BUS 313 Final Exam Guide

How do you calculate a forecast of nominal GDP growth? (Exam 1, V1)

% Change nominal GDP = % Change real GDP + % Change prices (Inflation)

British interest rates are 3%. US interest rates are 2%. The spot exchange rate is $1.50 = 1 pound sterling. Calculate the Expected Spot Exchange Rate one year from now which will produce Interest Rate Parity.

(1 + Rus) = (1 / E $/pound)(1 + Ruk)Ee$/pound 1.02 = (1/$1.50)(1.03)Ee$/pound Ee$/pound = (1.50x1.02)/1.03 = 1.4854

You own a company in a foreign nation. Your company's earnings, translated from foreign currency into dollars, are $100,000 per year. Next year, the foreign country is expected to experience 25% inflation. Inflation in your own country is expected to be zero. The exchange rate between your currency and the currency of the foreign nation is expected to obey purchasing power parity (PPP). What is the expected dollar value of your company's earnings next year? (Exam 2, V1)

100,000

A British investor has 100,000 pounds to invest, either in the UK or the Eurozone. British interest rates are 3%. Eurozone interest rates are 1%. The spot exchange rate is 1.35 Euro = 1 pound sterling. The forward rate is 1.30 Euro = 1 pound sterling. a) calculate the return from investing in the UK.

100,000 x (1 + Ruk) = 100,000 x 1.03 = 103,000

A British investor has 100,000 pounds to invest, either in the UK or the Eurozone. British interest rates are 3%. Eurozone interest rates are 1%. The spot exchange rate is 1.35 Euro = 1 pound sterling. The forward rate is 1.30 Euro = 1 pound sterling. b) Calculate the return from investing in the Eurozone, and covering that investment by selling the resulting euros forward for pounds sterling

100,000(E euro/pound)(1+R euro)(1/F euro/pound) 100,000 x 1.35 x (1.01) x (1/1.30) = 104,885

**A Japanese tourist uses his JTB credit card to buy a meal at Roy's in Waikiki. This transaction involves

A Dr. in the current account of Japan's balance of payments A Cr. in the current account of the U.S. balance of payments

Which of the following will lead to a reduction in a country's current account surplus? (Exam 1, V2)

A decrease in private savings (Sp) A decrease in taxes net of transfers (T)

What is the Sectoral Balance Identity? (Solving for the CA as % of GDP) (Exam 1, V1)

According to the Sectoral Balance Identity, with Unilateral Transfers = 0 0 = (Sp - I) / Y + (T - G) / Y + (IM - EX) / Y or (EX - IM) / Y = Sp/Y - I/Y + T/Y - G/Y Where Y = _/Y = % of GDP

What happens in a banking panic? (Exam 2, V1)

Banks' reserves to deposits ratio becomes larger Individuals increase their ratio of currency to deposits

How to calculate for current account, Capital account or financial account? (Exam 1, V1)

Current Account + Capital Account + Financial Account = 0

Solve for the current account (Exam 1, V1)

Current Account = EX - IM + net unilateral transfers

The J-curve effect refers to the tendency for the _______ to initially worsen after a(n) _________ of the currency, before eventually improving (Exam 2, V1)

Current account Depreciation

We've been waiting for months for the Federal Reserve to raise interest rates. So far it hasn't. When it does, what should we expect? (Exam 2, V1)

Decrease in business investment in equipment and structures

A successful restrictive (contractionary) monetary policy will (Exam 2, V1)

Decrease the money supply Lead to an appreciation of the exchange rate

**A Japanese tourist uses his JTB credit card to buy a meal at Roy's in Waikiki. The transaction involves (Exam 1, V1)

Dr. in the current account of Japan's balance of payments Cr. in the financial account of Japan's balance of payments

What authority from Congress did President Obama recently obtain, to use in the TPP free trade area negotiations? (Exam 1, V1)

Fast-track authority

In the US, the central bank (Federal Reserve) has a "dual mandate", which involves (Exam 2, V1)

Full employment and price stability

What statistic did Hans Rosling use to measure China and India's economic development in comparison with the U.S., U.K., and Japan (Exam 1, V1)

GDP Per Capita

The explanations for national differences in economic development given by Jared Diamond in Guns, Germs and Steel is (Exam 1, V1)

Geography

Which of the following will lead to a reduction in a country's current account surplus? (Exam 1, V1)

Increase in private investment (I) Increase in government expenditures (G)

When the Federal Reserve wants to decrease the Money Supply, it can (Exam 2, V1)

Increase reserve requirements for banks

A successful stimulative (expansionary) fiscal policy (government spending increase, or tax restrictions) will: (Exam 2, V1)

Increase the transactions demand for money Increase interest rates

Newly elected Canadian Prime Minister Justin Trudeau has proposed to stimulate economic growth in Canada by (Exam 2, V1)

Increasing government spending and decreasing taxes

Alexander Hamilton was the first Secretary of the Treasury for the United States. In his 1791 "Report on Manufactures", what rationale did he give for high tariffs at the beginning of the United States republic? (Exam 1, V1)

Infant Industry

The Foreign Corrupt Practices Act (Exam 1, V2)

Makes an exception for publicly posted payments to expedite routine government services specifies anti-bribery procedures

When the central bank reduces the money supply (Exam 2, V1)

Output (GDP) decreases and the exchange rate appreciates

When the government raises taxes, (Exam 2, V1)

Output (GDP) decreases and the exchange rate depreciates.

A Big Mac costs 30 Chinese yuan in Beijing, and 500 yen in Tokyo. The yuan/US dollar actual (nominal) market exchange rate is 6.4 yuan = $1. The yen/US dollar actual (nominal) market exchange rate is 120 yen = $1. a) What is the yen/yuan purchasing power parity exchange rate?

PPP exchange rate = (Price of a Big Mac in Yen)/(Price of a Big Mac in Euros) = 500 Yen / 30 Yuan =16.67 yen/yuan

The refocusing of American foreign policy announced by President Obama and highlighted by then-Secretary of State Clinton in a speech at the East-West Center is called the (Exam 1, V1)

Pacific Pivot

GNP does not include (Exam 1, V1)

Pollutants created as a side effect of producing goods and services

**When a tariff is imposed, where there was none before, what is the result? (Exam 1, V1)

Producer Surplus Increases Government Revenues Increase Deadweight Loss Increases

The Federal Reserve's response to the Great Recession of 2007-2009 was called (Exam 2, V1)

Quantitative Easing

A Big Mac costs 30 Chinese yuan in Beijing, and 500 yen in Tokyo. The yuan/US dollar actual (nominal) market exchange rate is 6.4 yuan = $1. The yen/US dollar actual (nominal) market exchange rate is 120 yen = $1. c) What is the "real" exchange rate between the yen and the yuan?

Real Exchange Rate = (Actual exchange rate) / (PPP exchange rate) 18.75/16.67 = 1.1248

A central bank which wants to reduce the money supply (Exam 2, V1)

Sells treasury securities

The Foreign Corrupt Practices Act(Exam 1, V1)

Specifies appropriate corporate accounting procedures Specifies anti-bribery procedures

The principal short-term interest rate on which the Fed Reserve focuses its attention is called (Exam 1, V1)

The Federal funds rate

Alternatives to the Gross National Product (GNP) as measures if the economic welfare of a nation's citizens include (Exam 1, V1)

The Human Development Index

When increases in the money supply cannot lower interest rates any further, this situation is known as? (Exam 2, V1)

The liquidity trap

According to the theory of comparative advantage, countries should specialize in the production and export of those products for which (Exam 1, V1)

The opportunity cost of production is the least

According to the Interest Rate Parity, the dollar will appreciate against the euro when (Exam 2, V1)

US interest rates rise Eurozone interest rates fall

If a country has a deficit in the current account of its balance of payments (Exam 1, V1)

Whether bad or good depends on the use of the borrowed resources

In a country that is spending less than its income, Y, and that has unilateral transfers equal to zero, (Exam 1, V1)

Y is greater than C+I+G EX is greater than IM The sum of the capital account plus the financial account is less than 0

A Big Mac costs 30 Chinese yuan in Beijing, and 500 yen in Tokyo. The yuan/US dollar actual (nominal) market exchange rate is 6.4 yuan = $1. The yen/US dollar actual (nominal) market exchange rate is 120 yen = $1. b) What is the actual (nominal) current market exchange rate between yen and yuan?

Yen / yuan = Yen/$ / Yuan/$ 120/6.4 = 18.75 yen/yuan

**When a tariff is imposed where there was none before, what is the result? (Exam 1, V2)

consumer surplus decreases producer surplus increases