Download Test 4

ECON 2101
Practice Test 4
1. In the United States since 1960
A) the export share of GDP has increased while the import share of GDP has not
changed.
B) the import share of GDP has increased while the export share of GDP has not
changed.
C) both the export share of GDP and the import share of GDP have increased.
D) both the export share of GDP and the import share of GDP have decreased.
2. International trade has the potential to
A) increase the availability of goods and services to those nations that export more than
they import.
B) increase the availability of goods and services to those nations that have an absolute
advantage in the production of a good or service.
C) increase the availability of goods and services to all nations.
D) decrease the availability of goods and services to all nations.
3. Suppose that government purchases decrease and that the Fed acts to prevent any change
in the U.S. exchange rate. This action necessarily requires
A) an increase in money supply.
B) a decrease in money supply.
C) an increase in taxes.
D) a decrease in taxes.
4. Which of the following generates a demand for U.S. dollars in the currency market?
A) Japanese tourists shop in Barney's of New York
B) A Japanese businesswoman sells her U.S. government bonds.
C) An American citizen buys Japanese Yen for her trip to Japan.
D) A restaurant in Kansas imports Kobe beef from Japan.
5. The U.S. and Canada are major trading partners. Suppose the Canadian dollar rises
sharply in value against the U.S. dollar. At the same time, strong income growth in the
U.S. increased the demand for Canadian exports. What happens to Canada's net exports if
strong income growth in the U.S. has a stronger effect than that of the Canadian dollar
appreciation?
A) Net exports must necessarily rise.
B) Net exports must necessarily fall.
C) Net exports will remain constant.
D) The effect on net exports is indeterminate.
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6. A statement of spending flows into and out of the country during a particular period for
purchases of assets is called a
A) current account.
B) capital account.
C) net foreign investment account
D) net outflow account.
Use the following to answer question 7:
Figure 15-1
7. Refer to Figure 15-1. The equilibrium quantity, Q1 represents
A) the quantity of U.S. dollars supplied by the Federal Reserve in foreign markets.
B) the quantity of U.S. dollars supplied and demanded by foreign nationals.
C) It represents the quantity of U.S. dollars supplied by U.S. importers and U.S.
nationals who purchased foreign assets.
D) It represents the total amount foreigners spent in the United States during a given
period.
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8. The textbook analysis of international finance makes some simplifying assumptions.
What are they?
I. International transfer payments are ignored because they account for a relatively small portion
of international transactions.
II. International transfer payments are ignored because they account for a relatively small portion
of international transactions but inter-government transfer payments, such as foreign aid, are
included.
III. Payments to foreign owners of factors of production used in the domestic country are treated
as imports and payments received by domestic owners of factors of production used in foreign
countries are treated as exports.
IV. Payments to foreign owners of factors of production used in the domestic country are treated
as foreign purchases of domestic assets, and payments received by domestic owners of factors
of production used in foreign countries are treated as domestic purchases of foreign assets.
A) I, II and III.
B) I, II and IV.
C) I and III.
D) II and III.
9. An increase in the U.S. dollar exchange rate means foreigners must pay
A) more for dollars and more for U.S. exports.
B) less for dollars and more for U.S. imports.
C) more for dollars and less for U.S. exports.
D) less for dollars and less for U.S. exports.
10. A decrease in the money supply will shift the AD curve to the left.
A) True
B) False
11. In the late 1970s, the U.S. economy entered a stagflation phase characterized by
A) unemployment below its natural rate and rising inflation
B) unemployment above its natural rate and rising inflation.
C) unemployment at its natural rate and rising inflation.
D) unemployment above its natural rate and constant inflation.
12. The Phillips phase of the inflation-unemployment cycle emerges because
A) prices and wages are sticky.
B) nominal wages and prices fall.
C) the economy is stuck in an equilibrium below full employment.
D) people fully expect the price increases produced by increases in aggregate demand.
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13. Suppose an economy is operating with a contractionary gap. In this case, policymakers
would seek to move the economy
A) back down the Phillips curve, trading a reduction in inflation for an increase in
unemployment.
B) up the Phillips curve, trading a reduction in inflation for an increase in
unemployment.
C) back down the Phillips curve, trading a reduction in unemployment for an increase in
inflation.
D) up the Phillips curve, trading a reduction in unemployment for an increase in
inflation.
14. Each point on a Phillips curve is a different combination of
A) aggregate output and the unemployment rate.
B) the inflation rate and the unemployment rate.
C) aggregate output and the inflation rate.
D) saving and disposable income.
15. Which of the following predictions can be made using the growth rates associated with
the equation of exchange, given that velocity is stable and that the economy moves to its
potential output (YP) in the long run?
A) If %M = % YP , then %P = %M.
B) If %M > % YP , then %P > 0.
C) If %M > % YP , then %P > %M.
D) If %M = % YP , then %P < 0.
16. The reservation wage tends to increase as the duration of unemployment increases.
A) True
B) False
17. The vertical Phillips curve occurs in the long run because
A) the aggregate supply curve is vertical which means that changes in aggregate
demand will not change unemployment.
B) wage and price rigidities prevent changes in aggregate demand to change
unemployment.
C) economic agents are quick to respond to changes in the price level.
D) of lags in monetary and fiscal policies.
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18. In the early 1970s, President Nixon inherited an economy that was operating with an
inflationary gap. The Nixon administration rationalized that through a combination of a
government spending cuts and a decrease in the money growth rate, it could successfully
A) reduce inflation, which would then cause unemployment to fall.
B) get the economy to slide down along the Phillips curve, thereby trading off a
reduction in inflation for an increase in unemployment.
C) halt any increases in the price level by increasing productivity which would then
return the economy to its potential output.
D) get the economy to slide up along the Phillips curve, thereby trading an increase in
unemployment for deflation.
Use the following to answer question 19:
Figure 16-7
19. Refer to Figure 16-7. At point 4, the economy is experiencing
A) an inflationary gap.
B) a recessionary gap.
C) long-run equilibrium.
D) a recovery.
20. Expectations of higher inflation rates cause a leftward shift in the short-run aggregate
supply curve and usher in the stagflation phase of the inflation-unemployment cycle.
A) True
B) False
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Use the following to answer question 21:
Figure 16-1
21. Refer to Figure 16-1. Consider point A where inflation is relatively high and
unemployment is relatively low. In order to move down the curve toward point B, what
fiscal policy measures should the policymakers undertake?
A) decrease taxes and government spending
B) increase taxes and government spending
C) increase taxes and decrease government spending
D) decrease taxes and increase government spending
Use the following to answer question 22:
Figure 16-2
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22. Refer to Figure 16-2. Consider an economy that experiences a recessionary gap. Which
of the points in the diagram is consistent with this situation?
A) point X
B) point Y
C) either point X or point Y
D) neither of the two points
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