1.   Stabilizing a nation's price level and the purchasing power of its money can be achieved:

            A)  only with fiscal policy.

            B)  only with monetary policy.

            C)  with both fiscal and monetary policy.

            D)  with neither fiscal nor monetary policy.

2.   Other things equal, an excessive increase in the money supply will :

            A)  increase the purchasing power of each dollar.

            B)  decrease the purchasing power of each dollar.

            C)  have no impact on the purchasing power of the dollar.

            D)  reduce the price level.

3.   Which of the following is a tenet of supply-side economics?

            A)  High marginal tax rates severely discourage work, saving, and investment.

            B)  Increases in social security taxes and other business taxes shift the aggregate supply curve to the right.

            C)  The Federal Reserve should adhere to a monetary rule that limits increases in the money supply to a 5 percent annual rate.

            D)  Transfer payments increase incentives to work.

 4.   On the basis of the above information:

            A)  Gamma should export both tea and pots to Sigma.

            B)  Sigma should export tea to Gamma and Gamma should export pots to Sigma.

            C)  Gamma should export tea to Sigma and Sigma should export pots to Gamma.

            D)  Gamma should export tea to Sigma, but it will not be profitable for the two nations to exchange pots.

5.   Refer to the above data. What are the limits of the terms of trade between Gamma and Sigma?

            A)  1 tea = 2 pots to 1 tea = 6 pots                        

            B)  1 tea = 3 pots to 1 tea = 6 pots

            C)  1 tea = 2 pots to 1 tea = 3.5 pots

            D)  1 tea = 1 pot to 1 tea = 3 pots

 6.   In the theory of comparative advantage, a good should be produced in that nation where:

            A)  the production possibilities line lies further to the right than the trading possibilities line.

            B)  its cost is least in terms of alternative goods that might otherwise be produced.

            C)  its absolute cost in terms of real resources used is least.

            D)  its absolute money cost of production is least.

7.   Free trade based on comparative advantage is economically beneficial because:

            A)  it promotes an efficient allocation of world resources.

            B)  it increases competition.

            C)  it provides consumers with a wider range of products.

            D)  of all of the above reasons.

8.   Suppose the domestic price (no-international-trade price) of copper is $1.20 a pound in the United States while the world price is $1.00 a pound. Assuming no transportation costs, the United States will:

            A)  have a domestic surplus of copper.                

            B)  export copper.

            C)  import copper.

            D)  neither export nor import copper.

 9.   Suppose the domestic price (no-international-trade price) of wheat is $3.50 a bushel in the United States while the world price is $4.00 a bushel. Assuming no transportation costs, the United States will:

            A)  have a domestic shortage of wheat.                

            B)  export wheat.

            C)  import wheat.

            D)  neither export nor import wheat.

10.   Tariffs:

            A)  may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs).

            B)  are also called import quotas.

            C)  are excise taxes on goods exported abroad.

            D)  are per unit subsidies designed to promote exports.

11.   Country A limits other nation's exports to Country A to 1,000 tons of coal annually. This is an example of a(n):

            A)  protective tariff.   

            B)  export subsidy.   

            C)  import quota.   

            D)  voluntary export restriction.

12.   In effect tariffs on imports are:

            A)  special taxes on domestic producers.              

            B)  subsidies to domestic consumers.

            C)  subsidies to foreign producers.

            D)  subsidies for domestic producers.

 13.   A protective tariff will:

            A)  increase the sales of foreign exporters.

            B)  increase the price and sales of domestic producers.

            C)  increase the welfare of domestic consumers.

            D)  create an efficiency gain in the domestic economy.

 14.   The increased-domestic-employment argument for tariff protection holds that:

            A)  domestic inflation is a desirable policy goal because it stimulates exports.

            B)  domestic deflation is a desirable policy goal because it stimulates imports.

            C)  an increase in tariffs will reduce net exports and stimulate domestic employment.

            D)  an increase in tariffs will increase net exports and stimulate domestic employment.

 15.   The infant industry argument for tariffs is criticized:

            A)  because it is difficult to determine which industries merit protection.

            B)  because direct subsidies are probably a better means of stimulating such industries.

            C)  because the tariffs may remain after the industry reaches maturity.

            D)  for all of the above reasons.