Course Introduction
Principles of Economics Exam Preparation Guide
Principles of Economics introduces students to the fundamental concepts and analytical tools used to understand how societies allocate scarce resources. The course explores both microeconomic and macroeconomic principles, including supply and demand, market structures, consumer and producer behavior, national income, unemployment, inflation, fiscal and monetary policy, and international trade. Emphasis is placed on applying economic reasoning to real-life problems and current events, equipping students with the skills to make informed decisions as consumers, citizens, and business professionals.
Recommended Textbook
Economics 4th Edition by R. Glenn Hubbard
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30 Chapters
4273 Verified Questions
4273 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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142 Verified Questions
142 Flashcards
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Sample Questions
Q1) Explain the difference between a firm's revenue and its profit.
Answer: A firm's revenue is the total amount received for selling a good or service.It is calculated by multiplying the price per unit by the number of units sold.A firm's profit is the difference between its revenue and its costs.
Q2) Assume that a doctor can earn an additional $20,000 of revenue each year from keeping his office open for one additional hour per week.What must the additional cost of keeping the office open this additional hour per week be to make staying open for the extra hour economically rational?
Answer: The additional cost of staying open for one additional hour per week must be no more than $20,000 for the year to make staying open for the extra hour economically rational.
Q3) The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal benefit.
A)True
B)False
Answer: True
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Chapter
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152 Flashcards
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Sample Questions
Q1) Refer to Figure 2-5.If the economy is currently producing at point Y,what is the opportunity cost of moving to point W?
A) 2 million tons of steel
B) zero
C) 9 million tons of paper
D) 16 million tons of paper
Answer: B
Q2) Refer to Figure 2-3.Sergio Vignetto raises cattle and llamas on his land.A portion of his land is more suitable for raising cattle,and the other portion is better suited for raising llamas.Which of the graphs in Figure 2-3 represent his production possibilities frontier?
A) Graph A
B) Graph B
C) Graph C
D) either Graph A or Graph C
E) either Graph B or Graph C
Answer: C
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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 3-4.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) The market for tablet computers has grown rapidly over the past few years,due in part to the overwhelming success of the Apple iPad.Following the successful launch of the iPad in 2010,companies such as Toshiba,Samsung,Dell,and Amazon have all introduced products to compete with the iPad.The tablet computers introduced to compete with the iPad would be considered
A) complements to the iPad.
B) substitutes for the iPad.
C) inferior goods compared to the iPad.
D) normal goods compared to the iPad.
Answer: B
Q3) A change in supply is represented by a shift of the supply curve.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) Refer to Figure 4-6.What area represents the deadweight loss after the imposition of the price floor?
A) C + D + G
B) F + G
C) C + D
D) C + D + F + G
Q2) Refer to Table 4-3.If a minimum wage of $9.50 an hour is mandated,what is the quantity of labor supplied?
A) 40,000
B) 570,000
C) 610,000
D) 1,180,000
Q3) Which of the following is not a result of government price controls?
A) Some people win and some people lose.
B) Price controls benefit poor consumers but harm producers and wealthy consumers.
C) Price controls decrease economic efficiency.
D) A deadweight loss will occur.
Q4) What is "tax incidence"? What determines tax incidence in a competitive market?
Q5) What is producer surplus? What does producer surplus measure?
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Sample Questions
Q1) Sefronia and Bella share an apartment and they are deciding whether or not to purchase a weekly housecleaning service.The value of the service to each of them is $50 and it costs $80 to hire a housecleaner.Should they hire a housecleaner?
A) Yes, if each contributes $50, then each stands to gain a consumer surplus.
B) No, because each will wait for the other to hire the housecleaner.
C) Yes, but only if a housecleaner will accept $50 so that each can take turns to pay the housecleaner.
D) No, because it will be difficult for them to agree on which housecleaning service to use.
Q2) State the Coase theorem.
Q3) Refer to Figure 5-7.The current market equilibrium output is partly the result of overfishing.In that case,what does S<sub>2</sub> represent?
A) the private marginal benefit of harvesting salmon
B) the social marginal benefit of harvesting salmon
C) the private marginal cost of harvesting salmon
D) the social marginal cost of harvesting salmon
Q4) What is an externality?
Q5) Should the level of pollution be reduced to zero and if not,then to what level?
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Chapter 6: Elasticity: The Responsiveness of Demand and Supply
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Sample Questions
Q1) Suppose a 4 percent increase in income results in a 2 percent decrease in the quantity demanded of a good.Calculate the income elasticity of demand for the good and determine what type of good it is.
Q2) Refer to Figure 6-4.The inelastic segment of the demand curve
A) is coincident with the horizontal axis.
B) is coincident with the vertical axis.
C) lies below the midpoint of the curve.
D) lies above the midpoint of the curve.
Q3) Suppose the price of gasoline is $3.50 per gallon,the quantity of gasoline demanded is 150 billion gallons per year,the price elasticity of demand for gasoline is -0.06,and the federal government decides to increase the excise tax on gasoline by $1.00 per gallon,which increases the price of gasoline by $0.75 per gallon.What is the new equilibrium quantity of gasoline demanded after the tax is imposed?
A) 109.72 billion gallons per year
B) 127.25 billion gallons per year
C) 148.27 billion gallons per year
D) 161.61 billion gallons per year
Q4) Explain the economic concept of price elasticity of supply.How is price elasticity of supply calculated?
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) What are the main sources of health insurance in the United States?
Q2) What is the principal-agent problem?
A) It is a problem caused by a person (principal) who hires an agent to act on his behalf but is unwilling to delegate authority to the agent to carry out the task in the best possible way.
B) It is a problem caused by agents pursuing their own interests rather than the interests of the principals who hired them.
C) It is a problem of the power system of boss and subordinate where the boss (principal) exerts influence over his subordinates (agents) using punishment or threat.
D) It is a problem that exists when a person (principal) has more information about the task than the agent he hires to perform the task.
Q3) In the United States,total health care spending per person has been ________,and out-of-pocket spending on health care per person has been ________.
A) rising; rising B) rising; falling C) falling; rising D) falling; falling
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Page 9
Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) The only type of business that faces limited liability is a corporation.
A)True
B)False
Q2) Mortgages issued to borrowers whose credit histories include failures to make payments on bills are known as ________ mortgages.
A) catastrophic
B) variable rate
C) subprime
D) Alt-A
Q3) The profits a corporation keeps to finance future expansion are known as
A) retained earnings.
B) preferred stock.
C) dividends.
D) capital gains.
Q4) Who controls a partnership?
A) the owners
B) stockholders
C) bondholders
D) employees
Q5) In a corporation,what are "inside directors" and "outside directors"?
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Economists believe the most persuasive argument for protectionism is to protect infant industries.But the argument has a drawback.What is this drawback?
A) Governments always make the level of protection for infant industries too high.
B) Governments are usually too impatient and do not allow protection to remain in place long enough to allow industries to be competitive in international markets.
C) Governments usually use tariffs, rather than quotas, to protect infant industries in order to collect tariff revenue. (Quotas do not result in government revenue).
D) Protection lessens the need for firms to become productive enough to compete with foreign firms; this often results in infant industries never "growing up."
Q2) Anti-globalization and protectionism are both arguments against free trade.How do these two arguments differ?
Q3) How have U.S.imports and exports,as a fraction of GDP,changed from 1950 to the present?
Q4) Distinguish between a voluntary export restraint and a quota.
Q5) What is autarky?
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Page 11
Chapter 10: Consumer Choice and Behavioral Economics
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Sample Questions
Q1) The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.
A)True
B)False
Q2) The income effect of an increase in the price of salmon
A) is the change in the demand for salmon when income increases.
B) refers to the relative price effect - salmon is more expensive compared to other types of fish - which causes the consumer to buy less salmon.
C) refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant.
D) is the change in the demand for other types of fish, say trout, that result from a decrease in purchasing power.
Q3) Refer to Figure 10-5.A change in the price of popcorn only is shown in
A) Panel A.
B) Panel B.
C) Panel C.
D) none of the above panels.
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Chapter 11: Technology, production, and Costs
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174 Flashcards
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Sample Questions
Q1) Accounting costs exclude implicit costs.
A)True
B)False
Q2) Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon,Goldilocks.She gave up a salary of $40,000 per year,invested her savings of $30,000 (which was earning 5 percent interest)and borrowed $10,000 from a close friend,agreeing to pay 5 percent interest per year.In her first year,Golda spent $18,000 to rent a salon,hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material.Based on this information,what is the amount of her explicit costs?
A) $45,000
B) $45,500
C) $47,000
D) $87,000
Q3) If production displays economies of scale,the long-run average cost curve is
A) above the short-run average total cost curve.
B) downward-sloping.
C) upward sloping.
D) below the long-run marginal cost curve.
Q4) What is the difference between total cost and variable cost in the long run?
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) In the short run,if a firm shuts down its maximum loss equals the amount of its fixed cost.
A)True
B)False
Q2) If the market price is $25 in a perfectly competitive market,the marginal revenue from selling the fifth unit is
A) $5.
B) $12.50.
C) $25.
D) $125.
Q3) Refer to Figure 12-9.Suppose the prevailing price is P<sub>1</sub> and the firm is currently producing its loss-minimizing quantity.In the long-run equilibrium,
A) there will be fewer firms in the industry and total industry output decreases.
B) there will be more firms in the industry and total industry output increases.
C) there will be fewer firms in the industry but total industry output increases.
D) there will be more firms in the industry and total industry output remains constant.
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Chapter 13: Monopolistic Competition: The Competitive
Model in a More Realistic Setting
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Sample Questions
Q1) One of your classmates asserts that advertising,marketing research,and brand management are redundant expenditures because a firm can obtain the same information by simply looking at what customers are already buying.Which of the following is not a response you might offer her?
A) Conducting market research is a good way for firms to keep abreast of changing consumer tastes and preferences.
B) Advertising and brand management allow a firm to create an entry barrier which will insulate the firm from competition and from undertaking further product innovations.
C) Marketing research could allow a firm to identify new market opportunities and at least, in the short run, a firm can make a profit supplying products to this market segment.
D) If a firm successfully manages its brand, customers become less price sensitive as they perceive fewer substitutes for the firm's brand.
Q2) Refer to Table 13-1.What is the marginal revenue of the 3rd unit?
A) $6.50
B) $5.50
C) $1.83
D) $0.50
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) The bargaining power of suppliers increases if
A) the cost of switching suppliers is relatively low.
B) there are only a few competitors to the supplier.
C) the input in question is not a critical component of production.
D) the input supplied is relatively standardized.
Q2) Refer to Figure 14-2.If the government delays Gigacom's entry and Xenophone moves first,is a threat by Gigacom that it will provide DSL service if Gigacom provides cable service a credible threat?
A) No, because Gigacom will lose $4.5 million in profits if it carries out its threat.
B) Yes, because Gigacom's DSL service will drive Xenophone out of business.
C) No, because as a second mover, it has no choice but to abide by the choices of the first mover.
D) Yes, Xenophone stands to lose $3 million in profit.
Q3) A market comprised of only two firms is called a
A) competitive market.
B) duopoly.
C) monopoly.
D) monopolistically competitive market.
Q4) List the competitive forces in the five competitive forces model.
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Chapter 15: Monopoly and Antitrust Policy
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Sample Questions
Q1) Refer to Figure 15-9.The firm would maximize profit by producing
A) Q<sub>1</sub> units.
B) Q<sub>2</sub> units.
C) Q<sub>3</sub> units.
D) Q<sub>4</sub> units.
Q2) Suppose a monopoly is producing its profit-maximizing output level.Now suppose the government imposes a lump-sum tax on the monopoly,independent of its output.As a result the monopoly's profit will fall.
A)True
B)False
Q3) Refer to Figure 15-6.Compared to a perfectly competitive market,consumer surplus is lower in a monopoly by an amount equal to the
A) area FHE.
B) area FGE.
C) area P<sub>1</sub>P<sub>2</sub>EF.
D) area P<sub>1</sub>P<sub>2</sub>GF.
Q4) What gives rise to a natural monopoly? How do consumers benefit from a natural monopoly?
Q5) What happens to a monopoly's revenue when it sells more units of its product?
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Chapter 16: Pricing Strategy
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Sample Questions
Q1) Calling long distance is often more expensive on weekdays between 8 am and 5 pm than in the evening hours.Why is this the case?
A) Telephone companies hope to discourage customers from calling long distance during the day to keep their labor costs down.
B) The cost of making long-distance connections is higher during the day than in the evenings.
C) Businesses who must call suppliers or customers during business hours have few alternatives and therefore have an inelastic demand during the workday compared to after-work hours.
D) Increasingly, businesses who must call suppliers or customers during business hours resort to the internet, thereby reducing demand for long-distance calls. To make up for this fall in demand, telephone companies charge higher rates.
Q2) What is the difference between price discrimination and other forms of discrimination?
Q3) Assume a firm is able to use an optimal two-part tariff.
a.Is the outcome economically efficient? Why or why not?
b.What happens to consumer surplus?
c.Does this represent perfect price discrimination? Why or why not?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Sample Questions
Q1) Worker discrimination occurs when
A) workers refuse to perform risky tasks.
B) workers refuse to work with persons of a different race.
C) customers refuse to buy products produced by a racially diverse workforce.
D) employers pay different employees different wages based on race.
Q2) Refer to Figure 17-3.Which of the following is true if the wage rate increases from W1 to 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 unit-elastic.
Q3) An increase in a perfectly competitive firm's demand for labor could be caused by
A) a decrease in the market wage rate.
B) an increase in the market demand for the firm's product.
C) a decrease in the marginal product of workers.
D) an increase in the quantity of labor supplied.
Q4) If the labor supply curve shifts to the left and the labor demand curve remains unchanged,what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.
Page 19
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Chapter 18: Public Choice, taxes, and the Distribution of Income
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Sample Questions
Q1) Exemptions and deductions are used
A) to add to taxes that must be paid.
B) by taxpayers to reduce the amount of income subject to tax.
C) to determine the type of tax structure.
D) to determine what items are subject to sales taxes.
Q2) Suppose in an effort to raise tax revenue,the state of Vermont decides to legalize the sale of marijuana.The state will charge a tax of $50 per ounce on each sale,and the state claims that retailers will bear the entire burden of this tax.Draw a graph illustrating the situation where retail outlets would bear the entire tax burden of $50 per ounce of marijuana.Explain what would need to be true about the demand for marijuana for retailers to bear the entire burden of this tax,and if this would likely occur if marijuana sales were actually legalized.
Q3) Suppose,on average,a family in Church Falls earning $60,000 per year paid 6 percent of its income in state taxes.A family earning $80,000 paid,on average,$4,760 in state income taxes.Are state taxes in Church Falls progressive or regressive? Be sure to explain the difference between a progressive tax and a regressive tax.
Q4) Explain the effect of price elasticities of supply and demand on tax incidence.
Q5) What is the relationship between market failure and government failure?
Q6) Describe the main factors economists believe cause inequality of income.
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Chapter 19: GDP: Measuring Total Production and Income
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Sample Questions
Q1) National income equals gross domestic product
A) plus sales taxes.
B) plus government transfer payments.
C) minus the consumption of fixed capital.
D) minus government transfer payments.
Q2) Legalizing all forms of illegal activities
A) reduces GDP and the size of the underground economy.
B) reduces GDP and increases the size of the underground economy.
C) increases GDP and reduces the size of the underground economy.
D) increases GDP and increases the size of the underground economy.
Q3) Which of the following headlines would be more closely related to what macroeconomists study than what microeconomists study?
A) Avocado prices rise due to a late frost in California.
B) The United Auto Workers sign a contract raising wages and benefits 7% over the next 3 years.
C) Real GDP grows by 2.3% in the second quarter.
D) Airlines raise ticket prices in response to rising fuel costs.
Q4) How can a firm have a negative valued added,as supposedly some state-owned businesses did in the former Soviet Union? What has to be true for value added to be negative?
Page 21
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Chapter 20: Unemployment and Inflation
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Q1) Which of the following would be the best measure of the cost of living?
A) real GDP
B) real GDP per person
C) GDP deflator
D) consumer price index
Q2) During the 1990s,Japan experienced periods of deflation and very low nominal interest rates,approaching zero percent.Why would lenders of money agree to a nominal interest rate of almost zero?
Q3) The reasons why someone cannot get a job are similar to the reasons why someone cannot get a date.Using the ideas of frictionally unemployed,structurally unemployed,and cyclically unemployed,describe and explain how a student at your university might be frictionally "undated," structurally "undated," and cyclically "undated."
Q4) An advantage of the establishment survey over the household survey of the labor market is that the establishment survey
A) is based on actual payrolls, rather than on unverified answers.
B) includes the number of self-employed persons.
C) includes persons employed at newly opened firms.
D) provides an estimate of the number of persons unemployed.
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) 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%
Q2) How has economist Robert Fogel explained that economic growth is connected to life expectancy? Based on this connection,in what country would you expect to have a longer life expectancy,the United States or India? Explain.
Q3) Refer to Figure 21-4.Which of the following is consistent with the graph depicted?
A) an increase in household income
B) an increase in transfer payments to households
C) an increase in the proportion of income after net taxes used for consumption
D) an increase in tax revenues collected by the government
Q4) In an open economy,there is interaction with other economies in terms of both trading of goods and services and borrowing and lending.
A)True
B)False
Page 23
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Chapter 22: Long-Run Economic Growth: Sources and Policies
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Q1) Technological change is the key to sustaining economic growth. A)True
B)False
Q2) From 1990-2010,productivity growth in the United States was ________ the growth rates of other high-income countries.
A) greater than B) less than C) equal to D) greater than for the first 15 years, then less than
Q3) Technological improvements are more likely to occur if A) the economy is centrally planned.
B) entrepreneurs are compensated with higher profits for taking risks.
C) economic decisions are made by politicians rather than entrepreneurs.
D) companies face little competition in their markets.
Q4) What are some of the reasons used to explain improvements in health,education,democracy,and political stability in many low-income countries?
Q5) What features made England in the eighteenth century the place where the Industrial Revolution occurred?
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Q6) How do government policies that enforce property rights affect economic growth?
Chapter 23: Aggregate Expenditure and Output in the Short Run
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Q1) For all points below the 45-degree line,planned aggregate expenditure will be less than GDP.
A)True
B)False
Q2) Assume that inventories declined by more than analysts predicted.This implies that
A) planned aggregate expenditure was greater than real GDP.
B) planned aggregate expenditure was equal to real GDP.
C) planned aggregate expenditure was less than real GDP.
D) planned aggregate expenditure is unrelated to real GDP.
Q3) When Jack's income increases by $1,000,he spends an additional $850 dollars.This implies that his marginal propensity to consume is 0.85.
A)True
B)False
Q4) ________ describes the relationship between consumption spending and disposable income.
A) Household wealth
B) The liquidity trap
C) The consumption function
D) The paradox of thrift
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Chapter 24: Aggregate Demand and Aggregate Supply Analysis
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Q1) Monetarists believe that the quantity of money should be increased at an increasing rate.
A)True
B)False
Q2) Which of the following is considered a negative supply shock?
A) increasing immigration in the economy causes the labor supply to rise
B) an improvement in technology
C) an increase in unemployment
D) an unexpected decrease in the refining capacity for oil
Q3) 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.
Q4) An increase in the price level shifts the aggregate demand curve to the left.
A)True
B)False
26
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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Sample Questions
Q1) The main tool that the Federal Reserve uses to conduct monetary policy is
A) open market operations.
B) discount policy.
C) setting reserve requirements.
D) acting as the lender of last resort.
E) check clearing.
Q2) If households and firms decide to hold less of their money in checking account deposits and more in currency,then the money supply
A) will not change.
B) will increase.
C) will decrease.
D) may increase or decrease.
Q3) To offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency,the Federal Reserve could
A) raise the required reserve ratio.
B) buy Treasury securities.
C) raise the discount rate.
D) lower bank taxes.
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Chapter 26: Monetary Policy
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Q1) Refer to Table 26-2.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2011 if the Federal Reserve does not use monetary policy:
a.If the Fed wants to keep real GDP at its potential level in 2011,should it use an expansionary policy or a contractionary policy? Should the trading desk buy T-bills or sell them?
b.Suppose the Fed's policy is successful in keeping real GDP at its potential level in 2011.State whether each of the following will be higher or lower than if the Fed had taken no action:
(i)Real GDP
(ii)Full-employment real GDP
(iii)The inflation rate
(iv)The unemployment rate
c.Draw an aggregate demand and aggregate supply graph to illustrate your answer.Be sure that your graph contains LRAS curves for 2010 and 2011; SRAS curves 2010 and 2011; AD curve for 2010 and 2011,with and without monetary policy actions; and equilibrium real GDP and the price level in 2011 with and without policy.
Q2) List the Fed's four main monetary goals.
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Chapter 27: Fiscal Policy
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Q1) An increase in individual income taxes ________ disposable income,which ________ consumption spending.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Q2) In an open economy,the government purchases multiplier will be smaller the A) smaller the marginal propensity to import.
B) larger the tax rate.
C) larger the marginal propensity to consume.
D) All of the above are correct.
Q3) If real equilibrium GDP is above potential GDP,expansionary fiscal policy should be pursued.
A)True
B)False
Q4) In absolute value,the tax multiplier is greater than the government purchases multiplier.
A)True
B)False
Q5) What is the "tax wedge"?
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Chapter 28: Inflation, unemployment, and Federal Reserve Policy
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Q1) The long-run aggregate supply curve is ________,while the long-run Phillips curve is ________.
A) positively sloped; negatively sloped
B) vertical; negatively sloped
C) vertical; also vertical
D) positively sloped; positively sloped
Q2) According to the short-run Phillips curve,the unemployment rate and the inflation rate are
A) unrelated.
B) positively related.
C) negatively related.
D) unaffected by monetary policy.
Q3) 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.
Q4) Last year,the unemployment rate was 4 percent and the inflation rate was 3 percent.If the natural rate of unemployment is 3 percent,how do you expect inflation to change?
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Chapter 29: Macroeconomics in an Open Economy
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Q1) The recession of 2007-2009 decreased the demand for imports in Japan,which caused the ________ curve for the yen to ________,increasing the exchange rate and the value of the yen.
A) supply; right
B) supply; left
C) demand; right
D) demand; left
Q2) When the market value of the dollar rises relative to other currencies around the world,we say that
A) the dollar has appreciated.
B) the dollar has depreciated.
C) the demand for dollars has increased.
D) the supply of dollars has increased.
Q3) How would a decrease in the U.S.budget deficit affect the exchange rate in the market for dollars?
A) The exchange rate will increase.
B) The exchange rate will decrease.
C) The exchange rate will not be affected by a change in the budget deficit.
D) The impact of the decrease in the budget deficit on the exchange rate cannot be predicted.
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Chapter 30: The International Financial System
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Q1) What is destabilizing speculation? What role did it play in the collapse of the Bretton Woods system?
Q2) Because the value of the euro is determined by factors that affect the entire euro zone,during the recession of 2007-2009,individual countries using the euro A) were unable to have their exchange rates depreciate. B) were more insulated from unemployment increases than most countries. C) experienced a greater increase in exports than did most countries. D) were able to use expansionary monetary policy to lessen the impact of the recession.
Q3) Both countries involved in a pegging of currency must agree to the terms of the pegging.
A)True
B)False
Q4) Before 1980,U.S.investors rarely invested in foreign capital markets.
A)True
B)False
Q5) Explain why international capital markets have expanded since the 1980s.
Q6) How were exchange rates determined under the gold standard? How did the Bretton Woods system differ from the gold standard?
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