When the Fed buys T-bills from banks:
A. the demand for bank reserves rises.
B. the supply of T-bills rises.
C. the supply of bank reserves rises.
D. the supply of bank reserves falls.
Answer: C. the supply of bank reserves rises.
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In country A, the government takes no action to influence the exchange rates of its currency with other currencies. The rate is determined by market forces. Country A is said to have a:
A) flexible exchange rate system. B) fixed exchange rate system. C) dirty-float exchange rate system. D) nominal exchange rate system.
Suppose Mexico has a comparative advantage relative to the United States in the manufacture of clothing and the United States has a comparative advantage in producing agricultural products. Which of the following is most likely to occur?
A) Mexico and the United States will not trade agricultural products or clothing. B) Mexico will sell clothing to the United States and the United States will sell agricultural products to Mexico. C) Mexico will sell agricultural products to the United States and Mexico will buy clothing from the United States. D) Mexico will sell clothing to the United States but not buy any agricultural products from the United States.
If depreciation (consumption of fixed capital) exceeds gross domestic investment, we can conclude that:
A. nominal GDP is rising but real GDP is declining. B. net investment is negative. C. the economy is importing more than it exports. D. the economy's production capacity is expanding.
It is possible for a competitive firm that is maximizing profits in the short run to make its profits even bigger in the long run by expanding its plant, assuming that the product price stays the same.
Indicate whether the statement is true or false