If a country's trade deficit declines, but it does not go into surplus, then:
A. it must be producing more than it is consuming.
B. it must be buying more assets from foreigners.
C. it must be selling fewer assets to foreigners.
D. its consumption must be rising relative to its production.
Answer: C
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Moral hazard and adverse selection are both examples of
a. the principal-agent problem. b. externalities in consumption. c. efficiency in markets. d. perfect information. e. asymmetric information.
If government officials break a natural monopoly up into several smaller firms, then
a. competition will force firms to attain economic profits rather than accounting profits. b. competition will force firms to produce surplus output, which drives up price. c. the average costs of production will increase. d. the average costs of production will decrease.
During an economic expansion,
A) higher income tax revenues tend to automatically increase a budget deficit or reduce a budget surplus. B) higher income tax revenues tend to automatically increase a budget surplus or reduce a budget deficit. C) lower income tax revenues tend to automatically increase a budget deficit or reduce a budget surplus. D) lower income tax revenues tend to automatically increase a budget surplus or reduce a budget deficit.
One reason the theory of purchasing power parity may not explain price differences between countries is:
A. nominal exchange rates are flexible. B. some products do not trade. C. inflation rates differ across countries. D. real exchange rates are almost impossible to calculate.