Question

1. If the exchange rate of the dollar relative to other currencies is determined by market forces,

	a.	the purchases of Americans from foreigners will be equal to the sales of Americans to foreigners.
	b.	Americans will gain from the international trade only if foreigners lose an equal amount.
	c.	the gains of Americans from international trade will be just equal to the gains of foreigners from the trade.
	d.	imports from foreigners will create jobs in other countries but employment in the United States will decline by an equal amount.

1. 2. Which of the following would increase a country's Economic Freedom of the World rating?

   	a.	Elimination of tariffs and removal of restrictions on voluntary exchange with foreigners.
   	b.	Regulations that restricted international trade .
   	c.	Licensing requirements that make it difficult to enter and compete in many markets.
   	d.	A high level of government spending rather than reliance on markets.

3

1. Which of the following would reduce a country's Economic Freedom of the World rating?

   	a.	free trade and low taxes
   	b.	monetary instability and trade restrictions
   	c.	a legal system that secures private property rights and provides even-handed enforcement of contracts
   	d.	competitive markets and minimal government regulation

4

1. If the United States imposed higher tariffs and bought less from foreigners,

   	a.	U.S. employment would increase.
   	b.	unemployment in the United States would decline.
   	c.	U.S. exports would also increase because foreigners would want to buy more from U.S. producers.
   	d.	U.S. exports would decline because foreigners would be earning fewer of the dollars needed to purchase goods and services from Americans.

5. Regulatory policies requiring lenders to extend more low down-payment loans to higher-risk borrowers along with the Fed’s low short-term interest rate policy during 2002-2004 caused

	a.	housing prices to fall during that period.
	b.	a subsequent increase in interest rates that led to a housing boom.
	c.	a reduction in housing construction during 2002-2005.
	d.	mal-investment, that is, excessive investment in housing construction during 2002-2005

Answer 1

1.

A

It will happen when market forces decide the exchange rate.

2.

A

When tariff and other trade barriers are eliminated, then free trade is facilitated, it increases the rating.

3.

B

Trade restrictions and monetary policy volatility, will cause trade to be restricted in the country. It will reduce the rating.

4.

D

Exports would also decline due to the retaliation from the other trading nations.

5.

D

The policy caused loan disbursements to those people that had high risk. Then made investments in real estate and mal-investments took place.