According to the Principle of Comparative Advantage, Worldwide Output and Consumption

question 184

Multiple Choice

According to the principle of comparative advantage, worldwide output and consumption levels will be highest when goods are produced in nations where:

• A)domestic opportunity costs are lowest.
• B)inflation rates are low.
• C)the balance of trade is in a surplus position.
• D)the exchange rate is falling.

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Definitions:

Monetarists

Economists who believe that variations in the money supply have major influences on national output in the short run and the price level over longer periods, and that the objectives of monetary policy are best met by targeting the growth rate of the money supply.

Monetary Rule

A guideline for the monetary policy stating that the central bank should aim at regulating the money supply to maintain stable prices, output, and employment.

Rational Expectations

An economic theory proposing that individuals make decisions based on their best forecast using all available information, predicting future events with some degree of accuracy.

Federal Reserve

The central bank of the United States, responsible for monetary policy.