Business Economics
Practice Exam
Course Introduction
Business Economics explores the practical application of economic theory and methodologies to real-world business decision-making. The course examines how firms operate in various market structures, analyze costs and revenues, and make strategic choices regarding pricing, production, and resource allocation. Key topics include supply and demand, elasticity, business cycles, market equilibrium, competition, and the influence of government policy on business environments. By integrating economic principles with business strategies, students gain insights into optimizing profits, anticipating market trends, and making informed managerial decisions in a dynamic economic landscape.
Recommended Textbook Economics 15th Canadian Edition by
Christopher T.S. Ragan
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Page 2
Chapter 1: Economic Issues and Concepts
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Sample Questions
Q1) Refer to Figure 1-6.The levels of health and education expenditures at point C
A)are less than at point D.
B)are equal to those of point A and point B.
C)are more cost-effective than those at points A,B,and D.
D)could be achieved if the prices of health and/or education increased.
E)are not attainable with the government's current budget.
Answer: E
Q2) Which countries have mostly public ownership of resources?
A)United States and Canada
B)Cuba and North Korea
C)France and Germany
D)Sweden and Norway
E)Brazil and Argentina
Answer: B
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Chapter 2: Economic Theories,Data,and Graphs
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Q1) An economic theory requires,among other things,
A)a set of definitions of the variables to be considered.
B)a controlled laboratory setting in which the theory can be tested.
C)that the set of predictions be correct.
D)a set of value judgments to interpret the empirical evidence.
E)the use of endogenous variables only.
Answer: A
Q2) Disagreements over positive statements
A)cannot arise because positive statements are facts.
B)are best handled by an appeal to the facts.
C)arise from the failure to distinguish between a positive and a normative statement.
D)are basically devoid of any emotion.
E)never occur.
Answer: B
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Chapter 3: Demand, Supply, and Price
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Q1) Consider butter and margarine,which are substitutes.When the price of butter falls,the demand curve for margarine is likely to
A)shift to the right.
B)shift to the left.
C)remain stationary.
D)remain stationary,although its price will fall.
E)remain stationary,although its price will rise.
Answer: B
Q2) Refer to Figure 3-6.If the initial demand and supply curves are D<sub>1</sub> and S<sub>1</sub>,and demand shifts to D<sub>2</sub>,then
A)a permanent shortage of X will result.
B)a surplus of Q<sub>1</sub>Q<sub>3</sub> will occur.
C)a shortage will occur at any price above P<sub>3</sub>.
D)if price remained at P<sub>2</sub>,a shortage of Q<sub>1</sub>Q<sub>3</sub> would exist.
E)all of the above
Answer: D
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Page 5
Chapter 4: Elasticity
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Q1) Refer to Table 4-5.The cross-price elasticity of demand for transit passes in terms of the price of gasoline is ________.We can therefore conclude that these two goods are
A)0.5; substitutes
B)0.2; substitutes
C)5.0; complements
D)0.2; complements
E)0.33; substitutes
Q2) Suppose the price of take-out pizza has been stable for many months at exactly $12.50 per pizza - and Olivier buys 6 pizzas per month at this price.When the price rises to $12.55 per pizza,Olivier's quantity demanded drops to zero.Apparently,Olivier's price elasticity of demand for take-out pizza is A)-1.
B)0.
C)100
D)6.
E)higher than 10 000.
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Chapter 5: Price Controls and Market Efficiency
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Q1) In the presence of binding rent controls,the shortage of housing is smaller
A)the higher is the elasticity of demand for housing.
B)the lower is the elasticity of supply of housing.
C)the longer is the length of time the rent controls are in place.
D)the greater is the difference between the equilibrium price and the rent-controlled price.
E)the more elastic is the long-run supply of housing.
Q2) In free and competitive markets,shortages are eliminated by A)government price controls.
B)rationing.
C)black markets.
D)price increases.
E)price decreases.
Q3) If the equilibrium price for some product is $1000,a price ceiling of $1200 will result in
A)the same general effects as a price floor of $1200.
B)the same general effects as an administered price of $1200.
C)the same general effects as a price ceiling of $600.
D)massive surpluses of the good.
E)no effects because the price ceiling is not binding at that price.
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Page 7
Chapter 6: Consumer Behaviour
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Q1) Consider the substitution and income effects of a 15% increase in the price of a good.Of the goods listed below,which is most likely to have the smallest income effect?
A)groceries
B)restaurant meals
C)gasoline
D)paperclips
E)dishwashers
Q2) At a garage sale,Ken purchases a used bicycle for $8 when he was willing to pay $25.If the bicycle costs $75 new,Ken's consumer surplus is
A)$0.
B)$17.
C)$33.
D)$50.
E)$67.
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8
Chapter 7: Producers in the Short Run
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Q1) Suppose a firm with the usual U-shaped cost curves is producing a level of output such that its short-run costs are as follows: ATC = $0.37 per unit
AVC = $0.32 per unit
AFC = $0.05 per unit
MC = $0.43 per unit
Given these short-run costs,as the firm increases its output,which of the following statements is true?
A)Marginal product of the variable factor must be decreasing.
B)Marginal product of the variable factor must be increasing.
C)The point of diminishing average product of the variable factor has not yet been reached.
D)Average product of the variable factor must be increasing.
E)Marginal product of the variable factor is at its minimum point.
Q2) Refer to Table 7-1.The implicit costs for this family-owned firm are
A)$35 000.
B)$80 000.
C)$100 000.
D)$115 000.
E)$490 000.
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Page 9
Chapter 8: Producers in the Long Run
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Sample Questions
Q1) Refer to Figure 8-6.Suppose this firm is producing 3000 golf tees and is at point F on the isoquant map.Which of the following is true?
A)MP<sub>K</sub>/MP<sub>L </sub>is equal to P<sub>K</sub>/P<sub>L </sub>.
B)MP<sub>K</sub>/MP<sub>L </sub>is greater than 5/<sub>2</sub>.
C)MP<sub>L</sub>/MP<sub>K </sub>is greater than 5/<sub>2</sub>.
D)MP<sub>K</sub>/MP<sub>L </sub>is equal to 2/<sub>5</sub>.
E)MP<sub>K</sub>/MP<sub>L </sub>is equal to 5/<sub>2</sub>.
Q2) Suppose that capital costs $100 per unit and labour costs $40 per unit.If the marginal product of capital is 200 and the marginal product of labour is 60,a cost-minimizing firm should
A)employ more capital and less labour.
B)employ more of both capital and labour.
C)employ less of both capital and labour.
D)employ less capital and more labour.
E)not change its current factor use.
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10
Chapter 9: Competitive Markets
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Q1) A firm in a perfectly competitive market
A)has no power to influence the market price.
B)is limited in the amount of product it can sell without affecting the price.
C)is dependant upon the behaviour of its competitors.
D)is aware of its competitors' costs.
E)competes actively with other sellers in the industry.
Q2) Refer to Figure 9-5.In this industry,which one of the following is FALSE?
A)If the price were to fall below P<sub>2</sub>,firms would leave the industry.
B)If the price were to rise above P<sub>2</sub>,new firms would enter the industry.
C)If the scale of Firm X at output Q<sub>2</sub> and price P<sub>2</sub> is large enough that Firm X has an appreciable share of the market,Firm X will no longer be a price taker.
D)At output Q<sub>2</sub> and price P<sub>2</sub>,Firm X is maximizing its long-run profits.
E)Only one firm can reach the size of output Q<sub>2</sub>.
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11
Chapter 10: Monopoly, cartels, and Price Discrimination
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Q1) In November 2012,there was some discussion of several south-Asian countries joining together to restrict the supply of rice to the world market.Between them,these countries' exports of rice account for 40% of the total global trade.What would they be trying to accomplish?
A)They are attempting to form a cartel,increase their joint output,and control a larger percentage of the total global trade.
B)They are attempting to price discriminate between consumers of their exported rice,thereby increasing their share of the global trade and increasing their joint profits.
C)They are attempting to form a cartel,jointly restrict output,and increase the world price of rice.
D)They are attempting to act as a bloc to restrict entry of new producers to the world market,and thereby protect their joint profits.
E)They are attempting to form a cartel,drive other producers out of the world market and then increase their output of rice.
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Chapter 11: Imperfect Competition and Strategic Behaviour
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Q1) Refer to Figure 11-3.If an increase in industry demand led to an outward shift in each firm's demand curve,and no change to the firm's costs,the typical firm would
A)be making profits and new firms would enter the industry in the long run.
B)be making losses and some firms would exit the industry in the long run.
C)would expand its output in the long run.
D)increase costs in order to break even at P<sub>1 </sub>and Q<sub>1 </sub>in the long run.
E)decrease costs in order to break even at P<sub>1 </sub>and Q<sub>1 </sub>in the long run.
Q2) Refer to Table 11-2.Of the choices provided below,what is the minimum value for x in order for both firms' cheating to be a Nash equilibrium?
A)25
B)40
C)60
D)70
E)80
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Chapter 12: Economic Efficiency and Public Policy
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Q1) The Canadian economy is achieving allocative efficiency if
A)price equals average cost in all industries.
B)there are no idle resources in the economy.
C)marginal product is equal for all factors of production.
D)marginal cost equals price in all industries.
E)marginal cost is equalized across industries.
Q2) Suppose your municipality charges your household a flat fee of $100 per year plus $2 per cubic metre of water used.This pricing policy is an example of A)marginal-cost pricing.
B)average cost pricing.
C)a two-part tariff.
D)utility pricing.
E)linear pricing.
Q3) In Canada,the Competition Act specifies that in antitrust cases the "watchdog" is the A)Senate.
B)Commissioner of the Competition Bureau.
C)Supreme Court of Canada.
D)minister responsible for Industry Canada.
E)prime minister.
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Page 14
Chapter 13: How Factor Markets Work
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Sample Questions
Q1) Suppose the following conditions existed in the Canadian labour market:
1)All labour is mobile and possesses the same skills.
2)Non-monetary advantages are the same across industries and occupations.
3)The demand conditions for labour are the same across industries.
In this situation,we expect wage rates to
A)be the same in all industries.
B)be higher in some industries than in others.
C)be the same in most industries.
D)differ because of the desirability of the location of the job.
E)have equilibrium differentials.
Q2) Consider computer programmers as a factor of production.Their factor mobility is quite ________,and so to any specific firm the supply of this factor is quite ________.
A)low; inelastic
B)low; elastic
C)high; inelastic
D)high; elastic
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Chapter 14: Labour Markets and Income Inequality
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Q1) If a union succeeds in shifting the labour supply curve to the left,it can achieve wages above the
A)competitive level and all workers will gain.
B)equilibrium level and an increase in employment.
C)equilibrium level without affecting employment.
D)competitive level but will reduce the level of employment.
E)competitive level without a pool of unemployed workers seeking to work at the higher wage.
Q2) Suppose that a professional association strengthened the limits to entry into their profession and at the same time lengthened its required apprenticeship program.The likely effect would be that
A)the supply curve for labour would shift to the left.
B)the supply curve for labour would shift to the right.
C)both the demand and supply curves for labour would shift to the left.
D)the demand curve for labour would shift to the right.
E)there would be an increase in the quantity of labour supplied.
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Chapter 15: Interest Rates and the Capital Market
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Q1) Refer to Table 15-1.A,B,and C represent possible purchases of physical capital,each offering a stream of payments as indicated in the table.There are no payments beyond Year 3.The interest rates in each year are also specified in the table.What is the present value (at the beginning of Year 1)of asset C?
A)2590.67
B)$3000
C)$3150
D)$2722.97
E)$2634.70
Q2) If the interest rate that you could earn on your savings is 4% per year,then your decision to spend $1500 on a big screen TV today "costs" you ________ in potential forgone spending one year from now.
A)$0
B)$60
C)$120
D)$1500
E)$1560
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Chapter 16: Market Failures and Government Intervention
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Sample Questions
Q1) An example of a rivalrous good is
A)toxic emissions from a factory smokestack.
B)an empty toll highway.
C)an uncrowded beach.
D)a visit to the dentist.
E)the weather forecast.
Q2) An example of a common-property resource is
A)a congested toll highway.
B)a national park with an entrance fee.
C)privately owned ranch land.
D)an unregulated sport-fishing river in BC.
E)privately owned cattle grazing land in Alberta.
Q3) The fact that it is difficult to prevent people from using public goods once they are produced,even if they have not paid,is known as
A)the easy-rider problem.
B)the over-consumption problem.
C)moral hazard.
D)the free-rider problem.
E)adverse selection.
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Page 18
Chapter 17: The Economics of Environmental Protection
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Q1) The optimal amount of pollution abatement is such that
A)the total benefit of reducing pollution is equal to the total cost of reducing pollution.
B)the marginal social cost of reducing pollution is just equal to the marginal social benefits from doing so.
C)the marginal private cost of reducing pollution is just equal to the profit of the polluting firms.
D)there is no remaining pollution.
E)none of the above; there is no optimal amount of pollution abatement.
Q2) Refer to Figure 17-1.A negative externality is depicted because the
A)marginal social cost is greater than the marginal social benefit.
B)marginal social cost is greater than the marginal private cost.
C)marginal social benefit to consumers is diminishing with greater output.
D)optimal level of output occurs where marginal private cost is positive.
E)optimal level of output occurs where marginal private benefit is positive.
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19
Chapter 18: Taxation and Public Expenditure
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Q1) What is a demogrant?
A)A federal transfer to individuals that is administered through the tax system.
B)A federal transfer to provincial governments that is adjusted annually based on demographic shifts in the province.
C)A social benefit that is paid to individuals according to their demographic group (race,age or income group,for example).
D)A social benefit that is paid to individuals depending on their income.
E)A social benefit that is paid to individuals,regardless of their income.
Q2) Refer to Table 18-1.If an individual had a taxable income of $120 000,how much federal tax would be due from the earnings taxed at the minimum rate of 15%?
A)$0
B)$6705
C)$8003
D)$18 000
E)$34 800
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Chapter 19: What Macroeconomics Is All About
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Q1) Suppose the city of Calgary,Alberta has a population of 1 million,a labour force of 575 000,and employment is equal to 545 000.The unemployment rate in Calgary is approximately A)3.0%.
B)5.2%.
C)5.5%.
D)54.5%.
E)57.5%.
Q2) Suppose a country has an unemployment rate of 20%.If we know that the population is 38 million and the labour force is 25 million,then the number of people unemployed is A)5 million.
B)13 million.
C)20 million.
D)7.6 million.
E)2.6 million.
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21
Chapter 20: The Measurement of National Income
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Q1) In national-income accounting,replacement investment is the investment that A)is used in the calculation of GDP from the expenditure side.
B)maintains the existing capital stock at a constant level.
C)is equal to all existing capital stock in the country.
D)when added to gross investment is equal to total saving.
E)is done by the government.
Q2) In national-income accounting,"depreciation" refers to
A)a term used in accounting,not economics.
B)the amount by which the capital stock is depleted during the accounting period.
C)net investment.
D)the increase in the economy's stock of capital per year.
E)the decrease in the economy's stock of capital per year.
Q3) Suppose national accounting was done by adding up the market values of all outputs of all firms.This approach would
A)accurately reflect the value of production in the economy.
B)obtain gross domestic product.
C)obtain gross national product.
D)underestimate the value of production in the economy.
E)overestimate the value of production in the economy.
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Page 22
Chapter 21: The Simplest Short-Run Macro Model
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Q1) Consider a simple macro model with demand-determined output.Using such a model,if economists want to estimate the effect of a given change in desired investment on equilibrium national income,they would multiply the change in desired investment by the reciprocal of one minus
A)the average propensity to save.
B)the marginal propensity to save.
C)the equilibrium level of national income.
D)the marginal propensity not to spend.
E)the marginal propensity to spend.
Q2) Suppose aggregate output is demand-determined.The simple multiplier will increase as a result of
A)an increase in the marginal propensity to consume.
B)a decrease in the marginal propensity to consume.
C)a decrease in autonomous consumption.
D)an increase in autonomous consumption.
E)an increase in investment.
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23
Chapter 22: Adding Government and Trade to the Simple Macro Model
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Q1) In a simple macro model with government and demand-determined output,to raise equilibrium national income by $100 billion,G must be
A)raised by $100 billion.
B)raised by $100 billion times the simple multiplier.
C)raised by $100 billion divided by the simple multiplier.
D)lowered by $100 billion times the simple multiplier.
E)lowered by $100 billion divided by the simple multiplier.
Q2) In a simple macro model,it is generally assumed that a country's exports
A)and imports are autonomous.
B)and imports are induced.
C)are autonomous whereas imports are induced.
D)are induced whereas imports are autonomous.
E)are always equal to investment.
Q3) Refer to Figure 22-2.What is the value of the multiplier in this economy?
A)1.33
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Chapter 23: Output and Prices in the Short Run
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Q1) Which of the following represents a positive aggregate supply shock?
A)an outbreak of war among oil-exporting countries
B)a general labour strike across the country
C)bad weather which cripples telecommunications for one month
D)improved computer literacy for the typical worker
E)an increase in exports
Q2) Consider the basic AD/AS model.If there is a decrease in the cost of non-labour inputs to production,the result will be to
A)shift the AD curve to the left.
B)shift the AD curve to the right.
C)shift the AS curve to the left.
D)shift the AS curve to the right.
E)cause a movement to the left along the AS curve.
Q3) Which of the following will cause a negative aggregate demand shock?
A)an increase in the price of raw materials
B)a decrease in the domestic price level
C)an increase in the domestic price level
D)an increase in government expenditures
E)an increase in tax rates
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Page 25
Chapter
24: From the Short Run to the Long Run: The Adjustment of Factor Prices
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Q1) Consider a simple macro model with demand-determined output.Which of the following parameters will produce the most stable real GDP in the face of autonomous expenditure shocks?
A)MPC = 0.8,t = 0.2,m = 0.3
B)MPC = 0.7,t = 0.3,m = 0.2
C)MPC = 0.7,t = 0.1,m = 0.4
D)MPC = 0.9,t = 0.2,m = 0.4
E)MPC = 0.8,t = 0.1,m = 0.2
Q2) A recessionary output gap implies that
A)the demand for all factor services will be relatively low.
B)the intersection of AD and AS occurs where real GDP exceeds potential output.
C)the economy's resources are being used at more than their normal capacity.
D)there is upward pressure on wages.
E)there is excess demand for most factors of production.
Q3) Refer to Figure 24-6.The government could close the existing output gap by
A)increasing the net tax rate.
B)decreasing the net tax rate.
C)decreasing government purchases.
D)decreasing government transfer payments.
E)implementing a contractionary fiscal policy.
Page 26
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Chapter 25: Long-Run Economic Growth
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Q1) In 1950,when the world's population was 2.5 billion,it was unimaginable that the world could ever produce enough food to feed the present world population of 7 billion.Which of the following variables is key to having met this task (although far from perfectly)?
A)political cooperation among developed and developing economies
B)birth control
C)foreign aid
D)technological change in agricultural production
E)all of the above
Q2) For a given level of private saving,a decrease in the government's budget deficit
________ the long-run rate of economic growth.
A)will reduce
B)will leave unchanged
C)will increase
D)will diminish
E)none of the above
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Chapter 26: Money and Banking
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Q1) Consider a new deposit of $10 000 to the Canadian banking system.The bank that initially receives this deposit will find itself with
A)no excess reserves if there is no reserve requirement.
B)$1000 of excess cash reserves if its target reserve ratio is 10%.
C)$2000 of excess cash reserves if its target reserve ratio is 10%.
D)$8000 of excess cash reserves if its target reserve ratio is 20%.
E)$10 000 of excess cash reserves if its target reserve ratio is 100%.
Q2) Other things being equal,a rise in the price level will
A)increase the value of money.
B)decrease the purchasing power of money.
C)stabilize the value of money.
D)increase the purchasing power of money.
E)have no effect on the value of money.
Q3) The M2++ and M3 definitions of the money supply include financial assets
A)that serve the store-of-value function and are convertible into a medium of exchange.
B)such as deposits at credit unions and caisses populaires.
C)such as deposits at non-bank financial institutions.
D)such as a credit card.
E)such as a government Treasury bill.
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Chapter 27: Money, Interest Rates, and Economic Activity
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Q1) If there are just two assets,bonds and money,then an equilibrium between the quantity demanded of money and the quantity supplied of money implies
A)an excess supply of bonds.
B)an excess demand for bonds.
C)equilibrium in the bond market.
D)an indeterminant equilibrium in the bond market.
E)nothing about conditions of demand for the other financial asset.
Q2) Among other things,people hold cash balances for which of the following reasons?
1)to meet unforeseen emergencies
2)to maximize their returns on interest-earning assets
3)to guard against the uncertainty of the timing of receipts and payments
A)1 only
B)2 only
C)3 only
D)1 and 2
E)1 and 3
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Chapter 28: Monetary Policy in Canada
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Q1) Suppose the Bank of Canada reduces its target for the overnight interest rate by 0.50 percentage points.In this situation,the Bank will likely need to accommodate the eventual resulting change in the demand for money by
A)increasing the supply of money by buying government securities on the open market.
B)increasing the supply of money by selling government securities on the open market.
C)decreasing the supply of money by buying government securities on the open market.
D)decreasing the supply of money by selling government securities on the open market.
E)maintaining the current supply of money which will increase the effectiveness of the change in the overnight interest rate.
Q2) In practice,the Bank of Canada implements its monetary policy by
A)directly influencing the overnight interest rate.
B)directly influencing the excess reserves in the commercial banking system.
C)setting the money supply.
D)directly influencing the price level.
E)influencing the slope of the money demand curve.
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Chapter 29: Inflation and Disinflation
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Q1) If the NAIRU is 8% and the actual unemployment rate is 5%,
A)there is no pressure on the AS curve to shift.
B)there is a recessionary gap.
C)demand forces put upward pressure on wages.
D)the AS curve will shift downward.
E)it will get stuck there permanently.
Q2) Canada's actual rate of inflation is fairly constant around the 2% level.We can conclude that
A)real GDP must be below potential GDP because we also have positive unemployment.
B)real GDP must be above potential GDP.
C)the Bank of Canada is accommodating this level of inflation with increases in the money supply.
D)the expectations about inflation are consistently wrong.
E)the economy is consistently experiencing an inflationary gap.
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Chapter 30: Unemployment Fluctuations and the Nairu
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Q1) Other things being equal,a macroeconomic shock that leads to an inflationary output gap results in
A)a decrease in cyclical unemployment.
B)a decrease in NAIRU.
C)an increase in NAIRU.
D)a decrease in frictional unemployment.
E)a decrease in structural unemployment.
Q2) What economists call "involuntary unemployment" occurs when
A)a job is available but the worker has not yet found it.
B)the level of real GDP is at or above the economy's potential output.
C)a person is willing to accept a job at the going wage rate but cannot find one.
D)a person enters the job market for the first time.
E)a person is not willing to accept an available job at the going wage rate.
Q3) Market-clearing theories of the labour market assume that labour markets
A)always clear.
B)are inefficient.
C)have asymmetrically rigid wages.
D)should be regulated to produce an efficient wage rate.
E)will always provide a subsistence wage.
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Page 32
Chapter 31: Government Debt and Deficits
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Q1) In every year between 1998 and 2008,the Canadian federal government had a
A)budget deficit,indicating that even deep cuts in government spending were not sufficient to alleviate the problem.
B)primary deficit,indicating that tax revenues were insufficient to cover discretionary government expenditures.
C)budget deficit,which contributed to a growing stock of government debt.
D)primary surplus but overall deficit,indicating that tax revenues were more than sufficient to cover discretionary government expenditures.
E)budget surplus,indicating that tax revenues were more than sufficient to cover total government expenditures.
Q2) The federal government's "primary budget deficit"
A)includes domestic borrowing but excludes foreign borrowing.
B)excludes debt-service payments.
C)is the amount of government borrowing in a fiscal year.
D)is the amount of tax revenue minus the amount of interest paid on the public debt.
E)is the most important indicator of the level of government spending.
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Chapter 32: The Gains From International Trade
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Q1) According to what economists call the "law of one price,"
A)the world price of a commodity is established by the country with the highest relative demand for that product without respect to the cost of production.
B)the world price of a commodity is established by the country with the highest opportunity cost in producing the product without respect to the domestic or world demand for the product.
C)the price of a specific product will be the same in any two markets in which the cost of labour is the same.
D)the lower the costs to move a product from one market to the other,the more equal the prices for the same product when it is sold in different markets.
E)the price of a given product will never be equal in two different markets because of differences in the patterns of demand.
Q2) Refer to Table 32-3.Canada has an absolute advantage in the production of A)soybeans.
B)oil.
C)neither soybeans nor oil.
D)both soybeans and oil.
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Page 34
Chapter 33: Trade Policy
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Q1) Continued tariff protection for industries that have already attained all the possible economies of scale will likely
A)reduce employment in the protected industries.
B)reduce the stream of tariff revenue to the government.
C)redistribute income away from the factors used in the protected industries.
D)maintain high prices to consumers of the products produced in the protected industries.
E)result in lower domestic prices for the products they produce.
Q2) The effect of the imposition of a new tariff is to ________ domestic production of the commodity and ________ the domestic consumption of the commodity.
A)decrease; increase
B)leave unaffected; decrease
C)decrease; decrease
D)increase; increase
E)increase; decrease
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Chapter 34: Exchange Rates and the Balance of Payments
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Q1) The demand for Canadian dollars in the foreign-exchange market is derived from
A)exports from Canada + capital outflows from Canada.
B)exports from Canada + capital inflows to Canada.
C)imports to Canada + capital outflows from Canada.
D)imports to Canada + capital inflows to Canada.
E)the Canadian government's holding of official reserves.
Q2) Consider the market in which Canadian dollars are exchanged for British pounds.An increased preference of Canadian consumers for British goods would
A)shift the supply-of-pounds curve to the left and lead to a rise in the exchange rate.
B)shift the demand-for-pounds curve to the right and lead to a rise in the exchange rate.
C)shift the supply-of-pounds curve to the right and lead to a fall in the exchange rate.
D)shift the demand-for-pounds curve to the left and lead to a fall in the exchange rate.
E)lead to a temporary excess supply of British pounds on the international currency market.
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