1.If wages and therefore consumer income increase, what happens to output and price level?

Output / Price Level

Select one:

A. Increase / Increase

B. Increase / Indeterminate

C. Indeterminate / Increase

D. Decrease / Increase

E. Decrease / Decrease

2.When nations trade according to comparative advantage, a good should be produced in the nation that

Select one:

A. can sell it for the most money.

B. has favorable terms of trade.

C. has the highest opportunity cost.

D. has the lowest opportunity cost.

E. can produce the greatest amount of the good.

3.Suppose interest rates rise in the United States, but they don't rise in other nations. As a result of this change

Select one:

A. the U.S. dollar appreciates.

B. the U.S. dollar depreciates.

C. U.S. exports will increase.

D. U.S. imports will decrease.

E. price levels in the United States will increase.

4. Assume that two countries, using equal amounts of resources, can each produce any combination of capital goods and consumer goods described by the above production possibilities curve for each nation.

a. Which country has the absolute advantage in the production of capital goods? Explain how you determined your answer.

b. Which country has a comparative advantage in the production of consumer goods? Explain your answer using the concept of opportunity cost. (Show your work.)

c. If the two countries specialize and trade with each other, which country will export consumer goods? Explain how you determined your answer.

90 80 Alpha Beta Capital Goods 20 90 Consumer Goods