Macroeconomic Principles
Mock Exam
Course Introduction
Macroeconomic Principles introduces students to the foundational concepts that govern economies as a whole, focusing on aggregate measures such as national income, unemployment, inflation, economic growth, and fiscal and monetary policy. The course explores how governments and central banks use policy tools to address economic fluctuations, promote stability, and foster growth. Through real-world examples and quantitative analysis, students will develop a broad understanding of the economic forces that shape societies and the theoretical frameworks economists use to interpret macroeconomic data and events.
Recommended Textbook
Economics 4th Edition by R. Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Explain why economics is considered a social science.
Answer: Economics is a social science because it studies the actions of individuals.As a social science,economics considers human behavior,particularly decision-making behavior,in every context.
Q2) Refer to Table 1-2.The table above shows the sales of DVD recorders in North America.Present the information using a bar graph.
Answer: 11ea8d23_56f0_1e7b_b445_1bb5992683b1_TB4184_00
Q3) Scarcity is a problem that will eventually disappear as technology advances.
A)True
B)False
Answer: False
Q4) Automobile manufacturers produce a range of automobiles such as sports utility vehicles,luxury sedans,pickup trucks and compact cars.What fundamental economic question are they addressing by making this range of products?
A) How to produce goods that consumers want?
B) Why produce a variety of automobiles?
C) What to produce?
D) Who to produce automobiles for?
Answer: C
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Sample Questions
Q1) Consider the following items: a.the novel "The DaVinci Code" by Dan Brown
B)the "The Spirited Shipper",an innovative wine shipping box
C)a Swiss chef's award-winning recipe
D)an original fabric design,for example,the fabric used for "Coach" bags and luggage
Which of the items listed is an example of intellectual property?
A) a and b only
B) a, b, and c
C) a and d only
D) all of the items listed
Answer: D
Q2) Refer to Table 2-3.What is Serena's opportunity cost of making a necklace?
A) 2 necklaces
B) 1/2 of a bracelet
C) 1/2 of a necklace
D) 3/4 of a bracelet
Answer: B
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4
Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) Refer to Figure 3-4.If the price is $10,
A) there would be a surplus of 600 units.
B) there would be a shortage of 600 units.
C) there would be a surplus of 200 units.
D) there would be a shortage of 200 units.
Answer: B
Q2) Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for almonds.Which panel best describes what happens in this market when there is an increase in the productivity of almond harvesters?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
Answer: A
Q3) Chips and salsa are complements.If the price of salsa decreases,the demand for chips will increase.
A)True
B)False
Answer: True
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) Rent control is an example of a price ceiling.
A)True
B)False
Q2) Refer to Figure 4-4.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $3,what changes in the market would result in an economically efficient output?
A) The price would increase, the quantity supplied would decrease, and the quantity demanded would increase.
B) The quantity supplied would increase, the quantity demanded would decrease and the equilibrium price would increase.
C) The price would increase, the demand would decrease and the supply would increase.
D) The price would increase, the quantity demanded would decrease and the quantity supplied would increase.
Q3) Rent control is an example of
A) a subsidy for low-skilled workers.
B) a price floor.
C) a price ceiling.
D) a black market.
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Sample Questions
Q1) What is a "social cost" of production?
A) the cost of the natural resources used up in production
B) the total costs of producing a product, both implicit and explicit costs
C) the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product
D) the cost of the environmental damage created by production
Q2) If you burn your trash in the back yard in spite of regulations against it,then you are
A) acting economically irrationally and creating a social cost.
B) avoiding the private costs associated with disposing your trash some other way and creating a social cost.
C) acting rationally and creating a positive externality.
D) saving landfill space and creating a social benefit.
Q3) 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.
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Page 7
Chapter 6: Elasticity: The Responsiveness of Demand and Supply
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Q1) When demand is elastic,a fall in price causes total revenue to rise because A) when price falls, quantity sold increases so total revenue automatically rises.
B) the increase in quantity sold is large enough to offset the lower price.
C) the percentage increase in quantity demanded is less than the percentage fall in price.
D) the demand curve shifts.
Q2) Between 1950 and 2011 the number of acres devoted to wheat production in the United States ________ and the price of wheat ________.
A) declined; decreased
B) more than doubled; increased by about 50 percent
C) declined; more than doubled
D) increased; more than doubled
Q3) The demand for all carbonated beverages is likely to be ________ the demand for Dr.Pepper.
A) more elastic than B) perfectly elastic compared to C) less elastic than D) perfectly inelastic compared to
Q4) Explain the relationship between price elasticity of demand and total revenue.
Page 8
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) Over the past 160 years in the United States,life expectancy
A) has remained fairly constant.
B) has slightly declined.
C) has more than doubled.
D) increased up to the 1950s and then declined for the next 60 years.
Q2) An analysis of the Patient Protection and Affordable Care Act (PPACA)by Medicare officials claims that additional annual health care spending over the next decade under the PPACA will
A) more than double.
B) rise by 10 percent for the first 5 years and then fall by 20 percent for the remaining 5 years.
C) continually increase until it reaches an annual rate of 25 percent.
D) increase by less than 1 percent.
Q3) Some economists believe that by making health care coverage mandatory for all individuals,the demand for medical services will likely ________,which will ________ the costs of health care.
A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) In August 2011,Standard & Poor's (S&P)changed its rating on U.S.Treasury bonds from ________ based on the state of the federal government's budget deficit.
A) "A" to "D"
B) "A" to "AAA"
C) "A+" to "B+"
D) "AAA" to "AA+"
Q2) If a corporation goes bankrupt,which of the following has first claim on the firm's assets?
A) stockholders
B) the state where chartered
C) employees
D) bondholders
Q3) Sole proprietorships are ________ type of business.
A) the most profitable
B) the least common
C) the most common
D) the least risky
Q4) Explain what potential conflict exists between shareholders in a corporation and the corporation's managers.
Page 10
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) U)S.firms that sell products in foreign markets protested the "Buy American" provision in the 2009 stimulus bill,arguing that if the United States restricted imports from foreign firms,
A) foreign countries would likely retaliate by limiting U.S. exports.
B) foreign firms would stop selling all products in the United States.
C) U.S. firms would never be able to meet the increased demand for U.S.-produced goods.
D) eventually the government would demand price cuts from U.S. manufacturers.
Q2) Refer to Figure 9-3.What is the area that represents revenue to foreign producers who are granted permission to sell in the U.S.market when there is a quota?
A) I + J
B) E + I + J + M
C) I + J + K+ L
D) G + H + I + J
Q3) Refer to Table 9-2.
a.Which country has an absolute advantage in the production of handbags and jackets?
b.Which country has a comparative advantage in the production of handbags?
c.Which country has a comparative advantage in the production of jackets?
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Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) Gowri has $6 per day to purchase lunch.She spends all of her lunch money on pizza and iced-tea.The price of pizza is $2.00 per slice and iced-tea costs $1 per bottle.
a.Draw Gowri's budget constraint and label it BC<sub>0</sub>.Put pizza on the horizontal axis and iced-tea on the vertical axis.Be sure to identify the intercept values.
b.If the price of iced-tea rises to $1.20 per bottle,show what will happen to her budget constraint in your diagram.Be sure to indicate any new intercept values.
Q2) If preferences are transitive,indifference curves
A) intersect at the equilibrium consumption bundle.
B) intersect at the optimum consumption bundle.
C) intersect where the marginal rate of substitution for each indifference curve is equal.
D) do not intersect.
Q3) What is marginal utility and what is the law of diminishing marginal utility?
Q4) The substitution effect of a price increase causes a decrease in the quantity demanded of an inferior good.
A)True
B)False
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Page 12
Chapter 11: Technology, production, and Costs
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Sample Questions
Q1) A positive technological change which decreases the price of inputs 1366 Technologies uses to produce solar wafers will cause
A) 1366 Technologies' average total cost curve and marginal cost curve to shift downward.
B) 1366 Technologies' average total cost curve but not its marginal cost curve to shift downward.
C) 1366 Technologies' marginal cost curve but not its average total cost curve to shift downward.
D) a movement downward along 1366 Technologies' current average total cost curve.
Q2) If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units of output is $30.23,what will happen to the average cost of production if the 15th unit is produced?
A) Average cost increases as more is produced.
B) Average cost will fall.
C) Average cost could increase or decrease depending on what happens to variable cost.
D) Average cost could increase or decrease depending on what happens to fixed cost.
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Page 13
Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Maximizing average profit is equivalent to maximizing total profit.
A)True
B)False
Q2) How are market price,average revenue,and marginal revenue related for a perfectly competitive firm and why?
Q3) If in a perfectly competitive industry,the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue
A) the industry supply will not change.
B) new firms are attracted to the industry.
C) some existing firms will exit the industry.
D) firms are breaking even.
Q4) Refer to Figure 12-5.The firm's manager suggests that the firm's goal should be to maximize average profit.In that case,what is the output level and what is the average profit that will achieve the manager's goal?
A) Q = 1,350 units, average profit =$5
B) Q = 1,100 units, average profit =$6
C) Q = 1,350 units, average profit =$9
D) Q = 1,800 units, average profit =$20
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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) For allocative efficiency to hold,
A) price must equal marginal revenue of the last unit sold.
B) price must equal the marginal cost of the last unit produced.
C) average variable cost is minimized in production.
D) average total cost is minimized in production.
Q3) Productive efficiency does not hold for a profit-maximizing,monopolistically competitive firm in the long-run equilibrium because the firm operates along the diseconomies-of-scale region of its average total cost curve.
A)True
B)False
Q4) One reason why the coffeehouse market is competitive is that
A) demand for specialty coffee is very high.
B) it is trendy and therefore is likely to have a customer following.
C) barriers to entry are low.
D) consumption takes place in public.
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) 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?
Q2) Refer to Figure 14-1.Should Lexus lower its price in order to deter BMW's entry into the luxury hybrid automobile market?
A) In terms of profit earned, it makes no difference whether Lexus lowers its price or not; in either case it will make $280 million profit if BMW enters.
B) No, it should keep the same price and work to capitalize on its brand loyalty.
C) Yes, it will drive BMW out of the market.
D) No, because BMW will enter the market regardless of Lexus' decision about its price.
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) A firm that has the ability to control to some degree the price of the product it sells
A) is also able to dictate the quantity purchased.
B) faces a demand curve that is inelastic throughout the range of market demand.
C) is a price maker.
D) faces a perfectly inelastic demand curve.
Q2) The size of a deadweight loss in a market is reduced by
A) government legislating a ceiling price.
B) government legislating a price floor.
C) market price being close to marginal cost.
D) creative destruction.
Q3) Refer to Figure 15-9.Erickson Power is a natural monopoly because
A) it is a power company and all power companies are natural monopolies.
B) average total cost is still declining when it intersects demand.
C) of its continually declining marginal revenue curve as output rises.
D) its marginal cost lies entirely below its long-run average cost.
Q4) In reality,because few markets are perfectly competitive,some loss of economic efficiency occurs in the market for nearly every good or service.
A)True
B)False
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Under what circumstances will the law of one price hold,and when might it not hold?
Q2) A firm using a two-part tariff can produce the economically efficient outcome by A) making the fixed-fee portion of the price as low as possible.
B) setting the per-unit portion of the price equal to the marginal cost of production.
C) setting the per-unit portion of the price equal to the average cost of production.
D) setting the fixed-fee portion of the price at some proportion to the fixed cost of production.
Q3) If a firm could practice perfect price discrimination,it would
A) allow resale of its product.
B) charge every buyer a different price.
C) charge a price based on the quantity of a product bought.
D) use odd pricing.
Q4) Both first-degree price discrimination and optimal two-part tariff pricing maximize economic surplus.
A)True
B)False
Q5) Are sellers who practice arbitrage taking advantage of buyers?
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Page 18
Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) An increase in the wage rate causes
A) a rightward shift of the firm's labor demand curve.
B) a leftward shift of the firm's labor demand curve.
C) a decrease in the quantity of labor demanded.
D) an increase in labor's marginal productivity.
Q2) The primary purpose of labor unions is to
A) ensure that workers receive adequate safety training.
B) ensure that all members earn identical incomes.
C) negotiate with employers about wages and working conditions.
D) endorse candidates and donate money to them.
Q3) When workers are paid on a piece-rate basis,an employer must be able to easily measure each worker's output.
A)True
B)False
Q4) If the labor demand curve shifts to the right and the labor supply curve remains unchanged,what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.
Q5) What is a compensating differential?
Q6) What is personnel economics?
Q7) What is the signaling hypothesis of education? Page 19
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Page 20
Chapter 18: Public Choice, taxes, and the Distribution of Income
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Sample Questions
Q1) Which of the following statements about rent seeking is false?
A) Rent seeking often involves governments because governments transfer huge amounts of funds that economic agents must compete for.
B) A person is engaging in rent seeking behavior when he uses the political process to acquire ownership of a resource that belongs to the public.
C) Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law.
D) If a firm can benefit from government intervention in the economy, it is more likely to spend resources attempting to secure this intervention than toward innovating its product to gain a competitive edge in the market.
Q2) If you pay $2,000 in taxes on an income of $20,000,and a tax of $3,500 on an income of $30,000,then over this range of income the tax is
A) regressive.
B) proportional.
C) progressive.
D) There is insufficient information to answer the question.
Q3) What is the relationship between market failure and government failure?
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Page 21
Chapter 19: GDP: Measuring Total Production and Income
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Sample Questions
Q1) Gross domestic product is calculated by summing up
A) the total quantity of goods and services in the economy.
B) the total quantity of goods and services produced in the economy during a period of time.
C) the total market value of goods and services in the economy.
D) the total market value of final goods and services produced in the economy during a period of time.
Q2) Refer to Table 19-8.Nominal GDP for Tyrovia in 2011 equals
A) $1,140.
B) $880.
C) $690.
D) $560.
Q3) A sharp increase in the divorce rate increases the number of lawyers hired to determine divorce settlements.This will
A) increase GDP and increase well being in the economy.
B) increase GDP and decrease well being in the economy.
C) decrease GDP and increase well being in the economy.
D) decrease GDP and decrease well being in the economy.
Q4) If the value added of a firm is positive,will the firm necessarily have positive profits?
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Chapter 20: Unemployment and Inflation
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Q1) A consumer price index of 160 in 1996 with a base year of 1982-1984 would mean that the cost of the market basket
A) equaled $160 in 1996.
B) equaled $160 in 1983.
C) rose 160% from the cost of the market basket in the base year.
D) rose 60% from the cost of the market basket in the base year.
Q2) Which of the following is true about the consumer price index?
A) It accounts for people switching to goods whose prices have fallen.
B) It assumes that consumers purchase the same amount of each product in the market basket each month.
C) It frequently updates the price changes of new products added to the market basket, as these have a tendency to fall.
D) It filters out the part of price increases that occurs because of quality improvements in products.
Q3) The unemployment rate in the United States is typically lower than in Western Europe because the United States has tougher requirements for the unemployed to receive government payments.
A)True
B)False
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Page 23
Chapter 21: Economic Growth, the Financial System, and Business Cycles
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Q1) If the growth rate of real GDP rises from 3% to 4% per year,then the number of years required to double real GDP will decrease from
A) 23.3 years to 17.5 years.
B) 28.0 years to 21.0 years.
C) 11.2 years to 10.8 years.
D) 23.3 years to 20.6 years.
Q2) Refer to Figure 21-2.Which of the following is consistent with the graph depicted above?
A) An expected expansion increases the profitability of new investment.
B) The government runs a budget surplus.
C) There is a shift from an income tax to a consumption tax.
D) New government regulations decrease the profitability of new investment.
Q3) The period of expansion ends with a ________ and the period of recession ends with a ________.
A) business cycle peak; business cycle trough
B) business cycle trough; business cycle peak
C) business cycle peak; business cycle peak
D) business cycle trough; business cycle trough
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 the per-worker production function shifts down,
A) it now takes more capital per hour worked to get the same amount of real GDP per hour worked.
B) an economy can increase its real GDP per hour worked without changing the level of capital per hour worked.
C) the per-worker production function becomes steeper.
D) positive technological change has occurred in the economy.
Q2) Which of the following is true regarding the productivity slowdown in the United States during the mid-1970s?
A) The productivity slowdown occurred despite a rising quality of labor.
B) The productivity slowdown was unique to the United States as foreign countries experienced unprecedented rates of growth during that time.
C) High oil prices raised the costs of doing business for markets worldwide, and reduced output worldwide as well.
D) The move toward a "New Economy" ended in the early 1970s, resulting in less technological progress in the United States during the mid-1970s.
Q3) Is knowledge capital subject to the law of diminishing returns? Explain.
Q4) How do government policies that enforce property rights affect economic growth?
Page 25
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Chapter 23: Aggregate Expenditure and Output in the Short Run
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Sample Questions
Q1) C = 2,550 + (MPC)Y
I = 800
G = 1,100
NX = 50
If the equilibrium level of GDP is $11,250,using the equations for C,I,G,and NX shown above,find the value of the marginal propensity to consume.
Q2) Refer to Figure 23-3.Suppose that investment spending increases by $10 million,shifting up the aggregate expenditure line and GDP increases from GDP<sub>1</sub> to GDP<sub>2</sub>.If the MPC is 0.9,then what is the change in GDP?
A) $9 million
B) $10 million
C) $90 million
D) $100 million
Q3) For all points below the 45-degree line,planned aggregate expenditure will be less than GDP.
A)True
B)False
Q4) Explain how a stock market crash has the potential to lead to a recession in an economy.
Page 26
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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) Most recessions in the United States since World War II have begun with A) a decline in residential construction.
B) a rapid increase in the price level.
C) a substantial number of bank failures.
D) a stock market crash.
Q3) A decrease in disposable income will shift the aggregate demand curve to the left. A)True B)False
Q4) Explain how "menu costs" affect the slope of the short-run aggregate supply curve.
Q5) 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) Which of the following best describes how banks create money?
A) Banks charge higher interest rates on loans than they pay on deposits.
B) Banks charge fees for providing financial advice.
C) Banks create checking account deposits when making loans from excess reserves.
D) Banks make loans from reserves.
Q2) The U.S.government makes a profit from issuing fiat money.
A)True
B)False
Q3) The more excess reserves banks choose to keep,
A) the larger the deposit multiplier.
B) the smaller the deposit multiplier.
C) the higher the required reserve ratio.
D) the lower the required reserve ratio.
Q4) The Fed has complete control over the money supply.
A)True B)False
Q5) Suppose you withdraw $1,000 from your savings account and put it in your checking account.Briefly explain how this will affect M1 and M2.
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Chapter 26: Monetary Policy
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Q1) The top policy goal for Paul Volcker when he became chairman of the Federal Reserve's Board of Governors in 1979 was
A) fighting inflation.
B) increasing employment.
C) increasing economic growth.
D) increasing regulation of commercial banks.
E) a low current account deficit.
Q2) The goals of monetary policy tend to be interrelated.For example,when the Fed pursues the goal of ________,it also can achieve the goal of ________ simultaneously.
A) high employment; economic growth
B) high employment; lowering government spending
C) economic growth; a low current account deficit
D) stability of financial markets; a low current account deficit
Q3) 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
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Chapter 27: Fiscal Policy
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Q1) Which of the following would be classified as fiscal policy?
A) The federal government passes tax cuts to encourage firms to reduce air pollution.
B) The Federal Reserve cuts interest rates to stimulate the economy.
C) A state government cuts taxes to help the economy of the state.
D) The federal government cuts taxes to stimulate the economy.
E) States increase taxes to fund education.
Q2) Federal government purchases,as a percentage of GDP,
A) have risen since the early 1950s.
B) have fallen since the early 1950s.
C) have remained roughly the same since the early 1950s.
D) rose from the early 1950s until the mid 1980s, and then fell.
Q3) 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.
Q4) If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?
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Chapter 28: Inflation, unemployment, and Federal Reserve Policy
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Q1) When unemployment is below its natural rate,the inflation rate will eventually A) increase.
B) decrease.
C) move to its natural rate.
D) become equal to the natural rate of unemployment.
Q2) Explain why expansionary monetary policy would not result in reduced unemployment rates if workers and firms have rational expectations.
Q3) Refer to Figure 28-2.Suppose the economy is at point C.If the Fed decreases the money supply so that inflation falls,the economy will ________ in the long run,holding all else constant.
A) eventually move to point A
B) eventually move to point B
C) stay at point C
D) move to point A and then back to point B
Q4) If unemployment persists for a long period of time,the natural rate of unemployment rises.
A)True
B)False
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Chapter 29: Macroeconomics in an Open Economy
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Q1) 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
Q2) If net exports are positive,
A) net foreign investment is also positive.
B) capital inflows must be greater than capital outflows.
C) net foreign investment is negative.
D) Both A and B are correct.
Q3) The Federal Reserve's expansionary monetary policy implemented to deal with the recession of 2007-2009 has led to the
A) demand for the U.S. dollar to decrease.
B) supply of the U.S. dollar to increase.
C) supply of U.S. Treasury securities to decrease.
D) supply of Japanese yen to decrease.
Q4) Explain the relationship between net exports and net foreign investment.
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Chapter 30: The International Financial System
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Q1) Among countries that purchased U.S.stocks and bonds in 2010,China was the biggest customer,accounting for over 50 percent of all purchases.
A)True
B)False
Q2) If the exchange rate between the U.S.dollar and the Indian rupee (rupees per dollar)is greater than the relative purchasing power between the two countries,which of the following would be true?
A) There are opportunities for profit by purchasing goods in India and then selling them in the United States.
B) Purchasing power parity predicts that the value of the dollar will rise as traders take advantage of arbitrage opportunities.
C) Purchasing power parity predicts that the dollar is undervalued as traders take advantage of arbitrage opportunities.
D) There are no arbitrage opportunities for which traders can take advantage.
Q3) What is the difference between a devaluation and a revaluation of a currency?
Q4) Before 1980,U.S.investors rarely invested in foreign capital markets.
A)True
B)False
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