To internalize a positive externality:
a. the consumers of a good could receive a subsidy equal to the external benefit resulting from the production or consumption of the good.
b. a producer's costs could be increased by an amount equal to the external benefit resulting from the production of the good.
c. consumers of the good could pay a tax equal to the external benefit resulting from the production or consumption of the good.
d. None of the above are correct.
Question 2If the rational expectation theory is accurate, equilibrium real GDP will change in the short run:
a. whenever the aggregate demand curve shifts.
b. only if discretionary fiscal policy is used.
c. only if there is a shift in aggregate demand that could not have been predicted from the information available to the public.
d. only if discretionary monetary policy is used.
Question 3Which of the following is a probable consequence of the presence of accounting rules that allow firms to hide the financial impact of actions that would harm investors?
a. Investors may be able to enforce market efficiency.
b. The WTO will disenfranchise the country that allows this to happen.
c. Investors will immediately organize a speculative attack and the price of stocks will inflate.
d. The balance-of-payments deficit will increase, leading the economy into a debt trap.
e. Investors may not be able to adequately judge when the risk of investing in a firm rises.
Question 4To internalize a negative externality:
a. a producer's costs could be reduced by an amount equal to the external cost resulting from the production of a good.
b. a producer's costs could be increased by an amount equal to the external cost resulting from the production of a good.
c. a producer could receive a subsidy equal to the external cost resulting from the production of a good.
d. None of the above are correct.
Question 5If the public has correct rational expectations and the Fed increases both reserve requirements and the discount rate, it would be expected to result in:
a. a higher level of real output and a lower price level.
b. a lower price level but no change in real output.
c. a higher price level and a reduced level of real output.
d. a higher price level but no change in real output.
Question 6There are certain variables that are so obviously related to past crises that they may serve as warning indicators of potential future crises. Identify one such variable from the following.
a. Barriers to trade
b. Short-term international investment
c. Flexible exchange rates
d. Rising international reserves
e. Fluctuating share prices
Question 7Because of the problem of second-hand smoke, if unregulated, the market for cigarettes would produce a quantity that is too ____ at a price that is too ____ when compared to the socially optimal results.
a. low; low
b. high; low
c. low; high
d. high; high
Question 8If the public has correct rational expectations and the Fed reduces both reserve requirements and the discount rate, it would be expected to result in:
a. a higher level of real output and a lower price level.
b. a lower price level but no change in real output.
c. a higher price level and a reduced level of real output.
d. a higher price level but no change in real output.
Question 9Generally, which of the following is the most common reason why countries that experienced a financial crisis could not maintain their fixed exchange rate?
a. They were exporting too many commodities.
b. The rates they had established were not in accordance with directives from the IMF.
c. The exchange rate parities established were inconsistent with their corresponding macroeconomic policies.
d. The general public refused to participate.
e. The parities established made their currencies undervalued.
Question 10If the magnitude of the external costs in an industry increased
a. The supply curve including external costs would increase
b. The efficient price would increase
c. The market price would increase
d. Both a and b are true
Question 11If the public has correct rational expectations and the Fed reduces the level of banking reserves, it would be expected to result in:
a. a higher level of real output and a lower price level.
b. a lower price level but no change in real output.
c. a higher price level and a reduced level of real output.
d. a higher price level but no change in real output.
Question 12After a speculative attack has been successful, and a country is forced to devalue its currency, it is common to see many local business firms driven to bankruptcy. This most commonly occurs because _____.
a. nobody ever wants to invest in a country that just suffered a devaluation
b. many local firms took foreign loans (denominated in, say, dollars), and they cannot repay them at the new exchange rate
c. the WTO forces troubled firms to show profits or make way for new, more efficient firms
d. local firms cannot compete with their foreign competitors at the new prices after the devaluation
e. many local firms do not know how to deal with the complicated financial operations involved in a speculative attack
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