1 The interest rate on corporate bonds is typically______ than the interest rate on treasury bonds of the
same maturity because corporate bonds are______ . (A) higher; riskier (B) higher; safer (C) lower; riskier (D) lower; safer
2 A country adopts an aggressive expansionary monetary policy that greatly expands its money supply. This
will most likely______ . (A) increase inflation and appreciate the currency (B) increase inflation and depreciate the currency (C) decrease inflation and appreciate the currency (D) decrease inflation and depreciate the currency
3 Other things being equal, fiscal stimulus is likely to have a smaller short-term multiplier if ______.
(A) it is targeted at lower-income households (B) the country is in a recession (C) it applies to infrastructure projects that take many years to complete (D) inflation is well below the central bank’s long-term target
4 A Big Mac meal costs $5 in the United States and 50 pesos in Mexico. The market exchange rate between U.S. dollars and pesos is 20 pesos per $1. Average income per capita in the United States is $60,000, and average income per capita in Mexico is 200,000 pesos. Measured using the market exchange rate, Mexican income per capita in U.S. dollars is______ . Adjusted for Purchasing Power Parity (using the Big Mac meal as the basket of goods), Mexican income per capita is______ . (A)$10,000; $20,000 (B)$20,000; 4,000 Big Macs (C)$40,000; 40,000 pesos (D)$400,000; $40,000
5 The U.S. government reports that job growth was unexpectedly high. As a result, markets expect that the
Federal Reserve Board is likely to______ , and in that day’s trading, long-term bond yields______ . (A) raise interest rates; are unchanged (B) raise interest rates; rise (C) cut interest rates; rise (D) cut interest rates; fall
6 China and the U.S. both produce two goods: tradable cellular phones, and non-tradable haircuts. Each
good is produced in competitive markets in a single process. Workers receive the marginal productivity for their labor. There are no trade costs for cellular phones, while for haircuts they are prohibitively high. The wage for per hour work is w RMB (Yuan) in China and w* dollars in U.S.. Suppose that, in one hour, a Chinese laborer produces 3 cell phones and an American laborer produces 15 cellular phones, while one laborer produces only one haircut in both countries. Suppose the price of a cellular phone is 2 RMB. Let E be the nominal exchange rate of RMB per dollar. If E = 5, what is the price of a cellular phone in dollars? (A) 0.8 (B) 0.5 (C) 0.4 (D) 0.3
7 Suppose that Guatemala can produce 1 ton of bananas or 2 tons of sugarcane on one acre of land, and that
Brazil can produce 6 tons of bananas or 3 tons of sugarcane on one acre of land. Hence,______ has the comparative advantage in sugarcane production because it can produce sugarcane for the lowest______ . (A) Guatemala; opportunity cost (B) Guatemala; total cost (C) Brazil; opportunity cost (D) Brazil; total cost
8 Other things being equal, what will happen to the price of a bond if the rate of return on similar assets rises?
(A) The price of the bond goes up. (B) The price of the bond goes down. (C) This will not affect the price of the bond. (D) The price of the bond might go up, go down, or remain the same.
9 During an international financial crisis, many depositors’ withdrawing of their funds from a bank at the
same time is most likely to cause______ . (A) a fire sale of the bank’s assets (B) the bank’s liabilities to rise (C) the bank’s cash reserves to increase (D) an increase in lending by the bank
10 Other things being equal, an increase in U.S. interest rates relative to interest rates in the rest of the world
will cause the dollar to______ and net exports to______ . (A) appreciate; drop (B) depreciate; drop (C) appreciate; increase (D) depreciate; increase
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