Macroeconomics Test 4

What percent of the total world income do low-income countries earn?

1%

Which of the following is a reason that low-income countries are at a disadvantage?

Any income earned are spent immediately on necessities such as food.

Which term is best defined as a strategy that reduces the supply of loans and increases interest rates?

Contractionary monetary policy

If the rates of return in China are 3% while the rates of return in Japan are 3.5% then the Japanese yen will __________ and the quantity of yen bought and sold in the foreign exchange market will __________.

appreciate; increase, decrease, or remain unchanged

What can happen to individuals who provide for themselves through farming, fishing, or hunting, and who barter and trade in low-income and middle-income countries?

because they are not officially "employed," they are often ineligible for social benefits

Which of the following can be considered an unintended consequence of a high-income country's government providing unemployment and welfare payments?

businesses may place limits on hiring

How can countries achieve higher GDP per capita? (32.1)

by designing policies that increase worker productivity, deepend capital, and advance technology

An expectation that the peso will appreciate in value will __________.

cause the peso to appreciate and either increase, decrease, or not change the quantity bought and sold in the foreign exchange market.

What is one way that recent research has identified can help raise people out of the worst poverty in low-income countries?

connect them to a somewhat regular wage-paying job

What type of unemployment is caused by the economy in a recession?

cyclical

If rates of return in America looks relatively low, then the demand for the dollar will __________ and the supply of the dollar will __________.

decrease; increase

If a currency is experiencing relatively high inflation, then its buying power is decreasing and international investors will be less eager to hold it. This will cause the currency to __________.

depreciate

Which of the following is the correct definition of "soft peg"?

A soft peg is an exchange-rate policy in which the government usually allows the exchange rate to be set by the market, but sometimes intervenes.

Which of the following would be considered part of the unilateral transfers category of the current account balance?

U.S. government monetary assistance to Africa to help fight HIV/AIDS

t/f When a nation experiences a rising trade deficit, it likely leads to a decrease of net inflow of foreign financial capital.

false

Choose the option that best completes the statement: Expansionary monetary policy __________.

stimulates consumption spending

Which of the following describes the infant industry argument?

subsidizing or protecting new industries temporarily until they become established

Which of these currencies constitutes less than 20% of the daily foreign exchange market share?

the Canadian dollar

A current account deficit means that _________________________.

the country is a net borrower from the rest of the world

Relatively high inflation in a nation will cause __________.

the demand for its currency to shift to the left

Which of the following best defines the balance of trade?

the gap between a nation's dollar value of its exports and a nation's dollar value of imports

For the foreign exchange market to be in equilibrium, it must be true that __________.

the quantity supplied of currency equals its quantity demanded

What can happen if wage levels do not rise as inflation rises?

the real wage rate and standard of living decreases

Suppose an economy is experiencing a trade deficit. If domestic investment and private savings remain unchanged, while public saving decreases by $3 billion, then:

the trade deficit will increase

Which of the following would be considered part of the merchandise trade balance?

the trade of manufactured goods between the U.S. and the EU.

Which of the following determines the exchange rate of two currencies?

their supply and demand in the foreign exchange market

How did middle-income countries with high growth like China and India treat market forces?

they allowed for great freedom domestically and globally

An undeveloped labor market is a labor market in which many individuals provide for themselves via trading and bartering.

true

t/f A nation's levels of domestic saving and investment influence its balance of trade.

true

t/f A stronger euro helps a British exporter more than a German exporter.

true

t/f A trade surplus implies that the economy is probably a net lender to the rest of the world.

true

t/f An undeveloped labor market is a labor market in which many individuals provide for themselves via trading and bartering.

true

t/f It is possible for a country to record a large trade deficit despite having a relatively low level of trade, expressed as a percentage of GDP.

true

t/f Let's assume there is a trade surplus from Germany to Saudi Arabia. That trade surplus would increase if Germany purchases less Saudi petroleum products. (23.1)

true

t/f Relative rates of return between countries influence the supply and demand for foreign currency.

true

t/f The equilibrium exchange rate occurs at the intersection of the demand for currency and its supply curve in the foreign exchange market.

true

t/f The shifts in supply and demand in the foreign exchange market reinforce each other in regards to either appreciating or depreciating a currency.

true

t/f When looking at the regional averages of GDP per person, the United States and European Union produce and consume close to 70% of the world's GDP.

true

A country has an absolute advantage over another country in producing a good if it _______________. (33.1)

uses fewer resources to produce that good

When considering the various exchange rate systems, a merged currency policy __________.

utilizes the adoption of another nation's currency

If rates of return in a country look relatively high, then the demand for the domestic currency will __________ and the supply of the domestic currency will __________.

increase; decrease

If the U.S. dollar is gaining value in terms of the euro, the dollar __________. (29.3)

is appreciating

Which of the following is a common feature of low-income countries that inhibits raising overall income levels?

political instability

In high-income countries, many central banks run highly expansionary policies that are successful in the short run. What is the interest rate associated with these policies?

0%

Which of the following, if any, are results of "depreciating" currency?

1. A decrease in the exchange rate of the depreciating currency 2. An increase in the amount of the depreciating currency exchanged for a given amount of another currency

What are the two functions of purchasing power parity? (29.2)

1. Economists often use PPP exchange rates for international comparison of GDP and other economic statistics. 2. knowing the purchasing power parity helps track and predict exchange rate relationships.

Which of the following scenarios represent the effects of contractionary monetary policy on aggregate demand?

1. Lydia will not buy the new car she wants because the cost of borrowing money is too high. 2. ABC Corporation will not invest in a new office building because the expected rate of return is too low. a&c

Which of the following best describes a nation experiencing a current account surplus?

1. The nation is considered a net lender to the rest of the world. 2. The nation has domestic investors who are sending their funds abroad.

Even though foreign aid can help alleviate poverty in lower income countries, governments have to consider that it will not always lead to successful outcomes because of ______________ in these countries.

1. a lack of economic and legal stability 2. a lack of market oriented institutions 3. some unintended collateral damage (e.g. violation of human rights and lost livelihoods) all of the above

Which of the following is considered a source of investment income for a nation?

1. foreign investments in real estate 2. stocks 3. bonds all of the above

After employing short-term solutions such as printing money and public-works spending, what percentage of Japan's GDP was public debt in 2012?

226%

Although expansionary fiscal policies seem to work in the short-run in Japan, some experts argue that it's public debt is expected to approach what percentage of GDP?

240%

What is the best definition for foreign direct investment?

A foreign direct investment is the purchase of more than ten percent of a firm or the creation of a new enterprise in another country.

Which of the following exist when a country runs a trade deficit?

A nation's imports exceed its exports.

Of the following, which count as a source of demand for the U.S. dollar?

Foreign investors who make direct investments in the U.S. economy.

Which of the following are true about increasing foreign aid to low-income countries?

Countries sometimes receive aid for political reasons, and it can cause more harm than good.

Which of the following is not true of the foreign exchange market?

Each country has its own currency.

All of the following statements are true, except:

If two countries import and export almost the same dollar value of goods and services to each, they will have the same export ratio.

Which of the following statements is true?

It is possible for a country to record a large trade deficit despite having a relatively low level of trade, expressed as a percentage of GDP.

Around the 1980s when Turkey was trying to industrialize and needed to buy intermediate goods for production, it overvalued its currency to make it cheaper to buy the imports it needed for manufacturing. Its central bank announced that the exchange rate was $1.20per Turkish lira when the actual equilibrium exchange rate would have been $0.60 per lira if it were traded in international foreign exchange markets. At other times, the Turkish central bank has also set different exchanges rates for different goods. Which of the following types of exchange-rate systems was Turkey using?

Soft peg

All of the following statements are true, except:

Strong economic growth tends to make trade surplus larger.

What is the best way to describe Tobin Taxes?

Taxes on international capital flows.

All of the following statements about the U.S. balance of trade since 1971 are true, except:

The U.S. has not experienced a trade surplus since 1971.

Which of the following best describes a converging economy?

The economy of a country that demonstrates the ability to catch up to the technology leaders.

All of the following statements are true, except:

The share of U.S. exports in proportion to the U.S. economy is well above the global average.

Why has it been politically challenging for governments to refocus efforts on new technology, education, and physical capital investment since the 2008-2009 recession?

They have focused on short-term recovery, but not enough on the long-term.

What happened to countries that grew dramatically in the years leading up to the Asian Financial Crisis?

They saw their economies collapse when international capital flowed out.

How did middle-income countries with high growth like China and the East Asian Tigers treat savings?

They were among the world's largest savers, often using these savings for domestic investment in physical capital.

When investors expect a country's currency to strengthen in the future, what would you expect them to do?

They will buy the currency and cause it to appreciate immediately.

What is the goal of Tobin Taxes?

To reduce international capital flows.

Supply for the U.S. dollar comes from __________.

U.S. investors who want to make portfolio investments in other countries

In the parable on trade and international lending based on Daniel Defoe's novel, where Robinson Crusoe engaged in the building of a garden irrigation system while receiving free coconuts and fish from his trading partner Friday for a period of several months, the understanding is that the free produce is in effect __________________.

a loan from Friday, similar to how a trade deficit results in international borrowing

When the trade balance is equal to zero, it means that:

a nation is neither a net borrower nor lender

Which of the following best describes the price of a currency in the foreign exchange market?

equilibrium exchange rate

Which of the following is an example of differences in how geography across countries can influence commerce, health, and the environment?

extensive coastlines versus landlocked countries

t/f For about two decades prior to 1980s, the U.S. economy experienced modest trade surpluses.

false

t/f If the U.S. dollar is strong, then American exporters benefit. (29.1)

false

t/f It easy for a central bank to conduct countercyclical monetary policy with a hard peg.

false

t/f One reason to sell a currency in the foreign exchange market is the expectation that the currency's value is about to increase.

false

t/f Purchasing power parity determines exchange rates in the short term.

false

t/f The Chinese yuan is one of the most frequently traded currencies?

false

t/f The Fed uses expansionary monetary policy in response to inflation.

false

t/f The balance of trade is considered to be mainly a microeconomics phenomenon by economists. (23.3)

false

t/f The monetary policy prescription for dealing with recession is to run an expansionary monetary policy that decreases the quantity of money and loans, drives up interest rates, and increases aggregate demand.

false

All of the following are sources of demand for the U.S. dollar except __________.

foreign firms that have sold imported goods in the U.S., earned U.S. dollars, and are trying to pay expenses incurred in their home countries

All of the following are sources of supply for the U.S. dollar except __________.

foreign investors who wish to make portfolio investments in the U.S. economy

A disadvantage of a hard peg policy is __________.

having to hold large foreign exchange reserves