Microeconomics
Mock Exam
Course Introduction
Microeconomics is the branch of economics that examines the decision-making processes of individuals, households, and firms, and how they interact within markets to allocate scarce resources. The course covers foundational concepts such as supply and demand, consumer and producer behavior, market equilibrium, elasticity, and the impact of government intervention. Students will analyze various market structures including perfect competition, monopoly, monopolistic competition, and oligopoly while exploring the efficiency outcomes and potential market failures that may arise. Through real-world examples and analytical tools, microeconomics provides a framework for understanding how economic agents respond to incentives and how prices are determined in the marketplace.
Recommended Textbook
Economics 10th Edition by Stephen Slavin
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Chapter 1: A Brief Economic History of the United States
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Q1) The worst recession we had since World War II occurred in ___________.
Answer: 2007-2009
Q2) Which of the following is false?
A)The U.S.has had twelve recessions since January 1945.
B)The U.S.has had a great deal of stagflation in the 1970s.
C)The U.S.has not had a depression since the 1930s.
D)The U.S.had rising inflation all throughout the 1990s.
Answer: D
Q3) The stock market crashed in the year _________.
Answer: 1929
Q4) Statement I.The Roaring Twenties began and ended with depressions.
Statement II.Although there was a stock market boom in the 1920s,most Americans experienced a declining standard of living during the entire decade.
A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.
Answer: A
Q5) Between 1921 and 1929 national output rose about ______%.
Answer: 50
Page 3
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Chapter 2: Resource Utilization
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Q1) The law of increasing costs states that
A)opportunity costs decrease as more of one good is produced.
B)increasing resource prices are inevitable because of scarcity.
C)opportunity costs increase as more of one good is produced.
D)resources can be easily adapted to the production of any gooD.
E)economic growth is always associated with inflation.
Answer: C
Q2) If the economy were producing at point A and moved to point B the opportunity cost in terms of lost production of robots would be
A)1 unit of robots.
B)2 units of robots.
C)3 units of robots.
D)2 units of outboard motors.
Answer: B
Q3) The main effect of employment discrimination is
A)Unemployment.
B)Underemployment.
C)Greater efficiency.
D)Greater production.
Answer: B
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Chapter 3: The Mixed Economy
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Sample Questions
Q1) Having the government issue permits that allow polluting
A)would decrease the levels of pollution.
B)is an example of a command-and control regulation.
C)would penalize companies that were good at curbing their pollution.
D)has been very ineffective in curbing pollution.
Answer: A
Q2) Which of the following is a typical attribute of a socialist country?
A)Taxes are very high,particularly on the wealthy classes.
B)Government owns some of the means of production.
C)Cradle-to-grave security for its citizens.
D)A large-scale redistribution of income program from the wealthy and well-to-do to the middle class,working,class and the poor.
E)All of the choices are attributes of a socialist country.
Answer: E
Q3) The famous phrase "the invisible hand" is associated with the economist
Answer: Adam Smith
Q4) The return received by the owners of capital is called the
Answer: interest rate
Page 5
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Chapter 4: Supply and Demand
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Q1) Price always tends toward its ______________ level.
Q2) Price floors keep the price _____ equilibrium price;price ceilings keep price _____ equilibrium price.
Q3) A)Is a price of $26 a price ceiling or a price floor?
B)Is there a shortage or a surplus?
C)How much is it?
Q4) In the graph shown above,if the government set a price ceiling of $18
A)the price would rise to the equilibrium price.
B)the price would fall to equilibrium price.
C)there would be a temporary shortage,then price would rise to equilibrium price.
D)there would be a permanent shortage,at least until the price ceiling was lifted.
Q5) If quantity supplied is less at each price,we say that there has been
A)an increase in supply.
B)an increase in demand.
C)a decrease in supply.
D)a decrease in demanD.
Q6) When quantity supplied is greater than quantity demanded,there is a
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Chapter 5: The Household Consumption Sector
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Q1) The level of consumption tends to rise as credit availability _____ and the stock of durable goods in the hands of consumers is ______.
A)rises,high
B)rises,low
C)falls,high
D)falls,low
Q2) If the APC is .9,the MPS is
A).1.
B).45.
C).9.
D)1.0.
E)Impossible to determine.
Q3) In 2009,the United States gross saving rate was about ______ percent of our gross national income.
A)less the zero
B)twenty
C)five
D)just over ten
Q4) How much savings when disposable income is $25 billion?
Q5) Autonomous consumption is ________.
7
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Chapter 6: The Business Investment Sector
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Sample Questions
Q1) Which statement is false?
A)Savings may be invested directly in a corporation,or it may be invested indirectly through a bank or other financial intermediary.
B)Large bank loans are often made,not by individual banks,but by loan syndicates of dozens of banks.
C)Corporations raise a substantial portion of their investment funds internally.
D)Some partnerships raise funds by selling stock.
Q2) How much was added to the capital stock in 1998?
Q3) Which statement is false?
A)Most corporations are small firms.
B)Most firms in the United States are proprietorships.
C)Preferred stockholders rarely have a voice in running corporations.
D)None of these statements is false.
Q4) When disposable income is $1 trillion,how much is C?
Q5) How much was the firm's net investment?
Q6) Inheritance laws
A)in the Middle East encouraged economic equality.
B)in Western Europe encouraged economic equality.
C)in the Middle East enabled the accumulation of large fortunes.
Page 8
D)in Western Europe were designed to accommodate nomadic societies.
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Chapter 7: The Government Sector
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Sample Questions
Q1) Who said this? "The government is best which governs least".
A)Thomas Jefferson
B)Sir William Petty
C)John Stuart Mill
D)Benjamin Franklin
E)John Maynard Keynes
Q2) We spend _____ of our GDP on foreign aid.
Q3) Transfer payments are paid mainly to
A)individuals.
B)business firms.
C)foreign countries.
D)government bondholders.
Q4) Which of the following years was there NOT a federal income tax cut?
A)1981
B)1986
C)1993
D)2001
E)2003
Q5) Sue Hawkins earns $100,000.How much Social Security tax does she pay?
Q6) Every state but ____________ is legally obligated to balance its budget.
Page 9
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Chapter 8: The Export-Import Sector
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Sample Questions
Q1) Congress has ratified
A)both NAFTA and GATT.
B)neither NAFTA nor GATT.
C)NAFTA,but not GATT.
D)GATT,but not NAFTA.
Q2) The basis for international trade is
A)self-sufficiency.
B)specialization.
C)amassing national wealth at the expense of trading partners.
D)maximizing your exports and minimizing your imports.
Q3) Net exports is a positive number whenever
A)a nation's exports of goods and services exceed its imports.
B)a nation's imports of goods and services exceed its exports.
C)the nation's gross investment is positive.
D)the nation's gross savings rate is positive.
Q4) The practice of selling a good abroad below cost is known as ____________.
Q5) A negative balance of trade is when _______________________________________.
Q6) The 500,000 foreign students in our universities and colleges add to our ______ balance of trade in _____.
Page 10
Q7) The ______________________ which was set up in 1995,was the successor to GATT.
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Chapter 9: Gross Domestic Product
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Sample Questions
Q1) Which of the following circumstances would not cause GDP to either understate or overstate economic well-being today in comparison to that which existed 75 years ago?
A)A shorter workweek today
B)Greater military spending today
C)A trend toward merger and consolidation of business firms
D)More air and water pollution
Q2) National income is
A)the total earnings of all the productive resources used to produce GDP.
B)equal to consumption plus savings plus investment expenditures.
C)the flow of productive resources from households to firms.
D)None of the choices are true of national income.
Q3) Which of the following is a true statement about the measurement of real GDP?
A)Current output should be calculated at base year prices.
B)Current output should be calculated at current prices.
C)Base year output should be calculated at current prices.
D)All of the statements are true.
Q4) Find net domestic product.
Q5) If the GDP deflator goes from 120 to 240,it means that prices have risen _____ percent.
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Chapter 10: Economic Fluctuations, unemployment, and Inflation
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Sample Questions
Q1) What does NOT occur in a fully employed economy?
A)Cyclical unemployment
B)Discouraged workers
C)Frictional unemployment
D)Structural unemployment
Q2) Recovery sets in after point
A)V.
B)W.
C)X.
D)Y.
E)Z.
Q3) If the CPI is now 325,by what percent did the price level rise since the base year?
Q4) Clark Kent,a middle-aged bachelor,quit his news reporter job and currently is looking for a better job.The BLS counts Clark as
A)not in the labor force.
B)employed.
C)unemployed.
D)a discouraged worker.
E)functionally employed.
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Chapter 11: Classical and Keynesian Economics
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Sample Questions
Q1) The price level rises more rapidly as the maximum output level is approached along an aggregate supply curve because
A)profit-taking firms are exploiting their market size and power.
B)of the profit incentive.
C)the costs of additional units of aggregate output begin to rise more rapidly,causing firms to seek higher prices to cover these rising costs.
D)None of the choices are correct.
Q2) An aggregate demand curve
A)Shows various quantities of total real output which will be offered for sale at various alternative price levels.
B)Shows the various ways that a given national income can be divided between prices and real output.
C)Shows the relationship between the level of real output and the level of employment.
D)Shows the amount of real output we will collectively purchase at various alternative price levels.
Q3) Demand pull inflation occurs in the ______________ range of the aggregate supply curve.
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Chapter 12: Fiscal Policy and the National Debt
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Q1) Which of the following can be called a "crowding-out" effect?
A)Government borrowing crowds out private saving.
B)Exports crowd out government borrowing.
C)Government borrowing crowds out private investment.
D)Private consumption crowds out private investment.
Q2) If the MPC is .6,the multiplier is _________.
Q3) The real burden of an increase in the public debt
A)may be very small or conceivably zero when the economy is in the midst of a severe depression.
B)will be smaller when full employment exists than it will when the economy has large quantities of idle resources.
C)can be shifted to future generations if the debt is internally financed.
D)can best be measured by the dollar increase in the size of the debt.
Q4) Which one of the following is not an automatic stabilizer?
A)Credit availability
B)Unemployment compensation
C)Personal savings
D)Personal income and Social Security taxes
E)Public works programs
Q5) Foreign investors owned ________% of the publicly held national debt in 1970.
Page 15
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Chapter 13: Money and Banking
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Sample Questions
Q1) Small denomination time deposits are included in A)M1 only.
B)M2 only
C)M1 and M2.
D)M2 and M3.
E)M1,M2,and M3.
Q2) Statement I: Banks require a minimum balance of checking accounts because it cost them money to process each check.
Statement II: The American Bankers Association has successfully beaten back attempts to pass legislation requiring banks to provide free check-cashing services to the poor.
A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.
Q3) If you are really poor,often your only credit option may be _______________.
Q4) If a goldsmith has 200 gold coins in his safe and there are 400 receipts in circulation,how much is his reserve ratio?
Q5) The cost of the savings and loan bailout ended up to be about $______.
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Chapter 14: The Federal Reserve and Monetary Policy
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Q1) If the Fed buys government bonds on the open market,which of the following is likely to occur?
A)The money supply will expand.
B)The market rate of interest on government bonds will increase.
C)The market rate of interest on corporate bonds will increase.
D)The amount of investment spending will decrease.
E)All of the choices are likely to occur.
Q2) What would be the effect on U.S.interest rates if the Chinese and Japanese governments sold all their U.S.government securities?
A)Interest rates would rise.
B)Interest rates would fall.
C)The selling of Chinese and Japanese U.S.government securities would have very little effect on U.S.interest rates.
Q3) Open market operations refer to purchase and sales of A)bonds by the United States Treasury.
B)United States Treasury securities on the open market by the Fed.
C)corporate stocks and bonds by the corporation commission.
D)corporate securities on the open market by the FeD.
Q4) The monetary policy weapon least often used by the Fed is ___________.
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Chapter 15: A Century of Economic Theory
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Sample Questions
Q1) Who said "The ideas of economists and political philosophers,both when they are right and when they are wrong,are more powerful than is commonly understood.Indeed,the world is ruled by little else.Practical men,who believe themselves to be quite exempt from any intellectual influences,are usually slaves of some defunct economist."
A)Adam Smith
B)Karl Marx
C)John Maynard Keynes
D)John Stuart Mill
E)George Bernard Shaw
Q2) The ___________ school holds that all inflations are caused by excessive growth in the money supply and that monetary policy affects GDP directly.
Q3) The equation of exchange
A)is GDP = C + I + G + Xn.
B)never balances.
C)states that if M rises by a certain percentage,P must rise by that same percentage.
D)is MV = PQ.
Q4) According to the quantity theorists,the reason for inflation is ________.
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Chapter 16: Economic Growth and Productivity
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Q1) Which is the most accurate statement about the Chinese economy?
A)Within 10 years it will be larger than ours,although its per capita GDP will still be much smaller.
B)It has a large and growing free market system.
C)Is one of the poorest nations in the world.
D)Is adheres to the communist ideology formulated by Mao Tse-tung,and private ownership is strictly forbidden.
Q2) Since 2005,our savings as a percentage of personal disposable income has averaged a little over ________%.
A)1
B)2
C)4
D)6
Q3) In 2008,the industrial country whose workers work the most hours in a year was ____.
Q4) Sustained economic growth and rising living standards was first made possible because of the ____________.
Q5) Over the past 50 years,the growth of real GDP in the United States has been caused primarily by increase in the ____.
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Chapter 17: Demand,supply,and Equilibrium
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Q1) Goods for which demand is indirectly (negatively)related to income are called
A)substitute goods.
B)complementary goods.
C)inferior goods.
D)normal goods.
Q2) What happens to equilibrium quantity when simultaneously demand increases and supply decreases?
A)Equilibrium quantity will increase.
B)Equilibrium quantity will decrease.
C)Equilibrium quantity will remain the same.
D)Equilibrium quantity may increase,decrease,or remain the same depending on the magnitude of the shifts in demand and supply.
Q3) Each of the following can cause a change in supply except A)changes in taxes.
B)changes in the number of suppliers.
C)changes in tastes and preferences.
D)changes in the cost of production.
E)technological advances.
Q4) A technological advance can lead to a(n)__________ in supply.
Q5) A change in the cost of production will generally prompt a change in _________.
Page 20
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Chapter 18: The Price Elasticities of Demand and Supply
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Q1) If a car dealership decides to offer a rebate to reduce the selling price of its cars and as a result finds an increase in its total revenues,then the demand for cars from this dealership is
A)price elastic.
B)price inelastic.
C)rebate inelastic.
D)unit elastic.
E)unknown.
Q2) If income elasticity for a good or service is _____,then we can say that the good or service is _____.
A)zero;inferior
B)negative;normal
C)positive;inferior
D)positive;normal
Q3) Write an elasticity of demand that is slightly inelastic (write number)____.
Q4) If supply is more elastic than demand,the seller will pay _____ of a tax.
Q5) A tax increase is usually borne
A)entirely by the seller.
B)entirely by the buyer.
C)partially by the seller and partially by the buyer.
Page 21
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Chapter 19: Theory of Consumer Behavior
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Sample Questions
Q1) If water became very scarce and diamonds became very plentiful
A)the marginal utility of diamonds and water would both rise.
B)the marginal utility of both water and diamonds would both fall.
C)the marginal utility of diamonds would rise and the marginal utility of water would fall.
D)the marginal utility of water would rise and the marginal utility of diamonds would fall.
Q2) Statement I: If you know a person's demand schedule for product J,you can derive her marginal utility schedule for product J.
Statement II: If Bob buys 10 Sidney Sheldon novels,he is enjoying a consumer surplus.
A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.
Q3) Because some essential goods are sometimes cheap and some nonessential goods are sometimes very expensive,the _____________________ paradox developed.
Q4) A person's utility schedule ____________ (can/cannot)change over time.
Q5) Marginal utility is the ______________.
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Chapter 20: Cost
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Q1) The relationship between the maximum amounts of output a firm can produce and various quantities of inputs is called a __________________.
Q2) Fixed costs stay the same no matter how much _______;variable costs vary with _______.
Q3) At an output of 1,marginal cost is A)0.
B)$200.
C)$300.
D)$400.
Q4) Which statement is true?
A)Going out of business is a short run option.
B)Operating or shutting down are long run options.
C)Going out of business or not going out of business are long run options.
Q5) Fill in the Marginal Output column.
Q6) Which is most clearly a variable cost?
A)Rent
B)Insurance premiums
C)Salaries of employees under long-term contract
D)Interest payments
E)Wages of production workers
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Chapter 21: Profit, loss, and Perfect Competition
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Q1) If the price were $50,what would this firm do in the (a)short run? (b)in the long run?
Q2) Under perfect competition,price is equal to A)marginal revenue.
B)total revenue divided by output.
C)average revenue.
D)All of the choices are equal to price under perfect competition.
Q3) Given: Sales of $14 million;implicit costs of $3 million;and explicit costs of $12 million.Find (a)accounting profit;and (b)economic profit.
Q4) The profit maximizing level of output for this farmer is A)6.
B)9.
C)12.
D)3.
Q5) Given the information in the graph above,is the firm in the short run or the long run?
Q6) What is the lowest price the firm would accept in the long run?
Q7) If the price were $5,how much would the firm's output be in the short run?
Q8) If the price were $20,what would the firm do in the (a)short run? (b)long run?
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Q9) Perfect competition is a competitive _________,which probably does not exist.
Chapter 22: Monopoly
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Questions
Q1) A firm can sell 22 units at $20,but to sell 23 units,the price is cut to $19.The marginal revenue derived from selling the 23rd unit is
A)$9.
B)$3.
C)0.
D)-$3.
E)-$9.
Q2) Assume that an industry is currently a monopoly.If the government breaks this monopoly up into a large number of small,perfectly competitive firms,which of the following will occur?
A)Both price and industry output will increase.
B)Price will fall and industry output will increase.
C)Price will increase and industry output will decrease.
D)Both price and industry output will decrease.
Q3) Rutgers University granted Coca-Cola a ___________ to sell its beverages on campus.
Q4) A _________ monopoly can provide cheaper service than could several competing firms.
Q5) Large firms are able to lower their costs by taking advantage of __________.
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Chapter 23: Monopolistic Competition
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Sample Questions
Q1) If demand curve D2 represents a monopolistic competitor and demand curve D3 represents a monopoly,then
A)the monopolist has a more elastic demand curve than the monopolistic competitor.
B)the monopolistic competitor has a more elastic demand curve than the monopolist.
C)the monopolist and the monopolistic competitor have identical elasticity in their demand curves.
D)None of these choices are true.
Q2) Monopolistic competition is similar to a monopoly because firms in both industries
A)sell products with no close substitutes.
B)sell differentiated products.
C)have freedom of entry and exit.
D)have some control over price.
Q3) You can conclude that
A)new firms will enter the industry.
B)existing firms will leave the industry.
C)the industry is in long run equilibrium.
D)it is unclear whether the industry is in the short run or the long run.
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Chapter 24: Oligopoly
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Q1) Which of the following non-OPEC nations have raised and lowered production in step with the OPEC nations,thus making the cartel more effective?
A)Venezuela and Nigeria
B)Iran and Iraq
C)Mexico and Norway
D)Mexico and the United States
Q2) An industry with a concentration ratio of 100 would have ___________ firms.
Q3) Which one of these firms would be an oligopolist?
A)The only medical doctor in Farmer City,Illinois
B)A wheat farmer near Ogallala,Nebraska
C)Hewlett-Packard (computers)
D)The Billy Goat Tavern in Chicago
Q4) In 1961,seven companies in the ___________ industry were found guilty by the Supreme Court of illegal price-fixing and market-sharing agreements.
Q5) The demand curve facing an oligopoly will be less elastic
A)the larger its share of the market and the more differentiated the product.
B)the smaller its share of the market and the more differentiated the product.
C)the larger its share of the market and the less differentiated the product.
D)the smaller its share of the market and the less differentiated the product.
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Chapter 25: Corporate Mergers and Antitrust
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Sample Questions
Q1) The decision to bring suit in an antitrust case is usually made by
A)the injured party.
B)the Supreme Court or a lower federal court.
C)the Department of Commerce.
D)the Department of Justice.
Q2) The largest merger in banking and finance history was between
A)Crossland Savings and Metropolitan Savings.
B)Chase Bank and Chemical Bank.
C)Chase Manhattan and J.P.Morgan.
D)Manufacturers Hanover and Chemical Bank.
E)Travelers and Citicorp.
Q3) Corporate takeovers and the financial defenses erected against them have resulted in each of the following except
A)diverting tens of billions of dollars a year from investment in plant and equipment.
B)putting billions of additional dollars into research and development.
C)forcing corporate officers to focus on short-term profitability rather than on long-term growth.
D)placing corporations in very precarious financial straits by taking on mountains of debt.
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Chapter 26: Demand in the Factor Market
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Sample Questions
Q1) If this firm were a perfect competitor selling its entire output at a price of $10,the marginal revenue product of the fourth unit of output would be
A)$0.
B)$10.
C)$15.
D)$20.
E)$150.
Q2) Which statement is true?
A)A change in derived demand brings about a change in final demand.
B)A change in final demand brings about a change in derived demand.
C)A rise in final demand is associated with a decline in derived demand.
D)None of these statements are true.
Q3) The MRP schedule of the perfect competitor declines _____ than that of the imperfect competitor.
Q4) A fall in the demand for the final product brings about
A)a rise in derived demand.
B)a fall in derived demand.
C)no change in derived demand.
Q5) How many units of capital would you hire?
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Chapter 27: Labor Unions
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Sample Questions
Q1) The United States six largest labor unions have at least _______ members each.
A)250,000
B)1.3 million
C)2.5 million
D)5 million
E)8.5 million
Q2) A single employer who faces the entire labor supply curve in an industry is a ___________.
Q3) All of these countries are similar in their labor union membership as a percentage of their labor force,except
A)United States
B)Germany
C)Japan
D)Australia
E)Sweden
Q4) Unions use
A)only the method of inclusion.
B)only the method of exclusion.
C)both the method of inclusion and the method of exclusion.
D)neither the method of inclusion nor the method of exclusion.
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Chapter 28: Labor Markets and Wage Rates
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Sample Questions
Q1) An upward sloping labor supply curve suggests that;
A)there is no substitution effect.
B)the income effect outweighs the substitution effect.
C)the substitution effect outweighs the income effect.
D)None of the choices are correct.
Q2) As the wage rate rises,eventually the ________ effect will outweigh the _______ effect.
Q3) If the legal minimum wage rate were set at $15/hour,
A)employment would decline substantially.
B)employment would decline slightly.
C)employment would not be affected.
D)employment would rise slightly.
E)employment would rise substantially.
Q4) Economic rent is generally associated with
A)high wages.
B)low wages.
C)both high and low wages.
D)neither high nor low wages.
Q5) Economic rent is the difference between _____________ and
Q6) The shape of the supply curve of labor may be described as
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Chapter 29: Rent, interest, and Profit
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Sample Questions
Q1) Which value is higher? a)$1,000 today or b)$10,000 in 20 years if the interest rate is 12%.
Q2) Which statement is true?
A)Rent,but not the interest rate is determined by supply and demand.
B)The interest rate,but not rent,is determined by supply and demand.
C)Both rent and the interest rate are determined by supply and demand.
D)Neither rent nor the interest rate is determined by supply and demand.
Q3) The extremely high salaries of professional football players taken first in the draft are mostly associated with ___________
Q4) In 2009 total profits (corporate pretax profits and proprietors;income)were over $________ billion.
A)500
B)1500
C)2000
D)3000
E)3500
Q5) According to Karl Marx,surplus value is created when the capitalist ________________.
Q6) Land,as a resource,is sometimes confused with what is _______.
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Chapter 30: Income Distribution and Poverty
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Sample Questions
Q1) Which is the most accurate statement?
A)Doctors' incomes are high because the demand for their services is high relative to the supply.
B)Doctors' incomes are high because the supply of their services is high relative to the demand.
C)Doctors' incomes are low because the demand for their services is high relative to the supply.
D)Doctors' incomes are low because the supply of their services is high relative to the demanD.
Q2) Which of the following groups has the lowest median income in the United States?
A)Married couples with both spouses working
B)Female-headed families with no husband present
C)Male-headed families with no wife present
D)Married couple families with the wife not working
Q3) Lorenz curves tell us about the
A)absolute distribution of income.
B)poverty line.
C)incidence of malnutrition.
D)relative distribution of income.
E)inverse relationship between price and the quantity demanded.
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Chapter 31: International Trade
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Sample Questions
Q1) Tariffs lead to
A)the contraction of relatively efficient industries.
B)an over allocation of resources to relatively efficient industries.
C)an increase in the foreign demand for domestically produced goods.
D)an under allocation of resources to relatively inefficient industries.
Q2) Statement I: Foreign competition has made many American industries more efficient.
Statement II: Multinational corporations have combined the competitive advantage of low wages in foreign countries with that of high capital.
A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.
Q3) If a nation has a comparative advantage in the production of good X,this means that the nation
A)cannot benefit by producing and trading this product.
B)gives up less of alternative goods than other nations in producing a unit of X.
C)has a production possibilities curve identical to those of other nations.
D)is not subject to opportunity costs in producing good X.
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Chapter 32: International Finance
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Sample Questions
Q1) Suppose the exchange rate is initially set at 120 yen per dollar and increases to 140 yen per dollar.This would be expected to cause the price of Japanese goods in the U.S.economy to A)decrease.
B)change in a manner that cannot be determined without additional information. C)remain the same since domestic demand remains the same. D)increase.
Q2) Statement I: The U.S.has a high productivity rate and the world's largest economy,so there is no reason to be concerned with the current account deficit.
Statement II: The U.S.should be concerned about its large current account deficit because eventually foreigners will stop wanting to accept U.S.dollars.
A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.
Q3) The last year that our current account deficit was close to 0 was _________.
Q4) If 1 U.S.dollar exchanges for 122.57 Japanese yen,how much would it cost in U.S.dollars and cents to purchase a Toyota Camry priced at 2 million yen?
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