Many developing countries face a balance of payments constraint because:
A. they fail to implement exchange rate policy correctly.
B. they hold too few international reserves.
C. they hold too many international reserves.
D. the IMF forces them to adopt policies that are counterproductive.
Answer: B
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Firms that exhibit price-taking behavior
A) wait for other firms to set price, take it as given, and charge a higher price. B) have outputs that are too small to influence market price and thus take it as given. C) take pricing behavior in their own hands. D) are independently capable of setting price.
Suppose the prices of petroleum products, including gasoline and fuel oil, fell sharply. Which of the following would most likely occur as the result of the lower prices of petroleum products?
a. A reduction in the consumption of gasoline. b. An increase in demand for solar heating systems. c. An increase in demand for smaller, more efficient automobiles. d. A reduction in the demand for home insulation products.
With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6 percent. But, if the rate of inflation was anticipated to be 4 percent, the bank would most likely charge the firm an annual interest rate of:
A. 10 percent. B. 2 percent. C. 6 percent. D. 4 percent.
In the classical model, an increase in the unemployment rate
A. will result in an increase in the price level if the reduction in output is caused by a change in aggregate demand. B. is a signal of demand-pull inflation. C. will persist when the reduction in output is caused by a reduction in aggregate demand. D. will likely be temporary.