Test 6 - Sections 7 & 8 - MC Questions for Web Site

Multiple Choice Identify the choice that best completes the statement or answers the question.

____ 1. The best currently available measure of the standard of living in a country is: A. the nominal GDP per capita. B. the real GDP per capita. C. the unemployment rate. D. the growth rate of productivity. E. the quantity of money in circulation per capita. ____ 2. Suppose a panel of economists is predicting that a nation's real GDP per capita will have an average annual growth rate of 2%. Based upon the Rule of 70, how many years will it take for this nation's real GDP per capita to double? A. 35 B. 70 C. 140 D. 20 E. 50 ____ 3. If real GDP per capita grows at a rate of 5% per year consistently over time, how many years would it take for it to double in size? A. 5 B. 10 C. 14 D. 70 E. 20 ____ 4. The Rule of 70 applies: A. only to GDP. B. only to GDP per capita. C. to any growth rate. D. only to developed countries. E. only to developing countries. ____ 5. Economists say that long-run economic growth is almost entirely due to: A. rising productivity. B. population growth. C. a democratically elected government. D. a balanced budget. E. perfectly competitive markets. ____ 6. Investment in human capital shifts the aggregate production function: A. downward. B. leftward. C. inward. D. rightward. E. upward. ____ 7. Human capital refers to: A. output per worker. B. the education and knowledge embodied in the workforce. C. society's investment in capital goods. D. people working with capital goods. E. management information systems. ____ 8. Economies with higher growth rates tend to be those that increase their: A. government regulation. B. human capital. C. consumption. D. resources. E. defense budgets. ____ 9. A negative externality: A. is not as costly as a positive externality. B. is a cost that individuals or firms impose on others without having to offer compensation. C. is immune to economic incentives. D. is an unavoidable consequence of budget deficits. E. cannot be fixed by market forces. ____ 10. Which of the following would be included in the U.S. financial account? A. a computer made in the U.S. exported to Britain B. a computer made in Britain imported into the United States C. interest on a U.S. company's bond sold to someone living overseas D. the value of a bond of a company in the United States sold to someone living in Britain E. wages paid by a company in the United States to an employee living in Britain. ____ 11. Which of the following statements is true? A. Current account balance = – (Financial account balance) B. A country's balance on the current account will be less than its balance on financial account if exchange rates are allowed to float freely. C. If the market for a nation's currency is in equilibrium, a financial account surplus necessarily means a current account surplus. D. Exchange rates don't affect either financial accounts or current accounts. E. (Current account balance. / (Financial account balance.)> 1

Exports of goods and services $1425 billion Imports of goods and services $1800 billion Income receipts from abroad $420 billion Income receipts to foreigners $400 billion Transfers $0 Table 41-2: Balance of Payment

____ 12. Use Table 41-2. Refer to the table which provides the information for a country's balance of payment. In this case, the country's balance of payments on goods and services is: A. $375 billion. B. –$375 billion. C. $4,045 billion. D. $355 billion. E. –$425 billion.

Figure 41-1: The Loanable Funds Model in the U.S. Market ____ 13. Use the “The Loanable Funds Model in the U.S. Market” Figure 41-1. If the actual interest rate is greater than 4% in the U.S. market, then the quantity supplied of loanable funds will be ______the quantity of loanable funds demanded. A. greater than B. less than C. equal to D. unrelated to E. rising up to ____ 14. When the value of a sterling pound changes from US$1.50 to US$2.00, it follows that the: A. U.S. dollar has depreciated. B. British pound has depreciated. C. U.S. dollar has appreciated. D. value of a U.S. dollar has gone from £0.5 to £0.6.E. products made in Britain have just doubled in price for American consumers. ____ 15. A currency has depreciated when: A. that currency buys fewer foreign goods than it did previously. B. that currency buys more foreign goods than it did previously. C. one unit of that currency buys more units of a foreign currency than it did previously. D. foreign goods become cheaper to holders of that currency. E. one unit of that currency buys the same number of units of a foreign currency than it previously did. ____ 16. Assume that the foreign exchange market is trading the domestic currency at an exchange rate (U.S. dollars per unit of the domestic currency) above the exchange rate fixed by the government. To maintain the fixed exchange rate, the government must: A. decrease foreign exchange reserves. B. lower the domestic interest rate. C. facilitate the domestic purchase of foreign financial assets. D. raise the domestic interest rate. E. petition the World Bank for permission. ____ 17. Foreign exchange controls are: A. fixed exchange rates. B. a government licensing system that limits the amount of foreign currencies an individual can buy. C. floating exchange rates. D. international limits on exchange rates. E. treaties with the World Bank to fix the exchange rate. ____ 18. Countries that follow floating exchange rate regimes: A. tend to insulate themselves from economic fluctuations in other countries. B. give up the ability to use monetary policy as a stabilization tool. C. find that they are more susceptible to economic fluctuations in other countries. D. give up the ability to use fiscal policy as a stabilization tool. E. typically have both budget and trade deficits. ____ 19. The difference between a fixed exchange rate regime and a floating exchange rate regime, is that: A. under a fixed exchange rate regime the central bank retains its ability to pursue independent monetary policy, whereas under a floating exchange rate regime it does not. B. under a floating exchange rate regime the central bank retains its ability to pursue independent monetary policy, whereas under a fixed exchange rate regime it does not. C. under a fixed exchange rate regime the government can pursue independent fiscal policy, whereas under a floating exchange rate regime it does not. D. under a floating exchange rate regime the government can pursue independent fiscal policy, whereas under a fixed exchange rate regime it does not. E. under a floating exchange rate regime the central bank retains its ability to pursue independent fiscal policy, whereas under a fixed exchange rate regime it does not. ____ 20. If a county follows a contractionary monetary policy, with everything else remaining unchanged, then it leads to: A. an increase in interest rates and a depreciation in currency. B. a decrease in interest rates and an appreciation in currency. C. a decrease in interest rates and a depreciation in currency. D. an increase in interest rates and an appreciation in currency. E. an increase in interest rates and no change in the value of the currency. Test 6 - Sections 7 & 8 - MC Questions for Web Site Answer Section

MULTIPLE CHOICE

1. ANS: B PTS: 1 DIF: E REF: Module 37 SKL: Fact-Based 2. ANS: A PTS: 1 DIF: M REF: Module 37 SKL: Critical Thinking 3. ANS: C PTS: 1 DIF: E REF: Module 37 SKL: Critical Thinking 4. ANS: C PTS: 1 DIF: M REF: Module 37 SKL: Concept-Based 5. ANS: A PTS: 1 DIF: E REF: Module 37 SKL: Fact-Based 6. ANS: E PTS: 1 DIF: M REF: Module 38 SKL: Concept-Based 7. ANS: B PTS: 1 DIF: E REF: Module 38 SKL: Definitional 8. ANS: B PTS: 1 DIF: M REF: Module 39 SKL: Critical Thinking 9. ANS: B PTS: 1 DIF: M REF: Module 39 SKL: Critical Thinking 10. ANS: D PTS: 1 DIF: M REF: Module 41 SKL: Critical Thinking 11. ANS: A PTS: 1 DIF: D REF: Module 41 SKL: Concept-Based 12. ANS: B PTS: 1 DIF: M REF: Module 41 SKL: Critical Thinking 13. ANS: A PTS: 1 DIF: M REF: Module 41 SKL: Critical Thinking 14. ANS: A PTS: 1 DIF: E REF: Module 42 SKL: Critical Thinking 15. ANS: A PTS: 1 DIF: E REF: Module 42 SKL: Concept-Based 16. ANS: D PTS: 1 DIF: M REF: Module 43 SKL: Critical Thinking 17. ANS: B PTS: 1 DIF: E REF: Module 43 SKL: Definitional 18. ANS: A PTS: 1 DIF: M REF: Module 43 SKL: Fact-Based 19. ANS: B PTS: 1 DIF: M REF: Module 44 SKL: Concept-Based 20. ANS: D PTS: 1 DIF: D REF: Module 44 SKL: Critical Thinking