econ 125-hk2. economics for managers exam

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> TAKE ASSESSMENT: EXAM 1

Question 12 pointsSave

Which of the following economic systems abolishes all private property?

communism

socialism

fascism

all of the above


The profit motive is one characteristic of a command economy.

True

False


In a market system, the government enforces laws ensuring that private enterprises and conditions of competition will prevail.

True

False


The most common type of business in the United States is the corporation.

True

False


Laissez-faire is a policy of no government intervention in the economic activities of individuals and businesses.

True

False


In a partnership, each partners liability is limited to his or her contribution to the partnership.

True

False


There are no government-regulated markets in the U.S. economy.

True

False


Which of the following is not among the United States economic goals?

full employment

stable prices

healthy economic growth

equal distribution of income


Under the U.S. market system, land and capital goods are owned mainly by

the federal government

individuals and firms

local governments

state governments


The biggest disadvantage of a sole proprietorship is the lack of distinction between the business and the owner.

True

False


In the United States, marketing cooperatives are most commonly found in the agriculture industry.

True

False


Self-interest is a major tenet of economic liberalism.

True

False


Which of the following is considered a command economy?

communism

socialism

fascism

all of the above


Economics is considered a physical science.

True

False


The difference between a capital good and a consumer good depends on

the purpose for which it is used

how it was produced

what it is

how quickly it is used up


Positive economics deals with what is as opposed to what ought to be.

True

False


Production is the creation or addition of utility.

True

False


Consumption is the ultimate end of economic activity.

True

False


The relationship between the price of a book and the number of volumes purchased would be an example of microeconomics.

True

False


An example of a macroeconomic model is

the price of chicken influences the quantity of chicken bought

the size of the total national output depends on the size of total spending

the output of a product is influenced by the cost of production for the product

all of the above


The largest share of the total income of the United States is currently being distributed in the form of

interest

rent

wages

profits


Which of the following areas of study is included in the field of macroeconomics?

electricians wage rates

monopolistic pricing

price of automobiles

general price level


The total value of the goods and services produced over a period of time represents an economys

planned savings

total income

total wealth

capital


Stocks and bonds are counted as part of total wealth.

True

False


The stock of labor talents and skills is known as

a public good

the functional distribution

human capital

enterprise


One cause for the uneven standard of living throughout the world is the uneven distribution of resources.

True

False


In exercising the principle of comparative advantage, a nation with no absolute advantage should produce a commodity in which it faces a lower opportunity cost than its trading partners face.

True

False


Government regulations which affect entrepreneurial activities within a nation also affect total output and the standard of living.

True

False


A need to make choices exists because of

scarcity of resources

the abundance of goods

unlimited human needs and wants

both (a) and (c)


The principle of comparative advantage applies to

individuals only

business firms only

nations only

individuals, businesses, and nations


Economics can be defined as the study of choices.

True

False


Suppose that Country A has an absolute advantage over country B in the production of both wheat and cloth. The opportunity cost of 1 unit of wheat is 2 units of cloth in Country A and 3 units of cloth in Country B. If each country specializes in producing the good in which it is relatively more efficient and then trades for the other good, it follows that

all the resulting gains in consumption will go to Country A

all the resulting gains in consumption will go to Country B

each country will experience half the resulting gains in consumption

the allocation of the resulting consumption gains will be determined by bargaining between the two countries.


Exercising the principle of comparative advantage between nations primarily involves

specialization

transportation costs

currency exchange rates

domestic income tax rates


An example of technological development is to increase output through

raising pay

working longer hours

hiring more workers

using better machines


An economys production possibilities curve could shift outward as a result of a(n)

increased level of technology

reduction in the quantity of capital goods

decrease in the production of goods

decrease in the amount of available resources


A nation needs an abundance of all productive resources in order to attain a high standard of living.

True

False


To solve their basic long-term economic problems, developing countries primarily need

food

clothing

technical assistance

shelter


A surplus quantity will occur when

quantity demanded is greater than quantity supplied

price is above equilibrium

demand is elastic

price is below equilibrium


A change in demand would be illustrated by

a drop in price, which causes people to buy more

an increase in price, which causes people to buy less

a change in peoples preferences that causes them to buy either more or less than before

all of the above


If 12 units of a good are sold when the price is $1 per unit, and 8 units are sold at a price of $1.50 per unit, then demand is

elastic

inelastic

of indeterminate elasticity

unit elastic


The more substitutes for a good, the more elastic its demand tends to be.

True

False


A demand curve generally

is a straight horizontal line

is a straight vertical line

slopes downward to the right

slopes downward to the left


The quantity supplied and price tend to vary

inversely

independently

in an unrelated fashion

directly


Price elasticity of demand tends to be greater for substitute items than for complementary goods.

True

False


To maintain a price below the equilibrium price,

demand must increase

supply must increase

the government must set a ceiling price

supply must decrease


An increase in demand will cause the demand curve to

move to the right

move to the left

become more vertical

become more horizontal


Price ceilings usually create surpluses since supply is increased.

True

False


Price floors can create shortages if price floors are above market prices.

True

False


When the supply of a product increases but the demand for the product remains unchanged, the equilibrium price of the product will

fall, and equilibrium quantity will decrease

be unaffected

first rise and then return to the original price level

fall, and equilibrium quantity will increase


On a price/quantity graph, a straight horizontal demand curve

has zero price elasticity

is perfectly elastic

is perfectly inelastic

is perfectly unit elastic

ECON125-HK2. ECONOMICS FOR MANAGERS (ECON125-HK2) > TAKE ASSESSMENT: EXAM 2


A firm is making a profit under conditions of monopolistic competition if, at the equilibrium output,

AR is above MR

MR is above AR

AR is above AVC

AR is above ATC


Firms in monopolistic competition sell a similar but differentiated product.

True

False


A major characteristic of a monopoly is the ability of the monopolist to influence price.

True

False


The Federal Trade Commission

prevents mergers that substantially lessen competition

rules on the antitrust activities of labor unions

issues patents

polices deceptive advertising


If a monopolist lowers its price from $45 to $42 in order to increase its sales volume, marginal revenue

equals $45

equals $42

is less than $42

is between $45 and $42


The first act to declare monopolies illegal in the United States was the

Sherman Antitrust Act

Clayton Act

Federal Trade Commission Act

Robinson-Patman Act


One company that retained its monopoly position for years through control of raw materials was

Aluminum Company of America (ALCOA)

Proctor & Gamble

Ford Motor Company

U.S. Steel


Monopsony is a market condition in which there is only one seller.

True

False


If firms in monopolistic competition are earning short-run profits,

barriers to entry will allow the profits to continue in the long run

total supply in the market will decrease in the long run as firms reduce output to keep prices high

the entry of new firms will eliminate the profits in the long run

each existing firm will experience an increase in its average revenues in the long run


Oligopoly is a market structure in which

there are only two sellers

there are relatively few producers

no firm can influence price

there are many producers


All firms in monopolistic competition must sell at the same price.

True

False


The major characteristic of a monopoly is

the degree of control over price it can exercise

its ability to produce numerous products

its price elasticity of demand

its source of revenue


Under which type of market structure is the firms pricing decision the most difficult?

perfect competition

monopoly

monopolistic competition

oligopoly


Under perfect competition, if a firm is suffering a loss,

MR exceeds ATC

AR equals AVC

AR equals ATC

AR is less than ATC


The difference between the price firms would be willing to accept for their goods and the price they actually receive is called

consumer surplus

consumer efficiency

allocative efficiency

producer surplus


In the long run, under conditions of perfect competition, market forces come into play to

enhance profits

increase demand

eliminate profits

separate MR and AR


Under conditions of perfect competition, an individual producer

always maximizes output

operates where MR equals MC

never suffers a loss

operates where MR is greater than MC


If all firms adhere to the conditions of perfect competition, short-run losses are avoided.

True

False


If a firm in a perfectly competitive industry is producing at a point where TR equals TC and the market demand increases, then the firm will be making

economic profits; it will expand output

economic profits; output will not change

normal profits; output will expand

normal profits; output will not change


In perfect competition, if the market price is at the same level as the minimum point of the firms average total cost curve, the best the firm can hope for is to break even.

True

False


In a perfectly competitive industry, if TR exceeds TC, then in the long run

firms will exit the industry

new firms will enter the industry

there will be no change in the number of firms

the market supply will shift to the left


A prime example of perfect competition is the U.S. auto industry.

True

False


Elaines firm is in a perfectly competitive industry. Why doesnt Elaine try to sell more of her product by lowering its price below the market price?

her demand curve is not elastic

doing so would be considered unethical price chiseling

her competitors would not allow it

she can sell all she wants at the market price


Which of the following is correct when the perfectly competitive firm is producing its long-run equilibrium output level?

MR equals MC

AR equals ATC

P equals MC

all of the above


Under conditions of perfect competition, short-run equilibrium does not necessarily exist where

profit is maximized or loss minimized

MR = AR

MR = MC

MR = ATC


According to the simple circular flow concept, whenever planned investment is less than planned saving

inventories accumulate

output increases

prices rise

employment increases


In the circular flow, investment refers to spending on

government bonds

certificates of deposit

capital goods

consumer goods


Inventory accumulation occurs whenever

output is less than spending

output exceeds spending

investment exceeds saving

a deficit budget occurs


A decrease in investment can cause a decrease in the price level without affecting total output.

True

False


In the circular flow, nonprofit institutions are

counted as businesses

excluded

treated separately

counted as households


During a period of unemployment, a deficit budget will most likely have which of the following effects on business activity?

increase total output

cause prices to rise

have a neutral effect

cause prices and total output to fall


An increase in planned savings always results in an increase in planned investment.

True

False


If the federal government spends less than it receives from taxes,

it has a surplus budget with injections exceeding leakages

it has a deficit budget with injections exceeding leakages

it has a deficit budget with leakages exceeding injections

it has a surplus budget with leakages exceeding injections


In the simple circular flow model, if planned I exceeds planned S, then

the economy is not at equilibrium

the size of the circular flow is increasing

if the economy is at full employment, then prices will rise

all of the above


If inventories are accumulating, income must be greater than spending.

True

False


Whenever exports exceed imports (and other planned injections equal other planned leakages), the economy

remains stable

expands

contracts

deflates


Which of the following statements concerning the circular flow model is (are) correct?

an increase in planned savings always generates an increase in planned investment spending

planned investment spending is an injection into the circular flow

increased investment always results in decreased savings

all of the above


It is true that a stable economy occurs when

total injections into the circular flow are large enough to make up for government tax leakages

total leakages from the circular flow are great enough to offset the effects of government spending

total planned leakages from the circular flow are exactly equal to total planned injections into the circular flow

actual saving is equal to planned investment


In a mature industry, all firms operate with constant returns to scale.

True

False


If the accounting profit equals $200,000 and implicit costs equal $40,000, the economic profit equals

$240,000

$200,000

$160,000

$40,000


If the firm produces one more unit of output and total cost rises from $1,000 to $1,050, marginal cost is

$1,050

$1,000

$2,050

$50


The major factor accounting for diseconomies of scale is management inefficiency.

True

False


Average revenue (AR) is equal to

total revenue/output

total revenue minus total cost

price per unit

both (a) and (c)


The average fixed cost remains constant even in the long run.

True

False


A production function is

a technique for determining the most profitable rate of output

the relationship between a combination of inputs and a quantity of output

an important factor in determining the shape of the long-run supply curve

all of the above


If the selling price of a product is $10, the average total cost is $8, and total sales are 5,000 units, the total profit will be

$5,000

$8,000

$10,000

$20,000


The production function relates outputs to inputs.

True

False


As units of input are added to the productive process, the marginal product

increases

decreases

remains the same

declines then rises


The average product decreases any time the marginal product is decreased.

True

False


If output changes in fixed proportion to a change in all of a firms productive resources, the firm has

constant marginal returns

constant returns to scale

decreasing marginal returns

decreasing returns to scale



If planned investment decreases, the multiplier will decrease the equilibrium income.

True

False


The change in the level of planned spending that results from a change in the price level is indicated by the movement of the economy along a given

aggregate expenditure curve

aggregate demand curve

aggregate supply curve

both (a) and (b)


In the Keynesian model, whenever unplanned inventory increases occur in the economy, production is likely to

speed up slowly

slow down

remain unchanged

speed up immediately


If planned construction investment increases by $30 billion and the MPC is two-thirds, total output will increase by

$30 billion

$20 billion

$45 billion

$90 billion


Keynes recommended the use of government deficit spending to overcome widespread unemployment.

True

False


According to the Keynesian analysis, as income increases, the marginal propensity to consume will rise.

True

False


Says Law states that

supply is greater than demand

supply is less than demand

demand generates supply

supply generates demand


The time lags lead monetarists to contend that monetary policy is counterproductive.

True

False


The classical doctrine assumed that the normal equilibrium position for the economy was at full employment.

True

False


According to the Keynesian analysis, equilibrium occurs at the point where total aggregate expenditure equals total output.

True

False


In the Keynesian model, the most important influence on planned consumption is

the interest rate

expectations

disposable income

the price level


The multiplier is the reciprocal of the marginal propensity to consume.

True

False


Aggregate expenditure in the U.S. economy includes spending for U.S. output by

households and businesses, but not governments

households, businesses, and the federal government, but not state and local governments

households, businesses, and all governments except foreign ones

households, businesses, and governments, both domestic and foreign


The bulk of the M1 money supply is made up of

silver dollars and gold bars

checkable deposits

travelers checks

money market funds


If a new cash deposit creates excess reserves of $5,000 and the required reserve ratio is 10 percent, the banking system can increase the money supply by a maximum of

$50,000

$500

$5,000

$4,500


An increase in the velocity of money can have an effect similar to that of an increase in the money supply.

True

False


If a bank has $60,000 in legal reserves and is subject to a 10 percent reserve requirement, it could have outstanding checkable deposits to the extent of

$60 million

$600,000

$6 million

$60,000


If a workers money wage increases at a faster pace than the CPI, his or her real wage will rise.

True

False


The Treasury issues all paper currency today.

True

False


Funds that earn a fixed rate of interest and must be held for a stipulated period of time are known as

checkable deposits

time deposits

savings deposits

money market funds


Included in the official U.S. money supply are

U.S. government bonds

corporate stocks

checkable deposits

all of the above


The U.S. money supply measure that consists of currency plus travelers checks and checkable deposits is referred to as

M1

M2

M3

M1 + M2


The quantity theory of money assumes that

the national economy tends to operate at less than full

the velocity of money is unstable

the national economy tends to operate at full employment

the velocity of money varies with changes in interest rates


If the CPI in City A is 150 and the CPI in City B is 135,

the dollar has greater purchasing power in City B

prices are higher in City A than they are in City B

City B must be using a different base year

none of the above


The value or purchasing power of the dollar can be obtained by dividing $1 by the CPI.

True

False


Stored value and smart cards are forms of electronic banking.

True

False


Each Federal Reserve Bank has its own board of directors.

True

False


The First Bank of the United States was chartered by

the federal government

the state of New York

the city of New York

Suffolk County


All members of the Board of Governors are members of the Feds Open Market Committee.

True

False


The Federal Reserve System was established in

1980

1913

1864

1791


Members of the Board of Governors are

appointed by Congress

selected by the U.S. President

elected by member banks

selected by the U.S. Treasury Department


By buying government securities, the Federal Open Market Committee adds to member banks reserves.

True

False


The Board of Governors of the Federal Reserve System is

under the jurisdiction of the U.S. President

responsible to the Secretary of the U.S. Treasury

independent within the U.S. government

responsible to the Council of Economic Advisors


The members of the Board of Governors of the Federal Reserve System are appointed by the U. S. President.

True

False


Various studies have recommended changes in the Federal Reserve structure and policy that include

having Congress set the discount rate

placing monetary policy in the control of Congress

dissolving the Board of Governors

making each appointment to the Board of Governors a lifetime appointment


If the Federal Open Market Committee desired to tighten credit, it would

buy securities in the open market

sell securities in the open market

lower the discount rate

raise the discount rate


Competition in U.S. banking has been increased by

the expansion of interstate banking

the expansion of foreign bank branches into the United States

the movement of brokerage houses and large corporations into traditional banking activities

all of the above


If a Federal Reserve Bank wanted to tighten the money supply, it would

lower the reserve requirement

buy securities in the open market

raise the discount rate

lower the discount rate


The existence of undistributed corporate profits tends to cause

NNP to be smaller than GDP

national income to be larger than personal income

national income to be smaller than NNP

personal income to be larger than disposable personal income


National income is equivalent to total earnings in the form of wages, rent, interest, and profits.

True

False


The GDP counts durable goods only during their year of production.

True

False


Imports constitute a minus figure in national income accounting.

True

False


GDP overstates national income because it does not make any adjustment for national debt.

True

False


The national income accounts for the United States are prepared by the

Bureau of Labor Statistics

U.S. Department of Commerce

Federal Reserve Board

President Council of Economic Advisors


Excluded from the GDP are

military services

postal services

medical services

nonmonetary transactions


The difference between GDP and final sales equals

depreciation

exports

imports

net inventory change


In dollar value, the nominal GDP in the United States is in the vicinity of

between 3 and 4 billion

between 4 and 5 billion

between 4 and 5 trillion

between 10 and 12 trillion


The GDP and NI figures are not equal because

business profits are included in GDP but not in NI

depreciation and indirect taxes are included in GDP but not in NI

all taxes must be deducted from GDP to arrive at NI

none of the above


Current disposable income can be adjusted for price changes and population changes to yield real per capita disposable income.

True

False


Personal consumption expenditures account for approximately two-thirds of the GDP in the United States.

True

False



U.S. workers have

neither substantial geographic nor occupational mobility

both substantial geographic and occupational mobility

substantial geographic mobility but not occupational mobility

substantial occupational mobility but not geographic mobility


Many economists believe that increases in the minimum wage tend to create a labor surplus.

True

False


The rate of unemployment that can be expected from normal frictional unemployment in an otherwise fully employed labor force is known as the

natural rate of unemployment

full-employment unemployment rate

structural unemployment rate

Humphrey-Hawkins unemployment rate


If workers are changing jobs voluntarily and it takes a while for them to find new jobs, they are an example of

structural unemployment

frictional unemployment

technological unemployment

none of the above


Underemployment includes employed workers not performing at full capacity.

True

False


The Humphrey-Hawkins Acts target rates for unemployment and inflation were reached by their target date of 1983.

True

False


Which type of unemployment is the most difficult to cure?

functional

seasonal

cyclical

structural


The idea of the natural rate of unemployment is that

frictional and structural causes prevent employment in the economy from ever becoming 100 percent of the labor force

each industry has its average turnover rate, and this rate determines its natural rate of unemployment

the market system requires that a pool of unemployed people be available to limit the power of workers

none of the above


The total U.S. labor force excludes members of the armed services stationed outside the United States.

True

False


The Full Employment and Balanced Growth Act set a 1983 U.S. inflation rate target of

1 percent

2 percent

3 percent

4 percent


The total labor force includes all persons in the noninstitutional population who are either working or seeking work.

True

False


The natural rate of unemployment is usually

equal to the full-employment rate of unemployment

higher than the full-employment rate of unemployment

lower than the full-employment rate of unemployment

double the full-employment rate of unemployment


If the percentage of the population that is below the poverty line has decreased, then the number of

poor must have increased

poor must have decreased

poor may have increased

people above the poverty line must have increased


If a Lorenz curve were constructed for the distribution of wealth, the curve would

indicate greater inequality for wealth than income

indicate less inequality for wealth than income

be identical to the Lorenz curve for income

be a straight line from the origin


The total number of people in poverty has changed little since the late 1960s.

True

False


The poverty rate for blacks is almost three times that for whites.

True

False


If everyone had the same income, the Lorenz curve would become the line of income equality.

True

False


The official poverty threshold line is adjusted annually for

income taxes

inflation

average household size

average family size


In 2004, households with incomes less than $22,629 received

3.4 percent of aggregate income



10 percent of aggregate income


Nonfamily households earn less than 50 percent of the income earned by family households.

True

False


The Lorenz curve shows the

percent of families on the vertical axis and percent of income on the horizontal axis

percent of families on the horizontal axis and the cumulative percent of income on the vertical axis

cumulative percent of income on the vertical axis and the cumulative percent of families on the horizontal axis

cumulative percent of families on the vertical axis and the cumulative percent of income on the horizontal axis


A minimum wage rate job raises a family out of poverty.

True

False


In discussing the distribution of income among families, the term lowest fifth indicates

the poorest five percent of families

the poorest twenty percent of families

the smallest twenty percent of families

the percentage of families receiving one-fifth of the income


If income were distributed solely according to productivity, some individuals would not receive any income.

True

False


Cost-push inflation is characterized by

the wage-price spiral

administered pricing

stagflation

the multiplier


Inflation and unemployment can never exist at the same time.

True

False


To most effectively combat inflation by raising taxes, the government should

target funds that would otherwise be held idle

also increase government spending

target households with low marginal propensities to consume

target funds that would otherwise be spent on consumption or investment


During an inflationary period, the Fed is inclined to purchase government securities to combat inflation.

True

False


In the 1970s, the war in Vietnam caused a fiscal drag on the economy.

True

False


Government policies designed to lower aggregate demand in order to combat inflation are known as

expansionary policies

contractionary policies

anti-growth policies

recession policies


During the 19901991 recession, the U.S. governments large budget deficits and budget reduction commitments limited its ability to use fiscal policy to stimulate the economy.

True

False


When the U.S. Treasury sells bonds to the public to finance government spending and then the Fed buys the bonds through open-market purchases, the Fed is

monetizing the debt

decreasing the money supply

decreasing bank reserves

increasing the difficulty of raising funds for government spending


Fiscal policy deals with

interest rates

the money supply

the government budget

bank credit


In the late 1960s, a 10 percent surcharge on U.S. personal and corporate income taxes was imposed as an expansionary measure.

True

False


If the government finances increased spending strictly through higher taxes, this action

increases the multiplier effect

has no impact on the multiplier effect

decreases the multiplier to a value greater than one

decreases the multiplier to one


The Economic Recovery Tax Act of 1981 reduced personal income taxes by 25 percent over a three-year period.

True

False


Jawboning by the Carter Administration proved to be an unsuccessful contractionary policy.

True

False


The U.S. economy has experienced no minor cycles since World War II.

True

False


Agricultural explanations of the business cycle are not as important today as they were 50 to 75 years ago, because today

agricultural production is more mechanized

agricultural production is a smaller portion of the total economy

agricultural production is greater

we eat less


The underconsumption theory is classified as a real or physical cause of the business cycle.

True

False


During the expansion phase of the business cycle, profit margins increase due to a widening cost-price relationship.

True

False


Which of the following is the most valid expression of a theory of underconsumption as a cause of business cycles?

capital goods production encroaches on consumer goods production

income equals production, but not all income is used for current purchasing power

people want more goods than the economy is capable of producing; therefore, they must cut their consumption expectations

the economy provides insufficient purchasing power to buy back the goods it produces


A recession occurs whenever theres a decline in real GDP for two or more successive quarters.

True

False


Involuntary inventory accumulation may occur during the contracting phase of the business cycle.

True

False


A hurricane is considered an external force in business cycle analysis.

True

False


During the contraction phase of the business cycle,

prices fall relative to costs, reducing profit margins

costs fall relative to prices, reducing profit margins

prices fall relative to costs, increasing profit margins

costs fall relative to prices, increasing profit margins


An example of an external force in business fluctuations is

falling interest rates due to lagging demand in a contraction

a devaluation in the nations currency

variations in inventories

the lag between price changes and cost changes


Economists use the phrase business cycle when discussing

movements in interest rates

changes in economic productivity

fluctuations in employment

fluctuations in total output around the trend


The underinvestment theory is classified as a monetary cause of the business cycle.

True

False


As the economy moves into the trough of the business cycle, there is a sizable reduction in the output of capital goods.

True

False



Overseas investments by U.S. citizens are recorded as credit items in the capital account of the U.S. balance of payments.

True

False


Under a fixed or controlled exchange rate system, if the United States wanted to increase the value of the dollar, it could buy foreign currencies with dollars.

True

False


Since World War II, international exchange rates have been

fixed all the time

floating all the time

fixed most of the time until the early 1970s, and floating most of the time since then

determined by the use of exchange controls


Under a system of fixed exchange rates, excess demand for foreign currency at the official exchange rate would cause

the exchange rate to rise

the exchange rate to fall

the government to buy foreign currency from the countrys importers

the government to sell foreign currency to the countrys importers


The course of international monetary policy is directed primarily by the

Federal Reserve

World Bank

International Monetary Fund

leaders of the Group of Seven nations


Overseas investments by U.S. citizens show up in the U.S. balance of payments as

credit items

debit items

current account items

investment income


A debit item on the U.S. balance of payments is any transaction that

results in a loss by U.S. sellers

results in a loss by U.S. buyers

makes foreigners use up their holdings of U.S. dollars

makes U.S. dollars available to foreigners


Under the gold standard, a country that is experiencing a gold outflow

has a balance of payments deficit

has a shrinking money supply

is experiencing a fall in output

all of the above


When a U.S. citizen invests in foreign assets, the transaction is recorded in the balance of payments as a

credit in capital account

debit in the capital account

credit in the current account

debit in the current account


Since World War II, the importance of gold in international exchange has increased.

True

False


A freely floating exchange rate exists when

governments set pegs for the exchange rate but occasionally adjust them

offshore banks determine the exchange rate

supply and demand forces are allowed to determine the rate at which currencies are exchanged for each other

governments use international reserves only to influence exchange rates


An appreciation of the U.S. dollar would

encourage foreigners to invest in the United States

discourage foreigners from buying U.S. goods

discourage the travel abroad of U. S. citizens

encourage foreign travel in the United States


Under the gold standard, a country experiencing a gold outflow

has a balance of payments surplus

had an increasing money supply

experienced a decline in output

experienced an increase in output


Under a system of floating exchange rates, increased demand of U.S. citizens for Japanese goods will cause

the Japanese yen to depreciate against the U.S. dollar

the U.S. dollar to appreciate against the Japanese yen

the Japanese yen to appreciate against the U.S. dollar

the exchange rate between the Japanese yen and the U.S. dollar to remain unchanged


Under the gold standard, a nation experiencing chronic trade deficits had to increase its money supply while reducing its holdings of gold.

True

False


Appreciation of the U.S. dollar encourages travel abroad by U.S. citizens.

True

False


If trade between the United States and Canada were totally free of restrictions, the incomes of most Canadian workers would decrease.

True

False


The revenue and protective purposes of a tariff are largely incompatible.

True

False


Using tariffs to support diversification of a nations industrial structure

has little application to developing countries

is based on the need to protect high domestic wages

is based on the need to make the economy less vulnerable to demand fluctuations for its products

is designed to encourage specialization by the nations producers in just one or a few goods


In comparing a revenue tariff versus a protective tariff on the same good, a revenue tariff would tend to be

less than a protective tariff

greater than a protective tariff

equal to a protective tariff

greater than or equal to a protective tariff


The General Agreement on Tariffs and Trade (GATT) was replaced by the World Trade Organization (WTO).

True

False


The rule of origin defines the maximum percentage of a countrys exported product that can be sold in the United States.

True

False


Tariff protection

encourages the optimum use of scarce resources

has no impact on use of scarce resources

prevents the optimum use of scarce resources

eliminates the scarcity of resources


A provision that permits raising tariffs if domestic producers are suffering under an existing tariff is known as

a trading bloc

exchange control

antidumping

an escape clause


Beginning in 2002, Economic Monetary Union members no longer print their own money.

True

False


Chile has been invited to join the European Union.

True

False


The principle of comparative advantage is associated with

restricting consumer choices

greater production at higher prices

specialization and exchange

comparing the efficiency of alternative tariffs


The primary function of the Export-Import Bank is to assist in

guaranteeing markets for U.S. importers

financing exports from the United States

providing foreign currency to U.S. banking institutions

reducing tariff rates between trading nations


Exports from China into the U.S. have most seriously impacted the

automobile industry

furniture industry

travel industry

cosmetics industry


Although political arguments strongly favor free trade, most decisions affecting international trade are made in the economic arena.

True

False


Who does not gain when a tariff is imposed?

domestic producers of the good

domestic workers in the protected industry

domestic consumers of the good

domestic suppliers in the protected industry


The Export-Import Bank is owned by 150 nations, including the United States.

True

False


Consider a tariff levied on the importer of a consumer good. The tariff is ultimately paid by

the importer

the consumer

competing foreign firms

competing domestic firms


The size of the national debt relative to GDP will not be reduced by

paying off some of the debt

lowering the federal deficit

having the GDP grow faster than the debt

having creditors forgive part of the debt


In the United States, income is taxed only by the federal government.

True

False


Whether a tax is shifted forward or backward depends on the price elasticities of demand and supply.

True

False


Which of the following taxes is not collected from the consumer on the final sale of goods and services?

consumption tax

national sales tax

value-added tax

flat tax


The full-employment balanced budget always shows a surplus.

True

False


The governments ability to repay the national debt is governed only by the total assets of the economy.

True

False


When the federal budget is used as a tool for economic stabilization, the ideal goal is to

balance the budget over the entire business cycle

balance the budget each year

balance the budget during expansions

run a surplus during contractions


As a percentage of GDP, the U.S. national debt held by the public is larger than in any major European country.

True

False


A consumption tax is usually collected on

wages and salaries

interest income

dividend income

none of the above


When the government uses tax revenue to pay off portions of the national debt, total purchasing power in the economy

increases

decreases

is not affected at any level

remains the same but changes individually


As interest rates rise,

the temptation to borrow increases

the cost of carrying the national debt rises

the likelihood of a surplus budget increases

the need for deficit spending to reinvigorate the economy grows


A balanced federal budget

cannot have an expansionary effect on the economy

can have an expansionary effect on the economy if the government finances spending with taxes on idle funds

can have an expansionary effect on the economy if the government finances spending with taxes on funds that would have been used for private consumption

can have an expansionary effect on the economy if the government finances spending with taxes on funds that would have been used for private investment


The U.S. income tax is based on the principle of

cost of service

benefit received

ability to pay

equality of sacrifice


The U.S. national debt has declined continuously as a percentage of GDP since World War II.

True

False


Which of the following is not a necessary characteristic for a tax to qualify as a good tax?

justifiability

convenience

being economical

equality


The equality-of-sacrifice doctrine would require larger taxes from higher-income groups.

True

False


The sales tax is proportional with respect to the tax base of the amount of purchases.

True

False

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