Macro 251 Exam 1
4 To economists, which one is not considered as investment?
You buy IBM stock.
21 Solve Thinking and Problem Solving Question 7, Part c, on page 26. What exact number would you have to place in the empty cell of the table for it to be impossible that trade between the United States and South Korea could benefit both nations?
12.5
1 Erin has a choice between two activities: She can repair one transmission per hour or she can repair two fuel injectors per hour. The opportunity cost of repairing one transmission is:
2 fuel injectors
3 Deirdre has a choice between writing one more book this year or five more articles this year. The opportunity cost of writing half of a book this year, in terms of articles is:
2.5 articles
4 1995 GDP in 2005 Dollars = __________ × __________.
2005 Prices; 1995 Quantities
2 Katie works at a customer service center and every hour she has a choice between two activities: answering 200 telephone calls per hour or responding to 400 emails per hour. The opportunity cost of responding to 400 phone calls is:
800 emails
6 Which of the following is counted in the calculation of GDP?
sales of newly built houses
1 Calculate the annual growth rate of nominal GDP in the following examples. Round to the nearest tenth of a percent for each (e.g., 1.2%, not 1% or 1.23%). If the number is negative, do not forget the negative sign. Nominal GDP in 1930: $97 billion. Nominal GDP in 1931: $84 billion.____% Nominal GDP in 1931: $84 billion. Nominal GDP in 1932: $68 billion. ____% Nominal GDP in 2000: $9,744 billion. Nominal GDP in 2001: $10,151 billion. ____%
Answer 1: -13.4 % Answer 2: -19.0 % Answer 3: 4.2 %
17 Solve Thinking and Problem Solving Question 5, Part b, on page 24. The opportunity cost of making one rotid in Mandovia is 0.5 taurons and 0.75 taurons in Ducennia.
Answer 1: 0.5 Answer 2: 0.75
19 Solve Thinking and Problem Solving Question 5, Part c, on page 25. Mandovia produces 10 million rotids and 5 million taurons. Ducennia produces 6.67 million rotids and 5 million taurons. As a whole, 16 million rotids and 10 million taurons are produced. If needed, round to the nearest hundredth of a million. For example, if the answer is 1,234,000, then your answer should be 1.23.
Answer 1: 10 Answer 2: 5 Answer 3: 6.67 Answer 4: 5 Answer 5: 16.67 Answer 6: 10
6 Calculate GDP in this simple economy: Consumer purchases: $100 per year Investment purchases: $50 per year Government purchases: $20 per year Total exports: $50 per year Total imports: $70 per year GDP: $ ___________ per year
Answer 1: 150
20 Solve Thinking and Problem Solving Question 5, Part d, on page 25. Total output amounts to 20 million rotids and 10 million taurons. Again, the unit of measurement is in millions (e.g., if your answer is "1,000,000," type "1").
Answer 1: 20 Answer 2: 10
2 In 2005 the U.S. economy produced approximately 12 million cars and light vehicles and 20 million personal computers. If the average price of a car was $28,000 and the average price of a computer was $1,000, the market value of the production of cars was $ 336 billion and the market value of computer production was $ 20 billion.
Answer 1: 336 Answer 2: 20
15 The primary topics of macroeconomics are ______________ and ______________. The concept of ______________ was developed to quantify the ideas of these two.
Answer 1: economic growth Answer 2: business fluctuations Answer 3: GDP
3 Cars made in the United States at a Toyota factory are ___________ in U.S. GDP. Cars made in Germany at a General Motors factory are ___________ in U.S. GDP.
Answer 1: included Answer 2: not included
4 The price paid by a German tourist when staying at a New York hotel is ___________ in U.S GDP. The price paid by an American tourist staying at a Berlin hotel is ___________ in U.S. GDP.
Answer 1: included Answer 2: not included
2 Used textbooks sold at your college bookstore are ___________ in U.S. GDP. Used books sold at a garage sale are ___________ in U.S. GDP.
Answer 1: not included Answer 2: not included
6 In the United States, we don't just have doctors - we have neurologists, cardiologists, gastroenterologists, gynecologists, and urologists. We also have dog walkers, closet organizers, and manicurists. It's common to dismiss the latter jobs as frivolous, but, from society's point of view, they are very important in producing the services offered by the medical specialists. Why?
Because dog walkers, closet organizers, and manicurists are the ones who give the neurologists the time they need to perfect their skills.
7 Fit the following example into one of the reasons for trade. Former President Bill Clinton, a graduate of Yale Law School, hires attorneys who are less skilled than himself to do routine legal work.
Comparative advantage
14 Data can write 12 excellent poems per day or solve 100 difficult physics problems per day. Riker can write one excellent poem per day or solve 0.5 difficult physics problems per day.
Data has an absolute advantage at both.
1 There is debate about when the 2001 recession started. The official NBER starting date is March 2001, but data revisions have led many people to conclude that the recession actually started in late 2000. Why all the fuss about the timing?
Democrats want to show that the recession started in March 2001 while Republicans want to show that it started in late 2000.
6 Fit the following example into one of the reasons for trade. Two recently abandoned cats, Bingo and Tuppy, need to quickly learn how to catch mice in order to survive. If they also remain well groomed, they stand a better chance of surviving: Good grooming reduces the risk of disease and parasites. Each cat could go it alone, focusing almost exclusively on learning to catch mice. The alternative would be for Bingo to specialize in learning how to groom well and for Tuppy to specialize in learning how to catch mice well.
Division of knowledge
5 Of the three conditions that explain why a free market is efficient (from Chapter 4), which condition or conditions cease to hold in the case of a tariff on imported goods? I. The supply of goods is bought by the buyers with the highest willingness to pay. II. The supply of goods is sold by the sellers with the lowest costs. III. Between buyers and sellers, there are no unexploited gains from trade and no wasteful trades.
II and III
6 Trade restrictions:
save visible jobs but destroy jobs that are harder to see.
5 By definition, nominal GDP is ________ real GDP.
It depends on which year we choose as the base year.
8 Let's focus just on the lobbyists who are restricting trade. If the United States were to amend the Constitution to permanently ban all tariffs and trade restrictions, these lobbyists would lose their jobs, and they'd have to leave Washington to get "real jobs." Would this job change raise U.S. productivity or lower it? Which is more likely over time?
It would raise U.S. productivity.
1 The Japanese people currently pay about four times the world price for rice. If Japan removed its trade barriers so that Japanese consumers could buy rice at the world price, who would be better off and who would be worse off: Japanese consumers or Japanese rice farmers? If we added all the gains and losses to the Japanese, would there be a net gain or net loss?
Japanese consumers would be better off while Japanese rice farmers would be worse off. There would be a net gain.
13 Kara can build two glass sculptures per day or she can design two full-page newspaper advertisements per day. Sara can build one glass sculpture per day or design four full-page newspaper ads per day.
Kara has a comparative advantage at glass sculptures and Sara has a comparative advantage at newspaper ads.
12 Kara can build two glass sculptures per day or she can design two full-page newspaper advertisements per day. Sara can build one glass sculpture per day or design four full-page newspaper ads per day.
Kara has an absolute advantage at glass sculptures and Sara has an absolute advantage at newspaper ads.
18 Solve Thinking and Problem Solving Question 5, Part b, on page 24. Which country has a comparative advantage at manufacturing rotids? At making taurons?
Mandovia at rotids and Ducennia at taurons.
16 Solve Thinking and Problem Solving Question 5, Part a, on page 24. Which country has an absolute advantage at making rotids? At making taurons?
Mandovia has an absolute advantage at both.
6 Which one of the following is included in the calculation of GDP?
Medicare
9 In 30 minutes, Kana can either make miso soup or she can clean the kitchen. In 15 minutes, Mitchell can make miso soup; it takes Mitchell an hour to clean the kitchen.
Mitchell has a comparative advantage at miso soup and Kana has a comparative advantage at cleaning.
8 In 30 minutes, Kana can either make miso soup or she can clean the kitchen. In 15 minutes, Mitchell can make miso soup; it takes Mitchell an hour to clean the kitchen.
Mitchell has an absolute advantage at miso soup and Kana has an absolute advantage at cleaning.
14 The movement for "green accounting" has tried to reform GDP statistics to cover the environment more explicitly.
Most economists agree with the logic behind green accounting, but it is not done because environmental amenities are difficult to value.
15 Data can write 12 excellent poems per day or solve 100 difficult physics problems per day. Riker can write one excellent poem per day or solve 0.5 difficult physics problems per day.
Riker has a comparative advantage at poetry and Data has a comparative advantage at physics.
6 Many people will tell you that, whenever possible, you should always buy U.S.-made goods. Some will go further and tell you to spend your money on goods produced in your own state whenever possible. (Just do a simple Google search for "Buy [any state]" and you'll find a Web site encouraging this kind of thinking.) The idea is that if you spend money in your state, you help the economy of your state, rather than the economy of some other state. By the same logic, shouldn't one buy only goods produced in one's own city? Or on one's own street? Where does this thinking lead to?
Self sufficiency
11 In one hour, Ethan can bake 20 cookies or lay the drywall for two rooms. In one hour, Sienna can bake 100 cookies or lay the drywall for three rooms
Sienna has a comparative advantage at baking cookies and Ethan has a comparative advantage at laying drywall.
10 In one hour, Ethan can bake 20 cookies or lay the drywall for two rooms. In one hour, Sienna can bake 100 cookies or lay the drywall for three rooms.
Sienna has an absolute advantage at both.
4 This chapter pointed out that trade restrictions on sugar cause U.S. consumers to pay more than twice the going world price for sugar. However, you are very unlikely to ever encounter bumper stickers that say things like "Out of money yet? Keep taxing foreign sugar!" or "Hungry? It's probably because domestic sugar is so expensive!" Why do you think it is that these bumper stickers are not popular?
The costs of the tariffs are relatively small for each individual as it is spread out among many, many people.
9 Let's focus just on the lobbyists who are restricting trade. If the United States were to amend the Constitution to permanently ban all tariffs and trade restrictions, these lobbyists would lose their jobs, and they'd have to leave Washington to get "real jobs." Would most of these lobbyists likely earn more or less right after the amendment was enacted?
The lobbyists would probably earn less.
7 In 1992, labor activists discovered that Walmart was selling clothing that had been made in Bangladesh by subcontractors who had employed some child workers. Senator Tom Harkin angrily introduced a bill in Congress to prohibit firms from importing any products made by children under the age of 15. Harkin's bill didn't pass, but in a panic the garment industry in Bangladesh dismissed 30,000 to 50,000 child workers. Where did these children go?
To a worse job such as prostitution
14 According to Youssef Boutros-Ghali, Egypt's former minister for trade, when do industrial countries start feeling concerned about third-world workers?
When third world labor has proved to be competitive
4 American workers are typically paid much more than Chinese workers. This is largely because American workers are typically more productive than Chinese workers.
True
5 Julia Child, an American chef (and World War II spy) who reintroduced French cooking to Americans in the 1960s, was paid much more than most American chefs. This was largely because Julia Child was much more productive than most American chefs.
True
11 A citizen of Mexico who works temporarily in the United States adds to ________. An American who works temporarily in Mexico contributes to ________.
U.S. GDP; Mexican GDP
13 Who often are the biggest lobbyists for bills to restrict trade on behalf of "oppressed foreign workers"?
U.S. labor unions
1 Which of the following does not add to GDP?
a computer chip
5 A government spending on building roads is considered as:
a government purchase.
8 In 2009, about 18% of all children aged 5-14 around the world worked for a significant number of hours. The vast majority of these children worked in ________, and not in ________. Restrictions on trade, therefore, ________ directly reduce the number of child workers.
agriculture; export industries; cannot
1 Trade increases productivity through specialization and the division of knowledge. In other words, workers become more productive because they __________________________. Trade increases productivity through comparative advantage. In other words, workers become more productive because they __________________________.
can concentrate on producing only a few things; can concentrate on what they are good at can concentrate on what they are good at; can concentrate on producing only a few things
12 In 1954 the U.S. government declared that mohair, the fleece of the Angora goat, was vital for national security (it can be used to make military uniforms). For nearly 40 years the producers received millions of dollars in annual payments. Finally, after much ridicule, the program was eliminated in 1993 . . . only to be reestablished in 2002. This example:
casts doubt on the argument for restricting free trade based on national security.
13 What makes trade profitable is differences in ___________ advantage, and a country will always have some __________ advantage.
comparative; comparative
2 When Medicare pays your medical bill, it is considered to be:
consumption spending.
3 The Bureau of Economic Analysis categorizes private spending on education as:
consumption spending.
2 In the 1980s when the U.S. price was four times the world price because of the U.S. tariff on sugar, Canadian entrepreneurs started _____________________ and exported it to the United States.
creating super-high-sugar iced tea
2 In his book The Choice, economist Russ Roberts asks how voters would feel about a machine that could convert wheat into automobiles. This machine would ________ jobs in the auto industry and ________ jobs in other industries. Economists call this machine, "___________"
destory; create; international trade
13 The destruction of water aquifers, the accumulation of carbon dioxide in the atmosphere, or declining supplies of natural resources ________ the official GDP figure.
does not change
10 The Interstate Bakeries Corporation buys wheat flour to make into Wonder Bread. The purchase of wheat flour ____________ GDP.
does not change the value of
7 On eBay, you sell your collection of Pokémon cards. Your sale __________ GDP.
does not change the value of
10 The lesson of Figure 19.4 on page 425 is that __________ reduces child labor.
economic growth
5 The phonograph destroyed jobs in the piano industry, CDs destroyed jobs in the record industry, and today MP3s are destroying jobs in the CD industry. With all these jobs being destroyed:
employment and the standard of living keep trending upward.
11 Measured GDP will ________ if people decide not to work to consume more leisure.
fall
11 The theory of comparative advantage not only explains trade patterns but it also tells us something remarkable: A country (or a person) will always be the low-cost seller of some good. The reason is clear: The greater the advantage a country has in producing A, the ___________ the cost to it of producing B. If you are a great pianist, the cost to you of doing anything else is very ______.
greater; high
8 Nations that have greater levels of corruption and higher tax rates usually have ________ levels of underground transactions. Therefore, their official GDP figures ________ the amount of production.
higher; understate
4 Trade does not eliminate jobs—it moves jobs from ________ industries to ________ industries.
import-competing; export
2 Sam was going to trash the old Fisher Price garage that his kids no longer play with. Instead, Sam sells it on eBay to Jen who pays $65.50. What had been worth nothing is now worth at least $65.50. The total value in society has ___________.
increased.
9 Studies have shown that more openness to trade ________ income and ________ child labor.
increases; reduces
15 A real variable is one that corrects for ________.
inflation
13 Throughout most of human history, a failure to grow ________.
is normal
9 If the United States did have the world's best climate for growing sugar:
it would make sense for the United States to design iPads and import sugar from Brazil if the United States had a bigger advantage in designing iPads than it did in growing sugar.
7 Economic growth in the modern era is primarily due to the creation of new _____________.
knowledge
9 In the United States, the portion of women who are in the official labor force has almost doubled since 1950, rising from 34% to about 60% today. As a result, mothers spend ______ time working at home than in 1950, but there are ______ nannies and house cleaners in the economy today. Therefore, the official GDP figure of 1950 ________ the amount of production relative to that of today.
less; more; understates
17 Workers in the United States often fear trade because they think that they cannot compete with _________ in other countries. Meanwhile, workers in low-wage countries fear trade because they think that they cannot compete with ________ countries like the United States.
low-wage workers; high-productivity
8 A country has an absolute advantage in producing a good if it can produce _________ using ________________ another country.
more of it; less inputs than more of it; the same amount of inputs as the same amount of it; less inputs than Correct Answer All of the above.
5 Real GDP calculations become trickier, the longer the period we compare. In 1925, for example, what was the price of a computer? Economists and statisticians involved in computing real GDP must worry about the value of ________ goods and changes in the ________ of old goods. The more years that pass, the more difficult it is to determine how to adjust for those changes.
new; quality
3 When the media report that fourth-quarter 2006 GDP growth in annual terms was 2.2%, we are typically being told about the growth rate of ________ GDP. If we want to compare GDP over time, we should always compare ________ GDP, that is, GDP calculated using ________ prices in all years.
nominal; real; the same
7 Some people argue for protectionism by pointing out that other countries with whom we trade engage in "unfair trade practices," and that we should retaliate with our own protectionist measures. One such policy is the policy of some countries to subsidize exporting industries. India, for example, subsidizes its steel industry. Obviously, U.S. steel producers are hurt by this policy and would like to restrict imported steel from India. For the U.S. economy as a whole, restricting imported steel from India is:
not a good policy because the losses suffered by steel buyers and other industries outweigh the benefits gained by the U.S. steel industry.
12 Which of the following is not counted in the calculation of GDP?
services of real estate agents who sell old houses, services of used-car salespeople, and services of stock brokers all count in the calculation of GDP.
12 In the United States, the average workweek has fallen by 10% since 1964 (from 38 hours to about 34.5 hours per week). Individuals in other developed nations such as France, Germany, and the United Kingdom work less. Since leisure time is ________ to GDP, other things equal, the longer workweek will make the official U.S. GDP figure ________ the true standard of living compared with Europe.
not added; overstate
10 In India, women make up only 28% of the labor force, compared with 46% for the U.S. The output of the other 72% of Indian women is __________ in Indian GDP. Indian GDP statistics, therefore, __________ the real production of goods and services in India.
not included; understates
10 If Martha Stewart was the world's best ironer, she should:
not iron her clothes because the loss of not running her business due to ironing was greater and not iron her clothes because she did not have a comparative advantage in ironing her clothes.
5 In a primitive agricultural economy in which each person or household farms for themselves, each person has about the same knowledge as the person next door. In this case, the combined knowledge of a society of one million people barely exceeds that of ______________.
one person
7 U.S. imports contribute to the GDP of _________. In GDP for the United States, we include U.S. ________ but subtract U.S. ________.
other nations; exports; imports
9 A tractor built in 2002 and still operating today is ________ of U.S. wealth ________ of today's GDP.
part; but not part
11 The real cause of child labor is:
poverty.
14 GDP in 2005 was $12.4 trillion and GDP in 1995 was $7.4 trillion. Should we celebrate this roughly 70% increase in GDP? Before we celebrate, we would like to know whether the increase was due mostly to greater ________ —more cars and computers—or to increases in ________ between 1995 and 2005.
production; prices
4 Why can we get so much more food through trade than through personal production? The reason is that specialization greatly increases ___________.
productivity
15 In the model of Mexico and the United States in the chapter, after specialization and trade, the wage in Mexico is lower than the wage in the United States, both before and after trade, because the ________________ is lower in Mexico.
productivity of labor
8 Growth in ___________ is usually the best reflection of changing living standards.
real GDP per capita
3 Why does the government support the U.S. sugar tariff when U.S. consumers lose much more than U.S. producers gain? One clue is that the costs of the sugar tariff are spread over millions of consumers so the costs per consumer are ________. The benefits of the tariff, however, flow to a small number of producers, each of whom benefits by ___________. As a result, the producers support and lobby for the tariff much more actively than consumers oppose the tariff.
small; millions of dollars
Use the table for Thinking and Problem Solving Question 7 on page 25 and the answer to the previous question. Any number less than the number in the previous question will give __________ the comparative advantage in airplanes. Any number higher than the number in the previous question will give __________ the comparative advantage in airplanes.
the United States; South Korea
15 The biggest factor in the productivity boom of the 1990s in the United States was not a Silicon Valley high-tech firm but improvements in the retail and wholesale sector. Walmart alone was responsible for one-eight of these productivity gains. This example illustrates:
the difficulty of determining which industry is a key industry.
16 Ultimately, what determines the wage rate?
the productivity of labor
12 When people fear that a country can be outcompeted in everything:
they are wrong because it is impossible.
3 What makes specialization possible?
trade
1 In September 1995, Pierre Omidyar, a 28-year old computer programmer, finished the code for what would soon become eBay. Searching around for a test item, Omidyar grabbed a broken laser pointer and posted it for sale with a starting price of $1. The laser pointer sold for $14.83. The main point of this example is that:
trade makes people better off.
14 In the model of Mexico and the United States in the chapter, after specialization and trade, the wage in Mexico has gone ____ and the wage in the United States has gone _____.
up; up
3 Spend some time driving in Detroit, MI—the Motor City—and you're sure to see bumper stickers with messages like "Buy American" or "Out of a job yet? Keep buying foreign!" or "Hungry? Eat your foreign car!" Domestic auto companies and their workers are hurt by imported automobiles, but _______________ benefit(s).
workers at the foreign auto companies, domestic buyers, and other industries in the U.S.
