I have a couple of questions that i want to get help with. 1. Both the Chinese a

Question

I have a couple of questions that i want to get help with.

1. Both the Chinese and American economies may be described as being mixed systems, because neither is purely capitalist or centrally planned. (TRUE/FALSE)

2. The product possibilities curve which is convex or bowed in toward the origin indicates that

1. opportunity costs are decreasing.

2. foreign trade is necessary to reap the benefits from comparative advantage.

3. specialization is taking place.

4. industrial production will be more efficient than agriculture.

5. opportunity costs are constant.

3. During times of hyper-inflation, we should expect

1. income re-distribution in favor of creditors.

2. real wages to eventually increase.

3. nominal interest rates to rise.

4. the real cost of living to decline.

5. the home currency to appreciate in foreign exchange markets.

Explanation / Answer

1. True

2.  (1) opportunity costs are decreasing.

In case of convex production possibility curve, to gain one more unit of good X, a person has to sacrifice less units of good Y and due to this, there is decreasing opportunity cost.

3. (1) income re-distribution in favor of creditors.

As now value of money decreases but creditors have to pay the same amount as before. So, creditors are better off as they have to pay less in case of hyper-inflation. Real wages decreases, nominal interest rate decreases and real cost of living increases in case of hyper-inflation. Home currency will depreciate in the foreign exchange market as value of home currency decreases.

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