macroecon final exam (ch 15-16)

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If the exchange rate between the Argentine peso and the U.S. dollar is 4 pesos for $1, how much is each peso worth in U.S. money? $0.50 $0.25 $0.75 $1.25

$0.25 Since 4 pesos exchange for $1, 1 peso must be worth one-fourth of a dollar, or $0.25.

The Chinese yuan's real exchange rate relative to Japan's yen is negatively related to Japan's price level. the yuan's nominal exchange rate. Japanese inflation. China's price level.

China's price level. The Chinese yuan's real exchange rate relative to Japan's yen is negatively related to China's price level.

Suppose that a Portuguese car manufacturer decides to open four new manufacturing plants in the United States. How do the profits earned from these manufacturing plants affect Portugal's balance of payments? The financial account will decrease. The financial account will increase. The current account will decrease. The current account will increase.

The current account will increase. The profits leave the United States and go to Portugal, which has a positive effect on Portugal's current account.

In mid-July 2011, the euro was valued at $1.4265 compared with $1.4526 at the start of the month. How would this change be described? The euro depreciated against the dollar. The euro appreciated against the dollar. The dollar depreciated against the euro. The purchasing power parity between the two currencies increased.

The euro depreciated against the dollar. The euro depreciated against the dollar, since it was worth fewer dollars than at the start of the month.

Suppose that a Portuguese car manufacturer decides to open four new manufacturing plants in the United States. How would this affect the United States' balance of payments? The current account will decrease. The current account will increase. The financial account will decrease. The financial account will increase.

The financial account will increase. Money is flowing from Portugal into manufacturing plants in the United States. Since money is flowing into domestic assets, the United States' financial account increases.

The diagram shows the market equilibrium exchange rate between the Chinese yuan and the U.S. dollar (USD) under a floating exchange rate regime. Suppose China's central bank decides to increase interest rates. Shift the demand and supply curves as appropriate. Q vs Exchange rate (USD per year): - supply: upwards sloping line - demand: downwards sloping line This increase in Chinese interest rates will lead to... a decrease in domestic Chinese aggregate demand, but this will be somewhat offset by the change in exchange rates. an increase in domestic Chinese aggregate demand, but this will be somewhat offset by the change in exchange rates. a decrease in domestic Chinese aggregate demand, which will be made worse by the change in exchange rates. an increase in domestic Chinese aggregate demand, which will be further strengthened by the change in exchange rates.

The increase in interest rates in China will result in Americans having a greater incentive to move money into China as higher interest rates encourage capital transfers from abroad. As a result, American investors will have a greater need for the Chinese yuan, leading to an increase in demand for the currency, which will shift the demand curve to the right. At the same time, Chinese nationals will have less incentive to send capital abroad since the return they get at home will have increased. This will lead to the Chinese keeping more of their currency at home, so the supply of the Chinese yuan will fall, which will shift the supply curve to the left. - demand shifts right, supply shifts left a decrease in domestic Chinese aggregate demand, which will be made worse by the change in exchange rates.

Which of the statements about free trade's effects on the environment is not commonly given as an argument against trade liberalization? Laws regarding environmental safety and standards are typically more lax overseas. The lower enivronmental standards in less-developed countries pressure trading partners into adopting similar standards. Changes to environmental laws may be "disguised" forms of protectionism. The international trade of agricultural products harms local agriculture in all countries.

The international trade of agricultural products harms local agriculture in all countries.

Which of these is NOT true of the gold standard, which characterized most economies before the Great Depression? Reducing exports would decrease the flow of gold into a country. The values of currencies were fixed in terms of gold. The values of currencies were allowed to float relative to each other. Reducing imports would increase the flow of gold into a country.

The values of currencies were allowed to float relative to each other. The values of currencies were fixed in terms of gold and fixed relative to other currencies.

The graph shows the domestic demand and domestic supply for soybeans. Assume this country is open to international trade, that soybeans are a perfectly competitive good, and that the world price of soybeans is $30. graph of Q vs P: - domestic supply upwards sloping, (20,20) to (85,85,) - domestic demand downwards sloping, from (20,80) to (85, 15) - world price horizontal line at P = 30 Suppose a tariff of $10 is imposed. What price will result in this country?

$40

Suppose that Russia produces 10,000,000 barrels of oil and 1,000 bushels of wheat each week. Suppose that China produces 9615 barrels9615 barrels of oil and 9615 bushels9615 bushels of wheat each week. In autarky, what is the largest amount of wheat Russia can consume every week?

1000

The tables contain the current account data for a small country. All values are in millions of dollars. Use the tables to answer the questions. exports: - goods = 75 - services = 85 imports: - goods = 70 - services = 75 inflows: - income payments = 30 - transfers = 25 outflows: - income payments = 25 - transfers = 30 What is the value of the balance of trade?

15 million

15 million current account balance=balance of trade+balance on income+net transfers

Suppose 0.60 euros can be exchanged for $1. A French entrepreneur is interested in buying a home in Rhode Island. If the price of the home in Rhode Island is $300,000, how many euros must she have to buy this home?

180,000 euros

Suppose 14 pesos can be exchanged for $1. A Mexican businessman is interested in buying a home in Texas. If the price of the home in Texas is $200,000, how many Mexican pesos must he have to buy this home?

2,800,000 pesos

Suppose the exchange rate between Canada and the United Kingdom is equal to 1.501.50 Canadian dollars (CAD) required to buy 1 British pound. Calculate the missing prices assuming that purchasing power parity (PPP) holds. Price in Canada: - kilo of bananas: ? - kilo of strawberries: ? - kilo of kiwis: 9.30 CAD - kilo of oranges: 3.80 CAD Price in the UK: - kilo of bananas: 2.70 pounds - kilo of strawberries: 3.80 pounds - kilo of kiwis: ? - kilo of oranges: ? price of a kilo of oranges in the UK

2.54

A farmer produces both beans and corn on her farm. If she must give up 16 bushels of corn to be able to get 6 bushels of beans, then her opportunity cost of 1 bushel of beans is 0.38 bushels of corn. 16.00 bushels of corn. 2.67 bushels of corn. 2.99 bushels of corn.

2.67 bushels of corn

The graph shows the domestic demand and domestic supply for soybeans. Assume this country is open to international trade, that soybeans are a perfectly competitive good, and that the world price of soybeans is $30. graph of Q vs P: - domestic supply upwards sloping, (20,20) to (85,85,) - domestic demand downwards sloping, from (20,80) to (85, 15) - world price horizontal line at P = 30 After the tariff is imposed, how many units of soybeans will be imported?

20 units

Suppose that Paulie and Vinny each can produce ice cream or t-shirts. The table shows the quantity of each good that Paulie and Vinny each can produce in 11 hour, respectively, if they devote all of their time and effort into making the good. Round all answers to two decimal places. Paulie: 5 ice cream cups, 19 t-shirts Vinny: 10 ice cream cups, 15 t-shirts What is Paulie's opportunity cost of producing a cup of ice cream?

3.80 t-shirts

4.05

5.7

Use the information in the chart to calculate the real exchange rate between the U.S. dollar and the Indian rupee. Round to the nearest whole number. rupees/dollar: - 2014: 57 - 2015: 65 - 2016: 73 U.S. price index: - 2014: 99.5 - 2015: 100.4 - 2016: 101.4 Indian price index: - 2014: 108 - 2015: 121 - 2016: 131 what was the real exchange rate in 2014?

53 rupees/dollar real exchange rate = nominal*(domestic/foreign)

Use the information in the chart to calculate the real exchange rate between the U.S. dollar and the Indian rupee. Round to the nearest whole number. rupees/dollar: - 2014: 67 - 2015: 65 - 2016: 73 U.S. price index: - 2014: 99.5 - 2015: 100.4 - 2016: 101.4 Indian price index: - 2014: 108 - 2015: 121 - 2016: 131 what was the real exchange rate in 2015?

54 rupees/dollar

57 rupees/dollar

Suppose the exchange rate between Canada and the United Kingdom is equal to 1.50 Canadian dollars (CAD) required to buy 1 British pound. Calculate the missing prices assuming that purchasing power parity (PPP) holds. Price in Canada: - kilo of bananas: ? - kilo of strawberries: ? - kilo of kiwis: 9.30 CAD - kilo of oranges: 3.80 CAD Price in the UK: - kilo of bananas: 2.70 pounds - kilo of strawberries: 3.80 pounds - kilo of kiwis: ? - kilo of oranges: ? price of a kilo of kiwis in the UK

6.23 pounds

What does it mean to dollarize a currency? The central bank of a country pegs the country's exchange rate to be a proportion of the U.S. dollar. A group of countries merge the currencies of different countries into a single currency. A person or firms converts a foreign currency to the U.S. dollar. A foreign country uses the U.S. dollar as its currency.

A foreign country uses the U.S. dollar as its currency.

Consider the exchange rate between New Zealand and Pakistan. Typically, exchange rates vary over time, sometimes quite dramatically. The scenarios present various changes that may affect the exchange rate. Indicate whether each scenario will tend to cause an appreciation or depreciation of, or have no effect on, the value of New Zealand dollars relative to Pakistani rupees. Based on a World Bank report, the inflation rate in New Zealand will be 0% next year, whereas the inflation rate in Pakistan will be 9.5%

appreciate

Consider the exchange rate between New Zealand and Pakistan. Typically, exchange rates vary over time, sometimes quite dramatically. The scenarios present various changes that may affect the exchange rate. Indicate whether each scenario will tend to cause an appreciation or depreciation of, or have no effect on, the value of New Zealand dollars relative to Pakistani rupees. The central bank in New Zealand announces that it will raise interest rates on government bonds

appreciate

International trade is the subject of much debate. Many economist favor encouraging international trade, citing the benefits gained by trade. However, there are economic arguments for limiting international trade with protectionism. Classify the given statements into the appropriate category. - the ability of a nation to consume more than could be produced on their own - the national defense argument - worries about domestic labor markets - changes in productivity related to comparative advantage - the infant industry argument - the potential of other governments subsidizing their firms and allowing these firms the ability to charge lower prices than domestic firms

arguments for promoting international trade: - the ability of a nation to consume more than could be produced on their own - changes in productivity related to comparative advantage arguments for limiting international trade with protectionism: - the infant industry argument - the potential of other governments subsidizing their firms and allowing these firms the ability to charge lower prices than domestic firms - the national defense argument - worries about domestic labor markets

The graph represents the foreign exchange market for the dollar against the euro. Manipulate the appropriate curve to depict the effect on the foreign exchange rate (euros per dollar) if Europeans consider American products to be more fashionable than they did previously. Q vs exchange rate (euros per dollar): - supply: upwards sloping line - demand: downwards sloping line

demand curve shifts right

A firm based in the United States exports toasters to Columbia.

demander

A person from Vietnam wants to purchase a share of a company in the United States.

demander

Investors from Peru want to buy bonds from the United States.

demander

People from Namibia are visiting their relatives in the United States.

demander

Consider the exchange rate between New Zealand and Pakistan. Typically, exchange rates vary over time, sometimes quite dramatically. The scenarios present various changes that may affect the exchange rate. Indicate whether each scenario will tend to cause an appreciation or depreciation of, or have no effect on, the value of New Zealand dollars relative to Pakistani rupees. The magazine The Economist publishes an article indicating that analysts expect the value of Pakistan rupees to rise relative to New Zealand dollars

depreciate

Consider the exchange rate between New Zealand and Pakistan. Typically, exchange rates vary over time, sometimes quite dramatically. The scenarios present various changes that may affect the exchange rate. Indicate whether each scenario will tend to cause an appreciation or depreciation of, or have no effect on, the value of New Zealand dollars relative to Pakistani rupees. The price of a specific basket of goods in New Zealand is roughly 1.7 times higher than the price of an identical basket of goods in Pakistan, even after adjusting for the exchange rate

depreciate Since Pakistani rupees can purchase 1.71.7 times more goods and services than an equivalent amount of New Zealand dollars, Pakistani rupees are more valuable than New Zealand dollars. Under these circumstances, people would be inclined to convert their currency into Pakistani rupees. This results in a decrease in demand for New Zealand dollars, causing the currency to depreciate.

Shown are three currency exchange markets operating under the Bretton Woods System. Match the label to the graph that describes the best course of action by each country's central bank to bring about equilibrium in each market. Q of yuan per day vs. dollars per yuan: - demand vs supply - par exchange rate above equilibrium

devaluation

Complete the statement regarding conversions between different countries' currencies. The amount of one currency needed to purchase a unit of another currency is ____________. When a country's currency ____________ it becomes more valuable vis-a-vis another currency. The goods and services its citizens buys from other countries become ________ expensive.

exchange rate; appreciates; less

The Bretton Woods System is an exchange rate system where

exchange rates are pegged to the United States dollar

For each of the items, determine if it is an import, an export, income, or a monetary transfer. Assume that the United States is the domestic country. f. Chicago‑based Boeing, sells 12 new aircraft to Beijing Airlines.

export

For each scenario, determine if it is an example of an import, export, income, or transfer. Assume that the United States is the domestic country. d. Chicago‑based Boeing sells 12 new aircraft to Beijing Airlines.

export

Identify whether the given items are examples of imports, exports, or neither. Assume the United States is considered the domestic country. A farmer in Iowa sells corn to a food processing plant in China. export neither import

export

Identify whether the given items are examples of imports, exports, or neither. Assume the United States is considered the domestic country. Chevron drills for oil in the United States and sells this oil to refineries in Brazil and Mexico. neither export import

export

Since the 1950s, the US has had a trade deficit

false

T/F: A nation will not have a comparative advantage in a product if it does not also have an absolute advantage in the production of that good.

false

T/F: Absolute advantage is the source of the potential gains from specialization and trade.

false

T/F: The process of specialization and trade has positive net benefits and is, therefore, beneficial to everyone.

false

The majority of the U.S. public agrees that trade barriers should be maintained to protect American jobs

false

The General Agreement on Tariffs and Trade (GATT) has globally increased tariffs, trade, and the standard of living since 1947

false GATT lowered tariffs, which led to an increase in trade and a rise in the standard of living globally. Lower tariffs encouraged trade, which increased national income and thereby the standard of living.

Classify each scenario as part of the U.S. financial account or the U.S. current account. Al, a U.S. citizen, purchases a vacation home in Ixtapa, Mexico

financial account

Classify each scenario as part of the U.S. financial account or the U.S. current account. The Canadian government purchases U.S. Treasury securities

financial account

The total of foreign exchange transactions can be 30 or 40 times the volume of exports and imports. Most foreign exchange transactions are conducted for trade. government-related expenditures. remittances. financial or speculative purposes.

financial or speculative purposes. Most foreign exchange transactions are conducted not for trade but for financial or speculative purposes.

In _________ exchange rate system, the government determines how many units of its currency can be exchanged for another country's currency, using macroeconomic policy to maintain it.

fixed

The Bretton Woods system in an example of a _________ exchange rate system.

fixed

In which exchange rate system is the exchange rate determined entirely by the supply of and demand for a currency? managed float exchange rate system fixed exchange rate system flexible exchange rate system Bretton Woods system

flexible exchange rate system

Categorize each transaction according to the U.S. account to which it belongs and the direction in which money flows d. If an Australian company buys steel from a U.S. firm, payments ________ foreigners flow into the U.S. ______ account.

from; current

Categorize each transaction according to the U.S. account to which it belongs and the direction in which money flows b. If profits are earned by a U.S.-based mining company operating in Mexico, payments ______ foreigners flow into the U.S. _________ account.

from; current Profits earned in Mexico by the U.S. mining company. These profits are a payment from foreigners. This transaction is accepted for in the current account.

Categorize each transaction according to the U.S. account to which it belongs and the direction in which money flows. a. If an English company purchases a U.S. confectionary manufacturer, payments ________ foreigners flow into the U.S. _______ account.

from; financial

For each scenario, determine if it is an example of an import, export, income, or transfer. Assume that the United States is the domestic country. a. Rhode Island‑based Joe's Lobster Shack hires Villagebank (a London investment bank) to handle its initial public offering (IPO).

import An import occurs whenever the U.S. buys a good or service from a foreign country. This occurs when Joe's Lobster Shack hires the London investment bank's services and when Dennis buys an Italian handbag.

The graph depicts the market for oil, with the assumption that the United States can import any amount of oil it chooses at the world free trade price. Adjust the graph to reflect what happens when a 50% import tax is imposed on oil. graph Q vs P: - demand: downwards sloping from (7,90) to (15.5,10) - supply: upwards sloping from (7,10) to (16,90) - import price: horizontal line at P = 20

import price shifts to Y = 30

The graph depicts the market for oil, with the assumption that the United States can import any amount of oil it chooses at the world free trade price. Approximately how many million barrels are imported after the tax is imposed?

imported oil: 4.5 million barrels

imported oil: 6.5 million barrels

For each of the items, determine if it is an import, an export, income, or a monetary transfer. Assume that the United States is the domestic country. c. Nancy is a U.S. citizen. She earned $800 in dividends last year from her investment portfolio of European shipping companies.

income

For each of the items, determine if it is an import, an export, income, or a monetary transfer. Assume that the United States is the domestic country. g. Jim, an NYU student, studied abroad at the University of Barcelona this summer. the University of Barcelona this summer. While there, he worked part‑time at the college's bookstore.

income

For each scenario, determine if it is an example of an import, export, income, or transfer. Assume that the United States is the domestic country. c. Nancy is a U.S. citizen. She earned $800 in dividends last year from her investment portfolio of European shipping companies.

income

For each scenario, determine if it is an example of an import, export, income, or transfer. Assume that the United States is the domestic country. e. Jim, an NYU student, studied abroad at the University of Barcelona this summer. While there, he worked part‑time at the college's bookstore.

income

Rent earned by a U.S. citizen on property owned in Brazil causes a(n) increase in the current account. decrease in the financial account. decrease in the current account. increase in the financial account.

increase in the current account. Exports, income U.S. citizens earn from abroad, and net transfers contribute to a current account surplus or lessen a current account deficit. A current account surplus must be balanced out by a financial account deficit.

For each of the items, determine if it is an import, an export, income, or a monetary transfer. Assume that the United States is the domestic country. b. Scotland sends $50 million to help the New Jersey Hurricane Relief Program.

monetary transfer

For each of the items, determine if it is an import, an export, income, or a monetary transfer. Assume that the United States is the domestic country. d. Svetlana works at Coke headquarters in Atlanta. She sends 10% of her salary to her parents in Bulgaria.

monetary transfer

For each of the items, determine if it is an import, an export, income, or a monetary transfer. Assume that the United States is the domestic country. h. Cliff and Emily's Social Security checks are mailed to their new home in Cost Rica.

monetary transfer

Identify whether the given items are examples of imports, exports, or neither. Assume the United States is considered the domestic country. A Chinese consumer purchases a television produced in China. import export neither

neither

Identify whether the given items are examples of imports, exports, or neither. Assume the United States is considered the domestic country. Lucy lives in Tennessee and buys an orange grown in Florida. neither import export

neither

Today, the values of most world currencies are determined by market forces, but governments occasionally intervene to manage their currencies' values. Today's system could best be described as _________ exchange rate system.

neither

Suppose you have the information about the productivity of industries in the U.S. and Japan. The numbers in the table are the units of output per hour of work. Use the data to answer the questions. Japan: - Steel (in tons): 12 - Desktop computers: 6 U.S.: - Steel (in tons): 8 - Desktop computers: 2 The U.S. has an absolute advantage in ________________. The U.S. has a comparative advantage in _____________.

neither good (Japan can produce more of both) steel - Japan cost of steel: 6/12 = 0.5 - US cost of steel: 2/8 = 0.25 <--- lower opportunity cost

none

Suppose that research finds a link between high fructose corn syrup (HFCS) and obesity, which then leads American consumers to switch from HFCS products to pure cane sugar products. The graphs show the markets for cane sugar in Haiti and the United States before the studies were divulged. Shift the curves in the graphs, including the horizontal world price curve, to describe the new trade equilibrium that results after the switch in preferences of American households, and then answer the follow‑up question. Assume that the United States and Haiti are the only non‑HFCS sugar trading parties in the world and that there are no quotas, subsidies, or tariffs distorting these markets. U.S. graph Q vs P: - domestic supply: upwards sloping, from (0,4) to (14,10) - domestic demand: downwards sloping, from (6,10) to (16,0) - world price: horizontal line at P = 5 change in U.S. graph?

only change in domestic demand: from (10,10) to (20,0)

Suppose that research finds a link between high fructose corn syrup (HFCS) and obesity, which then leads American consumers to switch from HFCS products to pure cane sugar products. The graphs show the markets for cane sugar in Haiti and the United States before the studies were divulged. Shift the curves in the graphs, including the horizontal world price curve, to describe the new trade equilibrium that results after the switch in preferences of American households, and then answer the follow‑up question. Assume that the United States and Haiti are the only non‑HFCS sugar trading parties in the world and that there are no quotas, subsidies, or tariffs distorting these markets. Haiti graph Q vs P: - domestic supply: upwards sloping line from (0,8) to (18,10) - domestic supply: downwards sloping line from (2,10) to (12,0) - world price: horizontal line at P = 4 change in Haiti graph?

only world price changes to Y = 5

If exchange rates are flexible and fiscal policy is held constant, an expansionary monetary policy will be _____ by an open economy. unaffected offset mitigated reinforced

reinforced Expansionary monetary policy results in a growing money supply and falling interest rates. Lower interest rates lead to a financial outflow. Consumers and investors will want more foreign currency; the dollar depreciates, and exports increase. The net result is that the international market works to reinforce an expansionary policy undertaken at home.

revaluation

The table shows the demand and supply for cocoa beans in two countries: Cameroon and Nigeria. Use the information in the table to answer the questions. see question for table - question 3, hw 15

see hw question

The table shows the hypothetical demand and supply for coffee beans in two countries: Ethiopia and Azerbaijan - question 14, hw 15

see question on hw

The accompanying Production Possibilities Frontiers (PPF) represent hypothetical levels of production for Honduras and Brazil. Assume the two countries are initially producing and consuming in autarky at point A on each of their PPFs. Suppose these countries decide to trade. Each country will specialize in the production of the good for which it has a comparative advantage. - see hw 15

see question on hw 15

An investor in the United States wants to deposit funds in a bank in Estonia.

supplier

A company based in Taiwan exports exclusively to the United States.

supplier Exporters to the United States must ultimately convert the dollars they earn in revenue into their domestic currencies.

A wealthy investor in the United States attempts to purchase an entire t‑shirt firm in Zambia.

supplier The investor in the United States who deposits funds in an Estonian bank is a supplier because that foreign account will be denominated in the foreign currency.

A tourist from the United States goes on vacation to France.

supplier suppliers want to exchange U.S. dollars for a foreign currency.

Which statement best describes an infant industry? an industry in some form of emerging technology an emerging or underdeveloped industry that needs protection to survive and become competitive an industry that cannot survive without foreign markets in which to sell an industry that exists in a new country that is formed out of an older country.

an emerging or underdeveloped industry that needs protection to survive and become competitive

Which of these BEST describes the income payments in the United States in 2018? an inflow of $816.1 billion an outflow of $816.1 billion an outflow of $2,500.8 billion an inflow of $1,060.4 billion

an outflow of $816.1 billion The income payments in the United States were an outflow of $816.1 billion. Income received (inflow) was $1,060.4 billion.

Suppose that Paulie and Vinny each can produce ice cream or t-shirts. The table shows the quantity of each good that Paulie and Vinny each can produce in 11 hour, respectively, if they devote all of their time and effort into making the good. Round all answers to two decimal places. Paulie: 5 ice cream cups, 19 t-shirts Vinny: 10 ice cream cups, 15 t-shirts Paulie has a comparative advantage in __________ and Vinny has a comparative advantage in __________.

t-shirts ice cream

Canada is considering imposing a tax on imports of Chinese solar panels. This action would be best described as a voluntary export restraint. subsidy. tariff. quota.

tariff.

Interest payments made to Saudis from investments in U.S. corporate bonds are included in net transfers. the balance of trade. the financial account. the balance of income.

the balance of income. The balance of income includes wages, rents, interest, and profits that U.S. citizens earn abroad or that foreigners earn in the United States. This is a component of the current account.

Wages paid to U.S. citizens working in China are included in the financial account. the balance of income. the balance of trade. net transfers.

The graph shows the supply and demand of possum, the currency of the hypothetical country Possumtopia, and the price as dollars per possum. This decrease in the exchange rate means... the possum depreciates and the dollar depreciates. the possum appreciates and the dollar depreciates. the possum appreciates and the dollar appreciates. the possum depreciates and the dollar appreciates.

the possum depreciates and the dollar appreciates. This decrease in the exchange rate is called a depreciation of the possum. If the possum is worth less compared to the dollar, then the dollar must be worth more compared to the possum. This increase in the value of the dollar is called an appreciation of the dollar.

the yuan appreciating and the dollar depreciating.

Categorize each transaction according to the U.S. account to which it belongs and the direction in which money flows c. If the Federal Reserve buys $2$2 billion worth of euros, payments _____ foreigners flow into the U.S. _______ account.

to; financial Official asset sales and purchases are those purchases of assets, such as currency reserves, made by central banks. The Federal Reserve's purchase of $2$2 billion worth of euros falls into the financial account.

For each scenario, determine if it is an example of an import, export, income, or transfer. Assume that the United States is the domestic country. f. Ohio Tech University pays $30 million in stipends to its international students.

transfer

For each scenario, determine if it is an example of an import, export, income, or transfer. Assume that the United States is the domestic country. b. Scotland sends $50 million to help the New Jersey Hurricane Relief Program.

transfer Monetary transfers are not thought of as being productive in a direct sense. Scotland is not getting any goods or services in exchange for sending $50 million to New Jersey

T/F: Countries specialize in the production of goods for which they have a comparative advantage.

true

T/F: It can be mutually beneficial for two nations to specialize in goods for which they have a comparative advantage and then trade with one another.

true

The statements are related to international trade. Label each statement as either true or false. Due in part to big differences in the cost of medical procedures in different countries, medical tourism is increasing

true

If the financial account balance is $634 billion, what is the current account balance? −$366 billion −$634 billion $634 billion $366 billion

−$634 billion The current account balance is −$634 billion, since the sum of the financial account balance and the current account balance is always zero.

Juan Valdez, a coffee farmer in Colombia, sells his coffee to Cafe Emporium, a U.S. firm which specializes in gourmet coffee blends. What can be inferred from the fact that Juan has voluntarily entered into a contract with Cafe Emporium? Juan is earning zero economic profit selling coffee. Juan is better off as a result of his deal with Cafe Emporium. Juan has negotiated a a price that is favorable to him and therefore makes it difficult for Cafe Emporium to earn profits. Cafe Emporium is a monopoly.

Juan is better off as a result of his deal with Cafe Emporium.

The graph shows the supply and demand of possum, the currency of the hypothetical country Possumtopia, and the price as dollars per possum. What is the exchange rate in dollars to possum after the increase in the supply of possum?

0.3 dollars per possum

0.67 cups of ice cream

In general, which of the statements is most likely to occur as a result of the proposed tax on imported solar panels? Solar panel producers in Canada will face more competition. Consumers in Canada will face higher prices for solar panels. Canadian workers in solar panel manufacturing will be laid off. Canadian consumers will benefit from cheaper solar panels.

Consumers in Canada will face higher prices for solar panels.

Consider the hypothetical trade data presented in the accompanying table. Mexico: imports = 100, exports = 120 Honduras: imports=100, exports = 0 Belize: imports = 0, exports = 0 Panama: imports = 30, exports = 30 Which country is running a trade surplus?

Mexico

Suppose there are only two goods produced in an economy: phones and meals. Maria is adept at assembling electronics but has poor skills at preparing food. Mike is an accomplished chef but is not very skilled at assembling electronics. Currently Mike and Maria each work independently, and they each produce both meals and phones. However, they are considering trading some of their respective output with each other, but only if that would allow each person to become more prosperous. Which statement is not true? Mike and Maria would gain by using their time making only the one good that they are best at producing. Mike should produce more food and fewer phones, and Maria should produce more phones and fewer meals. Customers will gain if Mike and Maria decide to specialize in what they do best and trade their output. Mike and Maria will both gain only if they trade the same number of phones for the same number of meals.

Mike and Maria will both gain only if they trade the same number of phones for the same number of meals.

Juan Valdez, a coffee farmer in Colombia, sells his coffee to Cafe Emporium, a U.S. firm which specializes in gourmet coffee blends. What must be true of this arrangement? When Juan and other farmers in Colombia sell their coffee beans to foreigners, they gain in the short run, but in the long run will only impoverish their nation as a whole. Juan thinks he is better off with this contract, but in reality the wealthy American buyer is taking advantage of Juan's naiveté. While this arrangement is good for Juan, he would be even better off if the government had negotiated the contract because they could have gotten a better price for Juan. All three of these statements must be true. None of these statements must be true.

None of these statements must be true.

Panama, Mexico, Honduras

Which best describes the barrier to trade known as dumping? Setting tariffs so high that certain classes of goods are not imported at all. Selling exports abroad at a lower price than the domestic price. Overpricing exports to make domestic goods distasteful in foreign markets. Destroying shipments of imports to force consumers into purchasing domestic goods.

Selling exports abroad at a lower price than the domestic price.

Which of the choices describes how the effects of import tariffs and import quotas are different? The domestic cost of an import tariff is larger than the domestic cost of a comparable import quota. Import tariffs create deadweight loss, whereas import quotas do not create deadweight loss. Quotas do not affect the equilibrium price, whereas tariffs do not affect the equilibrium quantity. Some foreign producers receive some of the benefits generated by an import quota.

Some foreign producers receive some of the benefits generated by an import quota. One key difference between an import tariff and an import quota is that, in the case of import tariffs, domestic governments receive tax revenue from the tariff. In contrast, it is foreign producers, now able to charge a higher price for their goods to domestic consumers, who receive the equivalent amount of the tariff revenue in the form of a quota rent.

If Spain is said to have an absolute advantage over the United States in the production of natural gas, this means that, given the same resources, Spain has an absolute advantage in all goods that are complements to natural gas. Spain can produce more natural gas than the United States. the United States must have a comparative advantage over Spain in the production of natural gas. Spain must have an absolute advantage over the United States in producing all goods. the United States must have an absolute advantage in producing some good other than natural gas.

Spain can produce more natural gas than the United States.

In some simple models of trade, a country may choose to specialize in the production of a single good. Which is not an argument against specializing in a single good in the real world? Curved production possibilities curves suggest increasing costs and diminishing returns. Unexpected events such as natural disasters or sudden changes in taste and demand could cripple a single industry. Specialization in a single good makes dumping easier and more effective. New technology or cheaper substitutes could replace the good.

Specialization in a single good makes dumping easier and more effective.

The graph shows the supply and demand of possum, the currency of the hypothetical country Possumtopia, and the price as dollars per possum. Shift the appropriate curve or curves to show what the market will look like when the Central Bank of Possumtopia increases the supply of possum, all else equal. graph Q (possum) vs P (dollars per possum): - demand: downwards sloping line from (1, 0.8) to (8, 0.1) - supply: vertical line at Q = 4

Supply shifts to Q = 6

Although both tariffs and quotas are tools used to restrict or reduce trade, which of the statements best describes their differences? Tariffs are a subsidy for exported goods, and quotas act as a minimum limit of exports. Quotas are a tax on imported goods, and tariffs are a tax on imported goods. Tariffs are a tax on imported goods, and quotas are limits on the number of imported goods. Tariffs are a tax on imported goods, and quotas are limits on the number of exported goods. Tariffs are a tax on exported goods, and quotas are limits on the number of exported goods.

Tariffs are a tax on imported goods, and quotas are limits on the number of imported goods.

If the euro faces a currency crisis with its value falling from $1.40 per euro to $1.20 per euro, who would benefit the most? Jared, an American investor who purchased a 10,000 euro bond last year. An American car manufacturer trying to export cars to Spain. The Brown family from Florida who plans to visit Paris next month. Universal Studios Orlando, which wants more European tourists to visit its theme parks.

The Brown family from Florida who plans to visit Paris next month.

Determine whether each statement is true or false. In each scenario, everything else is held constant so that the only change you need to consider is the one presented in a given scenario. - When South Koreas currency, the won, appreciates, falling exports cause South Korean aggregate demand to decrease, leading to a drop in the price level - If Japan's price level increases more than China's price level, Japan will see its current account improve - A financial website states that the Indian rupee is expected to depreciate against the Japanese yen. Upon reading this, Matthew concludes that capital will flow from Japan to India - Incomes in Old World increase by 15%, while incomes in New World increase by 18%. New World's current account will worsen as a result - The interest rate in Hong Kong drops by 2% while the interest rate in Germany drops by 3%. Germany's financial markets will experience a net inflow of capital

True: - When South Koreas currency, the won, appreciates, falling exports cause South Korean aggregate demand to decrease, leading to a drop in the price level - Incomes in Old World increase by 15%, while incomes in New World increase by 18%. New World's current account will worsen as a result False: - If Japan's price level increases more than China's price level, Japan will see its current account improve - The interest rate in Hong Kong drops by 2% while the interest rate in Germany drops by 3%. Germany's financial markets will experience a net inflow of capital - A financial website states that the Indian rupee is expected to depreciate against the Japanese yen. Upon reading this, Matthew concludes that capital will flow from Japan to India

The demand for dollars increases, but one Turkish lira still exchanges for $0.49. Turkey operates under __________ exchange rate system.

a fixed

Supply and demand in the foreign exchange market determine the exchange rates between countries using ___________ exchange rate system.

a flexible

The importance of monetary policy increases under _______ exchange rate system, which reinforces the objectives of monetary policy's.

a flexible

In 2018, the U.S. balance of payment numbers showed that income received was $1,060.4 billion and income payments were $816.1. What was the net result? an outflow of $816.1 billion an inflow of $1,060.4 billion a net outflow of $244.3 billion a net inflow of $244.3 billion

a net inflow of $244.3 billion The income payments in the United States in 2015 were an outflow of $816.1 billion. Income received (inflow) was $1,060.4 billion. The result was a net inflow of $244.3 billion.

What does the term autarky refer to? a situation where one country does not engage in trade with other countries the process of negotiating terms of trade between two countries a major argument against globalization government policies meant to reduce international trade

a situation where one country does not engage in trade with other countries

If you've traveled abroad, you know you can find a McDonald's just about everywhere, including many throughout Europe. If McDonald's sells its products in European countries for euros and brings its profits back to the United States in dollars, which of these situations would the firm prefer? a weak euro relative to the dollar a strong euro relative to the dollar a strong dollar relative to the euro either a strong dollar or a strong euro

a strong euro relative to the dollar The firm would prefer a strong euro, which means that the euro is worth more U.S. money. In that case, for each euro the firm brings back to the United States, it will receive more dollars than if the euro were weaker. On a one-to-one basis, a strong euro compared with the dollar means that the dollar is weak compared to the euro; it would thus also be correct to say that the firm would prefer a weak dollar.

Suppose that an economic recession in Badluckville causes a sharp drop in spending on imports and foreign travel. What would happen in the foreign exchange market? a) The supply of Badluckville's currency shifts left, causing its currency to appreciate. b) The supply of Badluckville's currency shifts left, causing its currency to depreciate. c) The supply of Badluckville's currency shifts right, causing its currency to appreciate. d) The supply of Badluckville's currency shifts right, causing its currency to depreciate.

a) The supply of Badluckville's currency shifts left, causing its currency to appreciate.

If the exchange rate between the Japanese yen and the U.S. dollar changes from 90 yen per dollar to 95 yen per dollar, which of the following is true? a) The U.S. dollar appreciates against the yen and Japanese imports become more expensive in terms of dollars. b) The U.S. dollar appreciates against the yen and Japanese imports become less expensive in terms of dollars. c) The U.S. dollar depreciates against the yen and Japanese imports become more expensive in terms of dollars. d) The U.S. dollar depreciates against the yen and Japanese imports become less expensive in terms of dollars.

b) The U.S. dollar appreciates against the yen and Japanese imports become less expensive in terms of dollars.

Suppose that research finds a link between high fructose corn syrup (HFCS) and obesity, which then leads American consumers to switch from HFCS products to pure cane sugar products. The graphs show the markets for cane sugar in Haiti and the United States before the studies were divulged. Shift the curves in the graphs, including the horizontal world price curve, to describe the new trade equilibrium that results after the switch in preferences of American households, and then answer the follow‑up question. Assume that the United States and Haiti are the only non‑HFCS sugar trading parties in the world and that there are no quotas, subsidies, or tariffs distorting these markets. According to your graphs, at the new equilibrium... cane sugar producers in Haiti benefit. cane sugar producers in the United States are worse off. all Haitian cane sugar consumers benefit.

cane sugar producers in Haiti benefit.

Classify each scenario as part of the U.S. financial account or the U.S. current account. A U.S. company exports its product

current account

Classify each scenario as part of the U.S. financial account or the U.S. current account. Margarita, a Mexican citizen, receives dividends on stock she owns in Apple, a U.S. company

current account

Classify each scenario as part of the U.S. financial account or the U.S. current account. Moira, a U.S. citizen, purchases an imported dollhouse for her daughter

current account

Part of the story of the financial crisis was the large purchases by foreign investors of shares in companies like Citigroup, Merrill Lynch, and Morgan Stanley. How would such purchases appear on the financial account? income payments holdings of U.S. assets by foreign investors holdings of foreign assets by U.S. investors income received

holdings of U.S. assets by foreign investors The financial account summarizes the flow of money into and out of domestic and foreign assets. The purchases constitute an increase in foreign-owned U.S. assets.

For each of the items, determine if it is an import, an export, income, or a monetary transfer. Assume that the United States is the domestic country. a. Rhode Island‑based Joe's Lobster Shack hires Villagebank (a London investment bank) to handle its initial public offering (IPO).

import

For each of the items, determine if it is an import, an export, income, or a monetary transfer. Assume that the United States is the domestic country. e. Dennis lives and works in San Diego. He uses his holiday bonus to buy an Italian handbag for his wife.

import

Identify whether the given items are examples of imports, exports, or neither. Assume the United States is considered the domestic country. Glen lives in the United States and purchases a video game produced in Japan. export import neither

import

Determine if each scenario will cause U.S. net exports to increase or decrease. - inflation in the United States is less than inflation in Brazil - the U.S. dollar increases in value against the British pound - inflation in the United States exceeds inflation in Taiwan - the growth rate of Chinese GDP exceeds the growth rate of U.S. GDP - the yen-to-dollar exchange rate decreases from 120 yen/dollar to 95 yen/dollar

increase: - the growth rate of Chinese GDP exceeds the growth rate of U.S. GDP - the yen-to-dollar exchange rate decreases from 120 yen/dollar to 95 yen/dollar - inflation in the United States is less than inflation in Brazil decrease: - the U.S. dollar increases in value against the British pound - inflation in the United States exceeds inflation in Taiwan

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