Macroeconomics Midterm 3

When the government runs a budget deficit, we would expect to see that

Investment will Fall

An increase in public saving has what impact on the market for loanable funds?

The supply of loanable funds increases.

In a closed economy, private saving is equal to which of the following? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)

Y + TR - C - T

When Sophie, a French citizen, purchases a Dell computer in Paris, France that was produced in Texas, the purchase is

a U.S. export and a French import

Which of the following is the best example of a quota?

a limit on the quantity of residential air conditioners that can be imported from a foreign country

An increase in the demand for loanable funds will occur if there is

an increase in expected profits from firm investment projects.

If the value of the U.S. dollar declined relative to the currencies of most of its major trading partners in the second half of 2021, this fall in the price of the dollar against the other currencies was ________ for companies that exported to the United States and ________ for U.S. companies that exported to other countries.

bad/good

When the value of a currency is determined ________, the exchange rate system is defined as a floating exchange rate system.

only by supply and demand

Autarky is a situation in which a country

does not trade with other countries

As percentage of imports, the largest product category of U.S. imports from China is

electronic products

International trade

helps consumers but hurts firms that are less efficient than their foreign competitors.

Ceteris paribus, a rise in interest rates in the United States will cause the yen price of the dollar in international exchange markets to ________; i.e., the dollar ________ in value against the yen.

increase; appreciates

Members of Congress promising to support each other's legislation is known as

logrolling

The demand for loanable funds is downward sloping because the ________ the interest rate, the ________ the number of profitable investment projects a firm can undertake, and the ________ the quantity demanded of loanable funds.

lower; greater; greater

A financial intermediary's main function is to match ________ with excess funds to ________ with a shortage of funds.

savers; borrower

Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade. These examples are misleading because

some individuals in both countries may be made worse off because of trade.

One difference between stocks and bonds is that

stocks do not involve a promise to repay a purchaser of the stock, while bonds represent a promise to repay the purchase price of the bond.

The United States has developed a comparative advantage in digital computers, airliners, and many prescription drugs. The source of its comparative advantage in these products is

technology

If the exchange rate changes from $1.45 = 1 euro to $1.37 = 1 euro, then

the euro has depreciated and the dollar has appreciated.

When Americans increase their demand for Japanese goods

the supply of dollars will rise, and the demand for yen will rise.

In order to avoid the imposition of other types of trade barriers, foreign producers will sometimes agree to limit their exports to a country. What are these types of agreements called?

voluntary export restraints

Whenever a buyer and a seller agree to trade, both must believe they will be made better off

whether the buyer and seller live in the same (or different) city or country.

Scenario 10-1 Consider the following data for a closed economy: Y = $12 trillion C = $8 trillion I = $2 trillion G = $2 trillion TR = $2 trillion T = $3 trillion Refer to Scenario 10-1. Based on the information above, what is the level of private saving in the economy?

$3 Trillion

Estonia and Morocco can produce both swords and belts. Each country has a total of 40 available labor hours for the production of swords and belts. Table 7-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade. Refer to Table 7-6. What is the opportunity cost to produce 1 sword in Morocco?

1 belt

Estonia and Morocco can produce both swords and belts. Each country has a total of 40 available labor hours for the production of swords and belts. Table 7-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade. Refer to Table 7-6. What is the opportunity cost to produce 1 belt in Morocco?

1 sword

Estonia and Morocco can produce both swords and belts. Each country has a total of 40 available labor hours for the production of swords and belts. Table 7-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade. Refer to Table 7-6. What is the opportunity cost to produce 1 belt in Estonia?

1.67 swords

You're traveling in Ireland and are thinking about buying a new digital camera. You've decided you'd be willing to pay $125 for a new camera, but cameras in Ireland are all priced in euros. If the exchange rate is 0.85 euros per dollar, what's the highest price in euros you'd be willing to pay for a camera?

106.25 euros

You're traveling in Japan and are thinking about buying a new kimono. You've decided you'd be willing to pay $175 for a new kimono, but kimonos in Japan are all priced in yen. If the exchange rate is 89 yen per dollar, what is the highest price in yen you'd be willing to pay for a kimono? (Assume no taxes or duties are associated with the purchase.)

15,575 yen

Estonia and Morocco can produce both swords and belts. Each country has a total of 40 available labor hours for the production of swords and belts. Table 7-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade. Refer to Table 7-6. With trade, what is the total gain in belt production?

20

Estonia and Morocco can produce both swords and belts. Each country has a total of 40 available labor hours for the production of swords and belts. Table 7-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade. Refer to Table 7-6. If the actual terms of trade are 1 belt for 1.5 swords and 50 belts are traded, how many belts will Estonia consume?

50

Estonia and Morocco can produce both swords and belts. Each country has a total of 40 available labor hours for the production of swords and belts. Table 7-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade. Refer to Table 7-6. If the actual terms of trade are 1 belt for 1.5 swords and 50 belts are traded, how many belts will Morocco consume?

70

Which of the following would encourage economic growth through increases in the capital stock?

All of the Below A) a change from an income tax to a consumption tax B) a decrease in the government deficit C) an increase in household saving

How does an increase in a country's exchange rate affect its trade balance?

An increase in the exchange rate raises imports, reduces exports, and reduces the trade balance.

Rob Crusoe and Bill Friday spent their week-long vacation on a desert island where they had to find and prepare their own food. Rob and Bill spent one day each fishing and picking berries. The table lists the pounds of output Rob and Bill produced. Refer to Table 7-1. Use the table above to select the statement that accurately interprets the data in the table.

Bill has a comparative advantage in picking berries.

When the market value of the dollar rises relative to other currencies around the world, we say that

the dollar has appreciated

Rob Crusoe and Bill Friday spent their week-long vacation on a desert island where they had to find and prepare their own food. Rob and Bill spent one day each fishing and picking berries. The table lists the pounds of output Rob and Bill produced. Refer to Table 7-1. Use the table above to select the statement that accurately interprets the data in the table.

Bill has an absolute advantage in picking berries and Rob has an absolute advantage in catching fish.

Currency traders expect the value of the dollar to fall. What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market?

Demand for dollars will decrease, and supply of dollars will increase.

Refer to Figure 10-2. Which of the following is consistent with the graph depicted above?

New government regulations decrease the profitability of new investment.

Rob Crusoe and Bill Friday spent their week-long vacation on a desert island where they had to find and prepare their own food. Rob and Bill spent one day each fishing and picking berries. The table lists the pounds of output Rob and Bill produced. Refer to Table 7-1. Use the table above to select the statement that accurately interprets the data in the table.

Rob has a comparative advantage in catching fish.

Economist Steve Landsburg has pointed out that Ebenezer Scrooge's change in behavior from miser to spender might actually be detrimental to the economy because

Scrooge's miserly saving helped contribute to the production of investment goods rather than consumption goods.

Which of the following countries is not one of the top three exporting countries in the world?

South Korea

If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden, which of the following would explain this pattern of trade?

Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark has a comparative advantage in producing butter.

There is a government budget surplus if

T - TR > G

Refer to Figure 10-6. The loanable funds market is given in the figure above. If the current real interest rate is 5 percent, which of the following is true?

There is a surplus of loanable funds in the market.

Which of the following is the best example of a tariff?

a $150 fee imposed on all imported residential air conditioners

Which of the following will not shift the demand for the euro to the right?

a decrease in the demand for European goods

Which of the following is most liquid?

a dollar bill

China has developed a comparative advantage in the production of children's toys. The source of this comparative advantage is

a large supply of unskilled workers and relatively little capital.

Governments sometimes erect barriers to trade other than tariffs and quotas. Which of the following is not an example of this type of trade barrier?

a requirement that the employees of domestic firms that engage in foreign trade pay income taxes

If consumers decide to be more frugal and save more out of their income, then this will cause

a shift in the supply curve for loanable funds to the right.

All of the following are sources of comparative advantage except

a strong foreign currency exchange rate

Which of the following would cause the dollar to appreciate?

an increase in the demand for dollars

Which of the following will increase investment spending in the economy, holding everything else constant?

an increase in the federal government surplus

Refer to Figure 10-4. Which of the following is consistent with the graph depicted?

an increase in the proportion of income after net taxes used for consumption

Over the past several decades there has been rapid growth in international trade. This growth has been due to all but one of the following factors. Which factor has not contributed to the growth of international trade?

an increase in the tariffs charged on many goods

The response of investment spending to an increase in the government budget deficit is called

crowding out

Which of the following will not occur as the result of a decrease in net taxes?

decreased household saving

Assuming the United States is the "domestic" country, if the real exchange rate between the United States and France increases from 1.5 to 1.8

the prices of U.S. goods and services have increased by 20% relative to France.

The gold standard is an example of

fixed exchange rate system

The current exchange rate system in the United States is best described as a

managed float exchange rate system

Scenario 10-1 Consider the following data for a closed economy: Y = $12 trillion C = $8 trillion I = $2 trillion G = $2 trillion TR = $2 trillion T = $3 trillion Refer to Scenario 10-1. Based on the information above, what is the level of public saving?

negative $1 trillion (a deficit of $1 trillion)

Estonia and Morocco can produce both swords and belts. Each country has a total of 40 available labor hours for the production of swords and belts. Table 7-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade. Refer to Table 7-6. What is the opportunity cost to produce 1 sword in Estonia?

3/5 of a belt

Estonia and Morocco can produce both swords and belts. Each country has a total of 40 available labor hours for the production of swords and belts. Table 7-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade. Refer to Table 7-6. With trade, what is the total gain in sword production?

40

Trade restrictions are often motivated by a desire to save domestic jobs threatened by competition from imports. Which of the following counter-arguments is made by economists who oppose trade restrictions?

Consumers pay a high cost for jobs saved through trade restrictions.

Rob Crusoe and Bill Friday spent their week-long vacation on a desert island where they had to find and prepare their own food. Rob and Bill spent one day each fishing and picking berries. The table lists the pounds of output Rob and Bill produced. Refer to Table 7-1. Use the table above to select the statement that accurately interprets the data in the table.

Rob has a greater opportunity cost than Bill for picking berries.