Use the following graph to answer the next question.
If the economy is in equilibrium at point B and full employment output is at point A, the most appropriate fiscal policy would be
A. to reduce government purchases and increase taxes.
B. to reduce government purchases.
C. to increase taxes.
D. to increase government purchases.
Answer: D
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If the United States increased its budget deficit, and it is at or near full employment, the most likely effect is to crowd
a. in investment and crowd out net exports. b. out investment and crowd in net exports. c. in investment and crowd in net exports. d. out investment and crowd out net exports.
An important effect of foreign currency speculators is that
A. they have consistently lost money and have left the market. B. they have pushed exchange rates to wider extremes than most economists predicted. C. they actually limit the volatility of exchange rate movements. D. they have had no effect at all on exchange rate volatility.
Which of the following will tend to retard the growth and prosperity of a country?
a. imposition of price controls and regulations that restrain domestic and international trade b. an expansionary monetary policy that leads to high rates of inflation c. high marginal tax rates d. all of the above
What term is used to describe situations where countries specialize in and trade different varieties of the same type of product?
a. comparative advantage b. the Heckscher-Ohlin model c. intra-industry trade d. increasing returns to scale