Question

1. Which of the following two components are the two main sources of the total demand for financial capital in the U.S. economy?

Select all that apply: 2 correct answers

• private sector investment

• government borrowing

• the inflow of financial capital from foreign investors

• saving by individuals and firms

2. If Canada spends 20 hours producing a refrigerator and 10 hours producing a stove, and France spends 12 hours producing a refrigerator and 5 hours producing a stove, which of the following are true?

Select the correct answer below:

a. Canada has an absolute advantage in producing refrigerators

b. Canada has absolute advantage in producing stoves

c. Canada has absolute advantage in producing both goods

d. France has absolute advantage in producing both goods

3. A country has ________________ over another country in producing a good if it uses fewer resources to produce that good.

Select the correct answer below:

a. an absolute advantage

b. a comparative advantage

c. an opportunity cost advantage

d. a universal advantage

4. Foreign capital flows to countries that are expected to

Select the correct answer below:

a. have high inflation

b. experience economic downturn

c. grow rapidly

d. increase their corporate tax rate

5. With a soft peg policy, foreign exchange dealers and international investors react to every rumor about how or when the central bank is likely to intervene to influence the exchange rate, and as they react to rumors the exchange rate will shift up and down. This is an issue because __________.

Select the two correct answers below.

Select all that apply:

• rumors are typically inaccurate and should not be reacted to by investors

• the goal of a soft peg policy is to reduce short-term fluctuations of the exchange rate
• the policy itself encourages outcomes that it was designed to prevent
• none of the above

Answer 1

1.  The two main sources of the total demand for financial capital in the U.S. economy are private sector investment and government borrowing. Hence, option(A) and (B) are correct.

2. France has an absolute advantage in producing both goods because France produces the same amount of good with less number of hours than Canada. Hence, option(D) is correct.

3. A country has an absolute advantage over another country in producing a good if it uses fewer resources to produce that good. Hence, option(A) is correct.

4. Foreign capital flows to countries that are expected to grow rapidly.

5. This is an issue because the goal of a soft peg policy is to reduce short-term fluctuations of the exchange rate and the policy itself encourages outcomes that it was designed to prevent.