The basic problem portrayed by the traditional phillips curve is

EXTENSIONS AND ISSUES; INTERNATIONAL ECONOMICS

1. The "brain drain" problem in the developing countries refers to the fact the best-educated workers A. are reluctant to become entrepreneurs.
 B. often emigrate to industrialized countries. 
C. are reluctant to work in the public sector. D. are concentrated in rural areas where their skills are underutilized.

2. The very poorest low-income developing countries typically have relatively A. high rates of both population growth and economic growth.
 B. low rates of both population growth and economic growth.
 C. high rates of economic growth and relatively low rates of population growth. D. low rates of economic growth and relatively high rates of population growth.

3. As of the year 2006, which one of the following countries had the largest share of total world exports? A. Germany 
B. Japan
 C. China D. United States

4. In recent years, the governments of the industrially advanced countries have A. substantially reduced foreign aid to the developing countries.
 B. forgiven a portion of the debt owed by some low-income developing countries.
 C. substantially reduced their contributions to the World Bank. D. discouraged skilled developing countries' workers from emigrating to the industrially advanced countries.

5. Which one of the following is not included in the current account of a nation's balance of payments? A. Its purchases of real assets abroad 
B. Its goods imports 
C. Its net investment income D. Its goods exports

6. As distinct from reductions in the price level, reductions in the rate of inflation are referred to as A. dollar depreciation. B. Stagflation. C. Disinflation. D. Deflation.

7. In the U.S. balance of payments, foreign purchases of assets in the United States are a A. foreign currency inflow. 
B. foreign currency outflow.
 C. current account item.

D. debit, or out payment.

8. Which one of the following statements about the velocity of money is correct? A. The velocity of money is the number of times per year the average dollar is spent on final goods and services. B. The velocity of money is the relationship between asset and transactions demands for money.
 C. The velocity of money is the relationship between the money supply and the price level.
 D. The velocity of money is the price level divided by aggregate supply.

9. Suppose the domestic price (no-international-trade price) of wheat is $3.50 a bushel in the United States while the world price is $4.00 a bushel. Assuming no transportation costs, the United States will A. import wheat. 
B. neither export nor import wheat. C. export wheat.
 D. have a domestic shortage of wheat.

10. If government uses its stabilization policies to maintain full employment under conditions of cost-push inflation,

A. stagflation is likely to occur.
 B. the Phillips Curve is likely to shift inward. C. an inflationary spiral is likely to occur.
 D. a deflationary spiral is likely to occur.

11. Inflation accompanied by falling real output and employment is known as A. Laffer's law. 
B. Okun's law.
 C. the Phillips Curve. D. stagflation.

12. Which one of the following statements about national infrastructure is correct? A. A nation's infrastructure refers to the productivity of its labor force.
 B. A nation's infrastructure refers to public capital goods such as highways and utilities.
 C. A nation's infrastructure refers to its stock of technological knowledge. D. A nation's infrastructure refers to its ability to realize economies of scale.

13. Which one of the following statements about stagflation is correct? A. Stagflation is a simultaneous increase in real output and the price level.
 B. Stagflation is a decline in the price level accompanied by increases in real output and employment. C. Stagflation is a simultaneous reduction in real output and the price level.
 D. Stagflation is an increase in inflation accompanied by decreases in real output and employment.

14. The basic problem portrayed by the traditional Phillips Curve is
 A. that changes in the composition of total labor demand tend to be deflationary.
 B. the possibility that automation will increase the level of noncyclical unemployment.
 C. that a level of aggregate demand sufficiently high to result in full employment may also cause inflation. D. that unemployment rises at the same time the general price level is rising.

15. In the absence of unexpected shocks, the economy will tend to experience A. positive growth with mild amounts of deflation.
 B. positive growth with mild amounts of inflation.
 C. positive, noninflationary growth. D. no changes in output or prices.

16. A market in which the money of one nation is exchanged for the money of another nation is a A. resource market.
 B. foreign exchange market.
 C. stock market. D. bond market.

17. In international financial transactions, what are the only two things that individuals and firms can exchange? A. Currency and currently produced goods and services
 B. Services and manufactured goods
 C. Preexisting assets and currently produced goods and services D. Currency and real assets

18. If a nation's goods exports are $55 billion, while its goods imports are $50 billion, we can conclude with certainty that this nation has a A. positive balance on current account.
 B. positive balance on goods and services. C. balance of trade (goods) surplus.
 D. balance of payments surplus.

19. Which one of the following statements about capital flight is correct?
 A. Capital flight refers to the tendency of large corporations of industrially advanced countries to build new plants in the developing countries because labor is cheaper.
 B. Capital flight refers to the high international mobility of speculative funds caused by variations in exchange rates.
 C. Capital flight refers to the tendency of developing countries to overinvest in commercial aircraft.
 D. Capital flight refers to developing countries' citizens accumulating or investing their savings in the industrially advanced countries.

20. If a U.S. importer can purchase 10,000 pounds for $20,000, the rate of exchange is A. $1 = 2 pounds in Great Britain.
 B. $1 = 2 pounds in the United States.
 C. $0.5 = 1 pound in Great Britain. D. $2 = 1 pound in the United States.

End of exam