1. In early part of the 21 st century, the Euro appreciated relative to the doll
ID: 1126025 • Letter: 1
Question
1. In early part of the 21st century, the Euro appreciated relative to the dollar (the dollar depreciated). As a result:
Select one:
a. Europeans had a strong incentive to speculate on the dollar as it continued to depreciate
b. American products became more expensive for Europeans
c. Exchange rates have no effect on trade or investment
d. Investing in U.S. stocks became more attractive as the dollar continued to depreciate
e. It became more expensive for Americans to travel to Europe
2. Suppose that in 2011 Nominal GDP was $14 trillion and the Real GDP was $12 trillion. If Nominal GDP increased by 20% between 2011 and 2012 and Real GDP remained the same, what was the GDP Price Index in 2012?
Select one:
a. 1.2
b. 1.4
c. 1.6
d. 1.8
e. 2.0
3. Which of the following statements is a normative statement?
Select one:
a. The U.S. economy will probably expand this year
b. The federal government should reduce taxes to stimulate growth
c. The price of gasoline reached a peak in 2008
d. It should be a cold winter
e. The unemployment rate fell below 6% in 2014
4.Which of the following events is most likely to shift the U.S.'s Production Possibilities Frontier outwards?
Select one:
a. The Fed increasing the Federal Funds Rate
b. The government increasing corporate taxes to help pay for the debt
c. 10 million workers move from rural areas to cities
d. A new technology allows companies to convert trash to fuel cheaply
e. Americans shift from drinking mainly coffee to drinking mainly tea
Explanation / Answer
1) Correct option is option E. With the appreciation of Euro, there is a relative depreciation of US Dollar this implies US manufactured goods are relatively cheaper and Euro manufactured goods are relatively expensive. It also makes it expensive for Americans to have vacations in the eurozone and it makes people for Europeans to travel America.
2) Correct option is B. Price index in 2012 = Nominal GDP 2012/Real GDP 2012 or (14 + 20%*14)/12 = 1.4
3) Correct option is B. Normative statements are value based judgements that advice what should be and what should not be.
4) Correct option is D. PPF shifts only when there is an increase in the labor force, resources or improvement in technology.
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