The ________ states that it is usually more efficient to use the government policy tool that acts as directly as possible on the source of the distortion that is separating private and social benefits or costs.
A. spillover effect
B. specificity rule
C. sudden-damage effect
D. Pigou effect
Answer: B
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Under a system of flexible exchange rates, an increase in demand for a nation's currency in the foreign exchange market will
a. cause the nation's currency to appreciate. b. make it more expensive for the nation to import goods. c. cause the nation's balance on current account to shift toward a surplus. d. make it less expensive for foreigners to buy the nation's goods.
When the IMF provides loans to developing countries, it often requires these countries to adopt:
A. a contractionary fiscal policy and an expansionary monetary policy. B. contractionary monetary and fiscal policies. C. expansionary monetary and fiscal policies. D. a contractionary monetary policy and an expansionary fiscal policy.
Refer to the accompanying figure. Suppose the solid line shows the demand for coffee. If coffee and tea are substitutes, and the price of tea falls, then you would expect:
A. the demand curve to shift to D(B) B. the demand curve to shift to D(A). C. a decrease in the quantity of coffee demanded, but no shift in the demand curve. D. an increase in the quantity of coffee demanded, but no shift in the demand curve.
An outcome in which all players choose the best strategy they can, given the choices of all other players, is called:
A. a dominant strategy. B. collusion. C. the prisoner's dilemma. D. a Nash equilibrium.