Foreign Service Officer Test – Economics| 559 QUESTIONS| WITH COMPLETE SOLUTIONS

_______ are the two macro factors that seem to underlie the trend toward greater globalization. Correct Answer: The decline in barriers to the free flow of goods, services, and capital Technological change _______ theory of international trade suggests that the production of products is likely to switch from advanced countries to developing countries over time. Correct Answer: Product life-cycle 3 core Classical Trade Theories? Correct Answer: Absolute advantage (natural and acquired) Comparative advantage (David Ricardo) Factor Proportions theory ( Heckscher & Ohlin). Some empirical contradictions (Leontif). 45 degree reference line Correct Answer: the line along which planned real expenditures equal real GDP per year 5 functions of the Fed? Correct Answer: The Federal Reserve Board controls the supply of money, sets the discount rate, performs open market operations, regulates banks and other financial institutions, and supervises the FDIC. Above the mid-point on a straight-line demand curve, demand is ___________ Correct Answer: Elastic accelerator effect in economics? Correct Answer: The accelerator effect in economics refers to a positive effect on private fixed investment of the growth of the market economy (measured e.g. by Gross Domestic Product). Rising GDP (an economic boom or prosperity) implies that businesses in general see rising profits, increased sales and cash flow, and greater use of existing capacity. This usually implies that profit expectations and business confidence rise, encouraging businesses to build more factories and other buildings and to install more machinery. (This expenditure is called fixed investment.) This may lead to further growth of the economy through the stimulation of consumer incomes and purchases, i.e., via the multiplier effect. According to former Secretary of Labor Robert Reich, the propensity of firms to outsource many of their productive activities to different suppliers around the world has resulted in the creation of __________ products. Correct Answer: global According to our textbook, the growing integration of the world economy is: Correct Answer: increasing the intensity of competition in a wide range of manufacturing and service industries According to Smith, countries should specialize in the production of goods for which they have an absolute advantage and then: Correct Answer: prohibit the import of these goods from other countries