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Question 1 The construction of a production possibilities curve assumes: Answer the quantities of all resources are unlimited. technology is fixed....



Question 1

The construction of a production possibilities curve assumes:
Answer
the quantities of all resources are unlimited.
technology is fixed.
some resources are unemployed.
there is no inflation in the economy.
10 points
Question 2

Answer the question on the basis of the following data:


The above data suggest that:
Answer
a policy of tax reduction will increase consumption.
a policy of tax increases will increase consumption.
tax changes will have no impact on consumption.
after-tax income should be lowered to increase consumption.
10 points
Question 3

Answer the question on the basis of the following production possibilities tables for two countries, North Cantina and South Cantina:


Refer to the above tables. If North Cantina is producing at production alternative B, the opportunity cost of the eleventh unit of consumer goods will be:
Answer
10 units of capital goods.
1/4 of a unit of capital goods.
8 units of capital goods.
1/8 of a unit of capital goods.
10 points
Question 4

The economizing problem is:
Answer
the need to make choices because economic wants exceed economic means.
how to distribute resources equally amongst all members of society.
that people's means often exceed their wants.
that people do not know how to rationally allocate resources.
10 points
Question 5

The economizing problem is one of deciding how to make the best use of:
Answer
virtually unlimited resources to satisfy virtually unlimited wants.
limited resources to satisfy virtually unlimited wants.
unlimited resources to satisfy limited wants.
limited resources to satisfy limited wants.
10 points
Question 6

Answer the question on the basis of the following information. Assume that if the interest rate that businesses must pay to borrow funds were 20 percent, it would be unprofitable for businesses to invest in new machinery and equipment, so investment would be zero. But if the interest rate were 16 percent, businesses would find it profitable to invest $10 billion. If the interest rate were 12 percent, $20 billion would be invested. Assume that total investment continues to increase by $10 billion for each successive 4 percentage point decline in the interest rate.

Refer to the above information. Which of the following is an accurate verbal statement of the described relationship?
Answer
There is no regular or dependable relationship between business investment and the interest rate.
The amount of business investment is unaffected by changes in the interest rate.
Investment spending by businesses varies inversely with the interest rate.
Investment spending by businesses varies directly with the interest rate.
10 points
Question 7



Refer to the above diagram. Which of the following is a normative statement?
Answer
Point C is superior to point B because it is important to enhance the future of society.
If society is initially at point C, it must sacrifice 6 units of bread to obtain one more unit of tractors.
If society produces 2 units of tractors and 12 units of bread, it is not using its available resources with maximum efficiency.
Other things equal, the combination of outputs represented by point D will result in more rapid economic growth than will the combination represented by point C.
10 points
Question 8

The basic difference between consumer goods and capital goods is that
Answer
consumer goods are produced in the private sector and capital goods are produced in the public sector.
an economy that commits a relatively large proportion of its resources to capital goods must accept a lower growth rate.
the production of capital goods is not subject to the law of increasing opportunity costs.
consumer goods satisfy wants directly while capital goods satisfy wants indirectly.
10 points
Question 9

Which of the following statements is correct?
Answer
The value of the independent variable is determined by the value of the dependent variable.
The value of the dependent variable is determined by the value of the independent variable.
The dependent variable designates the "cause" and the independent variable the "effect."
Dependent variables graph as upsloping lines; independent variables graph as downsloping lines.
10 points
Question 10

Other things equal, an increase in a consumer's money income:
Answer
increases the amount of utility a consumer receives from a given quantity of a good.
shifts her budget line rightward because she can now purchase more of both products.
eliminates the individual's economizing problem.
causes the consumer to choose a different combination of goods along a given budget line.
10 points
Question 11

Suppose that Julia receives a $20 gift card for the local coffee shop, where she only buys lattes and muffins. If the price of a latte is $4 and the price of a muffin is $2, then we can conclude that Julia:
Answer
should only buy muffins.
should only buy lattes.
can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods.
can buy 5 lattes and 10 muffins with her $20 gift card.
10 points
Question 12



Refer to the above diagram. The concave shape of each production possibilities curve indicates that:
Answer
resources are perfectly substitutable.
wants are virtually unlimited.
prices are constant.
resources are not equally suited for alternative uses.
10 points
Question 13

A positive statement is concerned primarily with:
Answer
some goal that is desirable to society.
what should be.
what is.
the formulation of economic policy.
10 points
Question 14

Answer the question on the basis of the following production possibilities tables for two countries, North Cantina and South Cantina:


Refer to the above tables. If South Cantina is producing at production alternative D, the opportunity cost of the third unit of capital goods will be:
Answer
3 units of consumer goods.
4 units of consumer goods.
5 units of consumer goods.
6 units of consumer goods.
10 points
Question 15



Refer to the above diagram. The vertical intercept:
Answer
is 40.
is 50.
is 60.
cannot be determined from the information given.
10 points
Question 16

Suppose that Scoobania, which has full employment, can obtain 1 unit of capital goods by sacrificing 2 units of consumer goods domestically, but can obtain 1 unit of capital goods from another country by trading 1 unit of consumer goods for it. This reality illustrates:
Answer
a rightward (outward) shift of the production possibilities curve.
increasing opportunity costs.
achieving points beyond the production possibilities curve through international specialization and trade.
productive efficiency.
10 points
Question 17

The alternative combinations of two goods which a consumer can purchase with a given money income is shown by:
Answer
a production possibilities curve.
a demand curve.
consumer expenditure line.
a budget line.
10 points
Question 18

The use of money for exchange:
Answer
Increases the use of barter
Encourages more specialization in production
Reduces consumer sovereignty
Raises the need for a coincidence of wants
10 points
Question 19

The "invisible hand" concept used to describe the guiding function of prices was developed by:
Answer
Barack Obama
Adam Smith
Milton Friedman
John Kenneth Galbraith
10 points
Question 20



Refer to the above figure. If box A represents households, B the product market, and C businesses, and if flow (3) represents revenues, then flow (1) would represent:
Answer
Costs
Money income
Consumption expenditures
Resources
10 points
Question 21

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18.



Based on the data shown above, the economically most efficient production technique is:
Answer
A
B
C
D
10 points
Question 22

The basic problem in central planning has to do with:
Answer
Determining the production goals for a factory
Determining the proper geographic location of new firms
Coordinating production so that production bottlenecks do not develop
Providing financial resources for increasing the real flows of products
10 points
Question 23

Within a market economy, some industries may be declining while other industries may be expanding. This indicates that:
Answer
Incomes are declining
Resources are being reallocated
Factors of production are scarce
Producers are not maximizing profits
10 points
Question 24

One element of the command system is:
Answer
Capitalism
Free markets
Private ownership
Central planning
10 points
Question 25

The market system is often also known as:
Answer
Capitalism
Socialism
Central planning
Regulation
10 points
Question 26

Competition is more likely to exist when:
Answer
There is easy entry into and exit out of industries
A government-issued license is required to set up a firm in an industry
The government purchases most goods and services
Economic power is concentrated among a few large firms
10 points
Question 27

If a nation restricts trade with other nations, then the most likely effect is:
Answer
Lower prices of goods and services in the nation
Increased specialization of production
Expand the economic wealth of the nation
Make consumers in the nation worse off
10 points
Question 28

As new firms enter an expanding industry:
Answer
Economic profits tend to rise
Economic profits tend to decline
Normal profits tend to decline
Market power in the industry becomes more concentrated
10 points
Question 29

In a market economy, the money incomes of individuals depend primarily upon:
Answer
Government policies in setting wages and interest rates
The values and amounts of productive resources that the individuals possess
The amount of education that the individuals have
How hard they are willing to work
10 points
Question 30

The term consumer sovereignty means that:
Answer
Government is responsible for protecting consumers' interests
What is produced is ultimately determined by what consumers buy
There are no limits on what consumers may buy in a market system
Producers have a strong influence over what consumers buy
10 points
Question 31

The extensive private ownership of property resources in a market system has the following implications, except:
Answer
The market system is also known as capitalism
Trades that take place in a market system are mutually-agreeable transactions
Investment, innovation, and maintenance of property are fostered by the market system
The strong in the society could accumulate property by overpowering the weak
10 points
Question 32

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18.



Refer to the above table. If the price per unit of labor were to increase from $2 to $3, the most efficient production technique would then be:
Answer
A
B
C
D
10 points
Question 33

Why might a company use barter rather than money to make a transaction?
Answer
Barter is generally more efficient than money exchanges
Barter can enable two firms to trade when their cash flows are limited
Money requires a coincidence of wants, barter is more direct
Money is economically efficient for large transactions, but barter is preferred for smaller transactions
10 points
Question 34

Which is an example of barter?
Answer
A person trades a desk for a box of tools
A person buys clothes at a used clothing store
A gift of tuition money from parents to their children
The purchase of stock on the New York Stock Exchange
10 points
Question 35

A price floor means that:
Answer
inflation is severe in this particular market.
sellers are artificially restricting supply to raise price.
government is imposing a maximum legal price that is typically below the equilibrium price.
government is imposing a minimum legal price that is typically above the equilibrium price.
10 points
Question 36

An increase in the price of product A will:
Answer
reduce the demand for resources used in the production of A.
increase the demand for complementary product C.
increase the demand for substitute product B.
reduce the demand for substitute product B.
10 points
Question 37

Allocative efficiency involves determining:
Answer
which output mix will result in the most rapid rate of economic growth.
which production possibilities curve reflects the lowest opportunity costs.
the mix of output that will maximize society's satisfaction.
the optimal rate of technological progress.
10 points
Question 38

If Z is an inferior good, an increase in money income will shift the:
Answer
supply curve for Z to the left.
supply curve for Z to the right.
demand curve for Z to the left.
demand curve for Z to the right.
10 points
Question 39

At the current price there is a shortage of a product. We would expect price to:
Answer
increase, quantity demanded to increase, and quantity supplied to decrease.
increase, quantity demanded to decrease, and quantity supplied to increase.
increase, quantity demanded to increase, and quantity supplied to increase.
decrease, quantity demanded to increase, and quantity supplied to decrease.
10 points
Question 40

An effective price floor will:
Answer
force some firms in this industry to go out of business.
result in a product surplus.
result in a product shortage.
clear the market.
10 points
Question 41



Refer to the above diagram. A government-set price floor is best illustrated by:
Answer
price A.
quantity E.
price C.
price B.
10 points
Question 42

Allocative efficiency is concerned with:
Answer
producing the combination of goods most desired by society.
achieving the full employment of all available resources.
producing every good with the least-cost combination of inputs.
reducing the concavity of the production possibilities curve.
10 points
Question 43

When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes:
Answer
an inferior good.
the rationing function of prices.
the substitution effect.
the income effect.
10 points
Question 44



Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market:
Answer
supply has decreased and equilibrium price has increased.
demand has increased and equilibrium price has decreased.
demand has decreased and equilibrium price has decreased.
demand has increased and equilibrium price has increased.
10 points
Question 45



Refer to the above table. If demand is represented by columns (3) and (1) and supply is represented by columns (3) and (4), equilibrium price and quantity will be:
Answer
$10 and 60 units.
$9 and 60 units.
$8 and 80 units.
$7 and 30 units.
10 points
Question 46

Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising relative to other crops, then we would expect:
Answer
the supply of ethanol, a corn-based product, to increase.
consumer demand for wheat to fall.
the supply to increase as farmers plant more corn.
the supply to fall as farmers plant more of other crops.
10 points
Question 47

Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?
Answer
an increase in supply.
an increase in demand.
a decrease in supply.
a decrease in demand.
10 points
Question 48



Refer to the above diagram. If this is a competitive market, price and quantity will move toward:
Answer
$60 and 100, respectively.
$60 and 200, respectively.
$40 and 150, respectively.
$20 and 150, respectively.
10 points
Question 49

Answer the question on the basis of the given supply and demand data for wheat:


Refer to the above data. Equilibrium price will be:
Answer
$4.
$3.
$2.
$1.
10 points
Question 50

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X, (2) the equilibrium price (P) of X and (3) the equilibrium quantity (Q) of X.

Refer to the above. An improvement in the technology used to produce X will:
Answer
decrease S, increase P, and decrease Q.
decrease S, increase P, and increase Q.
increase S, decrease P, and increase Q.
decrease D, decrease P, and decrease Q.
10 points
Question 51

If the supply of a product decreases and the demand for that product simultaneously increases, then equilibrium:
Answer
price must rise, but equilibrium quantity may rise, fall, or remain unchanged.
price must rise and equilibrium quantity must fall.
price and equilibrium quantity must both increase.
price and equilibrium quantity must both decline.
10 points
Question 52

According to the marginal-cost-marginal-benefit rule:
Answer
only government projects (as opposed to private projects) should be assessed by comparing marginal costs and marginal benefits.
the optimal project size is the one for which MB = MC.
the optimal project size is the one for which MB exceeds MC by the greatest amount.
project managers should attempt to minimize both MB and MC.
10 points
Question 53

Answer the question on the basis of the following information for four highway programs of increasing scope. All figures are in millions of dollars.


On the basis of the above data we can say that:
Answer
Program D is the most efficient on economic grounds.
Program C is the most efficient on economic grounds.
Program B is the most efficient on economic grounds.
Program A is the most efficient on economic grounds.
10 points
Question 54

Demand-side market failures occur when:
Answer
the demand and supply curves don't reflect consumers' full willingness to pay for a good or service.
the demand and supply curves don't reflect the full cost of producing a good or service.
government imposes a tax on a good or service.
a good or service is not produced because no one demands it.
10 points
Question 55



Refer to the above diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. If the government wishes to establish an optimal allocation of resources in this market, it should:
Answer
not intervene because the market outcome is optimal.
subsidize consumers so that the market demand curve shifts leftward.
subsidize producers so that the market supply curve shifts leftward (upward).
tax producers so that the market supply curve shifts leftward (upward).
10 points
Question 56

If a good that generates positive externalities were produced and priced to take into account these spillover benefits, then its:
Answer
price and output would increase.
output would increase but price would remain constant.
price would increase and output would decrease.
price would increase but output would remain constant.
10 points
Question 57



Refer to the above diagram. From society's perspective, if MB2 and MC1 are relevant:
Answer
Q4 represents too little pollution abatement.
Q1 represents too little pollution abatement.
Q3 represents an optimal amount of pollution abatement.
Q2 represents too little pollution abatement.
10 points
Question 58





Refer to the above diagrams in which figures (a) and (b) show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it. The collective willingness to pay for the 1st unit of this public good is:
Answer
$18.
$14.
$10.
$6.
10 points
Question 59

Answer the question on the basis of the following information for four highway programs of increasing scope. All figures are in millions of dollars.


The above data indicate that:
Answer
there is no highway program that is economically justifiable on the basis of cost-benefit analysis.
the marginal cost and marginal benefit of Program A are $2 and $9 respectively.
the marginal cost and marginal benefit of Program C are $12 and $21 respectively.
the marginal cost and marginal benefit of Program A cannot be determined.
10 points
Question 60

Because of the free-rider problem:
Answer
the market demand for a public good is overstated.
the market demand for a public good is nonexistent or understated.
government has increasingly yielded to the private sector in producing public goods.
public goods often create serious negative externalities.
10 points
Question 61

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences:
Answer
a consumer surplus of $10 and Tony experiences a producer surplus of $190.
a producer surplus of $200 and Tony experiences a consumer surplus of $10.
a consumer surplus of $670 and Tony experiences a producer surplus of $200.
a producer surplus of $10 and Tony experiences a consumer surplus of $190.
10 points
Question 62

A negative externality or spillover cost occurs when:
Answer
firms fail to achieve allocative efficiency.
firms fail to achieve productive efficiency.
the price of the good exceeds the marginal cost of producing it.
the total cost of producing a good exceeds the costs borne by the producer.
10 points
Question 63

Answer the question on the basis of the following information for a public good. Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society.


Refer to the above data. The collective willingness of this society to pay for the 2nd unit of this public good is:
Answer
$2.
$4.
$6.
$8.
10 points
Question 64

(Consider This) Brinley puts on an art show in a public space, asking for donations based on how much people enjoy his work. Economists would expect that:
Answer
people will understate their enjoyment of the art in order to "free ride."
people will overstate their enjoyment of the art, attempting to substitute praise for money.
people will accurately state their level of enjoyment and pay accordingly.
Brinley will reap significant economic profits from the event.
10 points
Question 65

At the optimal quantity of a public good:
Answer
marginal benefit exceeds marginal cost by the greatest amount.
total benefit equals total cost.
marginal benefit equals marginal cost.
marginal benefit is zero.
10 points
Question 66

Producer surplus:
Answer
is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.
rises as equilibrium price falls.
is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price.
is the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept.
10 points
Question 67

People enjoy outdoor holiday lighting displays, and would be willing to pay to see these displays, but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a:
Answer
negative externality
supply-side market failure
demand-side market failure
government failure
10 points
Question 68

Which of the following is an example of market failure?
Answer
negative externalities
positive externalities
public goods
all of these
10 points
Question 69



Refer to the above diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. With a per unit tariff in the amount PcPt, price and total quantity sold will be:
Answer
Pt and x.
Pc and z.
Pt and y.
Pa and x.
10 points
Question 70

In the real world, specialization is rarely complete because:
Answer
nations normally experience increasing opportunity costs in producing more of the product in which they are specializing.
production possibilities curves are straight lines rather than curves bowed outward as viewed from the origin.
one nation's imports are necessarily another nation's exports.
international law prohibits monopolies.
10 points
Question 71



Refer to the above diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. Sd + Q is the product supply curve after an import quota is imposed. A tariff of Pc Pt or an import quota of wy will have the same effect on:
Answer
the volume of imports.
the domestic price.
the revenues of domestic producers.
all of these.
10 points
Question 72



Refer to the above diagram pertaining to two nations and a specific product. The equilibrium level of exports and imports occurs at:
Answer
H, where GB and FC intersect.
J, where the vertical distance between A and B equals the vertical distance between C and D.
world price level F.
world price level G.
10 points
Question 73



Refer to the above diagram pertaining to two nations and a specific product. The equilibrium world price occurs at:
Answer
F.
I.
G.
J.
10 points
Question 74

Answer the question on the basis of the following domestic supply and demand schedules for a product. Suppose that the world price of the product is $1.


Refer to the above data. If the economy was opened to free trade and the world price of $1 prevailed, the price and quantity sold of this product would be:
Answer
$1 and 1 unit.
$1 and 16 units.
$3 and 7 units.
$2 and 11 units.
10 points
Question 75

Answer the question on the basis of the following production possibilities data for Gamma and Sigma. All data are in tons.
Gamma's production possibilities:

Sigma's production possibilities:


On the basis of the above information:
Answer
Gamma should export both tea and pots to Sigma.
Sigma should export tea to Gamma and Gamma should export pots to Sigma.
Gamma should export tea to Sigma and Sigma should export pots to Gamma.
Gamma should export tea to Sigma, but it will not be profitable for the two nations to exchange pots.
10 points
Question 76

Which of the following arguments contends that certain industries need to be protected in the interest of national security?
Answer
the increase-domestic-employment argument
the cheap-foreign-labor argument
the diversification-for-stability argument
the military self-sufficiency argument
10 points
Question 77

Suppose the United States eliminates high tariffs on German bicycles. As a result, we would expect:
Answer
the price of German bicycles to increase in the United States.
employment to decrease in the German bicycle industry.
employment to decrease in the U.S. bicycle industry.
profits to rise in the U.S. bicycle industry.
10 points
Question 78

The World Trade Organization was established as a successor to:
Answer
GATT.
NAFTA.
the EU.
the Doha Development Agenda.
10 points
Question 79

The terms of trade reflect the:
Answer
rate at which gold exchanges internationally for any domestic currency.
ratio at which nations will exchange two goods.
fact that the gains from trade will be equally divided.
cost conditions embodied in a single country's production possibilities curve.
10 points
Question 80

Other things equal, economists would prefer:
Answer
free trade to tariffs and tariffs to import quotas.
free trade to import quotas and import quotas to tariffs.
import quotas to tariffs and tariffs to voluntary export restrictions.
import quotas to free trade and free trade to tariffs.
10 points
Question 81



Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The data suggest that:
Answer
West Lothian should specialize in, and export, beer.
both countries will be better off if they do not engage in specialization and trade involving these two products.
West Lothian should specialize in, and export, pizza.
East Lothian should specialize in, and export, beer.
10 points
Question 82



Refer to the above diagram pertaining to two nations and a specific product. Lines FC and GD are:
Answer
domestic supply curves for two countries.
domestic demand curves for two countries.
import demand curves for two countries.
export supply curves for two countries.
10 points
Question 83

Answer the question on the basis of the following production possibilities data for two countries, Alpha and Beta, which have populations of equal size.


Refer to the above data. Beta:
Answer
should specialize in catching fish and trade with Alpha for chips.
should specialize in producing chips and trade with Alpha for fish.
will not realize gains from specialization and trade.
will export both fish and chips to Alpha.
10 points
Question 84



Refer to the above diagram showing the domestic demand and supply curves for a specific standardized product in a particular nation. If the world price for this product is $1.60, this nation will experience a domestic:
Answer
shortage of 160 units, which it will meet with 160 units of imports.
shortage of 160 units, which will increase the domestic price to $1.60.
surplus of 160 units, which it will export.
surplus of 160 units, which will reduce the world price to $1.00.
10 points
Question 85



Refer to the above graphs. Terryville has a comparative advantage in producing:
Answer
product A.
product B.
both product A and B.
neither product A nor B.
10 points
Question 86

Answer the question on the basis of the following 2010 balance of payments data (+ and ) for the hypothetical nation of Zabella. All figures are in billions of dollars.



Refer to the above data. Zabella's balance on goods and services shows a:
Answer
$5 billion deficit.
$5 billion surplus.
$10 billion surplus.
$15 billion deficit.
10 points
Question 87

Which one of the following will not directly affect the U.S. balance on current account?
Answer
an increase in U.S. goods imports
a decrease in U.S. net investment income
an increase in U.S. purchases of assets abroad
an increase in U.S. imports of services
10 points
Question 88

The following diagram is a flexible exchange market for foreign currency:



Refer to the above diagram. At the price $.80 for 1 euro:
Answer
the quantity of euros demanded equals the quantity supplied.
the dollar-euro exchange rate is unstable.
the dollar price of 1 euro equals the euro price of 1 dollar.
there will be a surplus of euros in the foreign exchange market.
10 points
Question 89

Assume that Brazil and Mexico have floating exchange rates. Other things unchanged, if the price level is stable in Mexico but Brazil experiences rapid inflation:
Answer
gold bullion will flow into Brazil.
the Brazilian real will depreciate.
the Mexican peso will depreciate.
the Brazilian real will appreciate.
10 points
Question 90

Which of the following would contribute to a United States balance of payments deficit?
Answer
Kawasaki builds a motorcycle manufacturing plant in Kansas City
United States tourists travel in large numbers to Europe
a wealthy Mexican citizen builds a mansion in Beverly Hills
Zaire pays interest on its debt to the United States
10 points
Question 91

The U.S. demand for British pounds is:
Answer
downsloping because a higher dollar price of pounds means British goods are cheaper to Americans.
downsloping because a lower dollar price of pounds means British goods are more expensive to Americans.
upsloping because a lower dollar price of pounds means British goods are cheaper to Americans.
downsloping because a lower dollar price of pounds means British goods are cheaper to Americans.
10 points
Question 92



Refer to the above diagram where D and S are the United States' demand for and supply of Swiss francs. At the equilibrium exchange rate, E, the United States' balance of payments is in equilibrium. Under a system of fixed exchange rates, the shift in demand from D to D' will cause:
Answer
the United States to increase its stocks of international monetary reserves.
a Swiss balance of payments deficit.
a U.S. balance of payments deficit.
a U.S. balance of payments surplus.
10 points
Question 93

Assume that, under a system of floating exchange rates, Mexicans decide to increase their investments in the United States. As a result:
Answer
the peso and the dollar will both depreciate.
the peso and the dollar will both appreciate.
the peso will depreciate and the dollar will appreciate.
the peso will appreciate and the dollar will depreciate.
10 points
Question 94

If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then:
Answer
the peso has appreciated in value.
Americans will buy more Mexican goods and services.
more U.S. goods and services will be demanded by the Mexicans.
the dollar has depreciated in value.
10 points
Question 95

The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $.10. We can conclude that:
Answer
1 yen = 280 Swiss francs.
1 yen = 14 Swiss francs.
1 Swiss franc = 28 yen.
1 Swiss franc = 14 yen.
10 points
Question 96

"International trade" refers to:
Answer
purchasing or selling currently produced goods or services across an international border.
any transaction across an international border.
any financial transaction across an international border.
buying or selling of preexisting assets across an international border.
10 points
Question 97

A deficit on the current account:
Answer
normally causes a surplus on the capital and financial account.
normally causes a deficit on the capital and financial account.
has no relationship to the capital and financial account.
means that a nation is making international transfers.
10 points
Question 98

Suppose the balance on the financial account is + $200 billion and the balance on the capital account is + $2 billion. The size of the current account is:
Answer
+ $200 billion.
-$ 202 billion.
- $198 billion.
+ $2 billion.
10 points
Question 99

The following diagram is a flexible exchange market for foreign currency:



Refer to the above diagram. Other things equal, a leftward shift of the demand curve would:
Answer
depreciate the dollar.
appreciate the euro.
reduce the equilibrium quantity of euros.
cause a surplus of euros.
10 points
Question 100

Which one of the following, other things equal, will directly alter the United States balance of trade?
Answer
an increase in the balance on capital account
a decrease in U.S. goods exports
an increase in net transfers
a decrease in U.S. purchases of assets abroad

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