Final Exam Review Questions (Chapters 16–19)

In the last decades of the 1800’s

• deflation made it harder for farmers to pay off their debt.

• deflation made it easier for farmers to pay off their debt.

• inflation made it harder for farmers to pay off their debt.

• inflation made it easier for farmers to pay off their debt.

Which of the following did NOT happen during the late 19th century in the U.S.?

• Falling crop prices reduced farmers' incomes

• From 1880 to 1896, the price level fell by 23 percent

• Farmers agitated for government policies to reduce inflation

• Farmers had reduced ability to pay off debts

The U.S. in the late 19th century

• abandoned the gold standard

• maintained a trade surplus with Great Britain

• experienced a net capital outflow

• had no central bank

• experienced no banking panics

In an economy where net exports are zero, if saving rises in some period, then in that period

• consumption and investment fall.

• consumption falls and investment rises.

• consumption rises and investment falls.

• consumption rises and investment falls.

Country A and country B are the same except country A currently has more capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then

• output in country A increases by more than in country B.

• output in country A increases by the same amount as in country B.

• output in country A increases by less than in country B.

• None of the above is necessarily correct.

Other things the same, if a country increased its saving rate, in 40 years or so it would likely have

• higher productivity, and a higher growth rate of real GDP.

• higher productivity, but not a higher growth rate of real GDP.

• the same productivity and growth of real GDP it began with.

• None of the above is correct.

If an American-based firm opens and operates a new clothing factory in Honduras, then it is engaging in

• foreign portfolio investment.

• foreign financial investment.

• foreign direct investment.

• indirect foreign investment.

In the second half of the 1800s, the British purchased stock in American companies that used the funds to build railroads and factories. The British who did this engaged in

• foreign portfolio investment.

• indirect domestic investment.

• foreign direct investment.

• foreign indirect investment.

The president of a poor country has announced that he will implement the following measures that he claims are designed to increase growth: 1. Reduce corruption in the legal system; 2. Restrict investment in domestic industries by foreigners because they take some of the profits out of the country; 3. Implement policies intended to create a trade surplus; and 4. Increase the fraction of GDP devoted to consumption. Which of these measures will have a positive effect on growth?

• 1

• 2

• 3

• 4

• none of the above

The inflation tax

• transfers wealth from the government to households.

• is the increase in real income taxes due to lack of indexation in income tax rules.

• is a tax on everyone who holds money.

• All of the above are correct.