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Question 1-30

VIEWS: 5 PAGES: 4

									1. According to the Lucas supply function, if the actual inflation rate is higher than the expected inflation
rate:
    a. real output will be higher than potential output.
    b. real output will be lower than potential output.
    c. real output will equal potential output.
    d. unable to determine from information given.

Use the following information for questions 2 through 9. Potential output for an economy is 900, velocity
is 6, and the current money supply (Year 1) is 1,800. Θ = 50. Decision makers expect a 6% increase in
the money supply; the actual increase is 3%.

2. What is the current price level?
   a. 8        b. 10        c. 12         d. 14        e. 15

3. What is the expected money supply in Year 2?
   a. 1,692
   b. 1,746
   c 1,854
   d 1,908
   e. 2,018

4. What is the actual money supply in Year 2?
   a. 1,692
   b. 1,746
   c 1,854
   d 1,908
   e. 2,018

5. What is the expected price level for Year 2?
   a. 12.25
   b. 12.36
   c. 12.50
   d. 12.72
   e. 13.00

6. What is the actual price level for Year 2?
   a. 12.25
   b. 12.36
   c. 12.50
   d. 12.72
   e. 13.00

7. What is the expected inflation rate for Year 2?
   a. 3%
   b. 4%
   c. 6%
   d. 7%
   e. 8%
8. What is the actual inflation rate for Year 2?
   a. 3%
   b. 4%
   c. 6%
   d. 7%
   e. 8%

9. What is Year 2 short-run output?
   a. 873
   b. 882
   c. 918
   d. 927
   e. 954

Use the following information for questions 10 through 17. Potential output for an economy is 1,200,
velocity is 7, and the current money supply (Year 1) is 2,500. Θ = 80. Decision makers expect a 4%
increase in the money supply; the actual increase is 7%.

10. What is the current price level?
    a. 11.06
    b. 12.81
    c. 13.42
    d. 14.58
    e. 15.13

11. What is the expected money supply in Year 2?
    a. 2,400
    b. 2,550
    c. 2,600
    d. 2,650
    e. 2,675

12. What is the actual money supply in Year 2?
    a. 2,400
    b. 2,550
    c. 2,600
    d. 2,650
    e. 2,675

13. What is the expected price level for Year 2?
    a. 15.01
    b. 15.17
    c. 15.60
    d. 16.03
    e. 16.25

14. What is the actual price level for Year 2?
    a. 15.01
    b. 15.17
    c. 15.60
    d. 16.03
    e. 16.25
15. What is the expected inflation rate for Year 2?
    a. 3%
    b. 4%
    c. 6%
    d. 7%
    e. 8%

16. What is the actual inflation rate for Year 2?
    a. 3%
    b. 4%
    c. 6%
    d. 7%
    e. 8%

17. What is Year 2 short-run output?
    a. 1,120.0
    b. 1,165.6
    c. 1,215.6
    d. 1,234.4
    e. 1,280.0

18. The value of Montega's exports is $10 billion and this country imports goods and services worth $15
    billion. This country has a:
    a. $5 billion trade deficit.        c. $5 billion trade surplus.
    b. $25 billion trade surplus.       d. $25 billion trade deficit.

19. The primary source of purchasing power used to import goods is:
    a. the monetary sector.
    b. the balance of payments deficit.
    c. the exports of a nation.
    d. taxation and other revenue-generating activities.

20. Country A would have an absolute advantage over Country B in the production of corn, if:
    a. corn sells for a higher price in Country A than in Country B.
    b. Country A uses fewer resources to produce corn than Country B does.
    c. corn can be produced at lower cost in terms of other goods than it could be in Country B.
    d. the demand for corn is higher in Country A than in Country B.

21. A country enjoys a comparative advantage in the production of a good if:
    a. it uses fewer resources to produce that product than the other country does.
    b. it uses more resources to produce that product than the other country does.
    c. that good can be produced at a lower monetary cost.
    d. that good can be produced at a lower cost in terms of other goods.

Questions 22 through 29 refer to the following table.
                              U.S.        Mexico
Apples(bushels)             1,000            300
Oranges(bushels)               200         1,200

22. In the United States. the opportunity cost of 1 bushel of oranges is _____ of apples.
    a. 1/5 bushel        b. 2 bushels       c. 3.3 bushels       d. 5 bushels

23. In Mexico the opportunity cost of 1 bushel of oranges is _____ of apples.
    a. 6 bushels        b. 1/4 bushel      c. 4 bushels         d. 1/3 bushel
24. Mexico has an absolute advantage in the production of:
    a. neither apples nor oranges.    c. oranges.
    b. both apples and oranges.       d. apples.

25. Mexico has a comparative advantage in the production of:
    a. both apples and oranges.      c. apples.
    b. neither apples nor oranges.   d. oranges.

26. The United States has a comparative advantage in the production of:
    a. both apples and oranges.        c. oranges.
    b. apples.                         d. neither apples nor oranges.

27. Assume that terms of trade(TOT) are set at 2:1, apples to oranges. As a result, the U.S. would be
    ____ and Mexico would be ____ compared to the no trade case:
    a. better off by 3/10 orange; better off by 4/7 apple
    b. better off by 7/4 orange; better off by 3/10 apple
    c. better off by 3/10 oranges; better off by 7/4 apples
    d. worse off by 1/6 orange; better off by 3/4 apple
    e. better off by 3/4 orange; worse off by 1/6 apple

28. Assume that terms of trade(TOT) are set at 6:1, apples to oranges. As a result, the U.S. would be
    ____ and Mexico would be ____ compared to the no trade case:
    a. better off by 1/30 orange; better off by 5 3/4 apples
    b. better off by 5 3/4 oranges; better off by 1/30 apple
    c. better off by 6 oranges; better off by 4/3 apples
    d. worse off by 1/30 orange; better off by 5 3/4 apple
    e. better off by 5 3/4 orange; worse off by 1/30 apple

29. For both countries to benefit from trade, the terms of trade must be between ______ apples to
    oranges.
    a. 1/5 and 4                          c. 1/4 and 5
    b. 4 and 5                            d. 1/5 and 1/4

30. A U.S. firm sells a good for $20. The firm is considering moving manufacturing operations to Mexico.
    Output per worker in the U.S. is 6 units; output per worker is 4 in Mexico. The Mexican wage rate is
    $50. The firm will keep its operations in the U.S. as long as the U.S. wage rate is less than:
    a. $90
    b. $100
    c. $120
    d. $125
    e. $130

								
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