Question 1

Suppose the U.S. government increases its spending without raising taxes, resulting in a larger budget deficit. According to the concept of 'crowding out,' what is the most likely macroeconomic consequence?

Accepted Answer

An increase in interest rates, which may reduce private investment

Question 2

If the British pound exchange rate is $$0.722$$ per U.S. dollar, what is the price in pounds of a box of English tea that costs $$4.75 U.S. $$dollars? (Round to two decimal places.)

Accepted Answer

$$4.75 	imes 0.722 = 3.43$$

Question 3

If the EURO exchange rate changes from $$1.32$$ per U.S. dollar on Tuesday to $$1.27 on $$Wednesday, what has happened to the U.S. dollar relative to the EURO, and what is the likely effect on U.S. exports?

Accepted Answer

The U.S. dollar has depreciated; U.S. exports would likely increase.

Question 4

Which of the following is NOT an effect of imposing a tariff on an imported product?

Accepted Answer

The domestic price falls.

Question 5

A country has a comparative advantage in producing a good if:

Accepted Answer

It has a lower opportunity cost in the production of the good than another country.

Question 6

If the supply curve for money shifts to the right in the money market, what is the most likely effect on interest rates?

Accepted Answer

Interest rates will decrease.

Question 7

Which of the following is NOT an argument used against free trade?

Accepted Answer

Comparative advantage

Question 8

Suppose the U.S. dollar weakens against most major foreign currencies. Which of the following is most likely to occur?

Accepted Answer

U.S. exports become more affordable to other countries.

Question 9

Which of the following would cause a leftward shift in the demand curve for an inferior good?

Accepted Answer

An increase in consumer income

Question 10

If the price of good A rises and the demand for good B rises, what is the relationship between goods A and B?

Accepted Answer

They are substitutes.

Question 11

Which of the following will NOT shift a supply curve?

Accepted Answer

A change in the good’s price

Question 12

At a price above equilibrium, what is the market condition?

Accepted Answer

A surplus

Question 13

When the Federal Reserve wants to increase the money supply, which of the following actions would it most likely take?

Accepted Answer

Buy bonds in the open market

Question 14

Which of the following tariff acts is thought to have magnified the Great Depression and overall world depression during the early 1930s?

Accepted Answer

Smoot-Hawley Act

Question 15

If the number of buyers in a market decreases, what is the likely effect on the demand curve?

Accepted Answer

Leftward shift in the demand curve

Question 16

Suppose a decrease in the price of a round of golf leads to a leftward shift in the demand curve for golf balls. What is the most likely explanation?

Accepted Answer

A decrease in the price of a complement would increase demand, so this scenario is unlikely.

Question 17

Which of the following is a correct statement about the U.S. public debt?

Accepted Answer

It is now almost equal to the U.S. GDP.

Question 18

Which of the following is NOT a way the federal government finances its expenditures?

Accepted Answer

Corporate Bonds

Question 19

If the U.S. imposes stricter regulations on manufacturers, what is the likely effect on the supply and market equilibrium?

Accepted Answer

Leftward shift of the supply curve, higher equilibrium price, lower equilibrium quantity

Question 20

If the quantity demanded exceeds quantity supplied at a given price, what is the market condition and what will happen to the price?

Accepted Answer

Shortage; price will rise

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