ECON 5370 EXAM 2 QUESTIONS AND CORRECT ANSWERS
100% VERIFIED
When a firm is taking a neutral stance in foreign exchange holding, it is:
A. hedging
B. speculating
C. engaging in arbitrage
D. taking an asset position in foreign exchange - ANSWER A. hedging
When a firm is deliberately taking a net open position in foreign exchange holding, it is:
A. speculating
B. hedging
C. engaging in arbitrage
D. taking an asset position in foreign exchange - ANSWER A. speculating
According to the Purchasing Power Parity Theorem and the Quantity Theory of Money,
other things being equal, which of the following would cause the price of a foreign
currency (r = US $ / UK pound) to fall?
A. A fall in UK inflation rate
B. An increase e in US money supply
C. An decrease in US real GDP
D. A fall US inflation rate - ANSWER D. A fall US inflation rate
Which of the following is incorrect for the "autonomous transactions" in the balance of
payments account?
A. They consist of transactions of internationally liquid assets such as gold, SDR, key
currencies, and government loans and deposits
,B. They are also called "above the line transactions"
C. They determine the balance of payments surplus or deficit
D. They consist of merchandise trade + service + foreign income flow + unilateral
transfer + private capital accounts - ANSWER A. They consist of transactions of
internationally liquid assets such as gold, SDR, key currencies, and government loans
and deposits
Which of the following is true?
A. If one country has an absolute advantage in producing both the commodities, it must
specialize in and export both the commodities.
B. Each country can gain from specializing in and exporting the commodity with a
comparative advantage even if it has an absolute disadvantage in that commodity
C. If one country has an absolute advantage in one commodity, it must also have a
comparative advantage in that commodity.
D. If one country has a comparative advantage in one commodity, it must also have an
absolute advantage in that commodity. - ANSWER B. Each country can gain from
specializing in and exporting the commodity with a comparative advantage even if it has
an absolute disadvantage in that commodity
If the two inputs are imperfect substitutes, then the isoquants are:
A. concave to the origin
B. convex to the origin
C. "L" shaped
D. linear and downsloping - ANSWER B. convex to the origin
Which of the following is incorrect for the marginal rate of (technical) substitution of
labor for capital:
A. it is the ratio of the two input prices
B. decreases along a convex-shaped isoquant as the amount of labor increases
C. it is the marginal product ratio of the two inputs
D. it is minus the slope of the isoquant - ANSWER A. it is the ratio of the two input prices
, In the general case where the two inputs are imperfect substitutes, the isoquants are
convex to the origin because along the isoquant,
A. the marginal rate of technical substitution of labor for capital increases as the amount
of labor (capital) increases (decreases).
B. the marginal rate of technical substitution of labor for capital decreases as the
amount of labor (capital) increases (decreases).
C. the input price ratio increases as the amount of labor increases
D. the input price ratio decreases as the amount of labor increases - ANSWER B. the
marginal rate of technical substitution of labor for capital decreases as the amount of
labor (capital) increases (decreases).
If two inputs must be used in a fixed proportion, then:
A. the inputs are perfect substitutes
B. the inputs are imperfect substitutes
C. the isoquants are linear
D. the isoquants are "L" shaped - ANSWER D. the isoquants are "L" shaped
When two inputs are perfect substitutes,
A. optimal input combination occurs by using only one of the two inputs if the marginal
rate of technical substitution is different from the input price ratio
B. the marginal rate of technical substitution is a variable
C. the marginal rate of technical substitution depends on the amount of the two inputs
D. optimal input combination occurs by using both of the two inputs if the marginal rate
of technical substitution is different from the input price ratio - ANSWER A. optimal input
combination occurs by using only one of the two inputs if the marginal rate of technical
substitution is different from the input price ratio
If the price of capital decreases in an iso-cost diagram with labor (capital) measured on
the horizontal (vertical) axis, then the iso-cost line will:
A. become flatter
100% VERIFIED
When a firm is taking a neutral stance in foreign exchange holding, it is:
A. hedging
B. speculating
C. engaging in arbitrage
D. taking an asset position in foreign exchange - ANSWER A. hedging
When a firm is deliberately taking a net open position in foreign exchange holding, it is:
A. speculating
B. hedging
C. engaging in arbitrage
D. taking an asset position in foreign exchange - ANSWER A. speculating
According to the Purchasing Power Parity Theorem and the Quantity Theory of Money,
other things being equal, which of the following would cause the price of a foreign
currency (r = US $ / UK pound) to fall?
A. A fall in UK inflation rate
B. An increase e in US money supply
C. An decrease in US real GDP
D. A fall US inflation rate - ANSWER D. A fall US inflation rate
Which of the following is incorrect for the "autonomous transactions" in the balance of
payments account?
A. They consist of transactions of internationally liquid assets such as gold, SDR, key
currencies, and government loans and deposits
,B. They are also called "above the line transactions"
C. They determine the balance of payments surplus or deficit
D. They consist of merchandise trade + service + foreign income flow + unilateral
transfer + private capital accounts - ANSWER A. They consist of transactions of
internationally liquid assets such as gold, SDR, key currencies, and government loans
and deposits
Which of the following is true?
A. If one country has an absolute advantage in producing both the commodities, it must
specialize in and export both the commodities.
B. Each country can gain from specializing in and exporting the commodity with a
comparative advantage even if it has an absolute disadvantage in that commodity
C. If one country has an absolute advantage in one commodity, it must also have a
comparative advantage in that commodity.
D. If one country has a comparative advantage in one commodity, it must also have an
absolute advantage in that commodity. - ANSWER B. Each country can gain from
specializing in and exporting the commodity with a comparative advantage even if it has
an absolute disadvantage in that commodity
If the two inputs are imperfect substitutes, then the isoquants are:
A. concave to the origin
B. convex to the origin
C. "L" shaped
D. linear and downsloping - ANSWER B. convex to the origin
Which of the following is incorrect for the marginal rate of (technical) substitution of
labor for capital:
A. it is the ratio of the two input prices
B. decreases along a convex-shaped isoquant as the amount of labor increases
C. it is the marginal product ratio of the two inputs
D. it is minus the slope of the isoquant - ANSWER A. it is the ratio of the two input prices
, In the general case where the two inputs are imperfect substitutes, the isoquants are
convex to the origin because along the isoquant,
A. the marginal rate of technical substitution of labor for capital increases as the amount
of labor (capital) increases (decreases).
B. the marginal rate of technical substitution of labor for capital decreases as the
amount of labor (capital) increases (decreases).
C. the input price ratio increases as the amount of labor increases
D. the input price ratio decreases as the amount of labor increases - ANSWER B. the
marginal rate of technical substitution of labor for capital decreases as the amount of
labor (capital) increases (decreases).
If two inputs must be used in a fixed proportion, then:
A. the inputs are perfect substitutes
B. the inputs are imperfect substitutes
C. the isoquants are linear
D. the isoquants are "L" shaped - ANSWER D. the isoquants are "L" shaped
When two inputs are perfect substitutes,
A. optimal input combination occurs by using only one of the two inputs if the marginal
rate of technical substitution is different from the input price ratio
B. the marginal rate of technical substitution is a variable
C. the marginal rate of technical substitution depends on the amount of the two inputs
D. optimal input combination occurs by using both of the two inputs if the marginal rate
of technical substitution is different from the input price ratio - ANSWER A. optimal input
combination occurs by using only one of the two inputs if the marginal rate of technical
substitution is different from the input price ratio
If the price of capital decreases in an iso-cost diagram with labor (capital) measured on
the horizontal (vertical) axis, then the iso-cost line will:
A. become flatter
