Question

1. Select all that applies to define the meaning of Terms of Trade

   		Terms of trade lies in each country's domestic opportunity costs in production.
   		A country won't trade unless the terms of trade re superior to domestic opportunities,
   		The terms of trade, like the price of any good, depend on the willingness of market participants to buy or sell at various prices
   		The terms of trade do not determine how the gains from trade are distributed.

4 points   

QUESTION 17

1. If the government borrows funds to finance deficits, the availability of funds for private sector spending may be reduced. This is referred as the crowding-out problem.

   True

   False

4 points   

QUESTION 18

1. Which of the following is/are tool(s) used by the US Federal Reserve to alter the money supply?

   		Open Market Operations
   		Reserve Requirements
   		Discount Rates
   		Investment of banks' excess reserves

Answer 1

a) option B and C are correct.

Terms of trade = A country won't trade unless the terms of trade re superior to domestic opportunities and The terms of trade, like the price of any good, depend on the willingness of market participants to buy or sell at various prices.

b) True

Crowding out is the increase in the interest rate due to an increase in the government borrowing that makes the borrowing costly and decrease it + it also reduces the available funds in the market.

c) Top three option A,B and C are the correct answer. The fed do open market operations, set reserve requirement. and manages the discount rate.