Suppose Canada has a comparative advantage relative to the United States in the manufacture of clothing and the United States has a comparative advantage in producing agricultural products. Which of the following is most likely to occur?
A. Canada will sell clothing to the United States but not buy any agricultural products from the United States.
B. Canada will sell clothing to the United States and the United States will sell agricultural products to Canada.
C. Canada and the United States will not trade agricultural products or clothing.
D. Canada will sell agricultural products to the United States and Canada will buy clothing from the United States.
Answer: B
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The opportunity cost of holding excess reserves is equal to
A) the federal funds rate. B) the federal funds rate minus the discount rate. C) the discount rate. D) none of the above.
"The Great Depression was caused by the 1929 stock market crash.". Which of the following is an indication that this statement is false?
a. The stock market had regained most of its losses from the October 1929 crash by April 1930. b. The recessionary conditions actually began in the mid-1920s before the stock market crash. c. The Great Depression was a result of government failure to intervene in market activity. d. Economic theory indicates that a reduction in stock prices would reduce the consumer price index and thereby stimulate output and employment.