Economic Theory
Study Guide Questions
Course Introduction
Economic Theory is a foundational course that explores the core principles, models, and analytical tools used to understand how individuals, firms, and governments make decisions regarding the allocation of scarce resources. Covering both microeconomic and macroeconomic perspectives, the course examines topics such as market structures, consumer and producer behavior, equilibrium analysis, welfare economics, and the impact of policy interventions. Through theoretical models and real-world applications, students develop a rigorous understanding of economic reasoning, preparing them for advanced study and practical problem-solving in economics and related fields.
Recommended Textbook
Economics 4th Edition by R. Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Society faces a trade-off in all of the following situations except A) when deciding who will receive the goods and services produced.
B) when deciding what goods and services will be produced.
C) when deciding how goods and services will be produced.
D) when some previously unemployed workers find jobs.
Answer: D
Q2) Which of the following statements is true about profit?
A) Profit refers to the revenue received from the sale of a quantity of goods.
B) Profit is calculated by multiplying price and quantity sold.
C) The terms "accounting profit" and "economic profit" can be used interchangeably.
D) Profit is the difference between revenue and cost.
Answer: D
Q3) Suppose the extra cost for a doctor to keep his office open for one extra hour is $200.Then,the doctor should stay open for the extra hour even if he can generate additional revenue of $200 for that hour.
A)True
B)False
Answer: True
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Sample Questions
Q1) Refer to Table 2-4.What is China's opportunity cost of producing one digital camera?
A) 0.04 pounds of wheat
B) 4 pounds of wheat
C) 25 pounds of wheat
D) 40 pounds of wheat
Answer: C
Q2) Is it possible for a firm to have an absolute advantage in producing something without having a comparative advantage? Why or why not?
Answer: Yes,a firm can have an absolute advantage without having a comparative advantage.A firm may be able to produce more of a good or service than its competitors,but that does not necessarily mean it can produce the good or service at a lower opportunity cost than its competitors.
Q3) If Sanjaya can shuck more oysters in one hour than Tatiana,then Sanjaya has a comparative advantage in shucking oysters.
A)True
B)False
Answer: False
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) What would happen in the market for laser eye surgery if insurance companies started to cover a portion of the price of voluntary procedures?
A) Demand will increase, but this will not shift the supply curve.
B) Supply will increase, but this will not shift the demand curve.
C) Demand and supply will both increase.
D) Demand will increase and supply will decrease.
Answer: A
Q2) Which of the following is expected to occur as the baby-boom generation ages?
A) The demand for baby clothes should increase.
B) The demand for prescription drugs should decrease.
C) The demand for medical services should increase.
D) The demand for larger houses should increase.
Answer: C
Q3) Which of the following is the correct way to describe equilibrium in a market?
A) At equilibrium, demand equals supply.
B) At equilibrium, quantity demanded equals quantity supplied.
C) At equilibrium, market forces no longer apply.
D) At equilibrium, scarcity is eliminated.
Answer: B
Page 5
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) Suppose the demand curve for a product is horizontal and the supply curve is upward sloping.If a unit tax is imposed in the market for this product,
A) sellers bear the entire burden of the tax.
B) the tax burden will be shared among the government, buyers and sellers.
C) buyers bear the entire burden of the tax.
D) the tax burden will be shared by buyers and sellers.
Q2) When Congress passed a law that imposed a tax designed to fund its Social Security and Medicare programs it wanted employers and workers to share the burden of the tax equally.Most economists who have studied the incidence of the tax have concluded
A) the tax is not high enough to cover the future costs of Social Security and Medicare.
B) the tax on employers is too high because it reduces the employment of low-skilled workers.
C) the burden of the tax falls almost entirely on workers.
D) the tax rate should be greater for high income workers than for low income workers.
Q3) Will equilibrium in a market always result in an outcome that is economically efficient? Explain.
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Q1) Governments can increase the consumption of a product that creates positive externalities by
A) subsidizing the production of the product so that the supply is increased and market price is reduced.
B) taxing the production and consumption of the product.
C) convincing everyone to consume the good.
D) assigning property rights to the producers of the product.
Q2) Should the level of pollution be reduced to zero and if not,then to what level?
Q3) Which of the following is an example of a quasi-public good?
A) cable television
B) organic apples
C) stock of knowledge in the public domain
D) crime prevention
Q4) Some critics of the U.S.Environmental Protection Agency's proposed NSPS air pollution regulations which are designed to reduce carbon dioxide emissions argue that the policy will
A) significantly increase electric utility rates.
B) ultimately result in an increase in carbon dioxide emissions.
C) increase greenhouse gases in exchange for the reduction of carbon dioxide.
D) result in an increase in the consumption of fossil fuels.
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Chapter 6: Elasticity: The Responsiveness of Demand and Supply
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Sample Questions
Q1) Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons.What is the absolute value of the price elasticity of demand?
A) 0.11
B) 0.37
C) 2.69
D) 9.33
Q2) Refer to Figure 6-6.The supply curve on which price elasticity changes at every point is shown in
A) Panel A.
B) Panel B.
C) Panel C.
D) Panel D.
Q3) Total revenue equals
A) price per unit times quantity sold.
B) price per unit times quantity supplied.
C) price per unit times change in quantity sold.
D) change in price per unit times quantity sold.
Q4) Explain the relationship between price elasticity of demand and total revenue.
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) The health care system in Japan is referred to as ________,under which every resident of Japan is required to enroll in either a private or the government-provided health insurance program.
A) an out-of-pocket system
B) a single-payer health care system
C) a universal health insurance system
D) socialized medicine
Q2) An insurance company is likely to attract customers like Clancy who want to purchase insurance because he knows better that the company that he is more likely to make a claim on a policy.What is the term used to describe the situation above?
A) moral hazard
B) adverse selection
C) asymmetric information
D) economic irrationality
Q3) Briefly explain 4 of the difficulties in making cross-country comparisons in health care outcomes.
Q4) How can improvements in health increase a country's total income?
Q5) What is moral hazard?
Q6) What are the main sources of health insurance in the United States?
Page 9
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) When Internet coupon site Groupon sold stock to the public for the first time,funds were being raised in a ________ market,and when those newly issued shares are resold to other buyers,the sales take place in a ________ market.
A) primary; primary
B) primary; secondary
C) secondary; primary
D) secondary; secondary
Q2) If you own a bond with a seven percent coupon rate and new bonds are paying five percent,what will happen to your bond's market price?
Q3) Scott is a manager at a pool cleaning business.He has hired 10 workers to clean pools for him and is considering what type of payment scheme he should set up for his workers.He can pay each of his workers $10 per hour to clean pools,or he can pay his workers $20 for each pool a worker cleans.(It takes 2 hours,on average,for an employee to clean a pool thoroughly.) If Scott wants to maximize the number of pools his workers clean in one day,which payment scheme should he use? Explain.
Q4) What are the advantages of setting up a corporation as opposed to a proprietorship or partnership?
Q5) How can a partnership raise funds needed for firm expansion?
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Refer to Table 9-1.Select the statement that accurately interprets the data in the table.
A) Linda has an absolute advantage in dog bathing and Sandy has an absolute advantage in dog grooming.
B) Sandy has an absolute advantage in dog bathing and Linda has an absolute advantage in dog grooming.
C) Sandy has an absolute advantage in dog bathing and dog grooming.
D) Linda has an absolute advantage in dog bathing and dog grooming.
Q2) Disagreements about whether the U.S.government should regulate international trade
A) began during the Great Depression.
B) began after World War I when government officials no longer believed in isolationism.
C) date back to the beginning of the country.
D) did not occur until the end of the Mexican War in 1848.
Q3) The simple trade model demonstrates that countries can expand consumption by specializing in the production of goods and services in which they have a comparative advantage.In reality we do not see complete specialization in production.State three reasons why this is case.
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) What is a Giffen good?
Q2) If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit,and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased,she
A) is maximizing total utility and does not want to change their consumption of ankle socks or bandanas.
B) wants to consume more ankle socks and fewer bandanas.
C) wants to consume more of bandanas and fewer ankle socks.
D) wants to consume less of both ankle sock and bandanas.
Q3) If Callum is consuming his utility maximizing bundle and the price of one good rises,what happens to the marginal utility per dollar spent on this good (MU/P),and what should Callum do?
A) MU/P has increased and Callum should buy more of this good.
B) MU/P has increased and Callum should buy less of this good.
C) MU/P has decreased and Callum should buy more of this good.
D) MU/P has decreased and Callum should buy less of this good.
Q4) A consumer's indifference curves can never cross.
A)True
B)False
Q5) What is marginal utility and what is the law of diminishing marginal utility?
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Chapter 11: Technology, production, and Costs
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Sample Questions
Q1) Over the past twenty years,the number of small family farms has fallen significantly and in their place there are fewer,but larger,farms owned by corporations.Which of the following best explains this trend?
A) diseconomies of scale in farming
B) economies of scale in farming
C) diminishing returns to labor in farming
D) declining productivity
Q2) The short run is the time period during which a firm has at least one input constraint. A)True
B)False
Q3) Vipsana's Gyros House sells gyros.The cost of ingredients (pita,meat,spices,etc.)to make a gyro is $2.00.Vipsana pays her employees $60 per day.She also incurs a fixed cost of $120 per day.Calculate Vipsana's total cost per day when she produces 50 gyros using two workers?
A) $100
B) $124.40
C) $220
D) $340
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) A perfectly competitive firm's marginal revenue curve is downward sloping.
A)True
B)False
Q2) Refer to Figure 12-2.Why is the total revenue curve a ray from the origin?
A) because revenue increases at an increasing rate
B) because revenue increases at a decreasing rate
C) because the firm can sell its product at a constant price
D) because the firm must lower its price to sell more
Q3) Refer to Figure 12-1.If the firm is producing 700 units,
A) it is making a profit.
B) it is making a loss.
C) it should cut back its output to maximize profit.
D) it should increase its output to maximize profit.
Q4) Refer to Figure 12-6.At price P<sub>4</sub>,the firm would
A) lose an amount equal to its fixed cost.
B) make a profit.
C) lose an amount less than fixed cost.
D) make a normal profit.
Q5) Use a graph to show the demand,AVC,ATC,MC,and MR curves of a firm that should temporarily shut down in the short run.Identify the shutdown point on the graph.
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Chapter 13: Monopolistic Competition: The Competitive
Model in a More Realistic Setting
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Sample Questions
Q1) Is a monopolistically competitive firm productively efficient?
A) No, because it does not produce at minimum average total cost.
B) Yes, because it produces where marginal cost equals marginal revenue.
C) No, because price is greater than marginal cost.
D) Yes, because price equals average total cost.
Q2) Arturo runs a Taco Bell franchise.He is selling 250 Gordita Supremes per week at a price of $2.75.If he lowers the price to $2.70,he will sell 251 Gordita Supremes.What is the marginal revenue of the 251st Gordita Supreme? If selling the extra Gordita Supreme adds $0.20 to Arturo's costs,what will be the effect on his profit from selling 251 Gordita Supremes instead of 250?
Q3) Which of the following is an example of a factor that a firm's owners and managers can control in making the firm successful?
A) the ability to produce the product at a lower cost
B) changing consumer tastes
C) a rise in the price of a key input, for example, a rise in the price of oil leads to higher energy costs
D) the number of competitors in the market
Q4) What is the difference between zero accounting profit and zero economic profit?
Q5) What is the difference between the terms "marketing" and "advertising"?
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Producing a homogeneous product occurs in which of the following industries?
A) oligopoly, monopolistic competition and perfect competition
B) perfect competition only
C) oligopoly and perfect competition
D) monopolistic competition and perfect competition
Q2) Explain why OPEC is caught in a prisoner's dilemma?
Q3) Marginal revenue for an oligopolist is
A) identical to the demand for the firm's product.
B) difficult to determine because the firm's demand curve is typically unknown.
C) downward sloping beneath the firm's demand curve.
D) horizontal on a price-quantity diagram.
Q4) Assume that two interior design companies,Alistair and Baine,are competing for customers and if they both advertise,they would each earn $30 million in profits.If neither advertises,they each earn $50 million in profits.If one advertises and the other doesn't,the firm that advertises earns $40 million in profit while the other earns $20 million in profit.
a.Present the information above in the form of a payoff matrix.Let Baine be the row player and Alistair the column player.
b.Does each firm have a dominant strategy and if so what is it?
c.What is the Nash equilibrium?
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) A possible advantage of a horizontal merger for the economy is that
A) the merging firms could avoid losses.
B) the merged firm might reap economies of scale which could translate into lower prices.
C) the degree of competition in the industry will be intensified.
D) the government stands to collect more corporate income tax revenue.
Q2) Refer to Table 15-2.What is the amount of Shakti's profit?
A) $68
B) $72
C) $124
D) $192
Q3) Refer to Figure 15-3.What is the amount of the monopoly's profit?
A) $2,700
B) $4,200
C) $10,400
D) $12,600
Q4) Explain why the monopolist has no supply curve?
Q5) What happens to a monopoly's revenue when it sells more units of its product?
Q6) What is the relationship between marginal revenue and average revenue for a monopolist and is it the same for a perfect competitor?
Page 17
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Chapter 16: Pricing Strategy
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Q1) Compared to monopoly pricing,an optimal two-part tariff
A) reduces economic efficiency.
B) eliminates the deadweight loss.
C) equates marginal revenue and average revenue.
D) increases consumer surplus.
Q2) For many products,such as fast foods,a variety of prices can be found,but sellers with higher prices can expect to sell their products because
A) consumers are not sensitive to prices.
B) arbitrage will quickly eliminate price differences.
C) firms differentiate products in many ways, for example, higher priced fast food restaurants may offer better service.
D) their demand is perfectly inelastic.
Q3) Refer to Figure 16-4.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the profit-maximizing quantity?
A) 320 units
B) 480 units
C) 560 units
D) 640 units
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Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) A successful compensation scheme
A) must pay workers with comparable skills a comparable wage.
B) must induce effort from workers and ensure that both employer and employees benefit.
C) must enable workers to enjoy a certain standard of living and must enable employers to earn a normal rate of return.
D) must allow employees to participate in a firm's profits.
Q2) What is the substitution effect of a wage increase? What is the income effect of a wage increase? Under what conditions will a worker's labor supply curve become downward sloping?
Q3) In a market economy,the high salaries of some star baseball players such as Adrian Gonzalez,are determined by
A) team owners, based on the total number of star athletes they plan to hire.
B) advertising companies, based on what they are willing to pay to advertise their products at baseball games.
C) the interaction of the demand for star athletes and the supply of star athletes.
D) consumers, based on their willingness to watch baseball games.
Q4) What is a monopsony?
Page 19
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Chapter 18: Public Choice, taxes, and the Distribution of Income
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Q1) The actual division of the burden of a tax is called
A) tax credit.
B) tax incidence.
C) excess burden.
D) tax dispersion.
Q2) One important difference between the political process and the market process is that
A) the political process results in collective actions in which not everyone is required to participate, while in the market process individuals are obliged to participate.
B) the political process results in collective actions in which everyone is obliged to participate, while in the market process individuals are free to participate or not.
C) the political process results in collective actions that maximize economic surplus, while the market process may lead to efficiency losses.
D) the political process results in collective actions in which everyone is made better off, while the market process results in actions that favor some groups only.
Q3) What is the relationship between market failure and government failure?
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Chapter 19: GDP: Measuring Total Production and Income
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Q1) Which of the following is included in both the U.S.GDP and U.S.GNP?
A) the value of all cars produced by General Motors in the United States
B) the value of all cars produced by Ford in Mexico
C) the value of all cars produced by Toyota in the United States
D) the value of all cars produced by Nissan in Japan and the United States
Q2) If GDP calculations included measurements of pollution and environmental damage,GDP values would most likely be
A) greater than their values without these measurements.
B) less than their values without these measurements.
C) unchanged from their values without these measurements.
D) meaningless, since GDP values without these measurements would no longer be of value.
Q3) If income is unequally distributed in an economy,increases in GDP may not raise well-being in an economy.
A)True
B)False
Q4) People complain that inflation increases the cost of goods and services and therefore reduces their purchasing power.If inflation and income grow at the same rate,is this complaint valid? Explain carefully.
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Chapter 20: Unemployment and Inflation
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Q1) The real interest rate equals the nominal interest rate ________ the inflation rate. A) times B) divided by C) plus D) minus
Q2) Eliminating frictional unemployment would be good for the economy.
A)True B)False
Q3) The nominal interest rate equals the real interest rate ________ the inflation rate. A) times B) divided by C) plus D) minus
Q4) The inflation rate measures the average prices of goods and services in the economy.
A)True
B)False
Q5) Describe how inflation can be costly even if it is anticipated.
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Chapter 21: Economic Growth, the Financial System, and Business Cycles
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Q1) What two factors are the keys to determining labor productivity?
A) the business cycle and the growth rate of real GDP
B) the growth rate of real GDP and the interest rate
C) technology and the quantity of capital per hour worked
D) the average level of education of the workforce and the price level
Q2) What is the name of the organization that defines business cycle peaks and troughs in the United States?
A) the Bureau of Labor Statistics
B) the Federal Reserve
C) the National Bureau of Economic Research
D) the National Peak and Trough Committee
Q3) If real GDP per capita doubles between 2005 and 2020,what is the average annual growth rate of real GDP per capita?
A) 4.7%
B) 10.5%
C) 15%
D) 21%
Q4) Use the equations for public and private saving to demonstrate how total saving in the economy equals investment.
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Chapter 22: Long-Run Economic Growth: Sources and Policies
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Q1) Between 1960 and 2010,deaths among children have
A) declined in most high-income countries and have risen in most low-income countries.
B) declined in nearly all countries, including most low-income countries.
C) remained relatively unchanged in most high-income countries and have declined in most low-income countries.
D) declined in most high-income countries and have remained relatively unchanged in most low-income countries.
Q2) Does globalization promote economic growth,and how does globalization affect the welfare of a given country's citizens?
Q3) Growth in the United States from 1800 to 1900 can be characterized as A) positive and increasing.
B) positive and flat.
C) positive and decreasing.
D) negative.
Q4) Explain how advances in technology are critical to sustaining economic growth,even if capital per hour worked is consistently increasing.Provide a graph of a per-worker production function to support your answer.
Q5) Is knowledge capital subject to the law of diminishing returns? Explain.
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Chapter 23: Aggregate Expenditure and Output in the Short Run
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Q1) Firms in a small economy planned that inventories would grow over the past year by $500,000.Over that year,inventories did grow by exactly $500,000.This implies that A) aggregate expenditure that year was equal to GDP that year.
B) there was an unplanned increase in inventories that year.
C) there was an unplanned decrease in inventories that year.
D) aggregate expenditure that year was greater than GDP that year.
Q2) Equations for C,I,G,and NX are given below.If the equilibrium level of GDP is $32,000,what is the marginal propensity to consume? C = 5,000 + (MPC)Y
I = 1,500
G = 2,000
NX = -500
A) 0.67
B) 0.75
C) 0.8
D) 0.9
Q3) Explain how a stock market crash has the potential to lead to a recession in an economy.
Q4) What is the difference between aggregate expenditure and consumption spending?
Page 25
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Chapter 24: Aggregate Demand and Aggregate Supply Analysis
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Q1) When the price level rises from 110 to 115,the aggregate level of GDP supplied rises from $80 billion to $120 billion.This ________ relationship represents the ________ relationship between the quantity of real GDP firms are willing to supply and the price level.
A) negative; short-run
B) positive; short-run
C) negative; long-run
D) positive; long-run
Q2) If the short-run aggregate supply increases by less than the long-run aggregate supply,then,at the short-run equilibrium,
A) GDP will be below potential GDP.
B) aggregate demand will increase.
C) GDP will be above potential GDP.
D) GDP will be equal to potential GDP.
Q3) New classical macroeconomic theory emphasizes the role of "sticky" prices in the economy.
A)True
B)False
Q4) Explain how the aggregate demand and aggregate supply model can be made more dynamic.
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Chapter 25: Money, banks, and the Federal Reserve System
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Q1) In an attempt to bring lenders and borrowers together following the financial crisis of 2008,the Federal Reserve made a large amount of new funds available to financial markets.The Fed expected this to increase in the money supply and the total amount of lending because of the multiplier effect,in which a given amount of new reserves results in a multiple increase in
A) stockholder's equity.
B) bank deposits.
C) long-term debt.
D) required reserves.
Q2) The U.S.government makes a profit from issuing fiat money.
A)True
B)False
Q3) Economies where goods and services are traded directly for other goods and services are called ________ economies.
A) trade
B) barter
C) direct
D) seigniorage
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Chapter 26: Monetary Policy
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Q1) Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________.
A) fiscal; publicly announced level of inflation
B) fiscal; zero inflation rate
C) monetary; publicly announced level of inflation
D) monetary; zero inflation rate
Q2) Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.
Q3) Changes in interest rates affect all four components of aggregate demand.
A)True
B)False
Q4) An increase in the interest rate causes
A) a movement up along the money demand curve.
B) a movement down along the money demand curve.
C) the money demand curve to shift to the left.
D) the money demand curve to shift to the right.
Q5) List the Fed's four main monetary goals.
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Chapter 27: Fiscal Policy
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Q1) Does expansionary fiscal policy directly increase the money supply? Isn't it true that the president and Congress fight recessions by spending more money?
Q2) Congress and the president carry out fiscal policy through changes in A) interest rates and the money supply.
B) taxes and the interest rate.
C) government purchases and the money supply.
D) government purchases and taxes.
Q3) Calculate the government purchases multiplier if the marginal propensity to consume equals 0.75,the tax rate is 0.2,and the marginal propensity to import equals 0.3.
A) 1.43
B) 1.6
C) 3.33
D) 4
Q4) The Congressional Budget Office estimates of the effects of the 2009 stimulus package indicate that the stimulus package caused real GDP to equal potential GDP in 2011.
A)True
B)False
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Chapter 28: Inflation, unemployment, and Federal Reserve Policy
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Q1) Some economists are concerned that by holding its target for the federal funds rate close to zero for three years,the Fed's policy is actually
A) causing inflation to increase.
B) causing unemployment to increase.
C) increasing the unemployment rate while lowering the natural rate of unemployment.
D) creating deflation.
Q2) Ceteris paribus,in the short run following a decrease in the rate of growth in Aggregate Demand,we would expect to see an increase in the rate of unemployment and a decrease in the rate of inflation.
A)True
B)False
Q3) What impact does monetary policy have on the long-run Phillips curve?
A) Monetary policy can only shift the long-run Phillips curve to the left.
B) Monetary policy shifts the long-run Phillips curve to the right or left, depending on whether monetary policy is expansionary or contractionary.
C) Monetary policy can only shift the long-run Phillips curve to the right.
D) Monetary policy has no impact on the long-run Phillips curve.
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Chapter 29: Macroeconomics in an Open Economy
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Q1) When a foreign investor buys a bond issued in the United States,
A) the balance on the capital account increases.
B) the balance on the current account increases.
C) the balance on the financial account increases.
D) the balance of trade increases.
Q2) Which of the following would increase the balance on the current account?
A) an increase in foreign direct investment
B) an increase in the amount of aid money the government sends abroad
C) an increase in imports
D) an increase in the balance of trade
Q3) Refer to Table 29-1.Given the following exchange rates in the above table,what are the exchange rates stated as U.S.dollars per Mexican peso and U.S.dollars per British pound respectively?
A) 0.10 dollars per peso and 2.00 dollars per pound
B) 1.00 dollars per peso and 20.00 dollars per pound
C) 0.01 dollars per peso and 0.20 dollars per pound
D) 0.10 dollars per peso and 5.00 dollars per pound
E) 0.01 dollars per peso and 0.50 dollars per pound
Q4) How is the impact of expansionary fiscal policy different in an open economy than in a closed economy?
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Chapter 30: The International Financial System
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Q1) When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely,they began to sell off their investments in Thailand and exchange the baht they received for dollars.This reduction in investment by foreigners is termed
A) foreign direct investment.
B) capital flight.
C) capital inflow.
D) stabilizing capitalization.
Q2) From the beginning of 1973 until October 2011,the value of the dollar has ________ relative to the Canadian dollar and ________ relative to the Japanese yen.
A) appreciated; appreciated
B) appreciated; depreciated
C) depreciated; appreciated
D) depreciated; depreciated
Q3) What is destabilizing speculation? What role did it play in the collapse of the Bretton Woods system?
Q4) How were exchange rates determined under the gold standard? How did the Bretton Woods system differ from the gold standard?
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