Economics exam

Q1. The effect of contractionary monetary policy is to
a. decrease real output and increase the price level.
b. increase real output and decrease the price level.
c. increase real output and increase the price level.
d. decrease real output and decrease the price level.

Q2. A contractionary monetary policy
a. will lead to an increase in aggregate demand.
b. will lead to a decrease in aggregate demand.
c. is brought about by a lowering of the required reserve ratio.
d. is brought about by lower interest rates.

Q3. The price of bonds and the interest rate are
a. unrelated.
b. inversely related.
c. related, but we are not sure how.
d. positively related.

Q4. If the Fed increases the reserve requirement,
a. banks will issue more loans.
b. consumers will save more.
c. banks will issue fewer loans.
d. consumers will save less.

Q5. The Federal Reserve increased the money supply significantly during the Great Depression, but prices continued to fall anyway.
a. true
b. false

Q6. A sale of bonds by the Fed generates
a. a decrease in the demand for money balances.
b. an increase in the demand for money balances.
c. an increase in the demand for bonds and a rise in bond prices.
d. an increase in the supply of bonds and a fall in bond prices.

Q7. Both Keynesians and monetarists agree that monetary policy works by shifting aggregate supply.
a. true
b. false

Q8. Contractionary monetary policy is used to combat recessions.
a. true
b. false

Q9. The direct effect of an increase in the money supply is that
a. people will spend the extra money, causing the aggregate demand curve to shift to the right and resulting in a boost to economic activity.
b. people will spend the extra money, causing the aggregate demand curve to shift to the left and resulting in a recession.
c. people will save the money, causing an increase in bank deposits with the result that interest rates will increase.
d. people will save more money, causing a decrease in economic activity and a fall in prices.

Q10. If the Fed contracts the money supply,
a. the price level will rise.
b. interest rates will rise.
c. firms will increase their levels of investment.
d. aggregate demand will increase.

Q11. When the Fed buys government securities on the open market,
a. it is engaging in expansionary monetary policy.
b. interest rates will increase.
c. the money supply will contract.
d. bond prices will fall.

Q12. Keynesian economists believe that monetary policy works through its effect on
a. long-run aggregate supply.
b. the interest rate.
c. consumer confidence.
d. the federal budget deficit.

Q13. Economic growth is reflected in
a.

growth in total output.

b. an increase in tax revenue.
c. increases in the level of employment.
d. increase in per capita real GDP.

Q14. Which one of the following is TRUE?
a. Small changes in the annual growth rate amount to a measurable difference in the long-term growth trend of a country.
b. For every country that experiences an increase in its growth rate, there must be another experiencing a decline.
c. A well-defined system of property rights benefits only the wealthy, and consequently it produces income inequality that will stifle economic growth.
d. Restricting imports will enhance a country's economic growth.

Q15. Economic growth is reflected in the production possibilities curve becoming flatter.
a. true
b. false

Q16. Which one of the following is FALSE?
a. Increases in the capital stock can improve the productivity of labor.
b. Increases in the size of the labor force improve labor productivity.
c. Increases in labor productivity can enhance economic growth.
d. Labor productivity contributes to economic growth.

Q17. Research has shown that the growth of developing countries is most strongly enhanced by
a. providing a good secondary education.
b. increasing the money supply.
c. providing incentives to have large families.
d. providing colleges and universities.

Q18. Small differences in the annual growth rate of a country add up to large differences over time because of compounding.
a. true
b. false

Q19. Studies indicate that
a. there is no relationship between economic growth and saving.
b. there is a negative relationship between economic growth and saving.
c. there is a positive relationship between economic growth and saving.
d. saving does not contribute to capital formation.

Q20. Secondary schooling makes measurable contributions to economic growth in developing countries.
a. true
b. false

Q21. The more certain property rights are, the more capital accumulation there will be, and therefore the greater economic growth.
a. true
b. false

Q22. Which of the following is the most important factor affecting economic growth?
a. the rate of interest
b. the exchange rate
c. the price level
d. the rate of saving

Q23. Economic growth occurs when
a. there is an increase in the inflation rate.
b. there is an increase in the amount of capital.
c. there is an increase in the unemployment rate.
d. the production possibilities curve becomes flatter.

Q24. Which one of the following helps preserve incentives to develop new technologies?
a. tariffs
b. income taxes
c. patents
d. quantity restrictions on imports

Q25. The European Union is an example of a common market.
a. true
b. false

Q26. Which of the following is a true statement?
a. Exporters benefit from trade and importers do not.
b. Free trade harms domestic producers of goods that face import competition.
c. Consumers benefit from trade and producers do not.
d. Everyone benefits from free trade in the short run.

Q27. Table 16.1

Alpha's Production Possibilities

Beta's Production Possibilities

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.


Refer to Table 16.1. The table shows the production possibilities of cookies and coffee in Alpha and Beta measured in tons. In Alpha the domestic cost of 1 ton of cookies
a. is 5 tons of coffee.
b. changes with the level of coffee production.
c. changes with the level of cookie production.
d. averages 4 tons of coffee.

Q28. An infant industry is one in which
a. the firms are too new and too small to compete internationally.
b. no country has a comparative advantage.
c. no country has an absolute advantage.
d. the products are only consumed domestically.

Q29. Comparative advantage is related to the concept of opportunity cost.
a. true
b. false

Q30. The effect of a tariff is to
a. shift the supply curve of the imported good to the left.
b. shift the demand curve for the imported good to the left.
c. shift the demand curve for the imported good to the right.
d. shift the supply curve of the imported good to the right.

Q31. The effect of a quota is to
a. increase quantity supplied and lower price.
b. reduce quantity supplied and raise price.
c. increase quantity supplied and increase price.
d. increase demand for the good and increase price.

Q32. The law that created the high level of tariffs in United States in the 1930s is
a. the World Trade Act.
b. the North American Free Trade Agreement.
c. the Smoot-Hawley Act.
d. the Compromise Tariff.

Q33. Table 16.1

Alpha's Production Possibilities

Beta's Production Possibilities

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.


Refer to Table 16.1. If these two countries, Alpha and Beta, specialize based on comparative advantage
a. Beta will specialize in producing both items.
b. Alpha will specialize in cookies, and Beta will specialize in coffee production.
c. Alpha will specialize in coffee, and Beta will specialize in cookies.
d. Alpha will specialize in producing both items.

Q34. Which one of the following is FALSE?
a. Trade of goods facilitates the exchange of intellectual property as well.
b. The end result of trade is that richer countries take advantage of poorer ones.
c. A country enjoys an absolute advantage if it can produce a good with fewer resources than any other country can.
d. Countries that engage in trade will end up specializing according to their own comparative advantage.

Q35. A country is made richer by its exports and poorer by its imports.
a. true
b. false

Q36. Countries engaged in international trade specialize in production based on
a. the differences in transportation costs.
b. comparative advantage.
c. relative price levels.
d. relative foreign exchange rates.

Q37. The foreign sector of our economy has been steadily declining in size for the past 50 years.
a. true
b. false

Q38. Trade restrictions tend to make domestic products
a. cheaper because they do have to compete with foreign goods.
b. cheaper because they do not have to compete with foreign goods.
c. more expensive because they do not have to compete with foreign goods.
d. more expensive because they have to compete with foreign goods.

Q39. Every transaction concerning the exportation of American goods constitutes a
a. demand for foreign currency and a supply of dollars.
b. demand for dollars, with no effect on markets for foreign currencies.
c. supply of foreign currency, with no effect on the market for dollars.
d. supply of foreign currency and demand for dollars.

Q40.

Figure 17.1-Foreign Exchange Market for Yen

Refer to Figure 17.1. Suppose E is the original equilibrium. An increase in the inflation rate in Japan relative to the rate in the United States generates
a. an increase in the price of yen and an increase in the quantity of yen sold per week.
b. a decrease in the price of yen and a decrease in the quantity of yen sold per week.
c. a decrease in the price of yen and an increase in the quantity of yen sold per week.
d. an increase in the price of yen and a decrease in the quantity of yen sold per week.

Q41. If a country is experiencing a trade surplus, then all of its trading partners will be experiencing one also.
a. true
b. false

Q42. Floating exchange rates are determined by
a. the predictions of currency speculators.
b. the government of the importing country.
c. the forces of supply and demand.
d. the government of the exporting country.

Q43. Under floating exchange rates, the exchange rate is set by
a. negotiations among central banks of G-7 nations.
b. the U.S. Federal Reserve Board.
c. the International Monetary Fund.
d. the intersection of demand and supply curves in the currency markets.

Q44. The balance of payments is equivalent to the balance of trade.
a. true
b. false

Q45. The demand for Japanese yen will increase when
a. Japan becomes more productive relative to the United States.
b. Americans change preferences in favor of domestically produced goods.
c. America is perceived as more stable politically and economically than Japan.
d. real interest rates in Japan fall.

Q46. When a country attempting to maintain a fixed exchange rate runs out of foreign currency reserves, it is known as a
a. currency depreciation.
b. currency crisis.
c. currency appreciation.
d. hedge.

Q47. The balance of payments consists of the
a. capital account, official reserve transactions account, and recent account.
b. current account, official reserve transactions account, and monetary account.
c. current account, capital account, and official reserve transactions account.
d. current account, capital account, and gold flows.

Q48. An example of a unilateral transfer is
a. a gift to your university in the United States.
b. gold payments to foreign companies.
c. a gift to a relative who lives abroad.
d. receipts from the export of financial services.

Q49.

Figure 17.1-Foreign Exchange Market for Yen

Refer to Figure 17.1. Suppose E is the original equilibrium. The Japanese have increased their demand for U.S. goods. This will lead to
a. a decrease in the price of yen and a decrease in the quantity of yen sold per week.
b. an increase in the price of yen and a decrease in the quantity of yen sold per week.
c. an increase in the price of yen and an increase in the quantity of yen sold per week.
d. a decrease in the price of yen and an increase in the quantity of yen sold per week.

Q50. Which of the following statements is true about the role of gifts given to U.S. citizens from foreigners?
a. Gifts are only included in the balance of payments if the gift is over $1,000,000.
b. Gifts given to U.S. citizens are not included in the balance of payments, but gifts given to foreigners are included as deficit items.
c. Gifts are included in the balance of payments.
d. Gifts are not included in the balance of payments.