Explain risk and liquidity of assets. What will be an ideal response? ANSWER Risk is the variability an asset contributes to a savers’ wealth. An asset’s real return can be unpredictable and savers dislike this uncertainty if the return fluctuates widely. Liquidity refers to the ease with which an asset can be sold or […]
If domestic saving exceeds investment, there will be a current account surplus. Indicate whether the statement is true or false ANSWER TRUE
If labor productivities were exactly proportional to wage levels internationally, this would A) not negate the logical basis for trade in the Ricardian model. B) render the Ricardian model theoretically correct but practically useless. C) negate the logical basis for trade in the Ricardian model. D) negate the applicability of the Ricardian model if the […]
Complaints are often made to the International Trade Commission concerning foreign “dumping” practices. These complaints typically claim that A) U.S. firms are harmed by the unfair pricing of foreign exporters. B) foreign companies are charging exorbitant prices that are higher than the true value of the products. C) foreign companies are charging prices that are […]
By fixing the exchange rate, the central bank gives up its ability to A) adjust taxes. B) increase government spending. C) influence the economy through fiscal policy. D) depreciate the domestic currency. E) influence the economy through monetary policy. ANSWER E
Explain the purpose of the following figure 14-2 from the text in the context of the interest rates on the dollar and the Japanese Yen between 1980 and 2010. What will be an ideal response? ANSWER Since the dollar and the Yen interest rates are not measured in comparable terms, they can move quite […]
All else equal, if Canada raises its interest rates, A) the dollar depreciates. B) the U.S. demand for Canadian dollars increases. C) the Canadian supply of Canadian dollars increases. D) Both A and B. E) Both A and C. ANSWER D
Free trade and globalization is generally believed A) to cause a degradation in the world’s environment. B) to improve the environment by correcting for distortions caused by import competing policies. C) to help spread the best of each country’s culture, so as to uplift global cultural standards. D) to help each country safeguard the best […]
If an industry is imperfectly competitive, and markets are segmented then A) a firm may find that it is profitable to engage in dumping. B) a firm may find that international trade is unprofitable. C) a firm may find that it should promote scale economies. D) a firm may find that it has lost its […]
The main difference between stabilization policies and structural reform policies is that stabilization policies A) focus on microeconomic issues and structural reform policies focus on the macroeconomic environment. B) focus on macroeconomic issues and structural reform policies focus on the microeconomic environment. C) are rarely used by reform governments; they prefer to use structural reform […]
