Multiple Choice Answers

Question 1
The effect of a tariff is to
shift the supply curve of the imported good to the left.
shift the demand curve for the imported good to the left.
shift the demand curve for the imported good to the right.
shift the supply curve of the imported good to the right.

Question 2
International trade is based on the existence of
productivity advantage.
comparative advantage.
perfect advantage.
absolute advantage.

Question 3
Table 16.1
Alpha’s Production Possibilities
ABCDE
Cookies43210
Coffee05101520

Beta’s Production Possibilities
ABCDE
Cookies86420
Coffee06121824
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 4
Table 16.4
ProductArgentinaFrance
Wine (in thousands of gallons)3060
Beef (in tons)1030
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, Argentina has the absolute advantage in
beef, but not wine.
wine, but not beef.
both beef and wine.
neither beef nor wine.

Question 5
The ability to produce more of a product with the same resources is known as
absolute advantage.
comparative advantage the.
economies of scale.
marginal cost production.

Question 6
A basic proposition in international trade is that
trade is determined by absolute advantage.
in the long run, imports are paid for by exports.
fair trade is more important than free trade.
everyone is made better off by free trade.

Question 7
Which one of the following is TRUE?
When tariffs are proposed, they typically are supported by consumers.
By purchasing imported goods, you destabilize the U.S. economy.
Quotas on imported goods will affect the quantity sold but not the equilibrium price.
A nation pays for its imports through its exports.

Question 8
Restrictions on imports
eventually reduce exports.
are the best way to increase exports.
protect United States jobs.
usually have no permanent effects on an economy.

Question 9
Table 16.1
Alpha’s Production Possibilities
ABCDE
Cookies43210
Coffee05101520

Beta’s Production Possibilities
ABCDE
Cookies86420
Coffee06121824
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
is 5 tons of coffee.
changes with the level of coffee production.
changes with the level of cookie production.
averages 4 tons of coffee.

Question 10
Suppose the United States and Japan are the only two countries and each can produce two goods wheat and cars. If the United States has an absolute advantage in wheat and Japan has an absolute advantage in cars, we know that
the United States has a comparative advantage in wheat and Japan has a comparative advantage in cars.
the United States must have a comparative advantage in cars and Japan in wheat.
there will be no trade because neither country has a comparative advantage in either good.
one of the countries will have a comparative advantage in wheat, but we can’t tell which one without more information.

Question 11
In the long run, imports are paid for by
investment.
gold or other universally accepted monies.
exports.
dollars.

Question 12
A common market is a group of countries operating a free trade zone.
True
False

Question 13
If in the long run, if imports are paid for by exports, then
any restriction of imports has no impact on exports.
any restriction of imports ultimately reduces exports.
any restriction of imports ultimately expands exports.
any restriction of exports has no impact on imports.

Question 14
When each country specializes according to its own comparative advantage, total world production is greater than it would be otherwise.
True
False

Question 15
A patent is
a bond issued by a state.
a bond issued by the government.
the monopoly right given to a producer or a company.
an agreement between a union and management on certain labor issues.

Question 16
Technological advances are more plentiful when there are rewards provided for those who produce them.
True
False

Question 17
Economic growth is reflected in the production possibilities curve becoming steeper.
True
False

Question 18
When present, the threat of nationalization inhibits economic growth.
True
False

Question 19
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 20
Saving inhibits economic growth by decreasing aggregate supply.
True
False

Question 21
Which one of the following helps preserve incentives to develop new technologies?
tariffs
income taxes
patents
quantity restrictions on imports

Question 22
Which of the following would typically be considered a cost of economic growth?
decreased levels of health
urban congestion
increased illiteracy
increased poverty

Question 23
Table 15.1
Country2003 Real GDP (Millions)2004 Real GDP (Millions)2003 Population (Millions)2004 Population (Millions)
A$214,200$256,300767.70798.40
B164,300174,70037.2037.80
C166,700184,3006.537.00
D200,800222,500114.49114.85

Refer to Table 15.1. Which country had the smallest increase in per capita real GDP?
A
B
C
D

Question 24
Investment spending
does not contribute to economic growth.
contributes to economic growth.
is a component of aggregate supply.
is not a component of aggregate demand.

Question 25
Which one of the following is FALSE?
Technology always progresses at a steady rate.
Saving contributes to economic growth by allowing for capital formation.
Nations with high rates of saving generally have high economic growth rates.
Labor productivity increases when the average output per worker rises.

Question 26
The development of human capital
enhances economic growth, but the individuals acquiring the capital are not made better off themselves.
enhances economic growth, but it does not improve the productivity of the labor force.
does not appear to enhance economic growth.
is a form of investment.

Question 27
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 28
A Federal Reserve purchase of bonds on the open market will supply the banking system with more reserves, and the likely result will be that banks will issue more loans.
True
False

Question 29
If the prevailing rate of interest in the economy were to rise, what effect would this have on the market price of existing bonds?
The market price is not related to the prevailing rate of interest, thus no change.
The market price would also rise.
The market price falls when the real interest rate is negative.
The market price would fall.

Question 30
As a result of an increase in the money supply, some banks may end up with excess reserves. What is the likely result?
Banks will spend the excess reserves by paying their employees more.
Banks will make more loans, thereby decreasing aggregate demand.
Banks will raise interest rates.
Banks will make more loans, thereby increasing aggregate demand.

Question 31
The effect of contractionary monetary policy is to
decrease real output and increase the price level.
increase real output and decrease the price level.
increase real output and increase the price level.
decrease real output and decrease the price level.

Question 32
For the Fed to attract buyers for new U.S. Treasury bonds, it must
offer them at a higher price than the current market rate.
offer them at a lower price than the current market rate.
decrease the coupon rate.
tie their price to gold.

Question 33
Long-term changes in the money supply are tied to changes in the price level.
True
False

Question 34
If a bond sells for $1,000 and pays $120 per year, the interest rate on the bond is
12 percent.
10 percent.
20 percent.
15 percent.

Question 35
If a bond sells for $2,000 and pays $200 per year, the interest rate on the bond is
12 percent.
15 percent.
20 percent.
10 percent.

Question 36
An excess supply of money will
raise bond prices.
decrease investment.
raise interest rates.
decrease income.

Question 37
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 38
The price of bonds and the interest rate are
unrelated.
inversely related.
related, but we are not sure how.
positively related.

Question 39
An increase in the supply of a currency on the foreign exchange market will lead to its depreciation, which will make its exports relatively affordable in other countries.
True
False

Question 40
A country enhances its wealth by exporting as much as possible.
True
False

Question 41
Exchange rates that are allowed to fluctuate in the open market in response to changes in supply and demand are known as
foreign transfer rates.
hedged exchange rates.
floating exchange rates.
standard transfer rates.

Question 42
The total of all economic transactions between a nation and the rest of the world is referred to as the
balance of payments.
exchange rate.
balance of power.
balance of trade.

Question 43
The capital account and the current account
are more-or-less mirror images of one anther.
always move in the same direction.
are determined by the level of employment within each country.
are both always negative for the U.S.

Question 44
If the foreign exchange rate is 70 cents for one yen, then
a clock that costs 500 yen will cost $350.00.
a car that costs 40,000 yen will cost $7,143.00.
a house that costs 100,000 yen will cost $700,000.00.
a wine that costs 200 yen will cost $14.00.

Question 45
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 46
The supply of dollars in foreign exchange markets is
determined by the American demand for foreign goods.
determined by the Federal Reserve Board.
a function of the international banking system.
determined by the demand for American goods.

Question 47
In winter months, U.S. grocers import apples from South America. This causes
a decrease in the supply of dollars and a decrease in the demand for South American currencies.
an increase in the supply of dollars and an increase in the demand for South American currencies.
an increase in the supply of dollars and an increase in the supply of South American currencies.
a decrease in the supply of dollars and an increase in the supply of South American currencies.

Question 48
If the dollar used to buy 360 yen and now buys 100 yen, there has been
a decrease in the demand for yen.
depreciation of the dollar.
appreciation of the dollar.
depreciation of the yen.

Question 49
Capital account transactions occur when foreigners purchase domestic investments.
True
False

Question 50
If British citizens demand more goods from France, then the supply of French francs will increase in the foreign exchange market.
True
False