Economic Principles and Applications
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Course Introduction
Economic Principles and Applications introduces students to the foundational concepts of economics, focusing on both microeconomic and macroeconomic theories. The course explores how individuals, businesses, and governments make decisions regarding the allocation of scarce resources, the interaction of supply and demand in various markets, pricing strategies, and the impact of economic policies. Students will learn to analyze real-world problems using economic reasoning, interpret economic data, and understand the role of institutions in shaping economic outcomes. Through practical examples and case studies, the course emphasizes the relevance of economic principles in everyday life and their application to contemporary social and business issues.
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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Q1) Suppose the U.S.government encouraged new medical school graduates to take over existing practices from doctors wishing to retire by paying both the new and retiring doctors $100,000.These doctors would be exemplifying the economic idea that A) people are rational.
B) people respond to economic incentives.
C) optimal decisions are made at the margin.
D) equity is more important than efficiency.
Answer: B
Q2) If a straight line passes through the point x = 14 and y = 3 and also through the point x = 4 and y = 10,the slope of this line is
A) negative 11 divided by 6.
B) seven tenths.
C) negative seven tenths.
D) 6 divided by 11.
Answer: C
Q3) When voluntary exchange takes place,both parties gain from the exchange. A)True
B)False
Answer: True
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Chapter 2: Trade-Offs, comparative Advantage, and the Market System
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Q1) Rayburn Reed is a highly talented photographer.He has chosen to specialize in photography because of all of the following except
A) he obviously has a comparative advantage in photography.
B) his opportunity cost of pursuing another career is very low.
C) for him, this is the most lucrative way to purchase the products that he wants to consume.
D) his photographs are highly esteemed by art lovers who are willing to pay very high prices.
Answer: B
Q2) Which of the following would shift a nation's production possibilities frontier outward?
A) discovering a cheap way to convert sunshine into electricity
B) an increase in demand for the nation's products
C) a decrease in the unemployment rate
D) a law requiring workers to retire at age 50
Answer: A
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) An increase in the quantity of a product supplied is caused by an increase in the price of the product.
A)True
B)False
Answer: True
Q2) If the price of automobiles was to increase,then
A) the demand for gasoline would decrease.
B) the demand for gasoline would increase.
C) the supply of gasoline would increase.
D) the quantity demanded of gasoline would decrease.
Answer: A
Q3) In 2004,hurricanes destroyed a large portion of Florida's grapefruit crop.How did this affect the market price and market quantity of grapefruit?
Answer: The supply curve for grapefruit shifted to the left resulting in a higher equilibrium price and lower equilibrium quantity.
Q4) A change in supply is represented by a shift of the supply curve. A)True
B)False
Answer: True
5
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) Refer to Table 4-3.What is the equilibrium hourly wage (W*)and the equilibrium quantity of labor (Q*)?
A) W* = $10.50; Q* = 590,000
B) W* = $11.50; Q* = 570,000
C) W* = $9.50; Q* = 570,000
D) W* = $10.50; Q* = 1,200,000
Q2) Refer to Figure 4-2.What area represents the increase in producer surplus when the market price rises from P<sub>1</sub> to P<sub>2</sub>?
A) B + D
B) A + C + E
C) C + E
D) A + B
Q3) Refer to Table 4-1.The table above lists the highest prices three consumers,Tom,Dick and Harriet,are willing to pay for a short-sleeved polo shirt.If the price of the shirts falls from $28 to $20
A) consumer surplus increases from $14 to $35.
B) Tom will buy two shirts; Dick and Harriet will each buy one shirt.
C) consumer surplus will increase from $70 to $95.
D) Harriet will receive more consumer surplus than Tom or Dick.
Page 6
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Chapter 5: Externalities, environmental Policy, and Public Goods
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Q1) A product is considered to be nonexcludable if
A) you can keep those who did not pay for the item from enjoying its benefits.
B) you cannot keep those who did not pay for the item from enjoying its benefits.
C) your consumption of the product reduces the quantity available for others to consume.
D) it is jointly owned by all members of a community.
Q2) Overuse of a common resource may be avoided by all of the following methods except
A) charging for the use of a common resource.
B) issuing tradable permits for the use of a common resource.
C) government taking over ownership of all private common resources.
D) setting quotas or legal limits on the quantity consumed of the common resource.
Q3) What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production?
Q4) Should the level of pollution be reduced to zero and if not,then to what level?
Q5) How does a negative externality in production reduce economic efficiency?
Q6) What is an externality?
Page 7
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Chapter 6: Elasticity: The Responsiveness of Demand and Supply
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Q1) Suppose the demand curve for a product is represented by a typical downward-sloping curve.Now suppose the demand for this product decreases.Which of the following statements accurately predicts the resulting decrease in price?
A) The more elastic the supply curve, the greater the price increase.
B) The more elastic the supply curve, the smaller the price decrease.
C) The increase in price is not affected by the elasticity of the supply curve.
D) The decrease in price will always be proportional to the magnitude of the demand shift.
Q2) If demand is perfectly inelastic,the absolute value of the price elasticity of demand is A) zero.
B) less than one.
C) more than one.
D) equal to the absolute value of the slope of the demand curve.
Q3) Suppose the price of gasoline in July 2004 averaged $1.35 a gallon and 15 million gallons a day were sold.In October 2004,the price averaged $2.15 a gallon and 14 million gallons were sold.If the demand for gasoline did not shift between these two months,use the midpoint formula to calculate the price elasticity of demand.Indicate whether demand was elastic or inelastic.
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Chapter 7: The Economics of Health Care
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Q1) Some economists and policymakers who are in favor of government-provided health care believe that providing health care will generate
A) additional moral hazard.
B) positive externalities.
C) greater asymmetric information.
D) more adverse selection.
Q2) Uninsured patients receiving treatments at hospital emergency rooms that could have been provided less expensively at doctor's offices account for ________ of health care costs in the United States.
A) between 1 and 4 percent
B) approximately 25 percent
C) almost 40 percent
D) between 15 and 20 percent
Q3) Under the Patient Protection and Affordable Care Act (PPACA),residents who do not have health insurance will not be allowed to seek employment.
A)True
B)False
Q4) What is moral hazard?
Q5) What are the main sources of health insurance in the United States?
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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Sample Questions
Q1) Which of the following must a firm in a market economy do today to succeed?
A) Produce the goods and services that consumers want at a lower cost than consumers themselves can produce.
B) Organize the factors of production into a functioning, efficient unit.
C) Have access to sufficient funds.
D) Market firms today must do all of these things.
Q2) When an investor buys a corporate bond,
A) the investor becomes part owner of the corporation.
B) the principal of the bond is a loan to the corporation.
C) the interest made on the bond represents the bondholder's limited liability in the company.
D) the face value of the bond is equal to what the investor paid for the bond.
Q3) A normal rate of return refers to the ________ that investors must earn on the funds they invest in a firm,expressed as a percentage of the amount invested.
A) minimum amount
B) maximum amount
C) total amount
D) profit
Q4) Briefly describe the Sarbanes-Oxley Act and explain why it was passed.
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 about the importance of trade to the U.S.economy is true?
A) Since 1950, both exports and imports have steadily decreased as a fraction of U.S. gross domestic product.
B) Overall, about 80 percent of U.S. manufacturing jobs depend directly or indirectly on exports.
C) The United States is the largest exporter in the world.
D) The U.S. economy is highly dependent on international trade for growth in its gross domestic product.
Q2) Refer to Table 9-1.Select the statement that accurately interprets the data in the table.
A) Linda has a comparative advantage in dog bathing.
B) Sandy has an absolute advantage in dog bathing.
C) Sandy has a comparative advantage in dog bathing.
D) Linda has a comparative advantage in dog grooming and dog bathing.
Q3) Anti-globalization and protectionism are both arguments against free trade.How do these two arguments differ?
Q4) How have U.S.imports and exports,as a fraction of GDP,changed from 1950 to the present?
Page 11
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Chapter 10: Consumer Choice and Behavioral Economics
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Q1) One explanation for the increase in product sales because of celebrity endorsements is that people seem to receive ________ from goods they believe are popular.
A) more utility
B) diminishing utility
C) greater network externalities
D) increased path dependency
Q2) If,when you consume another piece of candy,your marginal utility is zero,then
A) you want more candy.
B) you have maximized your total utility from consuming candy.
C) you have not yet reached the point of diminishing marginal utility.
D) you should consume less candy.
Q3) What must be true in terms of the income effect,the substitution effect,and the type of good for the good's demand curve to be upward sloping?
Q4) When diminishing marginal utility sets in,total utility must be negative.
A)True
B)False
Q5) The demand curve for an inferior good can never be downward-sloping.
A)True
B)False
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Chapter 11: Technology, production, and Costs
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Sample Questions
Q1) Refer to Table 11-3.What is the variable cost of production when the firm produces 115 lanterns?
A) $1,556
B) $1,157
C) $956
D) $10.05
Q2) Refer to Figure 11-4.Identify the curves in the diagram.
A) E = average fixed cost curve; F = variable cost curve; G = total cost curve, H = marginal cost curve
B) E = marginal cost curve; F = total cost curve; G = variable cost curve, H = average fixed cost curve
C) E = average fixed cost curve; F = average total cost curve; G = average variable cost curve, H = marginal cost curve
D) E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H = average fixed cost curve.
Q3) As the level of output increases,what happens to the value of average fixed cost,and what happens to the difference between the value of average total cost and average variable cost?
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Chapter 12: Firms in Perfectly Competitive Markets
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Q1) Refer to Table 12-1.Suppose the fixed cost of production rises by $500 and the price per unit is still $8.What happens to the firm's profit-maximizing output level?
A) It must fall.
B) It must rise to offset the increased cost.
C) It will remain the same.
D) The firm will shut down.
Q2) A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?
A) The price remains constant at $15.
B) The price falls to $12.
C) The price rises above $15.
D) There is insufficient information to answer the question.
Q3) In long-run perfectly competitive equilibrium,which of the following is false?
A) There is efficient, low-cost production at the minimum efficient scale.
B) Economic surplus is maximized.
C) Firms earn economic profit.
D) Economies of scale are exhausted.
Q4) What is meant by the term "long-run competitive equilibrium?
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Chapter 13: Monopolistic Competition: The Competitive
Model in a More Realistic Setting
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Q1) For a monopolistically competitive firm,price equals average revenue.
A)True
B)False
Q2) 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.
Q3) Although advertising raises the price of a monopolistic competitor's product,it does confer a benefit to consumers.Which of the following is a benefit to consumers?
A) Advertising acts as a barrier to entry.
B) Advertising engenders brand loyalty.
C) Advertising could provide consumers with useful information about new products and enable them to comparison shop.
D) Advertised products tend to be of higher quality so consumers feel special when they consume advertised products.
Q4) Explain the differences between total revenue,average revenue,and marginal revenue.
Page 15
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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Q1) The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium. A)True
B)False
Q2) Economies of scale can lead to an oligopolistic market structure because
A) if larger firms have lower costs, new small entrants will not be able to produce at the low costs achieved by the big established firms.
B) if economies of scale are insignificant, only a few firms are able to produce at the low costs achieved by the big established firms.
C) a few firms can force rivals to produce at low levels of output.
D) a few firms can use high profits to keep out new entrants.
Q3) Competition from substitute goods is more of a threat when switching costs are high.
A)True B)False
Q4) Explain the difference between a cooperative equilibrium and a noncooperative equilibrium in game theory.
Q5) List the competitive forces in the five competitive forces model.
Q6) Explain why OPEC is caught in a prisoner's dilemma?
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Chapter 15: Monopoly and Antitrust Policy
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Q1) A monopolist's profit maximizing price and output correspond to the point on a graph
A) where average total cost is minimized.
B) where total costs are the smallest relative to price.
C) where marginal revenue equals marginal cost and charging the price on the market demand curve for that output.
D) where price is as high as possible.
Q2) Refer to Figure 15-4.Use the figure above to answer the following questions.
a.What is the profit-maximizing quantity and what price will the monopolist charge?
b.What is the total revenue at the profit-maximizing output level?
c.What is the total cost at the profit-maximizing output level?
d.What is the profit?
e.What is the profit per unit (average profit)at the profit-maximizing output level?
f.If this industry was organized as a perfectly competitive industry,what would be the profit-maximizing price and quantity?
Q3) What is the relationship between marginal revenue and average revenue for a monopolist and is it the same for a perfect competitor?
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Chapter 16: Pricing Strategy
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Q1) Cost-plus pricing is a reasonable way to determine the optimal price when A) marginal cost and average cost are roughly equal.
B) fixed cost and variable costs are roughly equal.
C) fixed costs vary.
D) fixed costs are high.
Q2) In a perfectly competitive market,in the long run,arbitrage profits will be bid away.
A)True
B)False
Q3) An optimal two-part tariff pricing schedule maximizes consumer surplus.
A)True
B)False
Q4) The expenses you encounter when you buy in one market and sell in a distant market are known as
A) production costs.
B) fixed costs.
C) transactions costs.
D) sunk costs.
Q5) Under what circumstances will the law of one price hold,and when might it not hold?
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Chapter 17: The Markets for Labor and Other Factors of Production
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Q1) 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.
Q2) The Buda Agri Corporation is the sole employer in rural Hungary.In the labor market,Buda Agri is a
A) monopolistic competitor.
B) monopsony.
C) monopoly.
D) perfect competitor.
Q3) All of the following will shift the labor supply curve except
A) an increase in labor force participation rate among women.
B) an increase in the average age of retirement.
C) an increase in the wage rate.
D) a change in a country's immigration policy.
Q4) What is the difference between "straight-time pay","commission pay",and "piece-rate pay"?
Q5) What is a compensating differential?
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Chapter 18: Public Choice, taxes, and the Distribution of Income
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Q1) Some economists who use the public choice model to explain the ways government intervenes in the economy believe that regulatory capture results when an agency or commission is given authority over a particular industry or product.Which of the following is the best example of regulatory capture?
A) The Food and Drug Administration (FDA) has increased the time and expense pharmaceutical firms incur to receive approval to market a new drug.
B) A federal government agency hires more employees than it requires to regulate an industry because it does not seek to minimize costs or maximize the agency's profits.
C) The head of an agency is required to testify before Congress because Congress controls the size of the agency's budget. Congress "captures" the agency because of its budget authority.
D) Firms that were regulated by the Interstate Commerce Commission (ICC) attempted for many years to influence the ICC's actions.
Q2) Compare the distribution of income in the United States with the distribution of income in other high-income countries.
Q3) What is the relationship between market failure and government failure?
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Chapter 19: GDP: Measuring Total Production and Income
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Q1) Which of the following is not a true statement about the impact of World War II on the U.S.economy?
A) U.S. GDP increased dramatically from 1941 to 1945.
B) The war time years were a period of prosperity for U.S. consumers.
C) More than 40% of the labor force was in the military or producing war goods.
D) Increased production of tanks, ships, planes, and munitions accounted for most of the increase in GDP.
Q2) Value added equals the market price of the firm's product minus
A) wages and salaries.
B) the price of intermediate goods.
C) the price of all factors of production.
D) depreciation on plant and equipment.
Q3) For developed countries like the United States,GDP will always exceed GNP.
A)True
B)False
Q4) Depreciation is
A) the value of worn-out equipment, machinery, and buildings.
B) the value of the decrease in business inventory stocks.
C) the value of the addition to the capital stock.
D) the decline in the value of the stock market, net of dividends.
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Chapter 20: Unemployment and Inflation
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Q1) Which of the following price indices comes closest to measuring the cost of living of the typical household?
A) GDP deflator
B) producer price index
C) consumer price index
D) household price index
Q2) Frictional unemployment is the result of
A) a persistent mismatch between the skills and characteristics of workers and the requirements of the jobs.
B) the search process of matching workers with jobs.
C) the ups and downs in inflation.
D) a slowdown in the economy.
Q3) In the United States,the typical person who has lost his or her job finds another one in a few months except during severe recessions.
A)True
B)False
Q4) Nominal income is equal to real income if the CPI is less than 100.
A)True
B)False
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Chapter 21: Economic Growth, the Financial System, and Business Cycles
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Q1) Long-run economic growth requires all of the following except A) technological change.
B) increases in capital per hour worked.
C) government provision of secure property rights.
D) political instability.
Q2) Refer to Figure 21-3.Which of the following is consistent with the graph depicted above?
A) Taxes are changed so that real interest income is taxed rather than nominal interest income.
B) An expected recession decreases the profitability of new investment.
C) The government runs a budget deficit.
D) Technological change increases the profitability of new investment.
Q3) If real GDP per capita measured in 2000 dollars was $6,000 in 1950 and $48,000 in 2010,we would say that in the year 2010,the average American could buy ________ times as many goods and services as the average American in 1950.
A) 1/8
B) 4
C) 8
D) 12
Page 23
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Chapter 22: Long-Run Economic Growth: Sources and Policies
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Q1) Some factors currently exist that inhibit the growth rate of the Chinese economy.The main reason given is
A) the introduction of free-market reforms.
B) the introduction of the relatively new resource of entrepreneurship.
C) the lack of laws that predictably enforce property rights.
D) the total lack of governmental intervention in the market place.
Q2) Refer to Figure 22-3.Based on the "catch-up line" drawn above,poorer countries are more likely to be at a point like ________,where growth in GDP is relatively ________,while richer countries are more likely to be at a point like ________,where growth in GDP is relatively ________.
A) A; low; B; high
B) A; high; B; low
C) B; low; A; high
D) B; high; A; low
Q3) Provide examples of three kinds of government policies that can help increase the accumulation of knowledge capital and explain why government policies are often necessary to encourage the accumulation of knowledge capital.
Q4) Is knowledge capital subject to the law of diminishing returns? Explain.
Q5) Explain three reasons why the productivity slowdown of 1973-1994 occurred?
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Chapter 23: Aggregate Expenditure and Output in the Short Run
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Q1) Refer to Figure 23-3.Suppose that government spending increases,shifting up the aggregate expenditure line.GDP increases from GDP<sub>1</sub> to GDP<sub>2</sub>,and this amount is $400 billion.If the MPC is 0.75,then what is the distance between N and L or by how much did government spending change?
A) $10 billion
B) $100 billion
C) $200 billion
D) $300 billion
Q2) Housing wealth is equal to
A) the market value of a house minus the value of loans people have taken out to pay for the house.
B) the actual price paid for a house minus the current value of the house.
C) the actual price paid for a house minus the value of any outstanding loans taken out to pay for the house.
D) the current market value of the house should that house be sold within the next 30 days.
Q3) Refer to Table 23-5.Using the table above,calculate the unplanned change in inventories for each level of GDP,and explain what will happen to GDP?
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Chapter 24: Aggregate Demand and Aggregate Supply Analysis
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Q1) On the long-run aggregate supply curve,
A) a decrease in the price level decreases the level of potential GDP.
B) a decrease in the price level increases the aggregate quantity of GDP supplied.
C) a decrease in the price level decreases the aggregate quantity of GDP supplied.
D) a decrease in the price level has no effect on the aggregate quantity of GDP supplied.
Q2) Using the aggregate supply and demand model,illustrate what happens in the long run when the economy suffers a supply shock.Begin your analysis by assuming the economy has suffered the supply shock in the short run,but has not yet adjusted to it in the long run.
Q3) Refer to Figure 24-1.Ceteris paribus,an increase in the value of the domestic currency relative to foreign currencies would be represented by a movement from
A) AD<sub>1</sub> to AD<sub>2</sub>.
B) AD<sub>2</sub> to AD<sub>1</sub>.
C) point A to point B.
D) point B to point A.
Q4) Explain why the long-run aggregate supply curve is vertical.
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Chapter 25: Money, banks, and the Federal Reserve System
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Q1) In response to the destructive bank panics of the Great Depression,future bank panics are designed to be prevented by
A) the Federal Reserve System acting as a lender of last resort.
B) the Federal Reserve System conducting open market operations.
C) the establishment of the Federal Deposit Insurance Corporation.
D) establishing a fractional reserve system of banking.
E) increasing the required reserve ratio to 100%.
Q2) In 2008,the Fed and the Treasury began attempting to stabilize the commercial banking system through the Troubled Asset Relief Program (TARP)by
A) allowing domestic banks to be taken over by foreign banks.
B) permitting banks to sell commercial bonds to the Federal Reserve Bank.
C) allowing banks to double any outstanding claims for federal deposit insurance reimbursements.
D) providing funds to banks in exchange for stock.
Q3) Banks hold 100% of their checking deposits as vault cash to ensure that bank runs do not occur.
A)True
B)False
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Chapter 26: Monetary Policy
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Sample Questions
Q1) Use the money demand and money supply model to show graphically and briefly explain the effect on the interest rate if real GDP increases.
Q2) From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,then the Federal Reserve would most likely
A) decrease interest rates.
B) increase interest rates.
C) decrease income tax rates.
D) increase income tax rates.
Q3) The Federal Reserve cannot target both the money supply and the interest rate because it does not control
A) bank reserves.
B) money demand.
C) the discount rate.
D) open market operations.
Q4) Use a graph to show the effects of an expansionary monetary policy moving an economy out of recession and to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.
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Chapter 27: Fiscal Policy
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Sample Questions
Q1) Expansionary fiscal policy involves increasing government purchases or increasing taxes.
A)True
B)False
Q2) An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.
A) increase; rise; falls
B) increase; fall; rises
C) decrease; rise; falls
D) decrease; fall; rises
Q3) Refer to Figure 27-3.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,and no fiscal or monetary policy is pursued,then at point B
A) the unemployment rate is very low.
B) firms are operating at below capacity.
C) the economy is below full employment.
D) income and profits are falling.
E) there is pressure on wages and prices to fall.
Q4) What is expansionary fiscal policy? What is contractionary fiscal policy?
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Chapter 28: Inflation, unemployment, and Federal Reserve Policy
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Sample Questions
Q1) A decrease in the level of cyclical unemployment will shift the long-run Phillips curve. A)True
B)False
Q2) Does the short-run Phillips curve have a positive or negative slope? Explain how this slope is derived.
Q3) If expected inflation rises,the long-run Phillips curve will A) shift to the right.
B) not be affected.
C) shift to the left.
D) become negatively sloped.
Q4) Empirical evidence shows that the short-run Phillips curve was vertical during the 1950s and 1960s.
A)True
B)False
Q5) When unemployment is below its natural rate,the inflation rate will eventually A) increase.
B) decrease.
C) move to its natural rate.
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D) become equal to the natural rate of unemployment.
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Chapter 29: Macroeconomics in an Open Economy
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Q1) If the balance on the current account is $346 billion and the balance on the financial account is -$204 billion,what is the balance on the capital account,assuming no statistical discrepancy?
A) $550 billion
B) $142 billion
C) $0
D) -$142 billion
Q2) Which of the following would increase the current account balance of the United States?
A) an increase in imports
B) an increase in the amount of money the U.S. government sends in foreign aid to other countries
C) an increase in the balance of trade
D) an increase in the amount of income U.S. companies pay out to foreigners who own investments in the United States
Q3) If the exchange rate between the Mexican peso and the U.S.dollar expressed in terms of pesos per dollar is 13.5 pesos = 1 dollar,what is the exchange rate when expresses in terms of dollars per peso?
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) When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely,they began to sell off their investments in Thailand and exchange the baht they received for dollars.This reduction in investment by foreigners is termed
A) foreign direct investment.
B) capital flight.
C) capital inflow.
D) stabilizing capitalization.
Q2) In the United States today,how much gold will the Federal Reserve give you in exchange for $1?
A) none
B) $1 worth of gold (based on the market price of an ounce of gold at the time you redeem the gold)
C) 1 ounce of gold
D) 1/35th of an ounce of gold
Q3) If a country's currency is "pegged" to the dollar,its exchange rate is
A) floating.
B) flexible.
C) fixed.
D) undervalued.
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