Survey of Economics
Exam Questions
Course Introduction
This course offers a broad overview of fundamental economic principles and concepts, introducing students to both microeconomics and macroeconomics. Topics include supply and demand, market structures, consumer behavior, production and costs, income distribution, government intervention, and measures of economic performance such as GDP and inflation. The course also explores issues such as unemployment, fiscal and monetary policy, international trade, and globalization. Designed for students with little or no prior background in economics, this course emphasizes real-world applications and current economic issues, equipping students with analytical tools to better understand contemporary economic challenges.
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) Human capital refers to the accumulated skills and training that workers possess.
A)True
B)False
Answer: True
Q2) The government makes all economic decisions in a market economy.
A)True
B)False
Answer: False
Q3) Suppose a doctor can earn an additional $25,000 in revenue per year by keeping her office open on Sundays. At what additional cost would keeping the office open on Sundays not be considered economically rational?
Answer: If the additional cost of keeping the office open on Sundays exceeds $25,000 per year, the decision would not be economically rational.
Q4) What is a marginal cost?
Answer: Marginal cost is the additional cost associated with continuing with an activity.
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Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Sample Questions
Q1) Refer to Table 2-2. Assume Billie's Bedroom Shop only produces pillows and blankets.
A combination of 5 pillows and 21 blankets would appear
A) along Billie's production possibilities frontier.
B) inside Billie's production possibilities frontier.
C) outside Billie's production possibilities frontier.
D) at the vertical intercept of Billie's production possibilities frontier.
Answer: B
Q2) Refer to Figure 2-19. Which two arrows in the diagram depict the following transaction: Stanley purchases the novel Night of Sorrows for his summer reading pleasure.
A) J and M
B) J and G
C) K and M
D) K and G
Answer: D
Q3) What is a circular flow diagram and what does it demonstrate?
Answer: A circular flow diagram is a model that illustrates how participants in markets are linked. It shows who supplies and purchases factors of production and who supplies and purchases goods and services.
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) A decrease in input costs in the production of LCD televisions caused the price of LCD televisions to decrease. Holding everything else constant, how would this affect the market for video game consoles (a complement to LCD televisions)?
A) The supply of video game consoles would increase, and the equilibrium price of video game consoles would decrease.
B) The demand for video game consoles would decrease, and the equilibrium price of video game consoles would decrease.
C) The demand for video game consoles would decrease because consumers could afford to buy fewer LCD televisions and video game consoles.
D) The demand for video game consoles would increase, and the equilibrium price of video game consoles would increase.
Answer: D
Q2) If the demand for a product decreases and the supply of the product does not change, equilibrium price and equilibrium quantity will both increase.
A)True
B)False
Answer: False
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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Sample Questions
Q1) Refer to Figure 4-3. If the market price is $2.50, what is the consumer surplus on the first ice cream cone?
A) $0.50
B) $1.00
C) $3.50
D) $9.00
Q2) Refer to Figure 4-6. What area represents consumer surplus at P2?
A) A
B) A + B
C) B + C
D) A + B + D + E
Q3) Companies in the sharing economy, such as Airbnb and Uber, have the potential to increase consumer surplus and decrease deadweight loss. This would occur by ________ the equilibrium price in their market, and by doing so ________ efficiency.
A) lowering; decreasing
B) lowering; increasing
C) raising; decreasing D) raising; increasing
Q4) What is "tax incidence"? What determines tax incidence in a competitive market?
Page 6
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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Q1) Suppose a negative externality exists in a market. If transactions costs are low and parties are willing to bargain then, according to the Coase theorem,
A) an efficient solution can be reached only if property rights are assigned to the victims of the pollution.
B) an efficient solution can be reached only if property rights are assigned to the polluters.
C) an efficient solution can be reached regardless of the initial assignment of property rights.
D) government intervention is critical to reach an efficient solution.
Q2) In economics, the term "free rider" refers to
A) a person who evades taxes.
B) a supervisor who delegates menial time-consuming activities to others.
C) one who volunteers her services.
D) one who waits for others to produce a good and then enjoys its benefits without paying for it.
Q3) An externality is an example of a market failure.
A)True
B)False
Q4) State the Coase theorem.
Page 7
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Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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Q1) At a price of $100, Beachside Canoe Rentals rented 11 canoes. When it increased its rental price to $125, 9 canoes were rented. Calculate the absolute value of the price elasticity of demand for canoe rentals, using the midpoint formula.
A) 2
B) 1.25
C) 0.9
D) 0.75
Q2) If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded
A) will increase by 45 percent.
B) will increase by 5 percent.
C) will decrease by 45 percent.
D) will decrease by 5 percent.
Q3) In the alcohol industry, both wine and spirits are considered to be substitutes for beer.
A)True B)False
Q4) What factors would make you more sensitive or less sensitive to price when purchasing gasoline?
8
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Chapter 7: The Economics of Health Care
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Sample Questions
Q1) An insurance company is likely to attract customers like Clancy who want to purchase insurance because he knows better that the company that he is more likely to make a claim on a policy. What is the term used to describe the situation above?
A) moral hazard
B) adverse selection
C) asymmetric information
D) economic irrationality
Q2) Changes in the health of the average person are an important indicator of changes in the standard of living.
A)True
B)False
Q3) Refer to Figure 7-2. The market equilibrium price is
A) $60.
B) $50.
C) $40.
D) <$40.
Q4) How can increases in a country's total income improve health?
Q5) Briefly describe the types of health care systems in Canada, Japan, and the United Kingdom.
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) Which type of businesses earns the majority of profits in the United States?
A) corporations
B) partnerships
C) sole proprietorships
D) none of these
Q2) Sole proprietorships are ________ type of business.
A) the most profitable
B) the least common
C) the most common
D) the least risky
Q3) How much is a bond that pays $20 in coupon payments for 4 years and $1,000 at the end of the fourth year worth if the interest rate is 5%?
A) $822.70
B) $893.62
C) $1,070.92
D) $1,080
Q4) How can a sole proprietorship raise funds needed for firm expansion?
Q5) How is accounting profit found?
Q6) What was the source of the problems encountered by many financial firms during the late 2000s? Page 10
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Chapter 9: Comparative Advantage and the Gains From International Trade
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Q1) Which of the following statements is false?
A) Japan is less dependent on foreign trade than is the United States.
B) Imports and exports account for over one-half of the GDP of the Netherlands.
C) The United States is the leading exporting country, accounting for almost 10 percent of total world exports.
D) Because the cost of labor used on farms is so high, the United States exports very little of its wheat, rice and corn crops.
Q2) What is a tariff?
Q3) If Japanese workers are more productive than French workers, then trade between Japan and France
A) can take place only if France has an absolute advantage in producing a good or service Japanese buyers want.
B) cannot take place because Japanese goods and services will be less expensive than French goods and services.
C) cannot take place until French workers become more productive.
D) will take place so long as each country has a comparative advantage in a good or service that buyers in the other country want.
Q4) What is autarky?
Page 12
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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) Refer to Figure 10-8. Given the budget constraint in the diagram, which of the following statements is false?
A) The consumer receives the same level of utility from consumption bundles d, e and f.
B) Consumption bundles b and c yield the same level of utility, which is higher than the utility represented by bundle a.
C) Although the consumer receives the same level of utility from bundles d and e, she cannot afford to purchase bundle d.
D) The consumer's optimal bundle could be bundle d, e or f.
Q3) The demand curve for a luxury good is upward-sloping.
A)True
B)False
Q4) Explain the endowment effect.
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Chapter 11: Technology, Production, and Costs
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Sample Questions
Q1) When a firm experiences a positive technological change,
A) the price of a share of the firm's stock rises.
B) the firm is able to produce more output using the same inputs, or the same output using fewer inputs.
C) the value of the firm's assets rises.
D) the firm will hire additional workers in order to increase production.
Q2) If a firm experiences diminishing returns its marginal product must be negative.
A)True
B)False
Q3) Minimum efficient scale is defined as the level of output at which the short-run average total cost stops decreasing.
A)True
B)False
Q4) If the average variable cost curve is above the marginal cost curve, then
A) marginal costs must be decreasing.
B) average variable costs must be increasing.
C) marginal costs must be increasing.
D) marginal costs can be either increasing or decreasing.
Q5) Describe how Wal-Mart has used positive technological change to manage its inventory.
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Chapter 12: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) If a firm shuts down in the short run, it will
A) break even.
B) declare bankruptcy.
C) suffer a loss equal to its variable costs.
D) suffer a loss equal to its fixed costs.
Q2) Which of the following is not an assumption of perfectly competitive markets?
A) There are many sellers and many buyers, all of which are small relative to the market.
B) Each firm produces a similar but not identical product.
C) There are no barriers to new firms entering the market.
D) The products sold by all firms in the market are identical.
Q3) All of the following can be used to compute average profit except A) marginal profit minus marginal cost.
B) total profit divided by quantity.
C) average revenue minus average total cost.
D) price minus average total cost.
Q4) What assumptions are necessary for a market to be perfectly competitive? Explain why each of these assumptions is important.
Q5) What is the difference between "shutting down temporarily" and "exiting the industry"?
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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Q1) If a significant number of smokers switch from smoking tobacco cigarettes to e-cigarettes, a company like NJOY will likely find its demand curve shifting to the ________ and its marginal revenue curve shifting to the ________ as more competitors enter the market.
A) right; right
B) right; left
C) left; right
D) left; left
Q2) When a monopolistically competitive firm lowers its price, one good thing happens to the firm. What is this "one good thing" called?
A) the output effect
B) the price effect
C) the income effect
D) the substitution effect
Q3) Monopolistic competition is a market structure in which
A) firms produce and sell products for which there are no close substitutes.
B) the demand curve for a typical firm is horizontal.
C) firms cannot influence the market price.
D) barriers to entry are low.
Q4) What is the difference between the terms "marketing" and "advertising"?
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Sample Questions
Q1) Refer to the Article Summary. What happens to the profit a car company makes on each car sold if it offers incentives such as cash rebates to customers? What happens to the company's profit per car if it offers zero percent financing as an incentive? How might a car company decide which of these strategies to use?
Q2) 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?
Q3) A supplier of an input is unlikely to have bargaining power if
A) the input supplied is specialized.
B) many firms can supply the input.
C) it is the sole supplier of the input.
D) it has a patent on the input.
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Chapter 15: Monopoly and Antitrust Policy
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Q1) Equilibrium in a perfectly competitive market results in the greatest amount of economic surplus, or total benefit to society, from the production of a good. Why, then, did Joseph Schumpeter argue that an economy may benefit more from firms that have market power than from firms that are perfectly competitive?
Q2) Firms that face downward-sloping demand curves for their output in the product market are called
A) price takers.
B) price dictators.
C) monopolists.
D) price makers.
Q3) A natural monopoly is most likely to occur in which of the following industries?
A) the pharmaceutical industry because the development and approval of new drugs through the Food and Drug Administration can take more than 10 years
B) the diamond mining and marketing industry because one firm can control a key resource
C) the software industry because of the importance of network externalities
D) an industry where fixed costs are very large relative to variable costs
Q4) Identify four reasons for high entry barriers. Briefly explain each reason.
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Chapter 16: Pricing Strategy
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Q1) Consider three pricing strategies that the firm can pursue: a. optimal two-part tariff pricing;
B. perfect price discrimination
C. single-price monopoly pricing
Of these three strategies, which is most beneficial to society as a whole?
A) Both perfect price discrimination and a two-part tariff pricing are equally beneficial in that the marginal benefit of the last unit sold equals the marginal cost of producing that unit.
B) only perfect price discrimination because this pricing method eliminates deadweight loss
C) single-price monopoly pricing because consumers enjoy at least some consumer surplus
D) only two-part tariff pricing because the per-unit portion of the price is set equal to marginal cost
Q2) Which of the following firms is not able to practice price discrimination?
A) movie theaters
B) commercial airlines
C) land-line telephone companies
D) the largest wheat farmer in Nebraska
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Chapter 17: The Markets for Labor and Other Factors of Production
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Q1) Phil Harrison is a welder who works on skyscrapers and extension bridges. Phil's brother William is also a welder but he works in a manufacturing plant where he does all of his welding on ground level. Which of the following would not explain why Phil earns a higher wage than his brother?
A) cognitive dissonance
B) Phil has greater experience as a welder than his brother has.
C) Phil's marginal revenue product is greater than William's marginal revenue product.
D) Phil's job is more hazardous than William's job.
Q2) The substitution effect of a wage decrease examines the effect of the decrease in wage income on a worker's ability to consume goods and services.
A)True
B)False
Q3) Refer to Figure 17-1. If the wage rate is $40, how many workers should Dale hire?
A) 6 units
B) 5 units
C) 4 units
D) 3 units
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Chapter 18: Public Choice, Taxes, and the Distribution of Income
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Q1) In the United States,
A) the income tax system has little or no impact on the distribution of income.
B) the after-tax income distribution of income is more equal than the before-tax distribution.
C) once a person is in poverty, it is very difficult for a person to get out of poverty.
D) the degree of income mobility is relatively low.
Q2) Refer to Table 18-10. A tax exemption is granted for the first $10,000 earned per year. Suppose you earn $75,000.
a. What is the amount of taxes you will pay?
b. What is your average tax rate?
c. What is your marginal tax rate?
Q3) Horizontal equity means that two people in identical economic situations should pay the same amount of taxes.
A)True
B)False
Q4) What is the difference between the voting paradox and the Arrow impossibility theorem?
Q5) What is the relationship between market failure and government failure?
Page 21
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Chapter 19: GDP: Measuring Total Production and Income
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Q1) Since real GDP is adjusted for inflation and nominal GDP is not, nominal GDP must always be higher than real GDP. Do you agree or disagree? Why?
Q2) Why do we not count the value of intermediate goods and services in gross domestic product? Does the value of intermediate goods and services show up in gross domestic product? If so, how?
Q3) Gross national product, GNP, of the United States is the market value of all final goods and services
A) produced within the United States.
B) consumed within the United States.
C) produced by citizens of the United States anywhere in the world.
D) consumed by citizens of the United States anywhere in the world.
Q4) Transfer payments are subtracted from national income to get to personal income.
A)True
B)False
Q5) "Household production" refers to
A) the manufacturing of durable household products.
B) the home building sector of the economy.
C) home-based craft businesses.
D) goods and services people produce for themselves.
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Chapter 20: Unemployment and Inflation
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Q1) To reduce the bias in the consumer price index, the Bureau of Labor Statistics
A) updates the market basket every two years, rather than every 10 years.
B) updates the market basket every 10 years, rather than every two years.
C) incorporates substitutions by consumers when prices of specific products rise rapidly.
D) incorporates substitutions by consumers when prices of specific products fall rapidly.
Q2) Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?
A) 17 percent
B) 10 percent
C) 7 percent
D) 3 percent
Q3) The costs to firms of changing prices are called menu costs.
A)True
B)False
Q4) Explain what economists mean by full employment and why this rate of unemployment is not zero.
Q5) Describe the three types of unemployment.
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Chapter 21: Economic Growth, the Financial System, and Business Cycles
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Q1) If consumers decide to be more frugal and save more out of their income, then this will cause
A) a shift in the supply curve for loanable funds to the right.
B) a shift in the supply curve for loanable funds to the left.
C) a movement to the right along the supply curve for loanable funds.
D) a movement to the left along the supply curve for loanable funds.
Q2) What type of consumer goods are most affected by the business cycle: durable goods or nondurable goods? Why?
Q3) If government purchases are $400 million, taxes are $700 million, and transfers are $200 million, which of the following is true?
A) Public saving is $500 million.
B) The budget deficit is $100 million.
C) The budget deficit is $500 million.
D) Public saving is $100 million.
Q4) What is "human capital," and how does human capital affect labor productivity and economic growth?
Q5) If net taxes rise by $150 billion, would you expect household saving to fall by $150 billion, by more than $150 billion, or by less than $150 billion?
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Chapter 22: Long-Run Economic Growth: Sources and Policies
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Q1) In a small Asian country, it is estimated that changing the level of capital from $8 million to $12 million will increase real GDP from $4 million to $6 million. What level of GDP would you expect the economy to be able to reach if spending on capital continued to rise to $16 million, assuming no technological change and no change in the hours of work?
A) GDP would increase further, but by less than $2 million.
B) GDP would increase further by exactly $2 million.
C) GDP would increase further by more than $2 million
D) GDP would increase further by exactly $8 million.
Q2) Between 1960 and 2010, deaths among children have
A) declined in most high-income countries and have risen in most low-income countries.
B) declined in nearly all countries, including most low-income countries.
C) remained relatively unchanged in most high-income countries and have declined in most low-income countries.
D) declined in most high-income countries and have remained relatively unchanged in most low-income countries.
Q3) How do economic growth rates affect a nation's standard of living?
Q4) Explain three reasons why the productivity slowdown of 1974-1995 occurred.
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Chapter 23: Aggregate Expenditure and Output in the Short Run
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Q1) Refer to Figure 23-2. If the U.S. economy is currently at point K, which of the following could cause it to move to point N?
A) The price level in the United States rises relative to the price level in other countries.
B) Congress passes investment tax incentives.
C) The interest rate rises.
D) Household wealth declines.
Q2) Given Table 23-6 below, fill in the values for saving. Assume taxes = $800.
Q3) Household spending on goods and services is known as
A) consumption spending.
B) planned investment spending.
C) government purchases.
D) net exports.
Q4) If planned investment is equal to actual investment, then aggregate expenditure is equal to GDP.
A)True
B)False
Q5) Given Table 23-7 below, fill in the values of the marginal propensity to save (MPS) and the marginal propensity to consume (MPC). Show that MPC + MPS = 1.
Page 26
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Chapter 24: Aggregate Demand and Aggregate Supply Analysis
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Q1) Refer to Figure 24-2. Ceteris paribus, a decrease in the expected price of an important natural resource would be represented by a movement from
A) SRAS1 to SRAS2.
B) SRAS2 to SRAS1.
C) point A to point B.
D) point B to point A.
Q2) Which of the following is considered a negative supply shock?
A) increasing investment in the economy causes the capital stock to rise
B) an unexpected increase in the price of natural gas
C) a decline in wages
D) an improvement in technology
Q3) Briefly describe monetarism and the monetary growth rule.
Q4) What are sticky prices, and how can contracts make them "sticky"?
Q5) Refer to Figure 24-3. Suppose the economy is at point C. If investment spending decreases in the economy, where will the eventual long-run equilibrium be?
A) A
B) B
C) C
D) D
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Chapter 25: Money, Banks, and the Federal Reserve System
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Q1) M1 includes
A) currency in circulation, checking account deposits in banks, and holdings of traveler's checks.
B) currency in circulation, savings account balances, and checking account deposits in banks.
C) currency in circulation, savings account balances, checking account deposits in banks, and holdings of traveler's checks.
D) coins, savings account balances, traveler's checks.
Q2) In the United States, currency includes
A) gold, silver, and paper money.
B) checking and savings account deposits.
C) paper money and coins in circulation.
D) traveler's checks.
Q3) Gold is an example of A) commodity money.
B) fiat money.
C) barter money.
D) M1.
Q4) What is the principle monetary policy tool used by the Fed. Why?
Q5) How do open market operations work?
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Chapter 26: Monetary Policy
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Q1) Buying a house during a recession may be a good idea if your job seems secure because the Federal Reserve often lowers interest rates during a recession.
A)True
B)False
Q2) Beginning in 2008, The Federal Reserve and the U.S. Treasury Department responded to the financial crisis by intervening in financial markets in unprecedented ways. Briefly summarize the actions of the Fed and Treasury.
Q3) The Taylor rule predicted a federal funds rate which was ________ that set when Paul Volcker was chairman of the Fed, and a rate which was ________ that set when Arthur Burns chaired the Fed.
A) greater than; equal to B) greater than; less than C) less than; equal to D) less than; greater than
Q4) The Fed can use contractionary monetary policy in an attempt to keep inflation from increasing.
A)True
B)False
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Chapter 27: Fiscal Policy
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Q1) What economic impact would the closing of a nearby military base have on a town? Would people and businesses that did not directly deal with the military personnel be affected?
Q2) If Congress and the president pursue an expansionary fiscal policy at the same time as the Federal Reserve pursues an expansionary monetary policy, how might the expansionary monetary policy affect the extent of crowding out in the short run?
Q3) An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.
A)True
B)False
Q4) Which of the following is an example of discretionary fiscal policy?
A) an increase in unemployment insurance payments during a recession
B) an increase in income tax receipts with rising income during an expansion
C) the tax cuts passed by Congress in 2001 to combat the recession
D) a decrease in food stamps issued during an expansion or boom
Q5) 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) Refer to Figure 28-2. Suppose the economy is at point A in the figure above. Which of the following is true?
A) The short-run Phillips curve will shift to the right.
B) The short-run Phillips curve will shift to the left.
C) The long-run Phillips curve will shift to the left.
D) Actual inflation and expected inflation are the same.
E) The long-run Phillips curve will shift to the right.
Q2) In the long run, the Fed may decrease the unemployment rate only if it is willing to increase the rate of inflation.
A)True
B)False
Q3) If people assume that future rates of inflation will follow the pattern of inflation rates in the past, they are said to have
A) rational expectations.
B) adaptive expectations.
C) unstable expectations.
D) accommodative expectations.
Q4) What does it mean to say that workers and firms have rational expectations?
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Q5) Why is the credibility of the Fed's policy announcements particularly important?
Chapter 29: Macroeconomics in an Open Economy
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Q1) If American demand for purchases of Mexican goods has increased, how would you expect the equilibrium exchange rate in the market for dollars to respond? Support your answer graphically.
Q2) If the price level in the United States is 110, the price level is 135 in Mexico, and the nominal exchange rate is 12.5 pesos per dollar, what is the real exchange rate from the U.S. perspective?
A) 8.8
B) 10.2
C) 10.8
D) 11.4
Q3) When Americans decrease their demand for Japanese goods,
A) the demand for dollars will rise, and the demand for yen will rise.
B) the demand for dollars will fall, and the demand for yen will rise.
C) the supply of dollars will rise, and the demand for yen will rise.
D) the supply of dollars will fall, and the demand for yen will fall.
Q4) Explain the relationship between net exports and net foreign investment.
Q5) Contractionary monetary policy should increase foreign financial investment in the United States.
A)True
B)False
Page 32
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Chapter 30: The International Financial System
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Q1) Thailand's experience with pegging the baht to the dollar failed because the baht was ________ relative to the dollar, and China's experience with pegging the yuan to the dollar has run into difficulties because the yuan has been ________ relative to the dollar.
A) overvalued; overvalued
B) undervalued; overvalued
C) undervalued; undervalued
D) overvalued; undervalued
Q2) Describe the four determinants of exchange rates in the long run.
Q3) What are the three main exchange rate systems, and how do they operate?
Q4) Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were ________ than they had planned while the Thai government continued trying to defend the peg, because the baht had been pegged ________ the equilibrium exchange rate for the baht.
A) higher; above
B) higher; below
C) lower; above
D) lower; below
Q5) Explain why international capital markets have expanded since the 1980s.
Q6) Why might a country raise interest rates in the face of an exchange rate crisis?
Page 33
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