I. Answer the following multiple choice questions (2 points each):
1. Fiscal Policy is __________.
a) Limits on the amount of a product imported
b) Recurring pattern of ups and downs in the nation’s business activity
c) Government’s taxing and spending decisions which are intended to improve the economy
d) Deep extended decline in the nation’s economy.
2. Which of the following is NOT an important U.S. import?
a) electronic products b) motor vehicles c) aircraft d) coffee and tea
3. When a country spends more on imports than it earns on exports, it has a _________.
a) trade deficit b) trade surplus c) balanced trade d) shortage of trade
4. A tax on imported goods is called ________.
a) entrance tax b) exit tax c) tariff d) excise tax
5. A deep, extended decline in a nation’s economy is a ________.
a) deficit b) recession c) depression d) displacement
6. When individual nations prosper, the world economy _______.
a) grows b) declines c) lapses d) competes
7. Goods and services sold by one country to another are called its________.
a) imports b) exports c) GDP d) bartering
8. The price of one currency in terms of another currency is the ________.
a) inflation b) absolute rate c) exchange rate d) recession rate
9. Countries do NOT usually benefit from trading with each other.
True or false
10. Monetary policy is _________.
a) Government’s efforts to help stabilize the economy by managing interest rates, the availability of loans, and the supply of money
b) Value of all nation’s exports minus the value of its imports
c) Tax on imported goods
d) The current value of all goods and services produced in a country in a year
II. Short Answer (20 points each)
1. The exchange rate for money entering Mexico is $1=10.80 pesos. During your visit to Mexico the exchange rate changes to $1=15.00 pesos. If you took $500 into the country exchanged it for pesos and then left with 500 pesos, how many dollars worth of pesos would you have when you exchanged it back into dollars?
2. Why do labor costs affect where multinational corporations choose to produce their goods?
3. How do changes in business activity in one nation affect other nations?
4. If the U.S. dollar increases in value how does that affect the American traveling in Europe? How would it affect the European visiting the United States?
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