MacroEcon Ch. 19 & 20

Which of the following terms of trade would enable the two countries illustrated in Figure 35.1 to trade with each other and increase consumption possibilities?

3/4 of a DVD player per motorcycle.

In the article on China holding $4 trillion in dollars, for every dollar it holds in reserves, it prints

6.5 additional yuan for the domestic money supply.

Suppose Russia can produce either 600 pianos or 400 HDTVs, and Italy can produce either 300 pianos or 150 HDTVs. Implicitly, Russia has

A comparative but not necessarily an absolute advantage in HDTVs

Suppose the U.S. dollar is defined by law as being equal to 0.1 ounce of gold. Further suppose the British pound is defined as being equal to 0.05 ounce of gold. The implied exchange rate between the pound and the dollar is

A fixed rate at which $1 = 2 pounds.

A quota is

A limit on the quantity of a good that may be imported in a given time period.

Which of the following might cause a depreciation of the U.S. dollar versus the Japanese yen?

A recession in Japan.

The United States imports heavily in all of the following markets except

Aircraft.

Consumption possibilities, during a given time period, refer to the

Alternative combinations of goods and services that a country could consume in a given period of time.

Which of the following events would result in a greater demand for U.S. dollars in the foreign exchange market, ceteris paribus?

An increase in interest rates in the United States.

If a country engages in trade with other countries, it is known as

An open economy.

Ceteris paribus, if incomes increase faster in the United States than in less developed countries, then the currencies of less developed countries should

Appreciate, and the dollar should depreciate.

Assume Ireland can produce 4 units of good X or 2 units of good Y. France can produce 3 units of good X or 9 units of good Y. What would be the terms of trade between Ireland and France for 1 unit of good X?

Between 1/2 and 3 units of Y.

Assume the United States and Canada have the same amount of resources. In a given time period, the United States can produce 3 tons of steel or 300 tons of wheat. Canada can produce 4 tons of steel or 400 tons of wheat. This means that

Canada has an absolute advantage in both steel and wheat.

According to the text, which of the following does the United States export?

Cars, cigarettes, corn, farm equipment, and services.

Specialization in production and then trading with other countries

Change the mix of output for each country and increase total world output.

Choose the letter of the diagram in Figure 36.2 that represents the shift in the foreign exchange market for dollars given the following situation, ceteris paribus: The Japanese remove some tariffs on American goods.

D

Suppose that at the prevailing euro-dollar exchange rate there is an excess demand for dollars. To stabilize exchange rates, the United States might

Decrease trade restrictions on euro-priced goods.

When foreign countries buy wheat grown in the United States, they are generating a

Demand for U.S. dollars and a supply of a foreign currency.

Ceteris paribus, if African countries experience a drought and purchase food from the United States, the currencies of the African countries should

Depreciate, and the dollar should appreciate.

When tariffs are imposed, the losers include

Domestic consumers and foreign producers.

The purpose of the World Trade Organization (WTO) is to

Enforce the rules of free trade.

An increase in the price of the U.S. dollar in terms of euros will cause, ceteris paribus,

European goods to be cheaper to residents of the United States.

When a Japanese businesswoman traveling in the United States asks, "How many U.S. dollars can I get for these yen?" she wants to know the

Exchange rate.

Comparative advantage refers to the ability to produce output with fewer resources than any other country.

FALSE

When the price of yen in terms of dollars increases, Honda automobiles from Japan become cheaper to U.S. residents.

FALSE

Which of the following can a nation use to shift the supply or demand for its currency?

Fiscal, monetary, and trade policies.

In foreign exchange markets, the supply of U.S. dollars is determined by all of the following except

Foreign demand for American exports.

Places where foreign currencies are bought and sold are

Foreign exchange markets.

Comparative advantage in production is achieved by

Having a lower opportunity cost of producing a good relative to that of other countries. Correct

As a result of an increase in demand from D2 to D1 in Figure 36.4, ceteris paribus, the price of a $40,000 U.S. computer system, in terms of Japanese yen, would: =

Increase in price by 800,000 yen.

Specialization in production

Increases output.

Generally speaking, a country whose currency depreciates will experience, as a result,

Inflationary pressure because the prices of imports rise.

The amount by which the quantity demanded exceeds the quantity supplied at a given price is a

Market shortage.

All of the following companies export over one quarter of their production except

McDonalds.

Suppose the production of 12 tons of copper in the United States requires the same amount of resources as the production of 3 tons of aluminum. In Mexico, 12 tons of copper requires the same amount of resources as 2 tons of aluminum. Implicitly

Mexico has a comparative advantage in producing copper.

Compared to their initial positions at points A and B, as a result of complete specialization and trade, the output of the two countries added together in Figure 35.1 would result in an increase in

Motorcycles only.

When exchange rates are flexible, they are

Permitted to vary with changes in supply and demand in the foreign exchange market.

Producers of paper products are most likely to be in favor of

Protectionism in the paper product market but free trade in the lumber market.

Trade restrictions

Reduce the gains from trade for the country as a whole.

If the U.S. dollar depreciates, in the long run the United States should experience a

Smaller deficit in the U.S. trade balance.

All of the following are true regarding flexible exchange rates except

Speculators typically push exchange rates away from the long-term equilibrium.

As a result of GATT, tariff rates in developed countries have decreased from 40 percent in 1948 to less than 4 percent today

TRUE

If income in the United States rises relative to income in Japan, the yen should appreciate against the dollar, ceteris paribus.

TRUE

Preservation of national security is one argument in favor of trade restrictions.

TRUE

Reducing protectionism allows greater gains from free trade.

TRUE

The capital account balance equals foreign purchases of U.S. assets minus U.S. purchases of foreign assets.

TRUE

The inflow of foreign investment into the U.S. economy reflects a high level of confidence in the United States.

TRUE

Which of the following statements is true for the two countries illustrated in Figure 35.1?

The United States has a comparative advantage in DVD players.

Which of the following is true?

The United States has a very low export ratio.

According to the text, which of the following is true?

The United States imports baseballs and exports corn.

Theoretically, the net balance of payments is

The current account plus the capital account.

The trade balance for the United States equals

The difference between the dollar value of exports and the dollar value of imports.

An In the News article titled "U.S. Winemakers Hurt by Imported Wine" discusses foreign wine sold in the U.S. market. California grape growers' main complaint was that

The growing strength of the dollar makes it hard to compete

The capital account balance equals

The negative of the current account balance.

A country's export ratio is

The ratio of exports to GDP.

Two countries with differing comparative advantages may engage in trade because

They will be able to consume more goods in total due to specialization and trade.

The demand for U.S. dollars originates from all of the following except

U.S. demand for imported goods.

If a country is completely self-reliant in producing goods for its own consumption needs, then

consumption possibilities equal its production possibilities.

Ceteris paribus, if Americans decide they want to drive more German-made cars, this causes the ________ German currency to _______.

demand for; increase

Ceteris paribus, if the French decide they want to drink more Chinese-grown tea, this causes the ________ Chinese currency to _______.

demand for; increase