Economics for Business Practice Questions
Course Introduction
Economics for Business introduces students to the fundamental concepts and principles of microeconomics and macroeconomics as they apply to real-world business decision-making. The course examines how market structures, pricing strategies, consumer behavior, and government policies influence the allocation of resources and the operation of firms. Students learn how to analyze market trends, assess economic data, and apply economic reasoning to business problems such as production, competition, and globalization. By integrating theoretical frameworks with practical case studies, the course equips students with the analytical tools necessary to make informed decisions in a dynamic and competitive business environment.
Recommended Textbook Economics 5th Edition by R. Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Which of the following is a microeconomics question?
A) Why do economies experience periods of recession?
B) Will government intervention lower the unemployment rate?
C) Why has growth in the economy slowed down over the past decade?
D) How will Apple decide on a selling price for the iPad?
Answer: D
Q2) The distribution of income primarily determines which of the fundamental economic questions?
A) What goods and services are to be produced?
B) How are the goods and services to be produced?
C) Who will receive the goods and services produced?
D) How should the economy be planned?
Answer: C
Q3) Refer to Table 1-6. What is Ivan's marginal benefit if he decides to stay open for six hours instead of five hours?
A) $10
B) $20
C) $30
D) $91.67
Answer: B
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Firms
A) have no influence on the circular flow in a market economy.
B) purchase resources in the product market.
C) sell goods in the product market.
D) sell resources in the factor market.
Answer: C
Q2) What is comparative advantage? What is absolute advantage?
Answer: Comparative advantage is the ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than competitors. Absolute advantage is the ability of an individual, firm, or country to produce more of a good or service than competitors, using the same amount of resources.
Q3) An increase in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point inside the frontier.
A)True
B)False
Answer: True
Q4) List the four broad categories of factors of production.
Answer: labor, capital, natural resources, and entrepreneurship
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Refer to Figure 3-5. In a free market such as that depicted above, a shortage is eliminated by
A) a price increase, increasing the supply and decreasing the demand.
B) a price decrease, decreasing the supply and increasing the demand.
C) a price decrease, decreasing the quantity supplied and increasing the quantity demanded.
D) a price increase, increasing the quantity supplied and decreasing the quantity demanded.
Answer: D
Q2) An increase in population results in an increase in demand.
A)True
B)False
Answer: True
Q3) Refer to Figure 3-2. A decrease in the price of substitutes in production would be represented by a movement from
A) A to B.
B) B to A.
C) S1 to S2.
D) S2 to S1.
Answer: C
Page 5
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Q1) Economists have shown that the burden of a tax is the same whether the tax is collected from the buyer or the seller. Why, then, are gasoline and cigarette taxes imposed on sellers?
A) Sellers are more honest than buyers.
B) The demand for both gasoline and cigarettes is very elastic.
C) The Equal Protection Clause of the U.S. Constitution prohibits the government from imposing taxes like these on buyers.
D) It is more difficult for buyers to keep track of their purchases, and for the government to verify that the right of amount of tax revenue is collected.
Q2) Refer to Table 4-6. The table above lists the marginal cost of polo shirts by Marko's, a firm that specializes in producing men's clothing. If the price of polo shirts decreases from $15 to $10,
A) consumers will buy no polo shirts.
B) the marginal cost of producing the third polo shirt will increase to $25.
C) producer surplus will fall from $13 to $3.
D) there will be a shortage of polo shirts.
Q3) What is marginal benefit? Which curve is also referred to as a marginal benefit curve?
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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Sample Questions
Q1) Private costs
A) are borne by producers of a good, while social costs are borne by government. B) are borne by consumers of a good, while social costs are borne by government.
C) are borne by producers of a good, while social costs are borne by society at large.
D) are borne by producers of a good, while social costs are borne by those who cannot afford to purchase the good.
Q2) An advantage of imposing a tax on the producer that generates pollution is that A) it forces the polluting producer to internalize the external cost of the pollution. B) the government can keep tabs on exactly what is produced in an industry.
C) it will eliminate pollution.
D) a producer can pass the cost of the pollution to consumers.
Q3) In the United States, many beekeepers travel from state to state, renting out their bee colonies to farmers for pollination services. This is an example of
A) a Coasian solution to a positive externality problem.
B) a Pigovian solution to a positive externality problem.
C) a tradable exchange contract.
D) command and control policy.
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Sample Questions
Q1) Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product decreases. Which of the following statements accurately predicts the resulting decrease in price?
A) The more elastic the supply curve, the greater the price increase.
B) The more elastic the supply curve, the smaller the price decrease.
C) The increase in price is not affected by the elasticity of the supply curve.
D) The decrease in price will always be proportional to the magnitude of the demand shift.
Q2) The paradox of American farming is
A) the demand for imported luxury food products has risen as the demand for domestic food products has fallen.
B) the demand for food has risen as the number of people who pursue farming as a career has fallen.
C) food has become cheaper and more abundant as the number of farms has decreased.
D) the amount of food produced has increased as the average farm size has fallen.
Q3) What factors would make you more sensitive or less sensitive to price when purchasing gasoline?
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) Refer to Figure 7-6. Answer the following questions:
1. What would be the equilibrium price and quantity if consumers had to pay the full price of medical services?
2. With insurance acting as a third-party payer, what price will consumers pay for medical service?
3. With insurance acting as a third-party payer, what price will doctors receive for medical service?
4. With insurance acting as a third-party payer, what will be the equilibrium quantity of medical services?
5. With insurance acting as a third-party payer, what will be the value of the deadweight loss?
Q2) Adverse selection is a situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. A)True B)False
Q3) Two key consequences of asymmetric information are adverse selection and moral hazard. Define each concept, provide one example of each and explain how the two concepts differ.
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) When you buy newly-issued shares of Facebook stock, this transaction takes place in the
A) primary market.
B) bond market.
C) secondary market.
D) bear market.
Q2) Accounting profit is the difference between a firm's revenue and its opportunity costs.
A)True
B)False
Q3) Sole proprietorships are ________ type of business.
A) the most profitable
B) the least common
C) the most common
D) the least risky
Q4) Direct finance includes the sale by a corporation of stocks or bonds, but does not include borrowing money from a bank.
A)True
B)False
Q5) What is the difference between retained earnings and dividends?
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Refer to Figure 9-5. The tariff causes domestic consumption of coffee
A) to fall by 27 million pounds.
B) to fall by 7 million pounds.
C) to rise by 6 million pounds.
D) to rise by 20 million pounds.
Q2) Refer to Table 9-12. If the actual terms of trade are 1 belt for 1.5 swords and 70 belts are traded, how many belts will Estonia gain compared to the "without trade" numbers?
A) 10
B) 20
C) 50
D) 70
Q3) The ability of a firm or country to produce a good or service at a lower opportunity cost than other producers is called absolute advantage.
A)True
B)False
Q4) What are three primary reasons for the growth of international trade over the past 50 years?
Q5) What is the difference between imports and exports?
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) What is an indifference curve?
A) It is a curve that shows the total utility and the marginal utility derived from consuming a bundle of goods.
B) It is a curve that shows the combinations of consumption bundles that gives the consumer the same utility.
C) It is a curve that shows ranks a consumer's preference for various consumption bundles.
D) It is a curve that shows the tradeoff a consumer faces among different combinations of consumption bundles.
Q2) Economists Gary Becker and Kevin Murphy are associated with which of the following?
A) the discovery of the first example of a Giffen good
B) They have argued that social factors are not important in explaining the choices consumers make.
C) Consumers appear to receive utility from consuming goods they believe are popular.
D) They discovered that price changes have both income and substitution effects.
Q3) Describe the demand curve for a Giffen good.
Q4) Explain the endowment effect.
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Page 12
Chapter 11: Technology, Production, and Costs
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Sample Questions
Q1) Refer to Figure 11-5. Curve G approaches curve F because
A) marginal cost is above average variable costs.
B) average fixed cost falls as output rises.
C) fixed cost falls as capacity rises.
D) total cost falls as more and more is produced.
Q2) Refer to Figure 11-16. The figure above illustrates a series of isoquants. Which of the following statements is true?
A) Points x, z, and y all represent the same output.
B) Points z and y represent the same output; this output is produced with more capital at z than at y.
C) Point x and y represent the same output, but the cost of production at y is greater than the cost of production at x.
D) Point z represents a greater output than point x or point y.
Q3) A characteristic of the long run that is not available in the short run is that a firm is free to vary its output.
A)True
B)False
Q4) What is an isoquant? What is the slope of an isoquant?
Q5) Describe the difference between technology and positive technological change.
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Refer to Figure 12-1. If the firm is producing 700 units, what is the amount of its profit or loss?
A) loss of $280
B) loss equivalent to the area A
C) profit equivalent to the area A
D) There is insufficient information to answer the question.
Q2) Refer to Figure 12-4. What is the amount of its total fixed cost?
A) $1,080
B) $1,440
C) $2,520
D) It cannot be determined.
Q3) Refer to Figure 12-1. If the firm is charging a price of $12 per unit, A) it breaks even.
B) it is making a profit.
C) it is selling 700 units.
D) it is not selling any output.
Q4) What is the difference between "shutting down temporarily" and "exiting the industry"?
Q5) Under what conditions should a competitive firm shut down in the short run?
Page 14
Q6) What is meant by the term "long-run competitive equilibrium"?
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Sample
Questions
Q1) Suppose a monopolistically competitive firm's output where marginal revenue equals marginal cost is 66 units and the price corresponding to this quantity is $18. If the average total cost at this output is $16.55, then its total profit is
A) $1,188.
B) $1,092.30.
C) $95.70.
D) $1.45.
Q2) The Jeans Store sells 7 pairs of jeans per day when it charges $100 per pair. It sells 8 pairs of jeans per day at a price of $90 per pair. The marginal revenue of the eighth pair of jeans is
A) $20.
B) $90.
C) $100.
D) $700.
Q3) Economists believe that consumers would be better off if markets were perfectly competitive rather than monopolistically competitive.
A)True
B)False
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Oligopoly differs from perfect competition and monopolistic competition in that A) barriers to entry are lower in oligopoly industries than they are in perfectly competitive and monopolistically competitive industries.
B) demand and marginal revenue curves are more useful for analyzing oligopoly than they are for analyzing perfect competition and monopolistic competition.
C) because oligopoly firms often react when other firms in their industry change their prices, it is difficult to know what the oligopolist's demand curve looks like.
D) the concentration ratios of oligopoly industries are lower than they are for perfectly competitive and monopolistically competitive firms.
Q2) The larger the number of firms in an industry,
A) the easier it is to implicitly collude to fix prices.
B) the more intense the rivalry among firms.
C) the greater the need for a price enforcement mechanism.
D) the larger the potential number of market segments.
Q3) Explain why OPEC is caught in a prisoner's dilemma?
Q4) What is an oligopoly? Give two examples of oligopolistic industries in the United States.
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) What is the difference between a public franchise and a public enterprise?
A) A public franchise grants a firm the right to be the sole legal provider of a good or service. A public enterprise refers to a service that is provided directly to consumers through the government.
B) A public enterprise grants a firm the right to be the sole legal provider of a good or service. A public franchise refers to a service that is provided directly to consumers through the government.
C) A public enterprise is owned by the public through its holdings of shares of stock in the enterprise. A public franchise is a firm owned by the government.
D) Both refer to a service provided directly to consumers through the government, but "public franchise" is a term more commonly used in the United States while "public enterprise" is more commonly used in European countries.
Q2) Refer to Figure 15-14. From the monopoly graph above, identify the following:
a. The profit maximizing price
b. The profit maximizing quantity
c. The area representing deadweight loss
d. The area representing the transfer of consumer surplus to the monopoly
Q3) If you own the only bookstore in a small town, do you have a monopoly?
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Chapter 16: Pricing Strategy
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Q1) Which of the following is a reason why a firm would not engage in price discrimination?
A) Price discrimination is illegal in some western states and the owners of firms in these states face civil or criminal prosecution if they engage in price discrimination.
B) Some firms are not able to segment the market for the products they sell.
C) Some firms do not want to violate the law of one price.
D) The transactions costs associated with selling the product exceed the price of the product.
Q2) Which of the following is not an advantage of cost-plus pricing?
A) It is easy to calculate.
B) It requires little information.
C) If a firm is selling multiple products, it ensures that the firm's prices will cover costs that are difficult to assign to one product.
D) It ensures that the firm will maximize its profits.
Q3) Early adopters are consumers who will pay a high price to be among the first to own new products.
A)True
B)False
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Chapter 17: The Markets for Labor and Other Factors of Production
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Q1) Companies often find it to be more profitable to use a commission or piece-rate system of compensation rather than a salary system, yet many firms continue to pay their workers salaries. List three reasons why a firm would choose a salary system of compensation.
Q2) Marginal revenue product for a perfectly competitive seller is equal to A) the output price multiplied by the total product of labor.
B) the output price multiplied by the number workers hired.
C) the change in total revenue that results from hiring another worker.
D) the marginal cost of production.
Q3) Refer to Table 17-3. What is the amount of revenue added as a result of hiring the fourth worker?
A) $1,200
B) $7,200
C) 15 microwaves
D) 90 microwaves
Q4) Refer to Figure 17-4. Which of the following is true at W2?
A) The income effect is larger than the substitution effect.
B) The substitution effect is larger than the income effect.
C) The income effect and the substitution effect are equal.
D) The supply curve is positively sloped.
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Chapter 18: Public Choice, Taxes, and the Distribution of Income
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Sample Questions
Q1) Consider a public good such as fire protection services. Rich people may benefit more than the poor from such a service because rich people stand to lose more from a fire that destroys property. In this case,
A) the ability-to-pay principle may support the rich paying more taxes than the poor, but not the benefits-received principle.
B) the benefits-received principle may support the rich paying more taxes than the poor, but not the ability-to-pay principle.
C) both the benefits-received and the ability-to-pay principles may support the rich paying more taxes than the poor.
D) neither the benefits-received nor the ability-to-pay principles may support the rich paying more taxes than the poor.
Q2) Refer to Figure 18-5. The highest 20 percent of households
A) earn 24 percent of the society's total income.
B) earn 28 percent of the society's total income.
C) earn 42 percent of the society's total income.
D) earn 72 percent of the society's total income.
Q3) What is meant by "tax incidence"?
Q4) What is a Lorenz curve and what is a Gini coefficient?
Page 20
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Chapter 19: GDP: Measuring Total Production and Income
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Q1) Which of the following statements is true?
A) A decrease in the crime rate increases GDP as people will spend more on security.
B) Household production is counted in GDP as it amounts to real production.
C) GDP accounting rules do not adjust for production that pollutes the economy.
D) GDP growth distributes income equally to people in the economy.
Q2) In the first half of 2011, automobile sales in the United States were lower than they were in the first half of 2010. The decrease in auto sales impacts GDP because new automobiles are counted as ________ when purchased by households and ________ when purchased by businesses.
A) nondurable goods; durable goods
B) consumption; investment
C) investment; consumption
D) durable goods; nondurable goods
Q3) The circular flow of income shows that GDP can be measured as the sum of wages, interest, rent, and profits received by households or total expenditures on goods and services by households, firms, government, and the rest of the world.
A)True
B)False
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21
Chapter 20: Unemployment and Inflation
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Q1) The deflation of the 1930s impacted the U.S. economy because it led some consumers to ________ and because it ________.
A) postpone purchases while they waited for prices to fall even lower; increased the burden on borrowers
B) demand higher wages in anticipation of prices eventually rising again; increased manufacturing since firms could afford to hire more labor
C) borrow more money since money was now cheap; reduced the amount of money consumers would have to pay back on their outstanding loans
D) increase purchases to take advantage of the falling prices; increased the burden on lenders
Q2) By offering training to workers whose firms laid them off because of competition from foreign firms, the federal government is attempting to reduce A) frictional unemployment.
B) structural unemployment. C) cyclical unemployment.
D) seasonal unemployment.
E) unnatural unemployment.
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Chapter 21: Economic Growth, the Financial System, and Business Cycles
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Q1) How would the equilibrium quantity of loanable funds respond to a change from an income tax to a consumption tax?
A) The equilibrium quantity of loanable funds would rise.
B) The equilibrium quantity of loanable funds would fall.
C) The equilibrium quantity of loanable funds would be unaffected.
D) The equilibrium quantity of loanable funds may rise or fall based on whether household saving increases or decreases as a result of the change from an income tax to a consumption tax.
Q2) Which of the following increases labor productivity?
A) an increase in the aggregate hours of work
B) decreases in the availability of computers and factory buildings
C) inventions of new machinery, equipment, or software
D) a decline in the health of the population
Q3) Growth in potential GDP in the United States is estimated to be about
A) 8.25% per year.
B) 5.0% per year.
C) 3.2% per year.
D) 1.5% per year.
Q4) Explain how unemployment changes over the business cycle. Why do these changes occur?
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Chapter 22: Long-Run Economic Growth: Sources and Policies
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Q1) If real GDP per capita in the United States is $8,000, what will real GDP per capita in the United States be after 5 years if real GDP per capita grows at an annual rate of 3.2%?
A) $8,520
B) $9,280
C) $9,365
D) $10,560
Q2) In 1973, the Club of Rome published a book titled The Limits to Growth, which predicted that economic growth would likely end in high-income countries because of A) declining populations.
B) rapid increases in government debt.
C) increases in outsourcing of the production of goods and services to low-income countries.
D) increasing pollution and the depletion of natural resources.
Q3) Which of the following is a normative statement about economic growth?
A) Economic growth is associated with higher labor productivity growth.
B) Economic growth increases GDP per capita.
C) Economic growth hurts developing countries.
D) Foreign direct investment stimulates economic growth.
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Chapter 23: Aggregate Expenditure and Output in the Short Run
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Q1) When Jack's income increases by $1,000, he spends an additional $850 dollars. This implies that his marginal propensity to save is 0.85.
A)True
B)False
Q2) Economists first began studying the relationship between changes in aggregate expenditures and changes in GDP
A) in the 1950s.
B) during the Great Depression.
C) at the end of the Civil War.
D) during the Industrial Revolution.
Q3) A decrease in the price level results in a(n) ________ in household consumption spending and a(n) ________ in investment spending.
A) increase; decrease
B) increase; increase
C) decrease; decrease
D) decrease; increase
Q4) Suppose the United States experiences a long period of inflation relative to other countries. How will this affect U.S. net exports?
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Chapter 24: Aggregate Demand and Aggregate Supply Analysis
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Q1) After an unexpected ________ in the price of oil, the long-run adjustment decreases the price level and ________ the unemployment rate as they return to their original levels.
A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
Q2) Suppose a developing country receives more machinery and capital equipment as foreign entrepreneurs increase the amount of investment in the economy. As a result,
A) the long-run aggregate supply curve will shift to the right.
B) the long-run aggregate supply curve will shift to the left.
C) the economy will move up along the long-run aggregate supply curve.
D) the economy will move down along the long-run aggregate supply curve.
Q3) Which of the following will shift the aggregate demand curve to the right, ceteris paribus?
A) an increase in interest rates
B) a decrease in disposable income
C) a decrease in expected profits for firms
D) an increase in net exports
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Chapter 25: Money, Banks, and the Federal Reserve System
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Q1) According to the quantity theory of money, deflation will occur if the
A) money supply is less than real GDP.
B) money supply is more than real GDP.
C) money supply grows at a slower rate than real GDP.
D) money supply grows at a faster rate than real GDP.
Q2) The primary tool the Federal Reserve uses to increase the money supply is
A) printing more money.
B) lowering the required reserve ratio.
C) buying Treasury securities.
D) lowering the discount rate.
Q3) The major shortcoming of a barter economy is
A) the requirement of a double coincidence of wants.
B) the requirement of specialization and exchange.
C) that goods and services are not traded.
D) that money loses value from inflation.
Q4) Why does the holding of excess reserves by banks and the holding of currency by households and firms cause the real-world deposit multiplier to be less than the simple deposit multiplier?
Q5) Using the five criteria in the book, explain how U.S. currency is suitable to use as a medium of exchange.
Page 27
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Chapter 26: Monetary Policy
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Sample Questions
Q1) Refer to Table 26-3. Consider the hypothetical information in the table above for potential real GDP, real GDP and the price level in 2014 and in 2015 if the Federal Reserve does not use monetary policy. If the Fed wants to keep real GDP at its potential level in 2015, it should
A) buy Treasury securities.
B) sell Treasury securities.
C) decrease the required reserve ratio.
D) decrease income taxes.
Q2) During the turmoil in the market for subprime mortgages in 2007 and 2008, the Fed increased the volume of discount loans. The goal of the Fed was to
A) reduce the rate of inflation.
B) stimulate economic growth.
C) reduce unemployment.
D) reassure financial markets and promote financial stability.
E) reduce the current account deficit.
Q3) One of the monetary policy goals of the Federal Reserve is price stability.
A)True
B)False
Q4) List the Fed's four main monetary goals.
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Chapter 27: Fiscal Policy
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Q1) Suppose that Congress allocates $1 billion to clean up after the hurricanes of 2005. It also raises taxes by $1 billion to keep the deficit from growing. If the marginal propensity to consume is 0.9, what is the effect on equilibrium GDP?
A) GDP does not change.
B) GDP increases by $10 billion.
C) GDP increases by $900,000.
D) GDP increases by $1 billion.
Q2) Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?
Q3) Suppose real GDP is $13 trillion, potential real GDP is $13.5 trillion, and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP. Assuming a constant price level, Congress and the president would need to decrease taxes by
A) $500 billion.
B) less than $500 billion.
C) more than $500 billion.
D) None of the above are correct. Congress should raise taxes in this case.
Q4) What is the difference between fiscal policy and monetary policy?
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Chapter 28: Inflation, Unemployment, and Federal Reserve Policy
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Q1) If the current unemployment rate is 5%, under which of the following circumstances would you expect the Fed to use contractionary monetary policy?
A) if the natural rate of unemployment is below 5%
B) if the natural rate of unemployment is above 5%
C) if the inflation rate is above 5%
D) if the inflation rate is below 5%
Q2) If rational workers and firms know that the Federal Reserve is following a contractionary monetary policy, they will expect inflation to ________ and will adjust wages so that the real wage ________.
A) increase; remains unchanged
B) decrease; remains unchanged
C) decrease; increases
D) increase; decreases
Q3) Monetary policy has ________ impact on the long-run Phillips curve.
A) a positive
B) a negative
C) an unpredictable
D) no
Q4) What does it mean to say that workers and firms have rational expectations?
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Chapter 29: Macroeconomics in an Open Economy
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Q1) If net exports are equal to net foreign investment, which of the following is not true?
A) The balance of payments is zero.
B) The current account balance is equal to the negative of the financial account balance.
C) Net capital inflows are equal to imports minus exports.
D) The balance on the financial account is zero.
Q2) If you know that a country's net foreign investment is positive, what does that tell you about the relationship between the country's national saving and private investment? (Assume that the capital account is zero and net transfers are zero.)
Q3) If the exchange rate changes from $1.45 = 1 euro to $1.37 = 1 euro, then
A) both the euro and dollar have appreciated.
B) both the euro and dollar have depreciated.
C) the euro has appreciated and the dollar has depreciated.
D) the euro has depreciated and the dollar has appreciated.
Q4) Explain and show graphically the effect of a decrease in U.S. budget deficits that decrease U.S. interest rates on the demand and supply of U.S. dollars for euros.
Q5) Why is the balance of payments always zero?
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Chapter 30: The International Financial System
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Q1) If a firm in Thailand borrows dollars from a U.S. bank, its interest payments on the loan in bahts will decrease if the baht appreciates against the dollar.
A)True
B)False
Q2) One reason that Iceland recovered from the financial crisis which began in 2007 more quickly than did countries like Greece, Spain, and Italy is that Iceland does not use the euro, and the value of its currency was able to ________ versus the euro, which increased its ________.
A) decline; exports
B) decline; imports
C) rise; exports
D) rise; imports
Q3) If currencies around the world are based on the gold standard, and Japan raises the amount of gold for which the yen will trade, then holding all else constant,
A) the yen will depreciate against the dollar.
B) the yen will appreciate against the dollar.
C) the value of the yen relative to the dollar will stay constant.
D) the value of U.S. exports to Japan in terms of the yen will increase.
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