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Question 1: (1 point) Output per worker in Canada in Britain Clothing 10 2 Food 8 4 In the above Table, Britain has an absolute advantage in both goods. (a) True (b) False Question 2: (1 point) No country can have a comparative advantage in everything. (a) True (b) False Question 3: (1 point) The real interest rate is the nominal interest rate minus the rate of inflation. (a) True (b) False Question 4: (1 point) International trade allows a country to produce a combination of goods lying outside its production possibility curve. (a) True (b) False Question 5: (1 point) The demand for French wine is one source of supply of French francs on the foreign exchange markets. (a) True (b) False Question 6: (1 point) If a chartered bank decided to keep ten percent excess reserves, the magnitude of the money multiplier would decrease. (a) True (b) False Question 7: (1 point) Economies of scale are the primary reason why coffee is grown in Brazil rather than British Columbia. (a) True (b) False Question 8: (1 point) The appropriate strategy for the Bank of Canada during a depression is to sell government bonds, to make low-risk, sound assets available for the chartered banks to buy. (a) True (b) False Question 9: (1 point) When the Bank of Canada increases its purchases of government securities, it is engaging in an expansionary act; when it sells government securities, it is engaging in a restrictive act. (a) True (b) False Question 10: (1 point) A foreign exchange market is a market in goods imported from foreign countries. (a) True (b) False Question 11: (9 points) For the following table calculate the government surplus/deficit at each year and calculate the total government debt. (Ensure you use negative signs where appropriate when entering your answers) Cumulative Government Surplus/ Deficit Debt (-) (Don't use negative sign) ____________ ____________ Year Taxes Government Spending 1 60 90 2 70 110 ____________ ____________ 3 80 120 ____________ ____________ 4 90 125 ____________ ____________ 5 100 135 ____________ Question 12: (1 point) Fill in the blanks: Indicate whether the following policy statement is Fiscal or Monetary or Neither Increasing its deposits with the chartered banks ____________ Question 13: (1 point) Fill in the blanks: Indicate whether the following policy statement is Fiscal or Monetary or Neither Eliminate accelerated write offs on research and development ____ Question 14: (1 point) Fill in the blanks: Indicate whether the following policy statement is Fiscal or Monetary or Neither Entering the open market and selling securities (bonds) ____________ Question 15: (1 point) Fill in the blanks: Indicate whether the following policy statement is Fiscal or Monetary or Neither Increasing the reserve ratio ____________ Question 16: (1 point) Fill in the blanks: Indicate whether the following policy statement is Fiscal or Monetary or Neither Increase Central Bank deposits in the chartered banks ____________ Question 17: (1 point) Fill in the blanks: Indicate whether the following policy statement is Fiscal or Monetary or Neither Alberta decides to join OPEC Question 18: (8 points) Using the data in the table below, answer the following questions. (Hint: draw a graph when possible) Money Demand Interest Rate% (billions of dollars) 14 200 13 220 12 240 11 260 10 300 9 360 8 420 7 500 6 600 Assume that the money supply is equal to 260 Part 1: What is the equilibrium rate of interest? ____________ Part 2: Assume that the Bank of Canada buys bonds and increases the money supply to 420 What is the equilibrium rate of interest? ____________ Part 3: A fall in income causes the demand for money to 1)INCREASE 2)No Change or 3)Decrease__________ by 60 billion. If the money supply is 180, what is the equilibrium rate of interest? ____________ Part 4: Assuming the change in part 3, if money supply is 440, what is the equilibrium rate of interest? ____________ Part 5: An increase in income causes the transaction demand for money to 1)INCREASE 2)No Change or 3)Decrease __________ by 40 billion at each interest rate. (Assume the change in part 3 did not occur. Given a money supply of 260, what is the equilibrium rate of interest? ____________ Part 6: Given the change in part 5, if money supply is 400, what is the equilibrium rate of interest? ____________ Question 19: (15 points) The balance sheet below shows the effect of a new 3,400 deposit in Bank A. Assume that the commercial banks have established a 14 percent desired reserve and that no bank holds excess reserves. BANK A Assets Liabilities Reserves 3,400 Deposits 3,400 Loans 0 Assume that Bank A lends its excess reserves to Mr. Jones who spends the proceeds of the loan. Show Bank A's new balance sheet Assets Reserves ____________ Loans ____________ BANK A Liabilities Deposits ____________ The money Mr. Jones borrows is deposited in Bank B. Bank B lends its excess reserves to Mr. Smith. Show Bank B's balance sheet after the loan has been made out. BANK B Assets Liabilities Reserves ____________ Deposits ____________ Loans ____________ The money Mr. Smith borrows is deposited in Bank C. Bank C lends its excess reserves to Mr. Black. Show Bank C's balance sheet after the loan has been made out. BANK C Assets Reserves ____________ Loans ____________ Liabilities Deposits ____________ The money Mr. Black borrows is deposited in Bank D. Bank D lends its excess reserves to Mr. Green. Show Bank D's balance sheet after the loan has been made out. BANK D Assets Liabilities Reserves ____________ Deposits ____________ Loans ____________ If the above process continues to completion, the following totals will exist for the banking system: Part 7: Deposits ____________ Part 8: Reserves ____________ Part 9: Loans ____________ Question 20: (1 point) Fill in the blanks: An absolute advantage is a necessary condition for gains from trade. No or Yes____ Question 21: (1 point) Fill in the blanks: If with one unit of resources region A can make more of product X than a similar unit in region B, region A is said to have a comparative advantage over B in the production of X. No or Yes ____ Question 22: (1 point) Fill in the blanks: For trade to take place, it is sufficient for a Country to have an absolute advantage in the production of some other commodity. No or Yes ____ Question 23: (1 point) Fill in the blanks: Opportunity Cost and Comparative Advantage can be expressed in terms of each other. No or Yes ____ Question 24: (5 points) The following table shows how much wine and cloth can be produced in Canada and in Portugal with the same amount of resource input. ( Ensure you put only the numbers, not the words 'cloth' and 'wine' when entering your answer) Canada Portugal Wine (barrels) 30 180 Cloth (meters) 90 360 1. The opportunity cost of 1 barrel of wine in Canada is? ____________ 2. The opportunity cost of 1 barrel of wine in Portugal is? ____________ 3. Portugal will export wine to Canada, if 1 barrel of wine can be traded for more than how many meter(s) of cloth? ____________ 4. Canada will import wine from Portugal provided that 1 meter of cloth trades for more than how many barrel(s) of wine? ____________ 5. If the international rate of exchange is 1 wine = 2.4 cloth can the two countries trade with each other? (Enter 1 or 2: 1 = yes or 2 = no) ____________ Question 25: (1 point) Fill in the blanks: Assume the exchange rate was fixed at 1 Canadian dollar for 1 American dollar. Would the following events cause pressure on the Canadian dollar to Appreciate or Depreciate? A rise in the American rate of interest to a level substantially higher than that in Canada ____________ Question 26: (1 point) Fill in the blanks: Assume the exchange rate was fixed at 1 Canadian dollar for 1 American dollar. Would the following events cause pressure on the Canadian dollar to Appreciate or Depreciate? An increase in the price level in the U.S. ____________ Question 27: (1 point) Fill in the blanks: Assume the exchange rate was fixed at 1 Canadian dollar for 1 American dollar. Would the following events cause pressure on the Canadian dollar to Appreciate or Depreciate? An increase in the price level in Canada ____________ Question 28: (1 point) Fill in the blanks: Assume the exchange rate was fixed at 1 Canadian dollar for 1 American dollar. Would the following events cause pressure on the Canadian dollar to Appreciate or Depreciate? Many Canadians plan to vacation in Florida for the winter ____________ Question 29: (5 points) Using the following table, calculate the missing exchange rates: Country Currency Price of one unit of foreign currency in Canadian dollars U.S.A. Britain France Japan Mexico Dollar Pound Euro Yen Peso 1.37 ____________ 0.25 ____________ 0.019 Price of one Canadian dollar in terms of foreign currency ____________ 0.5125 ____________ 119.9275 ____________ Question 30: (1 point) Fill in the blanks: Foreign direct investment in Canada increases Capital account receipt/Capital account payment/ Current account payment/ Current account receipt Question 31: (1 point) Fill in the blanks: Direct investment abroad by Canadians during the year increases Capital account receipt/Capital account payment/ Current account payment/ Current account receipt Question 32: (1 point) Fill in the blanks: Expenditures in Canada by American tourists increases Capital account receipt/Capital account payment/ Current account payment/ Current account receipt Question 33: (1 point) Fill in the blanks: Interest and dividends received by foreigners on their holdings of Canadian bonds and stocks increases Capital account receipt/Capital account payment/ Current account payment/ Current account receipt Question 34: (1 point) Fill in the blanks: Interest and dividends paid to Canadians by foreigners increases Capital account receipt/Capital account payment/ Current account payment/ Current account receipt Question 35: (1 point) Fill in the blanks: Shipments of non-monetary gold abroad Capital account receipt/Capital account payment/ Current account payment/ Current account receipt Question 36: (1 point) Fill in the blanks: Canadian imports are what type of item? __Debit or Credit__ Question 37: (1 point) Fill in the blanks: A transaction that typically leads to the sale of foreign currency is recorded as a? Debit or Credit Question 38: (1 point) Fill in the blanks: A transaction that typically leads to the purchase of foreign currency is recorded as a? Debit or Credit Question 39: (1 point) Fill in the blanks: The record of transactions between a nation and foreign countries is called its? Terms of trade or Balance of payment Question 40: (1 point) Fill in the blanks: Corporate tax cuts in Canada raise expected after-tax, investment returns in Canada rise relative to those in Europe Canadian Dollar appreciated, the Euro depreciates/ Gains from trade/ Balance of payment deficit/ or A trade deficit occurs Question 41: (1 point) Fill in the blanks: Current account Exchange rates between two nations adjusts to reflect the price level differences between the countries/ Includes flow of payments from the purchase or sale of real or financial assets/ Balance of payment deficit/ or Summarizes Canada’s trade in currently produced goods and services Question 42: (1 point) Fill in the blanks: Appreciation of Canadian dollar Canadian dollar buys a large amount of the foreign currency/ Floating exchange rate/ Dollar buys a smaller amount of the foreign currency/ or The rate at which units of one product can be exchanged for units of another product