Econ 204

A government can target its exchange rate only if it: is willing to give up its use of monetary policy for stabilization purposes. continues to actively use monetary policy for exchange market intervention and stabilization purposes. increases the amount of uncertainty in the foreign exchange markets. pursues policies that tend to be inflationary.

(a)

Foreign exchange controls decrease the costs associated with red tape and corruption surrounding international trade. False True

(a)

Consider the demand for and the supply of the U.S. dollar and that the exchange rate is measured in terms of yen per dollar. If the demand for the U.S. dollar decreases, all will be true EXCEPT that: the demand curve for dollars will shift to the left. the Japanese will buy more American goods. Americans will buy more Japanese goods. the exchange rate of yen per U.S. dollar will fall.

(b)

_(Figure: Change in the Demand for U.S. Dollars) Refer to the information in the Figure: Change in the Demand for U.S. Dollars. A flow of capital from Europe to the United States would cause a movement in this foreign exchange market that is best represented by the shift from: D2 to D1. E2 to E1. D1 to D2. E1 to E2.

(b)

Quiz 13: When the value of the euro changes from $1.30 to $1.20, it follows that: European Union imports from the United States increase. U.S. exports to the European Union increase. U.S. imports from the European Union increase. European Union exports to the United States decrease.

(c)

All are major drawbacks of adopting a fixed exchange rate EXCEPT that: exchange controls must be imposed at the cost of more administrative red tape and corruption. resources must be diverted to the accumulation of large foreign exchange reserves. monetary policy cannot be used to stabilize output and the inflation rate. commerce among countries is more uncertain and riskier.

(d)

Learning Curve, Module 19: True or False? Foreign capital has played an important role in the long-run growth of the United States.

True

Learning Curve, Module 19: True or False? Public health measures, such as clean water and disease control, are examples of infrastructure.

True

Learning Curve, Module 19: True or False? The convergence hypothesis explains why high-income countries usually have slower growth rates than lower-income countries.

True

Learning Curve, Module 19: True or False? The government can encourage savings and investment by maintaining trust in the banking system.

True

Learning Curve, Module 19: True or False? Some lack of economic growth in Latin America can be attributed to excessive government intervention in markets.

True.

If a government wants to increase the value of its currency in foreign exchange markets, it can: use contractionary monetary policy. use expansionary monetary policy. decrease interest rates. sell its currency.

a.

If the Chinese government wants to keep the real and nominal exchange rates between the yuan and the U.S. dollar fixed at 8 yuan per dollar, the: inflation rate in China must be equal to the inflation rate in the United States. interest rate in China must be higher than the interest rate in the United States. inflation rate in China must be constantly lower than the inflation rate in the United States. inflation rate in China must be constantly higher than the inflation rate in the United States.

a?

If the equilibrium exchange rate is above the target rate, the government should: I. buy its domestic currency in foreign exchange markets II. engage in expansionary monetary policy III. restrict the purchase of foreign currencies I only II only III only I, II, and III

b.

A depreciation of the domestic currency below the exchange rate fixed by the government can be countered by all of these measures EXCEPT by: decreasing capital flows out of the country. limiting the domestic purchase of foreign financial assets. decreasing capital flows into the country. decreasing foreign exchange reserves.

c.

The advantage of a fixed exchange rate is that it: leaves monetary policy available for macroeconomic stabilization. eliminates the possibility of the twin deficits. eliminates uncertainty about the value of a currency. tends to create trade surpluses.

c.

If a government fixes the exchange rate ________ the market equilibrium, there will be a shortage of the domestic currency and a tendency for the exchange rate (U.S. dollars per unit of the domestic currency) to ________. below; fall above; rise below; rise above; fall

c?

Suppose that the country of Gizmovia wants to maintain the exchange rate of its currency, the gizmo, at $0.50, but the current equilibrium exchange rate for the gizmo is $0.40. If Gizmovia uses foreign exchange controls to bring the exchange rate of the gizmo to $0.50, it should require licenses to ______ gizmos and ______ dollars. buy; buy buy; sell sell; sell sell; buy

d.

Learning Curve, Module 19: South Korea's economic growth took _____ years to achieve. a. 100 b. 75 c. 35 d. 10

c. 35

Learning Curve, Module 19: True or False? If the government builds infrastructure, it decreases economic growth because it crowds out the private sector.

False

Learning Curve, Module 19: True or False? If the government imposes tariffs on imports, it will raise productivity growth.

False

Learning Curve, Module 19: True or False? In 1900, Latin American countries were poorer than most countries in Africa.

False

Learning Curve, Module 19: True or False? Maintaining infrastructure is not as important as simply having infrastructure.

False

Learning Curve, Module 19: True or False? The economic gap between North America, Western Europe, and parts of Asian and the rest of the world is shrinking.

False

Module 44: 1. Suppose that the value of the euro fell from $1.32 on April 30, 2012, to $1.24 on July 5, 2012. This implies that: The euro depreciated and the dollar appreciated during this period. The dollar depreciated and the euro appreciated during this period. The euro depreciated and there is insufficient information about the dollar's value during this period. The euro appreciated and there is insufficient information about the dollar's value during this period.

a.

Module 44: If the exchange rate is $1.50 per euro, the U.S. price level is 180, and the Eurozone price level is 120, then the real exchange rate is: $1. $1.50. $2.40. $1.20.

a.

Module 44: In the foreign exchange market, an increase in the rate of return available in the European Union, all other things equal, will shift the ________, and the euro will ________. demand curve for the euro to the right; appreciate supply curve for the euro to the right; depreciate demand curve for the euro to the left; depreciate demand curve for the U.S. dollar to the right; appreciate

a.

Module 44: When a country's currency depreciates, the prices of its imports in terms of the domestic currency will _______. increase decrease remain constant fluctuate randomly

a.

When a country's currency depreciates, the prices of its imports in terms of the domestic currency will _______. increase decrease remain constant fluctuate randomly

a.

Module 17: Scenario: Growth Rates: Suppose that the current real GDP per capita of the United States is $32,000 and its growth rate is 2 percent per year. The real GDP per capita of China is $4000, and its annual growth rate is 7 percent. According to the Scenario: Growth Rates, how long will it take the real GDP per capita of the United States to double? a. 35 years b. 50 years c. 2.25 years d. 14 years

a. 35 years

Quiz 12: The convergence hypothesis fits the data only when the factors that affect growth are held equal across countries. These factors include all EXCEPT: a. GDP per capita. b. favorable policies and institutions. c. infrastructure. d. education.

a. GDP per capita

Module 39: Expansionary monetary policy causes _______ in interest rates in the short run and ______ in interest rates in the long run. a. a fall; no change b. a fall; a fall c. no change; a fall d. no change; no change

a. a fall; no change

Quiz 12: Total factor productivity is a measure of the: a. amount of output that can be produced with a given amount of factor inputs. b. cost of technology inputs. c. cost of human capital inputs. d. cost of incorporating new technology in the production process.

a. amount of output that can be produced with a given amount of factor inputs.

Learning Curve, Module 19: _____ pays for most education. a. Government b. Individuals c. Business d. Families

a. government

Module 19: Typically, countries in which investment accounts for a large share of GDP: a. have a high domestic savings rate. b. experience low growth rates. c. experience declining productivity. d. borrow heavily from other countries.

a. have a high domestic savings rate

Module 39: If actual output is equal to potential output and the Fed increases the money supply so that actual output exceeds potential output, eventually nominal wages will: a. increase b. decrease c. remain the same d. fluctuate randomly

a. increase

Module 39: An increase in the money supply causes ______ in output in the short run and _______ in output in the long run. a. an increase; no change b. an increase; an increase c. no change; an increase d. no change; no change

a. increase; no change

Module 39: The short-run effect of an increase in the money supply is that the aggregate price level: a. increases, and real output also increases b. increases, and real output decreases c. decreases, and real output also decreases d. decreases, and real output increases

a. increases, and real output also increases

Learning Curve, Module 19: Japan enjoyed a rapid growth rate in the 1960s because it spent a very large share of its GDP on: a. investment. b. research and development c. education. d. infrastructure.

a. investment

Module 18: Long-run growth is sustainable if: a. it can continue in the face of limited natural resources and the impact of growth on the environment. b. people continue to buy enough goods and services. c. energy prices are low. d. environmental concerns are ignored during global recessions.

a. it can continue in the face of limited natural resources and the impact of growth on the environment.

Module 17: Long-run economic growth depends almost entirely on: a. labor productivity growth b. population growth c. agricultural production growth d. the number of hours worked

a. labor productivity growth

Learning Curve, Module 19: Which is a reason for Latin America's slow economic growth? a. lack of emphasis on education b. government budgets that are balanced c. too much government spending on education d. too much spending on infrastructure

a. lack of emphasis on education

Module 18: Greenhouse gas emissions are an example of a: a.negative externality. b. public good. c. positive externality. d. private good.

a. negative externality.

Module 17: The ___________ in an economy whose aggregate real output is growing faster than the total population. a. real GDP per capita is rising b. standard of living is declining c. national income is falling d. nominal GDP per capita is rising

a. real GDP per capita is rising

Learning Curve, Module 19: The convergence hypothesis states that relatively poor countries: a. should eventually have rates of growth of real GDP per capita that approach those of rich countries. b. should always have lower rates of growth of real GDP per capita as compared to rich countries. c. will never converge to the growth rates of real GDP per capita experienced by rich countries. d. will eventually have much higher rates of growth of real GDP per capita as compared to rich countries.

a. should eventually have rates of growth of real GDP per capita that approach those of rich countries.

Module 18: The biggest global environment issue is: a. the impact of fossil-fuel consumption on the world's climate. b.the availability of coal. c. how to determine who has the property rights to wind power. d.how to extract oil from Canadian tar sands.

a. the impact of fossil-fuel consumption on the world's climate.

Module 19: The key factor explaining the poor growth performance of the African continent is probably: a. the lack of political stability within countries. b. the lack of natural resources. c. overpopulation. d. the prevalence of military conflicts among neighboring countries.

a. the lack of political stability within countries.

Foreign exchange controls are: fixed exchange rates. a government licensing system that limits the amount of foreign currency an individual can buy. floating exchange rates. international limits on exchange rates.

b.

Module 44: Scenario: Exchange Rates The value of a euro goes from US$1.25 to US$1.50. Reference: Ref 44-4 __(Scenario: Exchange Rates) Refer to the information provided in the Scenario: Exchange Rates. The euro has: depreciated. appreciated. been devalued. not been affected for use in international trade.

b.

Module 44: Scenario: Purchasing Power Parity A car costs $30,000 in the United States and the exchange rate is $1 = £0.50. The same car costs £12,000 in Britain. Reference: Ref 44-3 __(Scenario: Purchasing Power Parity) Refer to the information provided in the Scenario: Purchasing Power Parity. What is the purchasing power parity of the pound? $5 $2.50 $1.25 $0.80

b.

Module 44: Suppose that the United States and European Union are the only trading partners in the world. If interest rates in the United States are significantly lower than those in the European Union, we would expect the: supply of the dollar to fall, appreciating the dollar. demand for the dollar to fall, depreciating the dollar. supply of euros to increase, depreciating the euro. demand for euros to decrease, depreciating the euro.

b.

Module 44: The market in which currencies can be exchanged for each other is known as the: loanable funds market. foreign exchange market. resource market. market for goods and services.

b.

Module 45: A fixed exchange rate is: determined by the market. set by government. set by the International Monetary Fund. determined by the United Nations.

b.

Suppose that the country of Gizmovia wants to maintain the exchange rate of its currency, the gizmo, at $0.50, but the current equilibrium exchange rate for the gizmo is $0.40. At the target rate of $0.50: the quantity demanded of gizmos equals the quantity supplied. there is a surplus of gizmos. there is a shortage of gizmos. the quantity demanded of gizmos is greater than the quantity supplied.

b.

The stocks of foreign currency that governments use to buy and sell their own currency are known as: foreign exchange controls. foreign exchange reserves. foreign exchange inventory. intervention inventory.

b.

Which is NOT a strategy for maintaining a fixed exchange rate at a level other than its equilibrium value? buying or selling the currency through exchange market intervention allowing the exchange rate to be determined by market forces shifting the supply and demand curves for the domestic currency implementing foreign exchange controls

b.

Module 17: The rule of 70 indicates that a 6% annual increase in the potential level of real GDP would lead to the potential output doubling in ________ years. a. 6 b. 12 c. 24 d. 30

b. 12

Module 17: If real GDP doubles in 35 years, its average annual growth rate is approximately: a. 1% b. 2% c. 3% d. 4%

b. 2%

Module 17: Scenario: Growth Rates: Suppose that the current real GDP per capita of the United States is $32,000 and its growth rate is 2 percent per year. The real GDP per capita of China is $4000, and its annual growth rate is 7 percent. According to the Table: Kenya's Economy in 2010, during 2010, and assuming no changes in the price level, aggregate output per capita in Kenya grew at a rate of: a. 0.6% b. 2.6% c. 5.2% d. 7.8%

b. 2.6%

Module 19: Albania has a real GDP per capita of $25,000, while England has a real GDP per capita of $50,000. If real GDP per capita in Albania grows at a 7 percent rate and England's real GDP per capita grows at a 3.5 percent rate, how long will it take for real GDP per capita in the two nations to converge? a. 10 years b. 20 years c. 25 years d. 35 years

b. 20 years

Module 39: (Figure: Monetary Policy and the AD-SRAS Model) According to the Figure: Monetary Policy and the AD-SRAS Model, an increase in the money supply is most likely to cause a shift from: a. SRAS to SRAS' b. AD to AD' c. SRAS' to SRAS d. AD' to AD

b. AD to AD'

Module 19: Economies with higher growth rates tend to be those that have: a. large amounts of natural resources. b. a stable government that protects property rights. c. high levels of government regulation. d. a large defense budget.

b. a stable government that protects property rights.

Module 17: Using the rule of 70, if real GDP per capita is growing at 2 percent a year, in 100 years it will have increased by how much? a. about 4 times b. about 8 times c. almost 30 times d. almost 60 times

b. about 8 times

Module 39: (Figure: Monetary Policy II) Refer to the information in the Figure: Monetary Policy II. To eliminate the inflationary gap from the short-run equilibrium at Y2, monetary policy should be: a. expansionary b. contractionary c. neutral d. balanced

b. contradictionary

Learning Curve, Module 19: Money is channeled from savings to investment in the ______ system a. goods b. financial c. factor d. service

b. financial

Learning Curve, Module 19: Differences in the rate at which countries add to human capital is due to: a. family income. b. government policy. c. personal preference. d. student initiative.

b. government policy

Module 19: When the government invests resources in a nation's educational system, the government is said to be investing in: a. private property. b. human capital. c. political stability. d. infrastructure.

b. human capital

Module 17: Nation A's real GDP increased from $100 billion to $106 billion between 2010 and 2011. Nation A's population grew from 50 million to 51 million between 2010 and 2011. As a result, real GDP per capita: a. increased because the real GDP increased at a slower rate than the population b. increased because the real GDP increased at a faster rate than the population c. decreased because the real GDP increased at a slower rate than the population d. decreased because the real GDP increased at a faster rate than the population

b. increased because the real GDP increased at a faster rate than the population

Module 17: Which is an important measure of economic growth over time? a. inflation b. increases in real per capita GDP c. decline in real interest rates d. increases in the available labor supply

b. increases in real per capita GDP

Learning Curve, Module 19: Countries that do the following tend to be economic success stories. a. increase education levels, lower taxes, and increase technological progress b. invest in physical capital, increase education levels, and increase technological progress c. invest in physical capital, increase education levels, and lower taxes d. increase education levels, raise standards of living, and increase technological progress

b. invest in physical capital, increase education levels, and increase technological progress

Module 39: If the money supply increases by 10 percent, in the long run: a. unemployment drops by 10% b. the price level increases by 10% c. real GDP increases by 10% d. unemployment drops by 20%

b. the price level increases by 10%

Module 39: The short-run aggregate supply curve is _____, and the long-run aggregate supply curve is ______. a. vertical; upward sloping b. upward sloping; vertical c. downward sloping; vertical d. vertical; horizontal

b. upward sloping; vertical

Module 19: A country's growth rate depends very highly on how it has invested in its physical capital. Generally, countries that have: a. used foreign direct investment as a source of their capital have exhibited the highest growth rate. b. used domestic saving as a source of their investment on physical capital have exhibited the highest growth rate. c. used foreign portfolio investment as a source of their capital have exhibited the highest growth rate. d.used contracted globalization as a source of their capital have exhibited the highest growth rate.

b. used domestic saving as a source of their investment on physical capital have exhibited the highest growth rate.

Module 44: If the U.S. dollar changes from $1 = €1 to $0.80 = €1, then: the dollar has depreciated relative to the euro. the dollar has been fixed by the United States and the euro bloc. the dollar has appreciated relative to the euro. U.S. goods are now cheaper in the euro bloc.

c.

Module 44: If the U.S. dollar depreciates, other things being equal, then: the U.S. financial account is in surplus. exports from the United States to other countries will decrease. it falls in value against some other currency. the U.S. current account is in deficit.

c.

Module 44: Who would demand dollars in the foreign exchange market? I. Americans who want to buy American goods, services, and assets II. Americans who want to buy European goods, services, and assets III. Europeans who want to buy American goods, services, and assets I only II only III only I, II, and III

c.

Module 44: __(Figure: Change in the Demand for U.S. Dollars) Refer to the information in the Figure: Change in the Demand for U.S. Dollars. A movement from E1 to E2 in this foreign exchange market would cause Americans to purchase ______ goods and services from Europe. the same amount of fewer more zero

c.

When the exchange rate changes from (5.5 pesos = 1 dollar) to (6.5 pesos = 1 dollar), the peso has ________ and the dollar has ________. appreciated; appreciated depreciated; depreciated depreciated; appreciated appreciated; depreciated

c.

Module 17: Real GDP per capita, growing at a constant rate over a 35-year period, doubles in size at the end of that period. What must the annual growth rate of real GDP per capita be for this economy? a. 1% b. 2% c. 4% d. 15%

c. 4%

Learning Curve, Module 19: Once the government invested in an excellent telecom infrastructure, _____ became a favored location for high tech companies. a. India b. England c. Ireland d. Egypt

c. Ireland

Module 19: Which factor does NOT necessarily have to exist for convergence to occur between two countries? a. equal access to education b. equal access to infrastructure c. a common language between the two countries d. similar policies and institutions

c. a common language between two countries

Module 18: Diminishing returns to physical capital means that as more and more physical capital is combined with a fixed amount of human capital and a fixed technology, eventually: a. aggregate output or real GDP declines. b. aggregate output or real GDP grows. c. additions to aggregate output or real GDP decline. d. additions to aggregate output or real GDP increase.

c. additions to aggregate output or real GDP decline.

Module 18: In the time since Malthus wrote his book: a. his predictions have proven true. b. the average standard of living has declined. c. advances in technology and increases in physical capital have more than offset the effects of a rising population. d. productivity has declined.

c. advances in technology and increases in physical capital have more than offset the effects of a rising population.

Learning Curve, Module 19: Most physical capital is created by _______, and most human capital is created by _______. a. government; business b. consumption; exports c. business; government d. exports; imports

c. business; government

Module 18: Growth accounting allows us to calculate the: a. time it takes for output per worker to double. b. time it takes for real GDP to rise by more than the rate of population growth. c. effects of greater physical and human capital per worker on economic growth. d. cost of technological progress.

c. effects of greater physical and human capital per worker on economic growth.

Module 17: Real GDP per capita in the United States increased almost ______ between 1900 and 2010. a. twofold b. threefold c. eightfold d. tenfold

c. eightfold

Module 17: Technological progress allows workers to produce more: a. because it increases the amount of physical capital available b. because it increases the amount of the human capital available c. even when the amount of physical capital and human capital do not change d. only if the amount of physical capital grows at the same rate

c. even when the amount of physical capital and human capital do not change

Quiz 12: Which may lead to lower productivity because of a lack of incentives? a. a stable political system b. protection of property rights c. government subsidies d. public education

c. government subsidies

Module 19: Economic growth will likely involve: a. a reduction in investment. b. a decrease in the capital stock. c. higher saving. d. lower saving.

c. higher saving

Module 39: In the long run, a monetary expansion: a. increases real GDP but has no effect on the aggregate price level b. decreases real GDP but has not effect on the aggregate price level c. increases the aggregate price level but has no effect on real GDP d. decreases the aggregate price level but has no effect on real GDP

c. increases the aggregate price level but has no effect on real GDP

Module 39: In the long run, the interest rate is determined in the __________ market. a. stock b. money c. loanable funds d. commodity

c. loanable funds

Module 17: The key statistic used to track economic growth over time is: a. the size of the workforce b. nominal GDP c. real GDP per capita d. the poverty rate

c. real GDP per capita

Module 19: Which can properly be called a part of infrastructure? a. robots on an assembly line b. professors c. the Golden Gate bridge d. a Broadway show

c. the Golden Gate bridge

Quiz 12: The fundamental argument in the Essay on the Principle of Population was that improvements in technology or increases in physical capital would lead to only temporary improvements in productivity because they would always be offset by: a. rising human capital demands. b. falling land values. c. the pressure of rising population and more workers on the supply of land. d. falling birthrates.

c. the pressure of rising population and more workers on the supply of land.

Module 44: The Japanese will demand U.S. dollars in all of these cases EXCEPT to: buy real estate in New York City. buy a GM car in Japan. see a Hollywood movie in Tokyo. invest in Japanese stocks.

d.

Module 19: Since 1975, East Asia's annual rate of GDP per capital growth has been a. 2 percent. b. 3 percent. c. 5 percent. d. 6 percent.

d. 6%

Module 18: The popular press loves to talk about new technology. What is the most important aspect of new technology for economic growth? a. It enables scientists to discover still more new things. b. It enables people to work faster. c. It leads business people to increase capital spending. d. It leads business people to alter the way they do business.

d. It leads business people to alter the way they do business.

Module 19: Ireland's recent economic growth and improving living standard are due primarily to: a. its refusal to join the European Union and abandon its own currency for the euro. b. the capture and imprisonment of Sinn Fein leader Gerry Adams. c. the large number of immigrants to the nation from Eastern Europe. d. an excellent physical and human infrastructure, including a good education system, airports, telecommunications, and shipping facilities.

d. an excellent physical and human infrastructure, including a good education system, airports, telecommunications, and shipping facilities.

Module 17: Which will NOT increase the productivity of labor? a. technological improvements b. an increase in the capital stock c. improvements in education d. an increase in the size of the labor force

d. an increase in the size of the labor force

Module 18: An increase in capital stock would: a. shift the production function upward. b. shift the production function inward. c. shift the production function downward. d. cause a movement to the right along a stationary production function.

d. cause a movement to the right along a stationary production function.

Learning Curve, Module 19: According to the ________ hypothesis, international differences in real GDP per capita tend to narrow over time. a. GDP b. merging c. growth d. convergence

d. convergence

Module 39: If actual output is equal to potential output and the Fed decreases the money supply, in the short run aggregate demand will likely: a. shift to the right b. remain the same c. increase d. decrease

d. decrease

Module 18: Information technology was widely introduced in the economy at the same time the growth rate of labor productivity slowed down. A possible explanation for this is that: a. the world supply of electricity could not keep up with the increased use of computers. b. one-story factories were poorly suited to accommodate the new technology. c. microprocessors were so slow that they actually hampered, rather than helped, work. d. for new technologies to increase productivity, they have to be used in new ways.

d. for new technologies to increase productivity, they have to be used in new ways.

Quiz 12: Economists believe that the best way to stimulate investment in physical capital is to encourage: a. higher rates of investment in human capital. b. more spending on infrastructure. c. the conservation of natural resources. d. higher rates of national savings.

d. higher rates of national savings

Learning Curve, Module 19: _____ are the rights of owners of valuable goods to dispose of them as they choose. a. Endowment rights b. Ownership rights c. Intellectual property rights d. Property rights

d. property rights

Module 17: Which sector is responsible for most of the growth that took place in the United States during the 1990s? a. service sector b. manufacturing sector c. mining sector d. retail sector

d. retail sector

Module 19: The convergence hypothesis helps explain why: a. highly educated people converge in high-income countries. b. high-income individuals marry other high-income individuals. c. high-income countries continue their high growth rates. d. the income of high-income and lower-income countries get closer.

d. the income of high-income and lower-income countries get closer.

Learning Curve, Module 19: Jeffrey Sachs and economists at the World Health Organization believe that Africa's poverty is due to: a. high taxes. b. government corruption. c. its minimum wage being too high. d. unfavorable geographic conditions.

d. unfavorable geographic conditions