ECO 561 Week 5 Quiz 100% Correct

1. The Classical Theory of Asset Prices assumes which of the following ideas?

2. Economists use two principle interest rates: nominal and real. The purpose of this distinction is to

3. During periods of increasing inflationary pressure, the Federal Reserve should

4. What is the increased moral hazard associated with the too big to fail (TBTF) bailouts of the largest of financial institutions?

5. The Federal Reserve's primary tool for managing the money flow is

6. Which of the following is a major drawback of a flexible exchange rate?

7. The major advantage to a flexible exchange-rate policy is

8. _____________suggests that a country will engage in trade and export products that it can produce at a lower-opportunity cost than a competing nation.

9. Absolute advantage encourages a country to

10. The _____________________ explains that long-run trends in exchange rates are based on a predictable relationship between product price levels and exchange rates.

11. A business traveler to Germany who, upon deplaning in Berlin, uses an airport ATM to withdraw 100 Euros from her U.S. bank would receive which kind of exchange rate?

12. Suppose Nation A can produce 2 million pounds of sugar per week OR 1 million pounds of rice in a week and Nation B can produce 10 million pounds of sugar per week OR 3 million pounds of rice in a week. If this is a two-good, two nation model, what would Nation B's best choice in regards to trade and specialization?