Economics Multiple Choice

 Questions Quiz

1.The demand for money to cover unexpected expenditures and to meet emergencies is known as

the transactions demand for money.

the precautionary demand for money.

the asset demand for money.

the terminal demand for money.

Question

 

2 of 30

When people want to hold money to make regular planned expenditures, this is

the transaction demand for money.

the asset demand for money.

the precautionary demand for money.

the spending demand for money.

Question

 

3 of 30

One of the economic costs of holding currency is that

it fulfills no precautionary role.

it fulfills no transactions role.

it earns no interest income.

its real value always increases.

Question

 

4 of 30

Which of the following is a true statement about the relationship between the price of bonds and the interest rate?

The prices of bonds are directly related to the interest rate.

The prices of bonds increase when the interest rates rise.

The prices of bonds are unrelated to the interest rate.

The prices of bonds are inversely related to the interest rate.

 

Question

 

5 of 30

The indirect effect of an increase in the money supply is to

raise interest rates so people will save more.

lower interest rates, which stimulates both investment and consumption spending.

put more cash in people’s pockets, thereby increasing aggregate demand.

pay off a portion of the public debt.

 

Question

 

6 of 30

In order to close a recessionary gap, the Fed would

decrease the money supply.

increase interest rates.

sell bonds.

increase the money supply.

 

Question

 

7 of 30

Suppose that the economy currently has an inflationary gap. The Fed engages in contractionary monetary policy. The impact of contractionary monetary policy will be to

increase short-run aggregate supply, a decrease in prices, and a decrease in real GDP.

increase short-run aggregate supply, decrease prices, and increase real GDP.

decrease aggregate demand, decrease prices, and increase real GDP.

decrease aggregate demand, decrease prices, and decrease real GDP.

 

Question

 

8 of 30

When the U.S. dollar appreciates,

foreign residents demand more of U.S. goods, and U.S. residents desire to purchase more foreign goods.

foreign residents demand more of U.S. goods, and U.S. residents desire to purchase fewer foreign goods.

foreign residents demand fewer of U.S. goods, and U.S. residents desire to purchase more foreign goods.

foreign residents demand fewer of U.S. goods, and U.S. residents desire to purchase fewer foreign goods.

 

Question

 

9 of 30

Other things being equal, the quantity theory of money suggests that any increase in the money supply

causes a reduction in the demand for money.

results in a decrease in the aggregate price level.

causes the aggregate level of nominal gross domestic product (GDP) to fall.

results in a proportionate increase in the price level.

 

Question

 

10 of 30

The interest rate that the Fed charges banks to borrow funds from the Fed is the

discount rate.

federal funds rate.

money market rate.

nominal interest rate.

 

Question

 

11 of 30

The tools of monetary policy are

open market operations, the differential between the discount rate and the federal funds rate, and tax rates.

open market operations, government spending, and the required reserve ratio.

open market operations, the differential between the discount rate and the federal funds rate, and the required reserve ratio.

government spending, tax rates, and the required reserve ratio.

Question

 

12 of 30

The federal funds rate is

the interest rate that is paid on reserves that are held with the Fed.

the interest rate at which banks can borrow excess reserves from other banks.

the interest rate on bonds that are issued by the federal government.

None of the above

 

Question

 

13 of 30

Specialization in trade will be economically efficient if it is based upon

national security needs.

absolute advantage.

comparative advantage.

government regulations.

 

Question

 

14 of 30

In order to obtain an efficient allocation of resources worldwide,

countries that have a lot of resources should ship resources to countries that do not have a lot of resources.

countries that have a lot of resources should not trade since poorer countries cannot compete.

each country should produce the good they have a comparative advantage in and then trade.

no trade among countries should occur.

 

Question

 

15 of 30

An effect of international trade is:

the increase in the average price of goods, as the cost of transportation has to be included.

the transmission of ideas around the world.

only countries that have absolute advantage in producing a good can participate.

the United States has a trade surplus.

 

Question

 

16 of 30

One reason that U.S. exports of commercial services have increased steadily over the past 25 years is that

European and Asian nations have shown little interest in developing their own commercial services sectors.

the United States has made significant investments in new information technologies.

the U.S. government owns and operates most of the economy’s service sector.

the U.S. economy operates like one big corporation.

Question

 

17 of 30

A new industry develops, and the government wants to protect it from foreign competition. Which one of the following arguments would appropriately describe this type of protection?

National security

Cartelization

Infant industry

Protecting American jobs

 

Question

 

18 of 30

When one country dumps some of its products in another country, it

increases the aggregate level of employment in the importing country, thereby depressing that nation’s market wages.

also exports new technology to the importing nation, which indirectly boosts the importing nation’s real GDP.

sells its products abroad at a price lower than the price in the home market or lower than the cost of production.

also exports pollution-causing technologies, which creates environmental hazards in the receiving country.

 

Question

 

19 of 30

Free trade policies may lead to

a decrease in world output.

price increases in world markets.

some labor sectors experiencing some short-term job loss.

None of the above

 

Question

 

20 of 30

A quota is

a tariff that is imposed on goods that are dumped in the country.

a law that prevents ecologically damaging goods from being imported into a country.

a market-imposed balancing factor that keeps prices of imports and exports in equilibrium.

a government-imposed restriction on the quantity of a specific good that can be imported.

 

Question

 

21 of 30

Tariffs to limit imports to protect U.S. jobs will also

stimulate exports.

limit exports.

decrease import prices.

reduce domestic production of import-threatened products.

 

Question

 

22 of 30

A significant advantage to being a member of a trade bloc is

higher tariff collections from member countries.

reduced or eliminated tariffs among member countries.

reduced tariff rates only for the largest member countries.

None of the above; there is no economic advantage to a trade bloc.

 

Question

 

23 of 30

The balance of payments is

the value of goods and services that are bought and sold in the world market.

a summary record of a country’s economic transactions with foreign residents and governments.

a summary record of a country’s purchases and sales of goods and services in the world market.

the value of merchandise goods that are bought and sold in the world market.

 

Question

 

24 of 30

 

Special drawing rights (SDRs) are

a reserve asset that is created by the International Monetary Fund that countries can use to settle international payment obligations.

a liability payment from a branch bank to a nation’s central bank.

a country’s surpluses in their fiscal budgets.

exchanges of gold between nations.

 

Question

 

25 of 30

When political instability is present in another country, the United States can expect

an increase in the capital account balance due to an increase in the current account.

an increase in the capital account balance due to the movement of assets to the U.S.

a decrease in the balance of payments due to a decrease in special drawing rights.

a decrease in the balance of payments due to a decrease in the demand for goods and services.

 

Question

 

26 of 30

The foreign exchange rate describes the

balance of trade.

balance of payments.

law of comparative advantage.

price of foreign currency in terms of domestic currency.

 

Question

 

27 of 30

Changes in which of the following will cause a change in exchange rates?

Real interest rates

Consumer preferences

Perceptions of economic and political stability

All of the above

 

Question

 

28 of 30

Suppose that a currency’s value in the foreign exchange market is determined solely by market supply and demand without any intervention by the government authority. In this case, the currency has

a fixed exchange rate.

a gold standard.

a price control in its exchange rate.

a floating exchange rate.

 

Question

 

29 of 30

Foreign exchange risk is

a financial strategy that reduces the change of suffering losses that arise from foreign exchange risk.

an exchange rate arrangement in which a country pegs the value of its currency to the exchange value.

the possibility that changes in the value of a nation’s currency will result in variations in the market value of assets.

active management of a floating exchange rate on the part of a country’s government.

 

Question

 

30 of 30

A hedge is

a financial strategy that reduces the change of suffering losses that arises from foreign exchange risk.

an exchange rate arrangement in which a country pegs the value of its currency to the exchange value.

the possibility that changes in the value of a nation’s currency will result in variations in the market value of assets.

active management of a floating exchange rate on the part of a country’s government.

 

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