A. Raises domestic consumption.
B. Lowers domestic consumption.
C. Lowers globally constrained potential output.
D. Causes goods inflation.
77. In the graph shown, an upward shift in the WAS curve:
A. Raises domestic consumption because domestic producers produce more.
B. Lowers the trade deficit because domestic producers are more competitive.
C. Lowers domestic production because domestic consumption has fallen.
D. Raises globalized potential output because U.S. producers are less competitive.
78. In the graph shown, a downward shift in the SAS curve:
A. Raises domestic consumption because domestic producers produce more.
B. Raises the trade deficit because domestic producers are more competitive.
C. Raises domestic production because input prices have fallen.
D. Lowers globalized potential output because domestic producers are more competitive.
79. Looking at the graph shown, the structural adjustments necessary to bring the economy back
to domestic and international equilibrium include:
A. an increase in the U.S. exchange rate.
B. an increase in the U.S. wages and costs of production.
C. an increase in aggregate demand.
D. a fall in the U.S. exchange rate.
80. Refer to the graph shown. What will reduce the trade deficit?
A. The AD curve shifts to the left.
B. The SAS curve shifts down.
C. The WAS curve shifts up.
D. All the answers are correct.
81. The gap between a country’s potential output and its consumption is most directly related to
its:
A. budget deficit.
B. trade deficit.
C. exchange rate.
D. comparative advantage.
82. According to the structural stagnation model, an increasing trade deficit translates into___
unemployment and ___ globally constrained potential output.
A. lower; higher
B. lower; lower
C. higher; higher
D. higher; lower
83. In the globalized AS/AD model, what curve tells the amount of tradable goods that other
countries in the world will supply to the country at a given price level and exchange rate:
A. world demand curve
B. domestic supply curve
C. world supply curve
D. domestic demand curve
84. In the early 2000s, policy makers were able to:
A. run contractionary policy without causing deflation.
B. run expansionary policy without causing inflation.
C. run contractionary policy without causing a rise in unemployment.
D. impose tariffs on foreign goods without causing retaliation by foreign countries.
85. According to the structural stagnation hypothesis, the expansionary policy carried out by the
government led to the illusion that the policies were:
A. leading to long-term economic health.
B. effective in reducing the trade deficit.
C. improving U.S comparative advantages.
D. causing goods inflation.
86. The primary signal to policy makers that the economy has exceeded potential output is
typically:
A. deflation.
B. stagflation.
C. inflation.
D. unemployment.
87. Which would help resolve structural stagnation?
A. Domestic exchange rates rise.
B. Domestic wages rise.
C. Productivity rises.
D. Productivity falls.
88. Which group has fared the worst in the globalization process?
A. International traders
B. Skilled workers in the nontradable sector
C. Workers involved in the manufacture of commodities
D. Government workers
89. Which group most benefited from globalization?
A. International traders and those associated with them.
B. Workers in the “commodities” sector.
C. Workers in the non-tradable goods sector.
D. No one benefitted.
90. Suppose a young person asked you for job advice in a globalized economy. Which of the
following sectors would you try to dissuade them most from entering?
A. Finance sector
B. Skilled profession in tradable sectors
C. Manufacturing sector
D. Commodities
91. The most likely explanation for why the U.S. government was not worried about the growth
in deficits caused by its expansionary policy was:
A. they wanted inflation to occur in order to wipe out the value of government debt.
B. they knew they could pass significant tax increases to manage the deficit.
C. they expected that the economy would grow out of the deficit.
D. they wanted to make the dollar exchange rate favorable compared to the Yuan.
92. Globalization is an ongoing process because:
A. government will continue to fail to implement policies that address the structural adjustments
necessary to make U.S. firms more competitive.
B. foreign countries, especially China and India, are moving up the value added chain and will
compete with more and more goods.
C. the globalized AS/AD model will replace the standard AS/AD model, forever changing how
economists view the economy.
D. goods inflation has been solved as a problem for the economy, allowing the government to
continue to run expansionary policies.
93. Which of the following will be least effective in dealing with the structural adjustment
problems?
A. A fall in foreign goods prices
B. A rise in foreign labor costs
C. A fall in domestic labor costs
D. Trade restrictions that raise foreign goods prices
94. One solution to long-run structural problems could involve:
A. shifting the world supply curve down.
B. shifting the world supply curve up.
C. moving along the domestic supply curve.
D. shifting the domestic supply curve up.
95. Which of the following would not shift the world supply curve up?
A. Increasing the exchange rate
B. Rising wages in other countries
C. Raising trade restrictions
D. Foreign firms incorporating technological innovation
96. Which of the following would shift the world supply curve up?
A. Continuing devaluation of the yuan by the Chinese
B. Government policies that lower wages in foreign countries
C. A decision by the Chinese to allow the yuan to appreciate
D. An appreciation of the U.S. currency
97. According to structural stagnationists, when workers lose their jobs in the tradable sector
they are pressured to:
A. increase their reservation wage.
B. keep their reservation wage the same as before their job loss.
C. lower their reservation wage.
D. lower their reservation initially, but out of regret, increase it.
98. The market solution to structural unemployment according to structural stagnationists, should
include:
A. a higher reservation wage so that workers will earn more income.
B. a rise in inflation to make government begin to run contractionary policy.
C. a lower reservation wage so that workers can be rehired and make firms more competitive.
D. a combination of higher and lower reservation wages dependent upon the rate of inflation.
99. Politicians would tend not to support the policy solutions to end structural stagnation
proposals put forward in this chapter because they would:
A. give more power to the Federal Reserve to fix the economy.
B. politicians don’t like economists.
C. politicians aren’t interested in solving society’s problems.
D. politicians have to worry about getting reelected.
100. Which of the following will shift the domestic SAS curve up?
A. Lowering wages
B. Increasing unemployment insurance
C. Increasing productivity by retraining
D. Reducing unemployment insurance
101. Which of the following would shift the domestic SAS curve down?
A. Increasing wages
B. Increasing unemployment insurance
C. Finding a new low cost energy source tied to the country
D. Reducing foreign wages
102. The international adjustments, which will help the U.S. economy out of a structural
stagnation, include:
A. running expansionary policies to shift the aggregate demand curve to the right.
B. hiring workers in the government sector to boost employment.
C. extending unemployment compensation to replace income for unemployed workers.
D. depreciating the value of the dollar.
103. Which of the following will help address structural stagnation problems?
A. Expansionary macro policy.
B. Contractionary macro policy.
C. A decrease in workers’ reservation wages.
D. An increase in workers’ reservation wages.
104. Expansionary government policies during a period of increasing globalization:
A. increases unemployment in both the nontradeable and tradable sectors.
B. decreases unemployment in both the nontradeable and tradable sectors.
C. decreases unemployment in the tradable sector but leaves unemployment in the nontradable
sector unchanged.
D. decreases unemployment in the nontradable sector and leaves unemployment in the tradable
sector unchanged.
105. Which of the following would help eliminate the trade deficit?
A. Reduced reservation wages.
B. A rise in the exchange rate.
C. Expansionary fiscal policy.
D. Lower tariffs.
106. Which of the following would make the effects of globalization worse for the United
States?
A. China and India move up the value-added chain.
B. China and India move down the value-added chain.
C. China and India raise the value of their currencies.
D. Wages in China and India rise, leading to more outsourcing.
107. Which of the following industries likely will be a long-term inherent comparative advantage
for the United States?
A. Manufacturing of commodities
B. Agriculture
C. Textiles
D. Automobiles
108. The wage a person requires before accepting a job is referred to as the______ wage.
A. compensating
B. minimum
C. reservation
D. psychological