23. suppose a curreny\'s value in the foreign exchange market is determined sole

Question

23. suppose a curreny's value in the foreign exchange market is determined solely by market supply and demand without any intervention by the government authority, the currency has:

a. a fixed exchange rate

b.a floating exchange rate

c.a price control in its exchange rate

d.a gold standard

25. suppose that opportunity costs are constant and that Fred can either bake a maximum of 6 pies or 3 cakes in one day. Ethel can either produce a maximum of 8 pies or 2 cakes in one day. Ethels opportunity cost to produce 1 cake is:

a. 2 pies

b.6 pies

c. half of one pie

d.4 pies

27 under the gold standard, when a nation had a deficit in its balance of payments:

a. interest rates would fall which would increase foreign investment

b.gold would flow to foreign residents and the domestic money supply would decrease

c.interest rates would rise which would reduce foreign investment

d.gold would flow into the country leading to an increase in the domestic money supply

28. a reduction in a country's rate of inflation should:

a. increase its exports

b.increase its imports

c.lead to a negative trade balamce

d.lead to an outflow of SDRs

30. speicalization allows for:

a. more consumption for the trading partner with the comparative advantage

b.more consumption for all trading partners

c.more consumption for the trading partner with the absolute advantage

d.equal consumption among trading partners

Explanation / Answer

25. Ethel can produce either 8 pies or 2 cakes it means time taken for 8 pies is equal to 2 cakes. Or 4 pies is equal to 1 cake. In order to prepare 1 cake, she has to forego making 4 pies which is nothing but opportunity cost. Answer is d.

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