41. U.S. exports represent two flows: An inflow of goods or services, and an inf

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41. U.S. exports represent two flows:

An inflow of goods or services, and an inflow of payments

An outflow of goods or services, and an outflow of payments

An inflow of goods or services, and an outflow of payments

An outflow of goods or services, and an inflow of payments

42. A nation's annual balance of payments statement must always balance because:

A nation's imports are limited to the value of its exports

A trade deficit must be matched by an equal surplus of investment income

All international transactions must be settled in one way or another

A nation's exports and imports are always paid with dollars

43. The causes of the skyrocketing mortgage default rates that triggered the financial crisis in 2007-2008 include the following, except:

Mortgage lending became very lax

Real estate values started declining after having risen for many years

Housing price increased drastically

Many people took on mortgages that they were simply incapable of repaying

44. When the Federal Reserve acts to tighten money and credit in the economy, it is trying to reduce:

The unemployment rate

The discount rate

The inflation rate

The target federal funds rate

45. Which of the following would be an indication that a nation has a balance of payments deficit?

It is buying gold abroad

It is borrowing abroad to finance capital investments

Its holdings of official reserves are declining

Its imports exceed its exports

46. From an economic perspective, studies of the costs of trade barriers show that they:

Far exceed their benefits for society

Are much less than benefits for domestic producers and workers

Are outweighed by the reduction in foreign competition provided by the barriers

Are about equal to the benefits from trade barriers

47. Use the following list to answer the question about the money supply.

Items

1. Money market mutual funds held by individuals
2. Savings deposits, including money market deposit accounts
3. Money market mutual funds held by businesses
4. Currency held by the public
5. Small time deposits
6. Checkable deposits

Refer to the list above. The M2 money supply is composed of items:

1, 2, 4, 5, and 6

2, 4, 5, and 6

1, 2, 4, and 6

1, 2, 3, 4, 5, and 6

The yen will appreciate and the U.S. dollar will depreciate

The yen and the U.S. dollar will depreciate

The yen will depreciate and the U.S. dollar will appreciate

The yen and the U.S. dollar will appreciate

49. What is one significant consequence of fractional reserve banking?

Banks hold a portion of their deposits in gold

Banks can serve the withdrawals of all their depositors

Banks can only lend an amount equal to its deposits

Banks are vulnerable to "panics" or "bank runs"

50. A market basket of goods costs $350 in the United States and 200 pounds in the United Kingdom. According to the purchasing power parity theory, the exchange rate should move towards:

$0.57 per British pound

$1.50 per British pound

$0.67 per British pound

$1.75 per British pound

Explanation / Answer

41. An outflow of goods or services, and an inflow of payments. By exporting goods and services , earnings are received.

42. A trade deficit must be matched by an equal surplus of investment income.

43. Real estate values started declining after having risen for many years. This decreased value of endowment of citizens.

44. The inflation rate. Tight monetary policy aims to decrease money supply which is resposible for higher demand and inflation.

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