1. Rational expectations theory is based on the assumption that
A. both product and resource markets are very competitive.
B. both product and resource markets are monopolistic.
C. wages and prices are flexible upward, but inflexible downward.
D. product markets are competitive, but resource markets are monopolistic.
2. The "brain drain" problem in the developing countries refers to the fact the best-
educated workers
A. often emigrate to industrialized countries.
B. are reluctant to become entrepreneurs.
C. are reluctant to work in the public sector.
D. are concentrated in rural areas where their skills are underutilized.
3. The exchange rate system currently used by the industrially advanced nations is
A. the managed float.
B. a fixed rate system.
C. the gold standard.
D. the Bretton Woods system.
4. Which one of the following statements about capital flight is correct?
A. Capital flight refers to developing countries' citizens accumulating or investing their
savings in the industrially advanced
countries.
B. Capital flight refers to the high international mobility of speculative funds caused by
variations in exchange rates.
C. Capital flight refers to the tendency of large corporations of industrially advanced
countries to build new plants in the
developing countries because labor is cheaper.
D. Capital flight refers to the tendency of developing countries to overinvest in commercial
aircraft.
5. An excise tax on an imported good that helps shield domestic producers of the
good is called a
A. revenue tariff.
B. protective tariff.
C. voluntary export restriction.
D. import quota.
6. An economy's infrastructure refers to its
A. public capital goods, such as roads, schools, and power facilities.
B. land and natural resources.
C. surplus supplies of unskilled labor.
D. financial and banking institutions.
7. In recent years, the governments of the industrially advanced countries have
A. discouraged skilled developing countries' workers from emigrating to the industrially
advanced countries.
B. substantially reduced foreign aid to the developing countries.
C. substantially reduced their contributions to the World Bank.
D. forgiven a portion of the debt owed by some low-income developing countries.
8. The Bretton Woods system of exchange rates relied on
A. fixed exchange rates with no mechanism for changing them.
B. fixed or pegged exchange rates, with occasional orderly adjustments to the rates.
, C. the United States to set and periodically review worldwide exchange rates.
D. freely floating exchange rates.
9. Which one of the following statements about the insider-outsider theory is
correct?
A. In the insider-outsider theory, outsiders are foreigners.
B. In the insider-outsider theory, insiders are workers who retain employment during
recession.
C. In the insider-outsider theory, insiders are "principals" and outsiders are "agents."
D. In the insider-outsider theory, insiders are managers who have more information about
their firms' performance than outsiders.
10. Which one of the following is an example of direct foreign investment?
A. A U.S. bank granting a loan to a Guatemalan firm
B. General Motors building an auto production facility in China
C. The purchase of debt issued by the Panamanian government
D. A U.S. government foreign aid grant to Bangladesh
11. The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2
pounds. We can conclude
that
A. 1 euro = $.50.
B. $1 = .5 euros.
C. 1 euro = $2.
D. $1 = 4 euros.
12. In the absence of unexpected shocks, the economy will tend to experience
A. positive, noninflationary growth.
B. no changes in output or prices.
C. positive growth with mild amounts of inflation.
D. positive growth with mild amounts of deflation.
13. The basic problem portrayed by the traditional Phillips Curve is
A. that a level of aggregate demand sufficiently high to result in full employment may also
cause inflation.
B. that unemployment rises at the same time the general price level is rising.
C. that changes in the composition of total labor demand tend to be deflationary.
D. the possibility that automation will increase the level of noncyclical unemployment.
14. The basis for the Bretton Woods international monetary system was
A. a freely flexible system of exchange rates.
B. an adjustable peg system of exchange rates.
C. a completely fixed system of exchange rates.
D. the gold standard.
15. If government uses fiscal policy to restrain cost-push inflation, we can expect
A. the unemployment rate to rise.
B. tax-rate declines and increases in government spending.
C. the aggregate demand curve to shift rightward.
D. the unemployment rate to fall.
16. Suppose the domestic price (no-international-trade price) of copper is $1.20 a
pound in the United
States while the world price is $1.00 a pound. Assuming no transportation costs,
the United States will
A. both product and resource markets are very competitive.
B. both product and resource markets are monopolistic.
C. wages and prices are flexible upward, but inflexible downward.
D. product markets are competitive, but resource markets are monopolistic.
2. The "brain drain" problem in the developing countries refers to the fact the best-
educated workers
A. often emigrate to industrialized countries.
B. are reluctant to become entrepreneurs.
C. are reluctant to work in the public sector.
D. are concentrated in rural areas where their skills are underutilized.
3. The exchange rate system currently used by the industrially advanced nations is
A. the managed float.
B. a fixed rate system.
C. the gold standard.
D. the Bretton Woods system.
4. Which one of the following statements about capital flight is correct?
A. Capital flight refers to developing countries' citizens accumulating or investing their
savings in the industrially advanced
countries.
B. Capital flight refers to the high international mobility of speculative funds caused by
variations in exchange rates.
C. Capital flight refers to the tendency of large corporations of industrially advanced
countries to build new plants in the
developing countries because labor is cheaper.
D. Capital flight refers to the tendency of developing countries to overinvest in commercial
aircraft.
5. An excise tax on an imported good that helps shield domestic producers of the
good is called a
A. revenue tariff.
B. protective tariff.
C. voluntary export restriction.
D. import quota.
6. An economy's infrastructure refers to its
A. public capital goods, such as roads, schools, and power facilities.
B. land and natural resources.
C. surplus supplies of unskilled labor.
D. financial and banking institutions.
7. In recent years, the governments of the industrially advanced countries have
A. discouraged skilled developing countries' workers from emigrating to the industrially
advanced countries.
B. substantially reduced foreign aid to the developing countries.
C. substantially reduced their contributions to the World Bank.
D. forgiven a portion of the debt owed by some low-income developing countries.
8. The Bretton Woods system of exchange rates relied on
A. fixed exchange rates with no mechanism for changing them.
B. fixed or pegged exchange rates, with occasional orderly adjustments to the rates.
, C. the United States to set and periodically review worldwide exchange rates.
D. freely floating exchange rates.
9. Which one of the following statements about the insider-outsider theory is
correct?
A. In the insider-outsider theory, outsiders are foreigners.
B. In the insider-outsider theory, insiders are workers who retain employment during
recession.
C. In the insider-outsider theory, insiders are "principals" and outsiders are "agents."
D. In the insider-outsider theory, insiders are managers who have more information about
their firms' performance than outsiders.
10. Which one of the following is an example of direct foreign investment?
A. A U.S. bank granting a loan to a Guatemalan firm
B. General Motors building an auto production facility in China
C. The purchase of debt issued by the Panamanian government
D. A U.S. government foreign aid grant to Bangladesh
11. The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2
pounds. We can conclude
that
A. 1 euro = $.50.
B. $1 = .5 euros.
C. 1 euro = $2.
D. $1 = 4 euros.
12. In the absence of unexpected shocks, the economy will tend to experience
A. positive, noninflationary growth.
B. no changes in output or prices.
C. positive growth with mild amounts of inflation.
D. positive growth with mild amounts of deflation.
13. The basic problem portrayed by the traditional Phillips Curve is
A. that a level of aggregate demand sufficiently high to result in full employment may also
cause inflation.
B. that unemployment rises at the same time the general price level is rising.
C. that changes in the composition of total labor demand tend to be deflationary.
D. the possibility that automation will increase the level of noncyclical unemployment.
14. The basis for the Bretton Woods international monetary system was
A. a freely flexible system of exchange rates.
B. an adjustable peg system of exchange rates.
C. a completely fixed system of exchange rates.
D. the gold standard.
15. If government uses fiscal policy to restrain cost-push inflation, we can expect
A. the unemployment rate to rise.
B. tax-rate declines and increases in government spending.
C. the aggregate demand curve to shift rightward.
D. the unemployment rate to fall.
16. Suppose the domestic price (no-international-trade price) of copper is $1.20 a
pound in the United
States while the world price is $1.00 a pound. Assuming no transportation costs,
the United States will
