exam

Portfolio investment takes place in the United States when foreigners:

buy U.S. stocks and bonds.

If the equilibrium wage is $9 in the market for hotel workers and $8 in the market for restaurant workers and both markets have similar elasticities of labor supply and demand, then a minimum wage of $10 in both markets will:

cause more unemployment among restaurant workers than restaurant workers.

The most promising idea for creating a growth miracle in a country is:

changing the institutions in the country.

An increase in import trade tends to ______ domestic prices.

decrease

Higher implicit tax rates tend to cause labor force participation rates to:

decrease.

Imagine that millions of refugees move out of country A and into country X. This would cause the demand for housing in country A to _____ and the demand for housing in country X to _____.

decrease; increase

If you earned $10-an-hour in 2005 when the CPI was 100, and you earn $11-an-hour today when the CPI is 120, then your real wage rate has _____ since 2005.

decreased

Suppose an increase in the demand for dollars has caused an appreciation of the dollar. According to the purchasing power parity theorem, the value of the dollar in the future will:

depreciate.

If the Central Bank of China decides to hold more dollars as reserves, the:

dollar will appreciate.

In the short run, an increase in the money supply tends to increase employment because:

exports only increase.

In a free market setting where quantity supplied is 50 units and quantity demanded is 50 units, price will:

remain the same.

Which statement is an example of speculation?

selling stocks in Microsoft after hearing a rumor about a promising new Google product

A country can adopt a fixed exchange rate system through:

setting up a currency union.

Orrin mines iron ore, which he sells to Thorin, who turns iron ore into steel. The steel is sold to Gorin, who turns the steel into battle axes. The battle axes are sold by a merchant in the city to adventurers. Which of the following would be considered a final good?

the battle axes sold to the adventurers

History has shown that when collective property rights are converted to private property rights:

work effort, investment, and productivity all increase.

If a national government improves its unemployment benefits, its unemployment rate will most likely:

increase.

When the price of pizza increases, consumers have an incentive to:

purchase substitute goods, such as Chinese food.

If the exchange rate between the U.S. dollar and the euro is $1 for €0.75, then the price of €1 is:

$1.33.

(Figure: Quantity of Good X) Refer to the figure. At a price of $200, consumer surplus is:

$10,000.

(Figure: Costs of Price Ceilings) Refer to the figure. What is the dollar amount of the value of wasted time if a price ceiling of $4 is implemented?

$160

(Table: Balance of Payment Accounts) According to the data in this table, what is the capital account balance for this country?

$220 million

(Table: Excel Company Survey) The table shows the results of Excel Company's market survey. If the market price of Excel computers is $1,200 each, how much total consumer surplus (in $) are the four consumers earning?

$380

(Figure: Price Ceilings and Consumer Valuation) Refer to the figure. Suppose a price ceiling of $3 goes into effect. What is the loss of consumer surplus due to the random allocation of price-controlled goods compared to the allocation only to the highest-value users?

$60

(Table: Balance of Payment Accounts) According to the data in this table, what is the current account balance for this country?

-$185 million

(Figure: Labor Market) Refer to the figure. If this market is initially in equilibrium when a $10 minimum wage is imposed, the quantity of labor employed will fall by:

20.

Conan O'Brien hosts the Conan show and Andy Richter, his sidekick, writes for it. Conan needs 4 hours to rehearse and host a good show. It takes Andy 10 hours to do the same. Conan writes one usable joke in an hour, but Andy needs 2 hours to do the same. Conan's opportunity cost of rehearsing and hosting a show is:

4 usable jokes.

Which of the following statements describes reasons why free trade is beneficial for the United States?

All of the statements are correct.

How might changes in marginal tax rates on married couples affect labor force participation rates?

Lower marginal tax rates on married couples encourage higher labor force participation rates by the secondary income earner.

What will happen in the market for cotton as a result of a severe drought?

The supply of cotton will decrease, causing the equilibrium price to rise and equilibrium quantity to fall.

During World War II, natural rubber (from rubber trees) became incredibly scarce. Some even feared its complete exhaustion. The development of synthetic rubber staved off this doomsday scenario. Explain why, just when the Allies needed it most, this turn in good fortune was likely not a coincidence?

Scarcity raised the price of natural rubber, creating the incentive to invent a substitute.

(Figure: Comparative Advantage) The figure illustrates both the U.S. and Japanese production possibilities frontiers for TVs and wheat. Based on this information, which of the following is TRUE?

The United States has the comparative advantage in the production of wheat.

Land used to grow corn can also grow soybeans. As the demand for corn used in ethanol began to increase the price of corn, what happened to the price of soybeans?

The price of soybeans rose since farmers began planting corn instead of soybeans, thus decreasing the supply of soybeans.

Peoples' expectation of the price of gasoline going up tomorrow may increase the demand for gasoline today. If so, what does this imply about the relationship between gasoline tomorrow and gasoline today?

They are substitutes.

When a country dollarizes, its monetary policy is controlled by the:

U.S. Federal Reserve

A minimum wage is:

a labor market price floor.

A country with a negative current account (trade deficit) has:

a positive capital account.

If a minimum wage is posted in the labor market:

a surplus of labor would develop

What happens as a result of the change in demand in the diagram?

an increase in both the equilibrium price and the equilibrium quantity

According to the textbook, one major reason for the increase in the female labor force participation rate after World War II was:

an increase in the incentive to work.

An appreciation of the Mexican peso would most likely be a result of:

an increase of foreign investment in Mexico.

The development of shipping containers enabled companies to move freight quickly between ships, trucks, and trains by loading a single large container with many different goods and then moving the container. Before the container, freight had to be loaded and unloaded one palette, barrel, or box at a time. What impact did the shipping container have on globalization? Why?

an increase, because it decreased transportation costs

(Table: The HP Stock Exchange) The HP Stock Exchange lets members of HP's sales team buy and sell shares that pay off when sales fall within a certain range. A typical security would pay out $1, if and only if future sales fell within the specific range of that share. Accordingly, the trading prices given in the table suggest that the probability of selling:

between 15,000 and 25,000 units is 60%.

If people suddenly expect that a severe drought will reduce the supply of grain, the price of grain futures will be:

bid higher.

To avoid double accounting, the value of:

final goods only are included in GDP

In response to a negative oil price shock, real GDP growth:

first falls and then rises back to its initial level.

For a given nominal interest rate, an increase in deflation will cause the real rate of interest to:

increase.

If people expect an inflation rate of 3% and later it turns out to be 5%, then the real rate of return will be:

less than the equilibrium rate.

Trade restrictions based on national security concerns:

might be beneficial in certain cases, like vaccinations.

Refer to the figure. Assume the government of an economy in recession at point Y in the diagram is aware of the expenditure multiplier when it formulates policy decisions. If it chooses to increase government spending growth by 4percentage points, it should expect the economy to:

move at least to point X.

When they guess correctly about price movements, speculators:

move goods from periods of low-use value to periods of high-use value, making society better off.

A positive real shock causes the aggregate demand curve to:

not shift at all.

An increase in the futures price of milk is an indication that the:

price of milk is expected to rise.

Which of the following would cause the current supply of iPods to increase?

producers expecting that the future price of iPods will decrease

A technological innovation in the production of golf balls increases ______, causing the price to ______ and the ______.

supply; fall; quantity demanded to increase

If the government eliminated tariffs:

the gains in consumer surplus would outweigh the losses in producer surplus.

(Table: Production Possibilities for Kenya and Sri Lanka) According to the table on production possibilities for Kenya and Sri Lanka, which of the following answers identifies a trade price that both countries would find acceptable? (Units are in tons.)

two teas for one bean < Trade price < three teas for one bean

An increase in the rate of expected inflation causes:

the short-run aggregate supply curve to shift up.

If the exchange rate between the Japanese yen and the dollar was ¥110 = $1 in 2006 and ¥120 = $1 in 2009, then between 2006 and 2009:

the yen depreciated against the dollar.

The United States currently has a net _____ with the rest of the world

trade deficit

In the AD-AS model, money is not neutral in the short run if:

wages and prices are sticky.

If velocity is constant, the growth rate of the money supply is 2%, and inflation is 3%, then real output growth will be:

-1%.

(Figure: Aggregate Demand and Fiscal Policy) Refer to the figure. In the best case scenario, an economy in a recession at point Y would use fiscal policy to increase spending growth to:

10%.

(Table: iPhones) This table shows data for a country producing only iPhones. If 2000 prices are used in the calculation of real GDP, the GDP deflator for 2010 is:

110.

(Figure: Countries A and B) Refer to the figure regarding countries A and B. If each country allocated half of its labor force to the production of each good before trade and were to then each specialize in their comparative advantage and allocate 75 percent of its labor force to the production of that good, world production of Good X would change by _____ and the production of Good Y by _____.

15; -5

(Table: Anticipating Inflation) Using the inflation data in the table above, assume that all loan contracts have fixed nominal interest rates of 10% and mature after one year. Which year did lenders gain relative to borrowers?

2003

For an aggregate demand curve with = 10% and = 0%, if inflation is 6%, then real growth is:

4%.

If the money supply in a country is $200 million, the velocity of money is 5, and real GDP is 250 million, the price level of the country must be:

4.00.

(Figure: Price and Quantity 1) In the diagram, at a price of $40, the quantity demanded is ______, the quantity supplied is ______, and there is a ______.

60; 40; shortage of 20 units

A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. What is this country's labor force participation rate?

66.7%

Suppose a country's real GDP per capita was $9,000 in 1990, and it grew to $18,000 by 2000. What is the annual growth rate of the country's real GDP per capita during this period?

7%

(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of real GDP from 2007 to 2008 (in 2005 dollars) is:

8.3%

If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and 2 will be:

8.33%

(Figure: Bananas) Refer to the figure. If there is a $3 tariff on bananas, approximately what percent of banana consumption comes from imports?

90%

How might changes in the money supply be non-neutral in the short run?

As the amount of money circulating in the economy changes before prices respond, the purchases of consumers change accordingly, which leads producers to change production levels.

Which of these transactions occurring in 2011 would contribute to GDP for 2011?

Boeing sells a 787 aircraft produced in 2011 to a Korean airline.

How do budget deficits lead to trade deficits?

Budget deficits lead to higher interest rates, which lead to net capital inflow, which leads to currency appreciation, thus reducing net exports

Which of the following could explain the figure?

Consumer income increases in the market for a normal good

If the GDP of country X is 4 times the GDP of country Y and if the GDP of country X remains constant while GDP of country Y grows at a rate of 7% per year, which of the following statements is true?

Country Y's GDP will be equal to country X's GDP in 20 years.

(Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. If this depicts the equilibrium in the market for computer printers, what will happen when the price of computers increases?

D1 will shift to D2.

Suppose France can produce four phones or three computers with one unit of labor, and Sweden can produce one phone or two computers with one unit of labor. If France can trade only with Sweden, then the theory of comparative advantage suggests that

France should specialize in producing phones and import computers from Sweden.

If quotas on sugar were eliminated in the United States, domestic production of sugar would fall. Why is this a benefit in economic terms for the United States? I. Resources are freed up that could be used more efficiently elsewhere. II. It is beneficial because it allows foreign producers of sugar to earn income and thus those countries are better off. III. U.S. consumers are able to enjoy increased consumer surplus because of the lower prices of imported sugar.

I and III only

Consider the following statements: I. Relative to a no-trade situation, if the United States exported wheat, the U.S. domestic wheat price would rise and domestic production of wheat would expand. II. Relative to a no-trade situation, international trade causes the prices of all goods to rise.

I is true; II is false

What will happen to the supply of workers 18 to 21 years after a baby boom?

It will increase because of the influx of new adults into the labor market.

Jack and Jill work at a bakery. In one hour, Jack can decorate either 5 ice-cream cakes or 2 wedding cakes. In one hour, Jill can decorate either 4 ice-cream cakes or 1 wedding cake. According to this scenario, which of the following outcomes will benefit both Jack and Jill the most

Jill specializes in decorating ice-cream cakes and Jack specializes in decorating wedding cakes.

If the economy is hit by a negative real shock that raises inflation and unemployment, which fiscal policy action should the government take in order to keep inflation and unemployment stable?

No government action can achieve those goals.

Two centrally planned economies in 2011 were:

North Korea and Cuba.

As a result of an increase in expected inflation, the:

SRAS curve shifts up and to the left.

A firm produces volleyballs and soccer balls. What happens to the supply of soccer balls if the market price of volleyballs increases?

The opportunity cost of producing soccer balls rises, so the supply curve of soccer balls decreases.

Mobile homes are housing units installed on a permanent foundation owned by a landlord. Although a resident owns the home, she rents the foundation from the landlord. In theory, owners of mobile homes can transfer their home to a different foundation if the rent becomes too steep, but uninstalling, transporting, and reinstalling the mobile home is usually prohibitively expensive. This "lock-in" effect encourages state legislatures to create rent controls for mobile home foundations. Which statement is a plausible, unintended consequence of these laws?

There are few new mobile home foundations constructed.

(Figure: Aggregate Demand and Fiscal Policy) Refer to the figure. For an economy in a recession at point Z, what will happen in the long run in the absence of any government action to counter the recession?

Wages will become flexible and spending growth will recover to increase aggregate demand, moving the economy to point X.

(Figure: Supply and Demand 5) Refer to the figure. In the figure, representing a market for apartments, a rent-controlled price of $800 will cause:

a short-run shortage of 3,000 apartments.

Growth in nominal GDP over time can be caused by:

an increase in both prices and production over time.

If wages are not as flexible as prices in the AD-AS model, an increase in money growth will lead to:

an increase in inflation and in the profits of firms.

After a hurricane in Florida destroys half of the orange crop, economists predict:

an increase in orange prices and a decrease in orange sales.

Fiscal policy lags:

are generally longer than monetary policy lags.

Inflation refers to an increase in the

average level of prices.

Around the world, about one _____ people have incomes of less than $2 per day.

billion

If quantity supplied equals 85 units and quantity demanded equals 80 units under a price control, then it is a:

binding price floor.

(Table: Unemployment Statistics for Country X) Using the data in the table, Country X is likely to be in a recession in:

both 1995 and 2005.

The _____ measures transactions that may result in future financial flows, whereas the _____ measures current financial flows.

capital account; current account

In the past 100 years, there has been a decline in the use of unpaid child labor on family farms. Therefore:

changes in GDP overstate the true increase in production over the past 100 years.

The capital account measures:

changes in foreign ownership of domestic assets.

If the Chinese government purchases an additional $10 million worth of U.S. government bonds, this transaction is recorded as a _____ in the U.S. balance of payments

credit in the capital account

The _____ is the sum of the balance of trade, net income on capital held abroad, and net transfer payments.

current account

A low saving rate in the United States is one possible reason for the U.S.:

current account deficit, capital account surplus, and trade deficit.

A savings glut in other countries is one possible reason for the U.S.:

current account deficit, capital account surplus, and trade deficit.

(Figure: Trade 2) Refer to the figure. In this figure representing the market for oil, by how much will domestic oil consumption increase or decrease following a tariff on imported oil?

decrease by 150 units

Decreases in the level of political stability in a country tend to:

decrease per capita GDP.

Crowding out is the _____ in private spending that occurs when government _____ spending.

decrease; increases

Specialization and trade can _____ the per-unit cost of production because _____ .

decrease; it creates economies of scale associated with large-scale production

If a country has a trade surplus of $100 million, then it has a capital _____ so that the balance of payments is _____.

deficit; balanced.

High and volatile inflation:

destroys the ability of market prices to send signals about the value of resources and opportunities.

If market supply increases:

equilibrium price will decrease but equilibrium quantity will increase.

If π < πe:

firms will reduce their output.

Following an increase in the U.S. money supply, the U.S. real exchange rate tends to

first decrease and then increase.

If consumption growth decreases, the government spending "multiplier effect" means that in order to counter the recession:

fiscal policy needs to raise by less than the decrease in .

Several years ago, the rising popularity of Barnes & Noble and Borders shifted workers from independent bookshops to larger chains. What type of unemployment was associated with this reallocation of the work force?

frictional unemployment

Deregulation of the airline markets reduced waste, increased efficiency, and:

improved allocation of resources

An increase in U.S. government spending tends to:

increase U.S. interest rates and increase the U.S. capital account surplus.

As world coal prices rise due to increasing scarcity and coal-based energy costs rise, the demand for wind energy will:

increase.

In the AD-AS model, an unexpected increase in the growth rate of the money supply:

increases both the inflation and real growth rates in the short run.

A barrel of oil can be used to produce both gasoline and asphalt. If the price of gasoline falls, the supply of asphalt ________ and asphalt prices ________.

increases; decrease

If the price of computers ______, the demand for printers will ______.

increases; decrease

Refer to the figure. Suppose the economy is initially at point A in the diagram. If an increase in investment spending causes a shift of the AD curve from AD1 to AD4, then the government can avoid a short-run increase in inflation by:

increasing taxes so that the AD curve shifts back to AD1.

Current forecasts say that mild inflation is expected next year. If, however, deflation occurs instead:

lenders on existing fixed rate loans will gain while borrowers will lose.

Crowding out:

limits the increase in aggregate demand due to fiscal policy

Facilitators of trade (such as Pierre Omidyar, the developer of eBay):

may become very rich since they are creating value for many individuals.

All else held constant, an increase in U.S. imports will cause the U.S. current account to:

move in a negative direction.

All else held constant, an increase in U.S. exports will cause the U.S. current account to:

move in a positive direction.

When a foreign business buys stock in a U.S. company, the U.S. capital account will:

move in a positive direction.

Trade:

moves jobs from import-competing industries to export industries.

GDP is calculated by:

multiplying the quantity of all goods and services by their prices and adding together the results.

If the United States has a capital account surplus, the current account:

must be in deficit.

In the long run, with a floating exchange rate, changes in _____ will have an impact on the real exchange rate.

neither the U.S. money supply nor the foreign country's money supply

Assume that the initial real exchange rate for a country and its trading partner is 1:1. If there is inflation in the country, then PPP predicts:

no significant long run change in the real exchange rate.

Currency held by governments is part of the:

official reserves account.

Property rights are important institutions for encouraging investment because:

people won't invest if they feel their property is at risk and that they may not realize a return on their investment

If Ricardian equivalence holds, then a $100 million tax cut financed by issuing government bonds means that:

private saving will increase by $100 million.

In situations of excess demand, sellers might decrease service levels when they are unable to raise prices because they wish to:

raise their profit levels.

A country that has enforceable property rights, a noncorrupt political system, abundant factors of production, and a change in leadership and form of government every few years should suspect that economic growth will be _____ because _____.

slow; of uncertainty due to an unstable political system

(Figure: Rice and Shirts) Use the PPFs shown for the United States and India. If the United States and India specialize and trade, one country will trade away 20 pounds of rice in exchange for 20 shirts from the other. Compared with no trade, ______ will be able to consume ______ additional shirts, and _____ will be able to consume an additional ______ pounds of rice.

the United States; 4; India; 8.6

The key reason for China's growth miracle beginning in the late 1970s was:

the assignment of private property rights

(Figure: Price Ceilings and Consumer Surplus) Refer to the figure. There is a price ceiling of $20. What is the value of consumer surplus if all the goods are allocated randomly?

$120

(Table: Data from Europia) Based on the data in the table, what is interest income in the economy of Europia?

$2,800

(Figure: Foreign Trade Market) Refer to the figure. What is the dollar value of the lost consumer surplus as a result of prohibiting trade in this market?

$36,000

If U.S. per capita GDP is $50,000 and grows at 3% per year, what will U.S. per capita GDP be in 70 years?

$400,000

(Figure: Supply and Demand 4) Refer to the figure. If the good is purchased by those with the highest willingness to pay, what is the value of consumer surplus in the figure at the price ceiling of $8?

$54

In the figure, a $10 tax is imposed on the market for lobsters. What is the market price that lobster producers would need to receive to induce them to produce 5,000 bushels of lobster per day?

$60

(Table: Prices and Quantities in a 4-Good Economy) Suppose an economy produces only the four goods listed in this table. All of the country's tomatoes are used in the production of pizzas. What is the GDP in this country?

$7,200

(Figure: Price and Quantity 2) At a cost of $20 per unit in the diagram, the value of the unexploited gains from trade is:

$900.