FSOT : Practice Quiz On Economics! Trivia
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Are you ready for this FSOT practice quiz on economics? This quiz may be of assistance. You will be responsible for grasping the supply/demand economic theory. Who is South America’s only OPEC member, what is the communist manifesto, what does laissez-faire mean, what book did Adam Smith write, what economic style are you most influenced by, and which currency is no longer traded? See how you are with money matters and take the quiz.
- 1.
Based on supply/demand economic theory, price controls on the supply of wheat during a famine would result in
- A.
An increased supply of low-cost wheat.
- B.
Social unrest.
- C.
No supply of low-cost wheat.
- D.
A scarcity of low-cost wheat.
Correct Answer
D. A scarcity of low-cost wheat.Explanation
According to supply/demand economics, price controls on the supply of wheat during a famine will almost always result in a scarcity of low-cost wheat. Supply/demand economics define price as the single most important factor. Accordingly, few suppliers will be willing to supply low-cost wheat if consumers are willing to pay higher costs on the black market. Further, if the price does not match the seller's perception of risk and actual expenses, sellers will withhold the product from the market, thus aggravating the already dire situation.Rate this question:
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- 2.
South America's only OPEC member is
- A.
Mexico.
- B.
Brazil.
- C.
Bolivia.
- D.
Venezuela.
Correct Answer
D. Venezuela.Explanation
Venezuela is South America's only member of OPEC.Rate this question:
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- 3.
In 1898, President _____________ launched the trust-busting era, when he appointed the U.S. Industrial Commission on Trusts, which interrogated Carnegie, Rockefeller, Schwab, and other industrial titans.
- A.
William McKinley.
- B.
Theodore Roosevelt.
- C.
Franklin D. Roosevelt.
- D.
William Taft.
Correct Answer
A. William McKinley.Explanation
Although Theodore Roosevelt is well known as a trustbuster, it was President William McKinley who appointed the U.S. Industrial Commission on trusts, and thus shaped the United States' modern economy.Rate this question:
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- 4.
Since World War II, the agriculture sector's contribution to GDP among first-world nations has generally
- A.
Stayed the same.
- B.
Fallen.
- C.
Increased.
- D.
Remained immeasurable.
Correct Answer
B. Fallen.Explanation
As agriculture's importance in the first world has diminished, its percentage of the GDP has steadily diminished as well.Rate this question:
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- 5.
Which of these works first introduced Marxism?
- A.
The Invisible Hand.
- B.
Das Kapital.
- C.
Mein Kampf.
- D.
The Communist Manifesto.
Correct Answer
D. The Communist Manifesto.Explanation
Karl Marx wrote The Communist Manifesto in 1848 and then followed it up with Das Kapital, written in 1867, thus setting the stage for Marxism as an ideology. Adolf Hitler wrote Mein Kampf.Rate this question:
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- 6.
An economist who advocates that governments take a laissez-faire approach to the economy is advocating
- A.
That the government intervene in markets to protect the vulnerable.
- B.
That the economy should regulate itself without government intervention.
- C.
That the government intervene only in regulating the money supply.
- D.
None of the above.
Correct Answer
B. That the economy should regulate itself without government intervention.Explanation
Laissez-faire policies mean a policy of (governmental) non-intervention. In the field of economics, laissez-faire policies such as free trade were persuasively advocated by Adam Smith in his book The Wealth of Nations (1776).Rate this question:
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- 7.
Adam Smith wrote his landmark book in 1776, called the
- A.
Declaration of Independence.
- B.
The Wealth of Nations.
- C.
Das Kapital.
- D.
The Creation of Wealth.
Correct Answer
B. The Wealth of Nations.Explanation
Written the same year as the Declaration of Independence, Adam Smith's economic opus (much referred to but little read) is called The Wealth of Nations.Rate this question:
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- 8.
In July 1944, even as World War II still raged, delegates met to sign the Bretton-Woods Agreement, which did not result in the following:
- A.
Member countries agreed to combat currency fluctuations by pegging their currency to gold and a reserve currency.
- B.
Member countries created the IMF.
- C.
Member countries created the International Bank for Reconstruction.
- D.
Member countries created the Marshall Plan.
Correct Answer
D. Member countries created the Marshall Plan.Explanation
The Bretton-Woods Agreement did everything except launch the Marshall Plan. The Bretton-Woods Agreement provided for the combating of currency fluctuation by pegging their currency to gold and a reserve currency (which became the U.S. dollar by default), created the IMF, and created the International Bank for Reconstruction (later became the World Bank).Rate this question:
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- 9.
In the 17th century, an increased supply of South American gold in Europe caused prices to rise (inflation). In the 21st century, countries experiencing large net inflows of currency must __________ in order to avoid inflationary pressures.
- A.
Sterilize the inflows by soaking up the currency and purchasing international bonds.
- B.
Sterilize the inflows by issuing domestic bonds.
- C.
Peg their currency to the dominate export market's currency.
- D.
Peg their currency to the dollar.
Correct Answer
A. Sterilize the inflows by soaking up the currency and purchasing international bonds.Explanation
In order to avoid inflation, countries sterilize their currency when faced with significant net currency inflows. This is accomplished by parking the incoming currency in foreign currency bonds. That is one reason why countries with strong exports to the United States, such as Japan or China, purchase large quantities of U.S. treasury bonds.Rate this question:
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- 10.
If you favor governmental spending to reduce the down portion of an economic cycle, you are most influenced by
- A.
Keynes.
- B.
Smith.
- C.
Mark.
- D.
Ricardo.
Correct Answer
A. Keynes.Explanation
Keynes advocated government spending to flatten out the business cycle.Rate this question:
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- 11.
Conventional wisdom suggests that as stock values increase, bond yields
- A.
Increase.
- B.
Stay the same.
- C.
Decline.
- D.
None of the above.
Correct Answer
C. Decline.Explanation
Bond yields typically decrease as stock yields increase. AS the economy improves (and stock prices rise), companies have an easier time raising money on the stock market; thus, bond issues decline. As the economy declines, bond yields rise as companies look to bond issues to raise capital.Rate this question:
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- 12.
It was the dramatic 1911 breakup of this American monopoly that helped set the stage for the modern American economy.
- A.
US Steel.
- B.
Edison Power.
- C.
AT&T.
- D.
Standard Oil.
Correct Answer
D. Standard Oil.Explanation
The breakup of Standard Oil, led by President Theodore Roosevelt, helped set the stage for the modern American economy, because it allowed smaller private companies to pursue oil production. The remnants of Standard Oil became dynamic separate entities, such as Exxon and Mobil.Rate this question:
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- 13.
Gold frequently increases in value during political or economic instability because
- A.
Gold is intrinsically valuable.
- B.
As a respective currency weakens, speculators know that governments will purchase gold to prop up their currency.
- C.
It is seen as a reliable store of value.
- D.
None of the above.
Correct Answer
C. It is seen as a reliable store of value.Explanation
Gold is no longer used to back currency and has little intrinsic value, but in times of crisis, investors tend to gravitate toward gold as a reliable store of value.Rate this question:
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- 14.
Which currency is no longer traded?
- A.
Baht.
- B.
Forint.
- C.
Mark.
- D.
Ruble.
Correct Answer
C. Mark.Explanation
The German Mark is no longer a currency, because it was replaced by the Euro in 2002.Rate this question:
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- 15.
In recent years, farmers have plowed under their corn or wheat, rather than harvest it for market. This decision is best explained by
- A.
Mass irrational behavior.
- B.
Farmers avoiding the variable cost of taking their products to market.
- C.
Farmers attempting to recover their base cost.
- D.
The rising marginal cost of producing corn or wheat.
Correct Answer
D. The rising marginal cost of producing corn or wheat.Explanation
The rising marginal cost of producing agricultural products best explains this behavior. Marginal costs are the additional costs associated with producing one more unit of output. In other words, the value obtained by adding additional inputs (fertilizer, fuel, time) was not worth a harvest, thus the decision to plow the crop under.Rate this question:
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- 16.
In 2003 and 2004, the largest exporter in the world (in dollar terms) was
- A.
Germany.
- B.
China.
- C.
United States.
- D.
Japan.
Correct Answer
A. Germany.Explanation
Remarkably, Germany remained the largest exporter in the world in 2003 and 2004.Rate this question:
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- 17.
The consumer price index (CPI) is
- A.
A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
- B.
A cost of living index.
- C.
An exact measure of inflation.
- D.
None of the above.
Correct Answer
A. A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.Explanation
The consumer price index is the measure of change over time in prices paid by urban consumers for a market of goods and services.Rate this question:
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- 18.
This disease (or diseases) significantly dampened economic growth in some countries.
- A.
Bird flu.
- B.
Mad cow.
- C.
AIDS.
- D.
All of the above.
Correct Answer
D. All of the above.Explanation
Bird flu had a significant impact on economies in Southeastern Asia, while mad cow has had a significant impact on the U.K., Canadian, and other economies. AIDS has had a devastating effect on many economies in the world, particularly Africa.Rate this question:
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- 19.
When demand dramatically increases for a little-known fashion name because of positive media exposure, this will cause a(n) _________ shift in the demand curve.
- A.
Upward.
- B.
Downward.
- C.
Leftward.
- D.
Rightward.
Correct Answer
D. Rightward.Explanation
The demand graph will shift to the right. Product and the supply have not changed, but demand has increased along with the price.Rate this question:
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- 20.
Which of the following would not be counted as a part of India's gross domestic product (GDP)?
- A.
An expatriate Indian engineer's wages in New York.
- B.
A U.S. Embassy employee whose wages are deposited in a local New Delhi bank.
- C.
A thief's ill-gotten goods from a tourist visiting the Taj Mahal.
- D.
An Indian peasant trading chicken for rice.
Correct Answer
A. An expatriate Indian engineer's wages in New York.Explanation
An expatriate Indian engineer's wages earned in New York would not be counted as part of India's gross domestic product, because it was not earned in India. However, the sum of all goods and services produced in a country (even theft) are considered part of its GDP.Rate this question:
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- 21.
Studies of Americans clearly indicate that an overwhelming number
- A.
See themselves as working-class.
- B.
Do not believe in social classes.
- C.
See themselves as middle-class.
- D.
Resent the domination of middle-class values.
Correct Answer
C. See themselves as middle-class.Explanation
Study after study indicates that Americans see themselves overwhelmingly as middle-class.Rate this question:
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- 22.
Despite having sizable natural resources, only a few countries in Africa have been able to make use of mining as a launching pad for sustained economic development. Which of the following explains this?
- A.
Lack of legislation governing royalties.
- B.
A decline in quality and low market prices.
- C.
A lack of local capital.
- D.
Political instability and government corruption.
Correct Answer
D. Political instability and government corruption.Explanation
Political instability and government corruption have prevented most of Africa's countries from making use of abundant natural resources. The lack of local capital does not play a significant role, because sizable investors do exist in Africa. International investors tend to avoid placing their money where there is political instability and bad governance.Rate this question:
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- 23.
Which of the following is consistent with a favorable trade balance?
- A.
More goods and services are available for domestic use than are able to be consumed.
- B.
Gold reserves increase.
- C.
Net foreign investment is negative.
- D.
Domestic exports of merchandise exceeds imports of merchandise.
Correct Answer
D. Domestic exports of merchandise exceeds imports of merchandise.Explanation
A favorable trade balance indicates that a country exports more than its imports from another country.Rate this question:
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- 24.
During the Middle Ages, international trade flourished as
- A.
Traders from Venice traded gold for Chinese spices and silks.
- B.
Arab traders traded salt for gold from Mali.
- C.
Europeans traded gold for products such as sugar and cloth from the Middle East.
- D.
All of the above.
Correct Answer
D. All of the above.Explanation
Although many people think of international trade as being a modern phenomena, it in fact has existed as long as mankind itself.Rate this question:
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- 25.
Tariffs on ______ imports have raised U.S. prices many times higher than the world average, while helping impoverish many Caribbean nations.
- A.
Car.
- B.
Sugar.
- C.
Chocolate.
- D.
Coffee
Correct Answer
B. Sugar.Explanation
U.S. tariffs on sugar imports from the Caribbean have kept U.S. sugar prices many times higher than the world average and have helped impoverish many Caribbean nations.Rate this question:
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- 26.
Despite decades of foreign aid to the third world, many economists are searching for new economic models to explain why most of these economies have failed to improve markedly. The noted Peruvian economist Hernando de Soto argues that the third-world nations have done poorly because of
- A.
Oppression by the West.
- B.
Lack of capital.
- C.
Lack of property right protection.
- D.
Failures inherent to capitalism.
Correct Answer
C. Lack of property right protection.Explanation
Hernando de Soto argues that many third-world nations have not succeeded economically because of the lack of property rights protection for their citizens. He estimated that some third-world countries have many billions of dollars in capital that are locked away, because the property cannot be securely bought or sold.Rate this question:
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- 27.
The German capitalistic model is typified by
- A.
Cronyism.
- B.
State-corporate consensus.
- C.
Laissez-faire relationship between the government and the corporate sector.
- D.
Short-term planning.
Correct Answer
B. State-corporate consensus.Explanation
German capitalism is characterized by a consensus between its large corporations and the state.Rate this question:
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- 28.
The 1998 collapse of the Long-Term Capital Management, a ________, almost led to the collapse of capital markets around the world, and led to a $3.4 billion bail out.
- A.
Mutual fund.
- B.
Bond fund.
- C.
Hedge fund.
- D.
Betting pool.
Correct Answer
C. Hedge fund.Explanation
Long-Term Capital Management was a hedge fund. A hedge fund uses futures to offset investment risk and is usually only available to the very wealthy.Rate this question:
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- 29.
Which is most true?
- A.
Economic experts are good at predicting recessions.
- B.
Economic experts can usually indicate only that a recession is in progress when firms and consumers suddenly change behavior.
- C.
Economic experts often can indicate only that a recession has occurred when firms and consumers resume normal consumption patterns.
- D.
None of the above.
Correct Answer
B. Economic experts can usually indicate only that a recession is in progress when firms and consumers suddenly change behavior.Explanation
Despite many years of study, economists can usually indicate only that a recession is in progress when firms and consumers suddenly change behaviors.Rate this question:
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- 30.
Economic models are
- A.
Infallible.
- B.
Never right.
- C.
A helpful guide.
- D.
An illusion.
Correct Answer
C. A helpful guide.Explanation
Economic models are a helpful guide. Marxism is just one example of the damage that can occur when an economic model is taken to the extreme.Rate this question:
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- 31.
Which U.S. city has historically been associated with commodity trading?
- A.
Los Angeles.
- B.
New York.
- C.
Des Moines.
- D.
Chicago.
Correct Answer
D. Chicago.Explanation
The Chicago Board of Trade (CBOT) was established in 1848 to conduct commodity trading on agricultural commodities such as corn or wheat.Rate this question:
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- 32.
The traditional informal channel for transferring funds between various Middle East cities is called
- A.
Wholesale banking.
- B.
The Arab Street.
- C.
The Hawala system.
- D.
Western Union.
Correct Answer
C. The Hawala system.Explanation
The Hawala system has come under much scrutiny by international money laundering watchdogs, because it is an informal channel for transferring funds between different parts of the Middle East, thus avoiding traditional bank-oversight institutions.Rate this question:
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- 33.
Hyper inflation is relatively rare, but was experienced during
- A.
The United States' Great Depression.
- B.
Weimar Germany.
- C.
Post-World War II England.
- D.
Mao's China.
Correct Answer
B. Weimar Germany.Explanation
At one point, Weimar Germany's inflation rate was 4 trillion percent (November 15, 1923). In contrast, the United States actually suffered from deflation during the Great Depression, as agricultural prices dropped 51 percent (1929-1933).Rate this question:
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- 34.
Which of the following statements about comparative advantage is true?
- A.
Comparative advantage usually translates into absolute economic and trade advantages.
- B.
When a nation holding a comparative advantage opens itself to international trade, domestic wages usually fall.
- C.
Countries gain the most when they specialize in producing products for which they have the greatest relative efficiency.
- D.
Protecting domestic production will often increase real wages as inexpensive domestic goods replace imported products.
Correct Answer
C. Countries gain the most when they specialize in producing products for which they have the greatest relative efficiency.Explanation
Comparative advantage is the idea that countries gain when they produce those items that they are most efficient at producing. In other words, Saudi Arabia has an advantage in producing high quality oil cheaply, therefore, it should use its export earnings to buy items such as wheat, which it has little ability to produce in comparison with Australia or Argentina.Rate this question:
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- 35.
Which of the following is contractionary fiscal policy?
- A.
The Federal Reserve sells securities.
- B.
Reductions in personal taxes.
- C.
Decreasing the federal deficit.
- D.
Increasing the federal deficit.
Correct Answer
C. Decreasing the federal deficit.Explanation
When government revenues are higher than expenditures with a resulting decrease in the federal deficit, the fiscal policy is said to be contractionary. An expansionary fiscal policy would result in increased deficits and would likely result from the government's attempts to stimulate the economy.Rate this question:
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- 36.
Classical economic theory has long argued that low unemployment will result in _______ as workers demand higher wages.
- A.
Deficits.
- B.
Increased money supply.
- C.
Wage inflation.
- D.
Inflation.
Correct Answer
C. Wage inflation.Explanation
The Phillips curve represents the relationship between employment and wage inflation and indicates that wages tend to rise as unemployment falls.Rate this question:
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- 37.
Despite relatively low unemployment between 1999 and 2004, inflationary pressures have not been evident. Why not?
- A.
Historically low energy prices.
- B.
Increased efficiencies from high technology investments.
- C.
Downward pricing pressures brought on by cheap offshore manufacturing centers.
- D.
All of the above.
Correct Answer
D. All of the above.Explanation
Many factors, including historically low energy prices, increased efficiencies due to advantages in high technology, and downward pricing pressures from cheap offshore manufacturing centers all have contributed to keeping inflation at bay.Rate this question:
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- 38.
If Country A can produce Commodity X and Y while using two output units, and neighboring Country B can produce Commodity X and Y while using three output units, it is most likely that
- A.
One country would gain from trade, while the other would not.
- B.
Each country would gain by trading with each other.
- C.
Country A would produce both commodities, while Country B would produce neither.
- D.
Country B would produce both commodities, while Country A would produce neither.
Correct Answer
B. Each country would gain by trading with each other.Explanation
Classical economics suggests that two countries will always mutually benefit by trading with the other.Rate this question:
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- 39.
Which of the following would have the same effect as an export on the U.S. balance of payments?
- A.
An American buys a computer built in a Chinese factory that was financed by American funds.
- B.
An American flies to Brazil via Varig Airlines (a Brazilian carrier).
- C.
An American buys preferred stock in Nokia.
- D.
An American receives a $25 wire-transfer birthday gift from a relative in Australia.
Correct Answer
D. An American receives a $25 wire-transfer birthday gift from a relative in Australia.Explanation
The wire transfer gift would be considered an export, because the funds would be considered a debit in the current account.Rate this question:
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- 40.
Importing $10 billion of Chinese goods in 2003, this U.S. company would be Chinas's fifth-largest partner if it were a country.
- A.
IBM.
- B.
P&G.
- C.
Target.
- D.
Wal-Mart.
Correct Answer
D. Wal-Mart.Explanation
Wal-Mart continues to be the largest American importer.Rate this question:
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- 41.
The Foreign Corrupt Practices Act makes corrupt payments to foreign officials illegal and extends to
- A.
Large U.S. corporations working outside the United States.
- B.
U.S. citizens working for foreign companies.
- C.
Foreign citizens working for U.S. companies.
- D.
All of the above.
Correct Answer
D. All of the above.Explanation
The Foreign Corrupts Practices Act is an important sharper of U.S. business practices overseas. All U.S. citizens, companies, and employees (even if they are not U.S. citizens) fall under the auspices of this act; however, the act applies only to corrupt transactions with foreign government officials.Rate this question:
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- 42.
President Bush's economic advisor can
- A.
Set interest rates.
- B.
Assist in regulating the stock market.
- C.
Provide official economic statistics to the GAO.
- D.
Do none of the above.
Correct Answer
D. Do none of the above.Explanation
The president's economic advisor has no official role in the economy, although his or her comments and view can have a powerful effect.Rate this question:
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- 43.
This important sector of the U.S. economy has caused much concern because of its perceived decline.
- A.
Manufacturing.
- B.
Mining.
- C.
IT.
- D.
Ranching.
Correct Answer
A. Manufacturing.Explanation
The United States' manufacturing sector's decline has continued to grab headlines. As of January, 2004, the number of such jobs stood at 14.3 million, down by 3.0 million jobs, or 17.5 percent, since July 2000 and about 5.2 million since the historical peak in 1979. Employment in manufacturing was its lowest since July 1950.Rate this question:
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- 44.
It was Francis Cabot Lowe's introduction of this machine that helped launch the United States' industrial revolution.
- A.
Steam engine.
- B.
Thresher.
- C.
Locomotive.
- D.
Power loom.
Correct Answer
D. Power loom.Explanation
Francis Cabot Lowe introduced the power loom to New England region in 1813, which eventually led to the industrialization of the United States' economy.Rate this question:
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- 45.
After World War II, many economists argued that the developing world should move to
- A.
The gold standard.
- B.
Import substitution policies.
- C.
A tight money supply.
- D.
Inflationary policies.
Correct Answer
B. Import substitution policies.Explanation
After World War II, many economists called on developing nations to develop import substitution policies to replace imports with domestically produced goods. Usually this meant using tariff and non-tariff measures to prevent the importation of imported goods in order to protect domestic industries.Rate this question:
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- 46.
U.S. producers have requested trade protection in the following trade sectors:
- A.
Automobiles.
- B.
Steel.
- C.
Textiles.
- D.
All of the above.
Correct Answer
D. All of the above.Explanation
U.S. producers from the automobile, steel, and textile industries have all requested trade protection from foreign imports.Rate this question:
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- 47.
If the economy is growing too quickly or too slowly, the _________ will adjust monetary policy by changing the discount rate.
- A.
Federal Reserve
- B.
U.S. Treasury
- C.
Commercial banks
- D.
President's economic advisor
Correct Answer
A. Federal ReserveExplanation
The Federal Reserve will adjust monetary policy by increasing or decreasing the discount rate or the interest rate the Federal Reserve charges on loans it makes to banks. By increasing or decreasing this rate, the Fed can discourage or encourage banks to borrow the funds it creates and, therefore, make more loans to the public.Rate this question:
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- 48.
Which of the following is not true about dumping in the trade context.
- A.
Dumping is defined as selling a foreign product on the U.S. market at a below-market rate.
- B.
Dumping is remedied by adding a tariff to the foreign product so that its price equals its true value.
- C.
While successful dumping claims benefit some companies, they cal also raise consumer prices, thus hurting consumers.
- D.
U.S. trade law recognizes a difference between competitive pricing and predatory pricing.
Correct Answer
D. U.S. trade law recognizes a difference between competitive pricing and predatory pricing.Explanation
In reference to dumping, U.S. law does not make a difference between competitive and predatory (unfair) pricing.Rate this question:
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- 49.
Consumption + investment + government spending + exports - imports =
- A.
Inflation.
- B.
Net national product.
- C.
Gross national product.
- D.
Balance of payments.
Correct Answer
C. Gross national product.Explanation
Gross national product.Rate this question:
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- 50.
The largest category included in gross domestic product (GDP) is
- A.
Military.
- B.
Government.
- C.
Consumption.
- D.
Imports.
Correct Answer
C. Consumption.Explanation
Personal consumption consistently represents 75 percent of gross national product (GNP), by far the largest category included in calculating a country's GDP.Rate this question:
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Mar 21, 2023Quiz Edited by
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Sep 23, 2009Quiz Created by
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