Question 1
Capital account transactions occur because of
exports.
imports.
investments made between countries.
unilateral transfers.

Question 2
Under floating exchange rates, the exchange rate is set by
negotiations among central banks of G-7 nations.
the U.S. Federal Reserve Board.
the International Monetary Fund.
the intersection of demand and supply curves in the currency markets.

Question 3
When a country intervenes in foreign currency markets to maintain a fixed exchange rate
it is engaged in hedging.
it increases the foreign exchange risk faced by its citizens.
it does so by using its foreign exchange reserves.
it smoothes out fluctuations in the level of business activity.

Question 4
When there is a current account deficit, it is likely that
the country is an exporter of capital.
the capital account has a surplus.
the country has a budget surplus.
exports exceed imports for the country.

Question 5
Which of the following is FALSE?
Exports are imports are included in the current account.
The current account and the capital account are more-or-less mirror images of one another.
The United States doesn't have a balance of trade.
Sales and purchases of assets are included in the capital account.

Question 6
If increasing prosperity in Europe causes European citizens to purchase more products from the United States, the demand for dollars will increase, leading to an appreciation of the dollar in world currency markets.
True
False

Question 7
In international trade, all payments and gifts that are related to the purchase or sale of both goods and services are referred to as the
capital account.
labor account.
current account.
official reserve transactions account.

Question 8
An example of a unilateral transfer is
a gift to your university in the United States.
gold payments to foreign companies.
a gift to a relative who lives abroad.
receipts from the export of financial services.

Question 9
The current account and the capital account
are more-or-less mirror images of one another.
together add up to the total amount of exports from a country.
determine the equilibrium foreign exchange rate.
determine the balance of trade.

Question 10
Which of the following is FALSE?
Countries that import more than they export are experiencing a trade deficit.
To the extent that consumers enjoy the goods being imported, a country experiences an increase in its well-being when it is incurring a trade deficit.
A country seeking to maintain a fixed exchange rate has to maintain foreign currency reserves.
A floating exchange rate has the effect of exacerbating domestic fluctuations in the level of business activity.

Question 11
If a country maintains a fixed exchange rate,
then it will not have a balance of payments deficit.
then it will not have a trade deficit.
the citizens of the country face more foreign exchange risk than they would otherwise.
it does so by using its foreign exchange reserves to intervene in currency markets.

Question 12
A reduction in a country's rate of inflation should
lead to a trade deficit.
increase its exports.
lead to a depreciation of its currency.
increase its imports.

Question 13
An increase in bond prices is usually accompanied by
a decrease in interest rates.
an increase in interest rates.
a decrease in the quantity of investment.
an increase in the opportunity cost of holding money.

Question 14
The Open Market Committee of the Federal Reserve guides money supply growth.
True
False

Question 15
Interest rates typically rise when
the coupon payout on existing bonds increase.
bond prices increase.
bond prices decrease.
the maturity date on existing bonds extends farther into the future.

Question 16
If the Fed sells U.S. government securities on the open market,
reserves in the banking system will decrease.
there will be no effect on the money supply, but aggregate demand will increase.
interest rates will decrease.
there will be no effect on the money supply, but aggregate demand will decrease.

Question 17
If the Federal Reserve follows a monetary rule, it will not use discretionary monetary policy to counteract fluctuations in the level of business activity.
True
False

Question 18
A contractionary monetary policy
will lead to an increase in aggregate demand.
will lead to a decrease in aggregate demand.
is brought about by a lowering of the required reserve ratio.
is brought about by lower interest rates.

Question 19
Which one of the following statements is true?
The federal funds rate cannot be changed without an act of Congress.
Traditionally, the Fed has kept the discount rate below the federal funds rate.
The federal funds rate is the rate the Fed charges member banks when they borrow reserves.
Traditionally, the Fed has kept the discount rate above the federal funds rate.

Question 20
The Fed engages in open market operations and sells government securities. The result is
lower interest rates.
uncertain since more information is needed.
higher interest rates.
interest rates remain unchanged since there is no reason to think bond prices changed.

Question 21
Expansionary monetary policy during periods of underutilized resources can cause
real national income to increase without a change in interest rates.
real national income to increase with an increase in the price level.
nominal national income to increase but cannot affect real national income.
real national income to increase with a decrease in the pric level.

Question 22
If Federal Reserve chairman Alan Greenspan announces a reduction in interest rates, this means that
the Fed will be following a contractionary monetary policy.
the Fed will be increasing the required reserve ratio.
the Fed will be selling government securities on the open market.
the Fed will be buying government securities on the open market.

Question 23
An increase in the supply of money, other things constant,
reduces the rate of growth of the price level.
stimulates an increase in demand for money.
generates significant changes in relative prices.
reduces the purchasing power of money.

Question 24
If you buy a bond which pays 5 percent and subsequently the interest rate rises to 6 percent, then it is true that
the interest payment on the bond will fall.
the price of the bond will rise.
the price of the bond will fall.
the price of the bond is still $1,000.

Question 25
Which one of the following is FALSE?
A country has a comparative advantage in producing a good if it can do so at a lower opportunity cost than any other country can.
A country can only have a comparative advantage in producing a good if it also has an absolute advantage in producing that good.
Trade allows each country to specialize in producing those goods for which it enjoys a comparative advantage.
Both tariffs and quotas reduce the volume of trade.

Question 26
A difference between a quota and a tariff is that
a tariff generates a greater reduction in exports.
a tariff generates a higher price than a quota does.
the government collects revenues from a tariff, which does not happen with a quota.
a quota increases profits of domestic producers, which does not happen with a tariff.

Question 27
The European Union is an example of a common market.
True
False

Question 28
For the infant-industry argument to be appropriate, it is necessary that
the protected industry export most of what it produces.
the industry be deemed essential by the government.
only industries that currently are operating efficiently will be protected.
the government can identify which industries will eventually be able to compete with more established foreign producers.

Question 29
Table 16.1

Alpha's Production Possibilities
A B C D E
Cookies 4 3 2 1 0
Coffee 0 5 10 15 20

Beta's Production Possibilities
A B C D E
Cookies 8 6 4 2 0
Coffee 0 6 12 18 24

Table 16.1 shows the quantities of cookies and coffee that can be produced with the full amount of resources available in each of two countries, Alpha and Beta.

Using the information in Table 16.1, which statement is TRUE?
Beta has the lower opportunity cost of producing cookies.
Alpha has the lower opportunity cost of producing both coffee and cookies.
Alpha has the lower opportunity cost of producing cookies.
Both countries have the same opportunity cost of producing cookies.

Question 30
The ability to produce a good or service at a lower opportunity cost than other producers is
comparative advantage.
absolute advantage.
intellectual property.
the quota system.

Question 31
The World Trade Organization
was established to increase tariffs among nations.
was established to negotiate exchange rates between countries.
handles trade disputes among its member nations.
was established to protect domestic jobs in each country.

Question 32
To the extent that imports are restricted, domestic consumers pay higher prices.
True
False

Question 33
A country has a comparative advantage in growing eggplant if it can do so at a lower opportunity cost than any other country can.
True
False

Question 34
Specialization allows for
equal consumption among trading partners.
more consumption for all trading partners.
more consumption for the trading partner with the absolute advantage.
more consumption for the trading partner with the comparative advantage.

Question 35
Restrictions on the amount of cotton that could be imported to the United States would
benefit domestic cotton producers.
reduce employment in the domestic cotton industry.
benefit domestic cotton consumers.
benefit foreign cotton producers.

Question 36
Protection of a new industry until it becomes strong enough to compete is called
the national defense argument.
the infant-industry argument.
the leveling-the-playing-field argument.
the government indirect tax argument.

Question 37
Table 16.4
Product Argentina France
Wine (in thousands of gallons) 30 60
Beef (in tons) 10 30

Table 16.4 gives the quantities of output that can be produced with the full amount of resources in each of two countries, France and Argentina.

In Table 16.4, the opportunity costs for France to produce one unit of wine in terms of beef is
2.
4.
1/3.
1/2.

Question 38
In order to obtain an efficient allocation of resources worldwide
no trade among countries should occur.
countries that have a lot of resources should not trade since poorer countries cannot compete.
each country should produce the good in which it has a comparative advantage and then engage in trade.
countries that have a lot of resources should ship resources to countries that do not have a lot of resources.

Question 39
The definition of economic growth is the annual percentage
increase in total exports.
increase in the per capita nominal GDP.
increase in the per capita real GDP.
increase in the total nominal GDP.

Question 40
Economic growth will
shift the production possibilities curve outward.
shift along the production possibilities curve toward the X-axis.
be a movement from inside the productions possibilities curve to the curve itself.
shift the production possibilities curve inward.

Question 41
Economic growth occurs when there is
growth in technology that increases productivity.
growth in government spending.
more environmental regulation.
lower taxes on individuals.

Question 42
Other things held constant, higher savings rates lead to
increases in the number of hours workers work.
decreases in real per capita GDP.
higher living standards.
lower standard of living.

Question 43
You can invest in your own human capital by going to school, by acquiring on-the-job training, or by teaching your self new skills.
True
False

Question 44
The variable used to measure economic growth is
the trade surplus.
the growth in per capita real GDP.
the growth of the money supply.
the number of new jobs created.

Question 45
Labor productivity is
nominal GDP divided by the number of workers.
the number of workers divided by real GDP.
the change in real GDP divided by change in number of workers.
real GDP divided by the number of workers.

Question 46
A small reduction in a country's growth rate is a concern to policymakers because
this leads to deflation, which makes people feel worse off.
a reduction usually leads to future reductions until finally the economy stagnates.
policymakers focus too much on economic growth and not enough on increasing savings rates.
a small change can have large effects on per capita GDP over time.

Question 47
Small differences in economic growth rates add up to big differences over time because of
complacency.
compounding.
compacting.
compromising.

Question 48
The protection of property rights leads to
more illiteracy.
unemployment.
more capital formation.
more poverty.

Question 49
The rights to own private property and exchange goods, services, and financial assets with minimal government interference is defined as
economic freedom.
economic privilege.
capitalism.
market socialism.

Question 50
Which one of the following is FALSE?
While innovation is prevalent in the economy, it is really inventions that are the force behind economic growth.
Technological advances contribute to economic growth.
There will be more technological advances when those who provide them are rewarded.
Innovation involves the transformation of something new into something that benefits the economy.

Question 1 Capital account transactions occur because of...