unemployment rate is greater than the natural rate of unemployment and then rate of inflation is declining

Which of the following is recorded in a country's current account?

The value of consumer goods produced abroad and purchased by the country's residents

When country ex has a trade deficit which of the following is necessarily true

The value of country X imports exceeds the value of its exports

An increase in which of the following would reduce the United States balance-of-trade deficit?

The value of foreign currency relative to the United States dollar

Use the graph to answer the question. If one Indian rupee is exchanged for three Japanese yen in the foreign exchange market, which of the following describes the foreign exchange market for Indian rupees?

There is a shortage of 40 rupees.

The diagram shows the United States dollar-Chinese yuan foreign exchange market. If the current exchange rate is 6 yuan per dollar, which of the following describes the current state of the market and how the value of the dollar will change in a flexible exchange-rate system?

There is a shortage of dollars and the dollar will appreciate.

The graph above shows the demand for and supply of a goodIf the market price is P1 then

There is a surplus and the price will fall

If the current exchange rate of the Mexican peso and the Brazilian real is 0.20 real per peso, and the equilibrium exchange rate is 0.18 real per peso, which of the following describes the foreign exchange market for the Mexican peso?

There is a surplus of pesos and the peso will depreciate.

A natural rate of unemployment is the unemployment rate when

There is no cyclical unemployment

Which of the following is implied by a long-run Phillips curve

There is no trade-off between unemployment and inflation

Which of the following is a best example of an investment in human capital

Training workers

An increase in the international value of the United States dollar will tend to cause

United States exports to fall

Which of the following is likely to occur following the depreciation of the United States dollar?

United States exports will increase

Which of the following will increase the United States trade deficit?

United States firms buying technologically advanced computers from Germany

Which of the following is most likely to benefit from an appreciation in the United States dollar in the short run?

United States tourists traveling to foreign countries

If the real interest rates in the United States rise relative to rates in other countries, what will happen to the international value of the United States dollar and United States net exports?

Value of the Dollar: Appreciate Net Exports: Decrease

The table below indicates the number of labor hours required in Countries X and Y to produce one unit of food or one unit of clothing. Given this information, which of the following statements is correct?

X has a comparative advantage in food production, whereas Y has a comparative advantage in clothing production.

If the price of the Swedish krona changes from 12 Japanese yen per krona to 13 Japanese yen per krona, then which of the following describes the change in the yen and the change in the cost of Swedish goods to residents of Japan?

Yen- Depreciation Change in Cost of Swedish Goods to Residents of Japan- Increase

The equilibrium real interest rate in Britain increases to 8 percent while the equilibrium real interest rate in Australia remains at 4 percent. As a result, financial capital will flow from

a. Australia to Britain, decreasing the interest rate in Britain and increasing the interest rate in Australia

Last year both a borrower and a lender expected an inflation rate of 3 percent when they signed a long-term loan agreement with fixed nominal interest rates of 5 percent. If the actual inflation rate were lower than expected, then which of the following would be true?

a. The lender would benefit.

If the international value of the United States dollar depreciates in comparison with the Japanese yen, which of the following is most likely to occur?

a. United States exports to Japan will increase.

The consumer price index (CPI) measures the

a. prices of a specific group of goods and services purchased by consumers

Assume a country has an open economy and a flexible exchange rate system. An increase in the country's government budget deficit would most likely cause

an increase in real interest rate and a decrease in net exports

An increase in Japan's demand for United States goods would cause the value of the dollar to

appreciate because Japan would be buying more United Stated dollars

Which of the following will cause an increase in aggregate demand?

b. A decrease in government subsidies.

If the value of the United States dollar increases on the foreign exchange market, which of the following is most likely to occur in the short run?

b. Aggregate demand will decrease.

Nations A and B produce only chairs and bicycles. If each laborer in Nation A can produce twice as many chairs as each laborer in Nation B, then which of the following is necessarily true?

b. Nation A has a comparative advantage in chairs.

Brazil and Peru produce both coffee and wheat using labor as the only input. The table below shows the labor hours required to produce a unit of coffee and a unit of wheat in each country.

b. Peru has a comparative advantage in producing coffee.

Which of the following is true in the short run if consumers buy more imported goods and fewer domestic goods?

c. The trade balance moves toward deficit, and equilibrium income decreases.

Which of the following policy combinations could reduce a government deficit without changing aggregate demand?

d. An increase in taxes and an increase in the money supply

If unemployed workers become discouraged and give up trying to find work, the number of workers employed and the unemployment rate would change in which of the following ways?

d. D

The graph above shows two aggregate demand curves, AD1 and AD2, and an aggregate supply curve, AS. The shift in the aggregate demand curve from AD1 to AD2 could be caused by

d. a decrease in the money supply

The purchase of United States government bonds by Japanese investors will be included in Japan's

d. financial account

An increase in the international value of the United States dollar will most likely benefit

d. retired United States citizens living overseas on their social security checks

A country can have an increased surplus in its balance of trade as a result of

declining imports and rising exports

The value of a country's currency will tend to appreciate if

demand for the country's exports increases

If the exchange rate between the United States dollar ($) and the British pound (£) changed from $2 per £1 to $3 per £1, and domestic prices in both countries stayed the same, then the United States dollar would

depreciate, making United States imports from Britain more expensive

An increase in United States imports will result in which of the following in foreign exchange markets?

e. Increased United States demand for foreign currencies

When Country X has a trade deficit, which of the following is necessarily true?

e. The value of Country X's imports exceeds the value of its exports.

If a country has a deficit in its current account, there will be a

e. surplus in the financial account (formerly called capital account)

The diagram below shows the production alternatives of two countries, Alpha and Beta, producing two goods, grain and steel, using all of their available resources. The theory of comparative advantage implies that Alpha would find it advantageous to---

export grain and import steel

The implementation of an expansionary monetary policy by the Canadian central bank will result in which of the following changes in the short run

interest rate Decrease/canadian dollar depreciate

If the real interest rate in the United States increases relative to that of the rest of the world, capital should flow

into the United States and the dollar will appreciate

Under a flexible exchange-rate system, the Indian rupee will appreciate against the Japanese yen when

real interest rates in India increase relative to those in Japan

If other things are held constant, an increase in United States imports will

tend to cause the dollar to depreciate because the world supply of dollars will rise

The price of one nation's currency expressed in terms of another nation's currency is called

the exchange rate

The price of a Japanese-made pen in Japan is ¥500. If at the current exchange rate a German buyer can buy the pen in Japan for €100, then which of the following is the exchange rate between the two currencies?

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