Economics MCQs

Option A: trade surplus in the short run

Option B: trade surplus in the long run

Option C: trade deficit in the short run

Option D: trade deficit in the long run

Correct Answer: trade deficit in the long run ✔

Option A: elasticity of demand for exports = 0.9; elasticity of demand for imports = 0.4

Option B: elasticity of demand for exports = 0.7; elasticity of demand for imports = 0.3

Option C: elasticity of demand for exports = 0.5; elasticity of demand for imports = 0.7

Option D: elasticity of demand for exports = 0.3; elasticity of demand for imports = 0.6

Correct Answer: elasticity of demand for exports = 0.3; elasticity of demand for imports = 0.6 ✔

Option A: increases

Option B: decreases

Option C: does not change

Option D: None of the above

Correct Answer: decreases ✔

Option A: pass through

Option B: absorption

Option C: adjustment mechanism

Option D: currency contract period

Correct Answer: pass through ✔

Option A: relative price

Option B: elasticity

Option C: J Curve

Option D: Pass through

Correct Answer: J Curve ✔

Option A: the absorption approaches

Option B: the Marshall Lerner approach

Option C: the monetary approach

Option D: the elasticities approach

Correct Answer: the absorption approaches ✔

Option A: J Curve effect

Option B: Marshall Lerner effect

Option C: absorption effect

Option D: pass through effect

Correct Answer: pass through effect ✔

Option A: official exchange rates

Option B: complete currency pass through

Option C: exchange arbitrage

Option D: trade adjustment assistance

Correct Answer: complete currency pass through ✔

Option A: home demand for imports is inelastic and foreign export demand is inelastic

Option B: home demand for imports is elastic and foreign export demand is inelastic

Option C: home demand for imports is inelastic and foreign export demand is elastic

Option D: home demand for imports is elastic and foreign export demand is elastic

Correct Answer: home demand for imports is inelastic and foreign export demand is inelastic ✔

Option A: partial currency pass through

Option B: complete currency pass through

Option C: partial J curve effect

Option D: complete J curve effect

Correct Answer: partial currency pass through ✔

Option A: 0.67 pesos = $1

Option B: 0.8 pesos = $1

Option C: 1.25 pesos = $1

Option D: 1.67 pesos = $1

Correct Answer: 0.67 pesos = $1 ✔

Option A: appreciation; trade surplus

Option B: appreciation; trade deficit

Option C: depreciation; trade surplus

Option D: depreciation; trade deficit

Correct Answer: depreciation; trade surplus ✔

Option A: flow from the United States to foreign countries

Option B: flow from foreign countries to the United States

Option C: remain totally in foreign countries

Option D: remain totally in the United States

Correct Answer: flow from the United States to foreign countries ✔

Option A: decrease in the money supply

Option B: increase in the money supply

Option C: decrease in the money demand

Option D: None of the above

Correct Answer: decrease in the money supply ✔

Option A: faster economic growth than Japan

Option B: higher future interest rates than Japan

Option C: more rapid money supply growth than japan

Option D: higher inflation rates than japan

Correct Answer: higher future interest rates than Japan ✔

Option A: increase in the demand for imports and an increase in the demand for foreign currency

Option B: increase in the demand for imports and a decrease in the demand for foreign currency

Option C: decrease in the demand for imports and an increase in the demand for foreign currency

Option D: decrease in the demand for imports and a decrease in the demand for foreign currency

Correct Answer: decrease in the demand for imports and a decrease in the demand for foreign currency ✔

Option A: The United States to Japan causing the dollar to depreciate

Option B: The United States to Japan causing the dollar to appreciate

Option C: The Japan to United States, causing the dollar to depreciate

Option D: The Japan to United States, causing the dollar to appreciate

Correct Answer: The United States to Japan causing the dollar to depreciate ✔

Option A: Japanese exports become more expensive to foreign buyers

Option B: Japanese exports become less expensive for foreign buyers

Option C: Japanese imports become less expensive for German buyers

Option D: Japanese imports become more prestigious to German buyers

Correct Answer: Japanese exports become less expensive for foreign buyers ✔

Option A: the Canadian current account balance is in surplus

Option B: the Swiss current account balance is in deficit

Option C: the Canadian current account balance is in equilibrium

Option D: the Swiss current account balance is in equilibrium

Correct Answer: the Swiss current account balance is in deficit ✔

Option A: an excess supply of that currency exists in the foreign exchange market

Option B: an excess demand for that currency exists in the foreign exchange market

Option C: the supply of foreign exchange shifts outward to the right

Option D: the supply of foreign exchange shifts backward to the left

Correct Answer: an excess supply of that currency exists in the foreign exchange market ✔

Option A: additional investment funds made available from overseas

Option B: lack of investor confidence in U.S fiscal policy

Option C: market expectations of rising inflation in the United States

Option D: American tourists overseas finding costs increasing

Correct Answer: additional investment funds made available from overseas ✔

Option A: $50 per pound

Option B: $1.00 per pound

Option C: $2.00 per pound

Option D: $8.00 per pound

Correct Answer: $2.00 per pound ✔

A. appreciate by 8 percent against the yen
B. depreciate by 8 percent against the yen
C. remain at its existing exchange rate
None of the above

Correct Answer: depreciate by 8 percent against the yen ✔

Option A: decrease the foreign demand for dollars causing the dollar to depreciate

Option B: decrease the foreign demand for dollars causing the dollar to appreciate

Option C: increase the foreign demand for dollars causing the dollar to depreciate

Option D: decrease the foreign demand for dollars causing the dollar to appreciate

Correct Answer: decrease the foreign demand for dollars causing the dollar to depreciate ✔

Option A: 20 pounds

Option B: 40 pounds

Option C: 60 pounds

Option D: 80 pounds

Correct Answer: 40 pounds ✔

Option A: domestic prices adjust slowly to shifts in demand

Option B: military spending during military conflicts

Option C: elasticities are smaller in the long run than the short run

Option D: elasticities are smaller in the short run than the long run

Correct Answer: elasticities are smaller in the short run than the long run ✔

Option A: appreciate because of an increase supply of peso denominated assets

Option B: depreciate because of an increased supply of peso denominated assets

Option C: appreciated because of an increased demand for peso denominated assets

Option D: depreciated because of an increased demand for peso denominated assets

Correct Answer: appreciated because of an increased demand for peso denominated assets ✔

Option A: inflation effects exchange rates

Option B: international capital flows affect exchange rates

Option C: governments sometimes impose trade restrictions such as tariffs and quotas

Option D: not all products are internationally tradeable

Correct Answer: inflation effects exchange rates ✔

Option A: the use of import tariffs and quotas by governments

Option B: the current account balance of each country

Option C: the relative growth rate of national output between countries

Option D: efforts of investors to balance their portfolios among financial assets denominated in different currencies

Correct Answer: efforts of investors to balance their portfolios among financial assets denominated in different currencies ✔

Option A: why exchange rates remain quite stable

Option B: why governments change their money supplies

Option C: long term exchange rate movements

Option D: short term exchange rate movements

Correct Answer: short term exchange rate movements ✔

Option A: judgmental analysis

Option B: fundamental analysis

Option C: technical analysis

Option D: nontechnical analysis

Correct Answer: fundamental analysis ✔

Option A: anticipate the dollar to depreciate against the euro

Option B: anticipate the dollar to appreciate against the euro

Option C: anticipate the dollar’s exchange rate against the euro to remain constant

Option D: have no anticipation concerning future movements in the dollar/euro exchange rate

Correct Answer: anticipate the dollar to appreciate against the euro ✔

Option A: increasing portfolio investment into the United States

Option B: decreasing portfolio investment into the United States

Option C: increasing direct investment into the United States

Option D: decreasing direct investment into the United States

Correct Answer: increasing direct investment into the United States ✔

Option A: increase in the money demand

Option B: decrease in the money demand

Option C: increase in the money demand

Option D: None of the above

Correct Answer: increase in the money demand ✔

Option A: faster growth than Japan

Option B: higher future interest rates than Japan

Option C: more rapid money supply growth than Japan

Option D: lower inflation rates than Japan

Correct Answer: faster growth than Japan ✔

Option A: increase in the demand for foreign currency a decrease in the supply of foreign currency and a depreciation in the dollar

Option B: increase in the demand for foreign currency an increase in the supply of foreign currency and a appreciation in the dollar

Option C: decrease in the demand for foreign currency a decrease in the supply of foreign currency and a depreciation in the dollar

Option D: decrease in the demand for foreign currency an increase in the supply of foreign currency and a appreciation in the dollar

Correct Answer: increase in the demand for foreign currency an increase in the supply of foreign currency and a appreciation in the dollar ✔

Option A: increase in the demand for foreign currency a decrease in the supply of foreign currency and a depreciation in the dollar

Option B: increase in the demand for foreign currency an increase in the supply of foreign currency and a appreciation in the dollar

Option C: decrease in the demand for foreign currency a decrease in the supply of foreign currency and a depreciation in the dollar

Option D: decrease in the demand for foreign currency and increase in the supply of foreign currency and a appreciation in the dollar

Correct Answer: increase in the demand for foreign currency a decrease in the supply of foreign currency and a depreciation in the dollar ✔

Option A: increasing in the demand for imports and an increasing in the demand for foreign currency

Option B: increase in the demand for imports and decrease in the demand for foreign currency

Option C: decrease in the demand for imports and an increase in the demand for foreign currency

Option D: decrease in the demand for imports and a decrease in the demand for foreign currency

Correct Answer: increasing in the demand for imports and an increasing in the demand for foreign currency ✔

Option A: the United States to Switzerland causing the dollar to depreciate

Option B: the United States to Switzerland causing the dollar to appreciate

Option C: Switzerland to the United States causing the franc to depreciate

Option D: Switzerland to the United States causing the franc to appreciate

Correct Answer: Switzerland to the United States causing the franc to depreciate ✔

Option A: the rate of inflation in the United States

Option B: the number of dollars printed by the U.S government

Option C: the international demand and supply for dollars

Option D: the monetary value of gold held at Fort Knox, Kentucky

Correct Answer: the international demand and supply for dollars ✔

Option A: the value of other currencies will rise relative to the dollar

Option B: the dollar will depreciate relative to other currencies

Option C: the price of foreign goods will become cheaper to Canadians

Option D: the price of foreign goods will rise for Canadians

Correct Answer: the price of foreign goods will become cheaper to Canadians ✔

Option A: the United States being considered a safe haven by foreign investors

Option B: relatively high real interest rates in the United States

Option C: confidence of foreign investors in the U.S economy

Option D: relatively high inflation rates in the United States

Correct Answer: relatively high inflation rates in the United States ✔

Option A: an excess demand for that currency exists in the foreign exchange market

Option B: an excess supply of the currency exists in the foreign exchange market

Option C: the demand for foreign exchange shifts outward to the right

Option D: the demand for foreign exchange shifts backward to the left

Correct Answer: an excess demand for that currency exists in the foreign exchange market ✔

Option A: large trade surpluses for the United States

Option B: high inflation rates in the United States

Option C: lack of investor confidence in U.S money policy

Option D: high interest rates in the United States

Correct Answer: high interest rates in the United States ✔

Option A: 200 pounds

Option B: 400 pounds

Option C: 600 pounds

Option D: 800 pounds

Correct Answer: 800 pounds ✔

Option A: decrease the foreign demand for dollars causing the dollar to depreciate

Option B: decrease the foreign demand for dollars causing the dollar to appreciate

Option C: increase the foreign demand for dollars causing the dollar to depreciate

Option D: increase the foreign demand for dollars causing the dollar to appreciate

Correct Answer: increase the foreign demand for dollars causing the dollar to appreciate ✔

Option A: the inflation rate in each country will necessarily equal zero

Option B: the inflation rate in each country will necessarily equal 1 percent

Option C: the exchange rates are said to be fixed pegged to each other

Option D: purchasing power parity holds

Correct Answer: purchasing power parity holds ✔

Option A: purchasing power parity theory

Option B: asset markets theory

Option C: monetary theory

Option D: balance of payments theory

Correct Answer: purchasing power parity theory ✔

Option A: pegged exchange rates

Option B: freely floating exchange rates

Option C: managed floating exchange rates

Option D: crawling exchange rates

Correct Answer: pegged exchange rates ✔

Option A: very high rates of inflation occur domestically

Option B: foreigners discriminate against domestic products

Option C: technological advance is superior abroad

Option D: the domestic currency is undervalued relative to other currencies

Correct Answer: the domestic currency is undervalued relative to other currencies ✔

Option A: appreciates against foreign currencies

Option B: depreciates against foreign currencies

Option C: be officially revalued by the government

Option D: be officially devalued by the government

Correct Answer: appreciates against foreign currencies ✔

Option A: dual exchange rates

Option B: managed floating exchange rates

Option C: adjustable pegged exchange rates

Option D: crawling pegged exchange rates

Correct Answer: dual exchange rates ✔

Option A: pegged of fixed exchange rates

Option B: adjustable pegged exchange rates

Option C: managed floating exchange rates

Option D: free floating exchange rates

Correct Answer: adjustable pegged exchange rates ✔

Option A: gold

Option B: silver

Option C: a single currency

Option D: a basket of currencies

Correct Answer: a basket of currencies ✔

Option A: floating exchange rates

Option B: pegged exchanged rates

Option C: managed floating exchange rates

Option D: dual exchange rates

Correct Answer: floating exchange rates ✔

Option A: U.S exports tend to rise, and imports tend to fall

Option B: U.S imports tend to rise, and exports tend to fall

Option C: U.S foreign exchange reserves tend to rise

Option D: U.S foreign exchange reserves remain constant

Correct Answer: U.S imports tend to rise, and exports tend to fall ✔

Option A: dual exchange rate

Option B: adjustable pegged exchange rates

Option C: managed floating exchange rates

Option D: crawling pegged exchange rates

Correct Answer: crawling pegged exchange rates ✔

Option A: freely fluctuating exchange rates

Option B: adjustable pegged exchange rates

Option C: managed floating exchange rates

Option D: pegged or fixed exchange rates

Correct Answer: managed floating exchange rates ✔

Option A: reduce the incentive for technological innovations to further reduce pollution.

Option B: set the price of pollution.

Option C: determine the demand for pollution rights.

Option D: Set the quantity of pollution

Correct Answer: Set the quantity of pollution ✔

Option A: a tradeable pollution permits.

Option B: an attempt to internalize a positive externality

Option C: an application of the Coase theorem

Option D: an attempt to internalize a negative externality.

Correct Answer: an attempt to internalize a negative externality. ✔

Option A: Thomas will pay Roberto between €100 and €150 and Roberto will continue to play loud music

Option B: Roberto will pay Thomas €150 and Roberto will continue to play loud music

Option C: Thomas will pay Roberto between €100 and €150 and Roberto will stop playing loud music

Option D: Roberto will pay Thomas €100 and Roberto will stop playing loud music

Correct Answer: Thomas will pay Roberto between €100 and €150 and Roberto will stop playing loud music ✔

Option A: costs incurred due to lawyers’ fees

Option B: costs incurred to reduce the pollution

Option C: costs incurred to enforce the agreement

Option D: costs incurred due to a large number of parties affected by the externality

Correct Answer: costs incurred to reduce the pollution ✔

Option A: there are no transaction costs.

Option B: each affected party has equal power in the negotiations.

Option C: the party affected by the externality has the initial property right to be left alone.

Option D: There are a large number of affected parties.

Correct Answer: there are no transaction costs. ✔

Option A: a positive externality

Option B: a technology spillover

Option C: an efficient market outcome.

Option D: a negative externality

Correct Answer: a negative externality ✔

Option A: have the government take over the production of the good causing the externality

Option B: ban the production of all goods creating negative externalities

Option C: tax the good

Option D: subsidize the good

Correct Answer: tax the good ✔

Option A: optimal quantity to exceed the equilibrium quantity.

Option B: equilibrium quantity to be either above or below the optimal quantity

Option C: equilibrium quantity to equal the optimal quantity

Option D: equilibrium quantity to exceed the optimal quantity

Correct Answer: equilibrium quantity to exceed the optimal quantity ✔

Option A: a social cost curve that is below the supply curve (private cost curve) for a good

Option B: none of these answers

Option C: a social cost curve that is below the supply curve (private cost curve) for a good

Option D: a social value curve that is above the demand curve (private value curve) for a good

Correct Answer: a social cost curve that is below the supply curve (private cost curve) for a good ✔

Option A: Pigouvian taxes, command-and-control policies, tradable pollution permits.

Option B: tradable pollution permits, Pigouvian taxes, command-and-control policies

Option C: tradable pollution permits command-and-control policies, Pigovian taxes.

Option D: command-and-control policies, tradable pollution permits, Pigovian taxes.

Correct Answer: tradable pollution permits, Pigouvian taxes, command-and-control policies ✔

Option A: an attempt to internalize a positive externality

Option B: an attempt to internalize a negative externality

Option C: a Pigouvian tax

Option D: a command-and-control policy

Correct Answer: an attempt to internalize a positive externality ✔

Option A: Sets the quantity of pollution

Option B: reduces the incentive for technological innovations to further reduce pollution

Option C: Sets the price of pollution

Option D: determines the demand for pollution rights.

Correct Answer: Sets the price of pollution ✔

Option A: All of these answers are true

Option B: Pigouvian taxes and tradable pollution permits create an efficient market for pollution.

Option C: Tradable pollution permits efficiently reduce pollution only if they are initially distributed to the firms that can regulator pollution at the lowest cost.

Option D: To set the quantity of pollution with tradable pollution permits, the regulator must know everything about the demand for pollution rights.

Correct Answer: Pigouvian taxes and tradable pollution permits create an efficient market for pollution. ✔

Option A: It is efficient for Roberto to stop playing loud music regardless of who has the property right to the level of sound

Option B: it is efficient for Roberto to continue to play loud music

Option C: It is efficient for Roberto to stop playing loud music only if Thomas has the property right to peace and quiet

Option D: It is efficient for Roberto to stop playing loud music only if Roberto has the property right to play loud music

Correct Answer: It is efficient for Roberto to stop playing loud music regardless of who has the property right to the level of sound ✔

Option A: ban the good creating the externality

Option B: tax the good

Option C: subsidize the good

Option D: have the government produce the good until the value of an additional unit is zero

Correct Answer: subsidize the good ✔

Option A: the regulators decide how much each polluter should reduce its pollution.

Option B: no pollution of the environment is tolerated

Option C: each polluter reduces its pollution an equal amount

Option D: the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount

Correct Answer: the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount ✔

Option A: by allocating tradable technology permits to high technology industry.

Option B: to internalize the positive externality associated with technology-enhancing industries.

Option C: to help stimulate private solution to the technology externality

Option D: to internalize the negative externality associated with industrial pollution

Correct Answer: to internalize the positive externality associated with technology-enhancing industries. ✔

Option A: equilibrium quantity to exceed the optimal quantity

Option B: equilibrium quantity to equal the optimal quantity

Option C: optimal quantity to exceed the equilibrium quantity

Option D: equilibrium quantity to be either above or below the optimal quantity

Correct Answer: optimal quantity to exceed the equilibrium quantity ✔

Option A: a social cost curve that is above the supply curve (private cost curve) for a good

Option B: none of these answers

Option C: a social value curve that is above the demand curve (private value curve) for good

Option D: a social value curve that is below the demand curve (private value curve) for a good

Correct Answer: a social value curve that is above the demand curve (private value curve) for good ✔

Option A: the benefit that accrues to the buyer in a market

Option B: the cost that accrues to the seller in a market

Option C: none of these answers

Option D: the compensation paid to a firm’s external consultants.

Correct Answer: E. The uncompensated impact of one person’s actions on the well-being of a bystander ✔

Option A: Discourage consumption of positive externalities

Option B: Discourage consumption of public goods

Option C: Discourage consumption of merit goods

Option D: Discourage consumption of negative externalities

Correct Answer: Discourage consumption of merit goods ✔

Option A: The amount of tax paid increase with income

Option B: The marginal rate of tax decrease with more income

Option C: The average rate of tax falls as income increase

Option D: The average rate of tax is constant as income increases

Correct Answer: The average rate of tax falls as income increase ✔

Option A: worsen

Option B: Improve

Option C: Stay the same

Option D: Increase with inflation

Correct Answer: worsen ✔

Option A: The amount of tax paid will increase by Rs4,800

Option B: The amount of tax paid will increase by Rs4,000

Option C: The amount of tax paid will increase by Rs 800

Option D: The total tax paid will be Rs4,800

Correct Answer: The total tax paid will be Rs4,800 ✔

Option A: Lower interest rates

Option B: Increased lending by the banks

Option C: An increase in corporation tax

Option D: An increase in discretionary government spending

Correct Answer: Increased lending by the banks ✔

Option A: sells less government bonds than are required to finance the PSBR

Option B: sells more government bonds than are required to finance the PSBR

Option C: sells government securities on the open market

Option D: buys government securities on the open market

Correct Answer: sells more government bonds than are required to finance the PSBR ✔

Option A: reduce the minimum reserve asset ratio.

Option B: buy government securities on the open market

Option C: lower interest rates

Option D: sell government securities on the open market

Correct Answer: buy government securities on the open market ✔

Option A: bad money drives out good

Option B: monetary policy can only be effective if it is a long-term policy

Option C: controlling one part of the money supply will merely result in that item becoming less important

Option D: the money supply must only expand at the rate of growth of real national income

Correct Answer: controlling one part of the money supply will merely result in that item becoming less important ✔

Option A: could either increase or decrease

Option B: decrease

Option C: increase

Option D: remain the same, as long as bank hold no excess reserves

Correct Answer: increase ✔

Option A: is not sufficiently stimulating or contracting the economy at any time

Option B: is effective

Option C: is stimulating or contracting the economy at the wrong times

Option D: is desirable

Correct Answer: is stimulating or contracting the economy at the wrong times ✔

Option A: the same as it is for fiscal policy

Option B: much shorter than it is for fiscal policy

Option C: mush longer than it is for fiscal policy

Option D: unrelated to central bank action

Correct Answer: much shorter than it is for fiscal policy ✔

Option A: GDP decrease rapidly

Option B: GDP remains unchanged

Option C: GDP decrease slightly

Option D: GDP increase

Correct Answer: GDP increase ✔

Option A: increase; increase

Option B: decrease; increase

Option C: increase; decrease

Option D: decrease; decrease

Correct Answer: decrease; increase ✔

Option A: taxes paid by firms and households to the government minus the cost of collecting the taxes

Option B: Taxes paid firms and households to the government minus the transfer payments made to firms and household

Option C: Taxes paid by firms and households to the government plus transfer payments made to firm and households

Option D: government expenditures minus government revenues

Correct Answer: Taxes paid firms and households to the government minus the transfer payments made to firms and household ✔

Option A: The government’s budget position should automatically improve

Option B: The government’s budget position should automatically worsen

Option C: This will have no effect on the government’s budget position

Option D: This will reduce the government’s tax revenue

Correct Answer: B. The government’s budget position should automatically worsen ✔

Option A: A measure of the country’s trade position

Option B: A measure of the country’s budget position

Option C: A measure of the country’s total debt

Option D: A measure of the government’s monetary stance

Correct Answer: B. A measure of the country’s budget position ✔

Option A: The total tax paid / total income

Option B: Total income / total tax paid

Option C: Change in the tax paid / change in income

Option D: Change in income / change in tax paid

Correct Answer: Change in the tax paid / change in income ✔

Option A: Rs 50000

Option B: 20%

Option C: 25%

Option D: Rs 10000

Correct Answer: 20% ✔

Option A: Tax bands do not increase with inflation

Option B: Tax rates move inversely with inflation

Option C: Government spending falls to reduce aggregate demand

Option D: Tax banks increase with inflation

Correct Answer: Tax bands do not increase with inflation ✔

Option A: making banks keep a certain % of their assets as M0

Option B: controlling the money multiplier

Option C: restricting the amount of cash in circulation

Option D: not allowing commercial banks to issue notes and coins

Correct Answer: making banks keep a certain % of their assets as M0 ✔

Option A: increase the minimum reserve asset ratio.

Option B: buy government securities on the open market

Option C: raise interest rates

Option D: sell government securities on the open market

Correct Answer: buy government securities on the open market ✔

Option A: credit rationing

Option B: government borrowing drives up interest rates

Option C: Bank of England controls on commercial bank lending

Option D: what the government borrows cannot be used for private investment

Correct Answer: government borrowing drives up interest rates ✔