According to the concept of comparative advantage, which of the following is true when countries specialize and trade?

• Each country obtains an absolute advantage.

• Total world output increases.

• The production possibilities curve for both countries shifts inward.

• Prices fall in both countries.

• Deadweight loss is created.

If real gross domestic product is declining, the economy is most likely experiencing which of the following?

• increasing unemployment

• negative long-run economic growth

• inflationary pressures

• an increase in aggregate demand

• a recovery

Which of the following is not counted in a country's GDP?

• goods exported to other countries

• changes in inventories

• domestically produced capital goods

• financial assets, such as stocks and bonds

• newly produced services

If the real interest rate is 1% and the nominal interest rate is 4%, the expected rate of inflation is

• 0%

• 1%

• 2%

• 3%

• 4%

If the general price level doubles and at the same time a worker's real wage rate increases, what must be true of the worker's nominal wage rate?

• It doubled.

• It increased by less than double.

• It increased by more than double.

• It decreased.

• It did not change.

Which of the following is most likely to cause a leftward shift in the long-run aggregate supply curve?

• a decrease in the wage rate

• a decrease in short-run aggregate supply

• contractionary fiscal policy

• a permanent decrease in the size of the labor force

• a long-term decrease in demand

An economy experiences inflationary pressures when the equilibrium level of output is

• too low

• above the full employment level of output

• equal to the full employment level of output

• decreasing

• in long-run equilibrium

If the interest rate is 2%, what is the present value of $1 paid to you in one year?

• less than $1

• $1

• $1.02

• $1.04

• $1.20

Crowding out occurs when government borrowing leads to an increase in

• real GDP.

• inflation.

• consumer confidence.

• unemployment.

• interest rates.

An increase in expected inflation is likely to have which of the following effects?

• shift the long-run Phillips curve to the right

• shift the short-run Phillips curve downward

• increase the actual inflation rate

• decrease the natural employment rate

• shift the short-run aggregate supply curve to the right