econ midterm

When considering rent seeking, which of the following is TRUE?

The anti-free trade group generally will lobby more than the pro-free trade group.

If net interest and net transfers are zero, and a country's exports exceed its imports, the country definitely has ________.

a current account surplus

Japan was accused of dumping in the steel industry within the United States when it

sold steel in the United States at a price below its cost of production.

If an economy is operating at a point inside the production possibilities frontier, then

society's resources are being inefficiently utilized.

When a country decides to produce fewer bombers and more public housing projects, it is answering the ________ part of one of the two big economic questions.

"what"

In 2011, Armenia had a real GDP of approximately $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. Armenia's real GDP per person in 2012 was

$1,545

In the table above, what does the private sector surplus equal?

$150 billion

The table above gives some of the entries in the national income and product accounts. What is the value of exports?

$350 billion

The real wage rate equals

(money wage rate)/(price level)

In the production possibilities frontier depicted in the figure above, which of the following combinations of hats and bananas is inefficient?

1 million pounds of bananas and 3 million hats

On the island country of Sunshine where the unit of currency is fish, net exports are 50 fish, saving is 250 fish, net taxes are 100 fish, and the government budget deficit is 175 fish. What is the value of investment?

25 fish

In the production possibilities frontier depicted in the figure above, which of the following combinations of hats and bananas is unattainable?

4 million pounds of bananas and 4 million hats

In an economy, 42 million people are in the labor force, 38 million are employed, and 47 million are of working age. How many people are not in the labor force?

5 million

Suppose the population is 220 million people, the labor force is 150 million people, the number of people employed is 130 million and the working-age population is 175 million people. What is the labor force participation rate?

85.7 percent

TRUE OR FALSE The most powerful individual in the Federal Reserve is the Chairman of the Board of Governors.

TRUE

In the circular flow diagram, aggregate expenditure includes the sum of

consumption and investment

Agriculture Secretary Ed Schafer today announced that Chile's Livestock and Agricultural Service approved the U.S. inspection, control and certification systems for poultry, allowing these products to enter the Chilean market effective immediately. What is NOT an effect of this change in Chilean policy on the Chilean poultry market?

Chile's tariff revenue will increase.

In 2009, Germany's capital account was -$135 million. This implies that

Germany invested more in other countries than those countries invested in Germany

Which of the following statements is TRUE?

Dumping is illegal under the rules of the WTO.

Which of the following are valid reasons advanced by almost all economists? Protectionism

Economists would not support any of the above reasons.

TRUE OR FALSE "Currency appreciation" means the price of the currency is decreasing.

FALSE

TRUE OR FALSE A movement along the demand curve shows a change in demand.

FALSE

TRUE OR FALSE Most economists would agree that "saving jobs" is a valid reason for restricting trade.

FALSE

TRUE OR FALSE Quotas are less damaging to an economy than are tariffs.

FALSE

TRUE OR FALSE Scarcity affects only those who are in need.

FALSE

TRUE OR FALSE Suppose that nominal interest rates double. As a result, the quantity of money doubles as well.

FALSE

TRUE OR FALSE The demand curve for labor shows how many hours workers demand to work.

FALSE

TRUE OR FALSE The lower the exchange rate, the cheaper are foreign-produced goods and services.

FALSE

TRUE OR FALSE The nominal interest rate is approximately equal to the real interest rate minus the inflation rate.

FALSE

Which of the following is a TRUE statement?

Free trade harms domestic producers of goods that face import competition.

Which of the following is included in a nation's current account? I. the import of services II. a change of foreign currency holdings III. net transfers, such as foreign aid payments

I and III

The dollar fell to record lows against the euro in April. Over the next month the exchange rate rose because traders began to expect that the Federal Reserve was not going to cut U.S. interest rates any further. CNN, May 16, 2008 Explain how expectations that the Federal Reserve will not cut the interest rate can make the dollar appreciate.

If traders come to believe that the Federal Reserve will not cut interest rates, the interest rate in the future will be higher than previously expected. With the higher future U.S. interest rate, the future U.S. interest rate differential will also be higher. In turn, the higher future U.S. interest rate differential will raise the future U.S. exchange rate. Finally, the expected higher future U.S. exchange rate increases the current demand for U.S. dollars and decreases the current supply, thereby raising the current exchange rate and appreciating the dollar.

Which of the statements about the gains from international trade is CORRECT?

Some people gain from international trade and some lose, though overall the gains exceed the losses.

TRUE OR FALSE A depository institution receives deposits from lenders and makes loans to borrowers.

TRUE

TRUE OR FALSE A recession occurs when real GDP decreases for at least 6 months.

TRUE

TRUE OR FALSE An exchange rate is the price of one country's currency in terms of another country's currency.

TRUE

TRUE OR FALSE As the purchasing power of wealth increases, saving decreases.

TRUE

TRUE OR FALSE If the exchange rate falls from 120 yen per dollar to 110 yen per dollar, the dollar has depreciated.

TRUE

TRUE OR FALSE In neoclassical growth theory, technological progress is the key to continuous growth in labor productivity.

TRUE

TRUE OR FALSE Over the past 80 years, the United States has reduced its average tariff rate so today it is less than 5 percent.

TRUE

TRUE OR FALSE Tariffs and quotas both decrease the amount of a good consumed and raise the price paid by domestic residents for the good.

TRUE

TRUE OR FALSE The absence of cyclical unemployment means the economy is at the natural unemployment rate.

TRUE

TRUE OR FALSE The fact that prices for similar goods differ across nations complicates comparisons of real GDP across countries.

TRUE

Suppose that traders in the foreign exchange market come to believe that the U.S. exchange rate will rise over the next few months. How does this belief affect the demand for U.S. dollars and the supply of U.S. dollars? What is the impact of this belief on the current exchange rate? Draw a graph of the foreign exchange market to illustrate your answer.

The rise in the expected future exchange rate increases the expected profit from holding dollars. The increase in expected profit increases the current demand for U.S. dollars and decreases the current supply of U.S. dollars. The current exchange rate rises. Figure 9.1 shows the effect on the foreign exchange market of the change in traders' beliefs. The demand increases so the demand curve for dollars shifts rightward from D0 to D1. The supply curve of dollars shifts leftward from S0 to S1. The dollar immediately appreciates, rising in the figure from 110 yen per dollar to 120 yen per dollar.

Which of the following reasons explains why rich countries persistently restrict textile imports from poor countries?

The trade restrictions benefit an organized visible special interest in rich countries.

In 2013 the U.S. government removed its tariff on imported ethanol. Removing the tariff benefited ________ of ethanol, each of whom gained a ________.

U.S. consumers; little

Which of the following is NOT included in the U.S. current account?

U.S. investment abroad

Suppose that the world price of bananas is 18 U.S. cents a pound and that when Australia does not trade bananas internationally, their equilibrium price in Australia is 12 U.S. cents a pound. If Australia opens up to international trade, does it export or import bananas? Explain how the price of bananas in Australia changes. How does the quantity of bananas consumed in Australia change? How does the quantity of bananas grown in Australia change?

With no international trade, the price in Australia is less than that in the world, so Australia has a comparative advantage in producing bananas. As a result, if Australia opens up to international trade, it will export bananas. With international trade, the price of bananas in Australia rises. The higher price leads to a decrease in the quantity of bananas consumed in Australia. The higher price also leads to an increase in the quantity of bananas grown in Australia.

A tradeoff is

a constraint that requires giving up one thing to get another.

In October 2008, Iceland's central bank increased its lending rate to 18% in an "effort to prop up the country's frozen current and markets." (www.nytimes.com, October, 29, 2008) As a result, there was ________, holding all else the same.

a leftward shift in the supply curve for krona

An example of "investment" in the national income accounts is the purchase of

a new van by a potter, who packs it with his wares and travels to art shows

Suppose that in response to huge job losses in the U.S. textile industry, Congress imposes a 100 percent tariff on imports of textiles from China. a. Explain how the tariff on textiles will change the price of textiles, the quantity of textiles imported, and the quantity of textiles produced in the United States. b. Explain how the U.S. and Chinese gains from trade will change. Who in the United States will lose and who will gain?

a. Higher tariffs increase the price U.S. consumers pay for textiles imported from China. Because the price of Chinese imported textiles rises, the quantity imported decreases. The quantity of textiles produced in the United States increases. b. This trade restriction means that the U.S. and Chinese gains from trade definitely decrease. Textile workers and owners of textile firms will gain from the higher price. Textile consumers will lose from the higher price.

The study of economics

arises from the fact that our wants exceed available resources.

Which of the following is NOT a function of money?

barter

Since the mid-1980s, the United States has been a net ________ and a ________ nation.

borrower; debtor

When a country has a negative current account, that country is

borrowing from the rest of the world

All of the following are sources of loanable funds EXCEPT

business investment

Which of the following is NOT money?

checks in the checkbook

A consumer might consider in-line skates and elbow-pads to be

complements

Which of the following is NOT included in the M1 measure of money?

currency held in bank vaults

If a nation during its entire history has borrowed more from the rest of the world than it has lent to the rest of the world, the country is a

debtor nation

A new financial innovation results in people switching their funds from checking deposits to savings accounts. The quantity of M1 ________ and the quantity of M2 ________.

decreases; does not change

An unusually warm winter shifts the

demand curve for gloves leftward

The demand for labor curve is

downward sloping

Selling a product in a foreign nation at a price less than its cost of production is called

dumping

When a foreign firm sells its exports at a lower price than its cost of production, the firm is

dumping

Using calculations of the cost to Americans per job saved in protected industries, it can be concluded that

each job saved is worth less than the cost imposed on consumers per job saved.

The percentage of people employed aged 16 years and older divided by the working-age population is known as the

employment-to-population ratio.

Real GDP per person in the country of Flip is $10,000, and the growth rate is 10 percent a year. Real GDP per person in the country of Flap is $20,000 and the growth rate is 5 percent a year. When will real GDP per person be greater in Flip than in Flap?

in 15 years

A small country is an international borrower and its domestic demand for loanable funds increases. Consequently, the equilibrium quantity of loanable funds used in the country ________ and the country's international borrowing ________.

increases; increases

In poorer countries, free trade ________ the demand for labor in these countries and ________ the wages paid in these countries.

increases; raises

Liquidity ________.

is the property of assets being instantly convertible into money

According to the law of diminishing returns, an additional unit of

labor produces less output than the previous unit.

The gains from free trade are enjoyed by a ________ number of people and the costs of free trade are imposed by a ________ number of people.

large; small

If the real interest rate is above the equilibrium real interest rate

lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will fall.

Suppose that the country of Pacifica imposes a quota on bananas. The reason that the government imposed this trade restriction could be

lobbying from banana farmers in Pacifica.

Gross domestic product (GDP) measures the

market value of final goods and services produced in the economy in a given time period

The most direct way in which money eliminates the need for a double coincidence of wants is through its use as a

medium of exchange

When money is accepted as payment in a market transaction, it is functioning as a

medium of exchange

As the relative price of a good falls, the substitution effect implies that people buy

more of that good and less of its substitutes.

During most of the 1980s, 1990s, and 2000s the U.S. has had a ________ current account balance and a ________ capital and financial account balance.

negative; positive

If a country is currently borrowing more from the rest of the world than it is lending to the rest of the world, the country is a

net borrower

A country that borrows more from the rest of the world than it lends to it in a year is called a ________, and a country that lends more to the rest of the world than it borrows from it in a year is called a ________.

net borrower; net lender

The main item in the current account balance is

net exports

The capital stock increases whenever

net investment is positive

The account that records changes in the U.S. government's holdings of foreign currency is the

official settlements account

In 2013, Ozzie purchased a 2010 Ford Escort from his neighbor for his son, purchased a 2009 "one owner" Camry from Larchmont Toyota for his wife, bought a 2013 new Ford for himself, and sold his 2002 Dodge Caravan to his teenage nephew. Which, if any, of these transactions will be included in GDP in 2013?

only the purchase of the Ford

Cigarettes served as money in some POW camps during World War II. Given this fact, we would expect to observe

prices of other goods expressed in terms of cigarettes

The aggregate production function shows how ________ varies with ________

real GDP; labor

The largest part of the U.S. current account consists of

receipts from exports and payments for imports.

When we export goods to foreign countries, we

receive payments from the rest of the world.

The opportunity cost of a good is the same as its

relative price.

When a group lobbies for the prevention of free trade, the most likely reason is

rent seeking.

The argument that protection ________.

saves jobs is flawed

An increase in disposable income ________.

shifts the supply of loanable funds curve rightward

The table above gives some of the entries in the national income and product accounts. The government sector has a ________, and the private sector has a ________.

surplus of $50 billion; surplus of $25 billion

During the first 6 months of 2008, the United States imported 1,655,740,870 pounds of coffee. Suppose the United States is considering placing trade restrictions on the importation of coffee. If the United States has a goal of raising tax revenue from coffee imports, what policy should they pursue?

tariff on imported coffee

In developing countries, there is more reliance on ________ as opposed to ________ for government revenue.

tariffs; tax collection

If the U.S. current account balance is -$500 billion and the capital and financial account balance is +$510 billion

the U.S. government's holdings of foreign currency increases by $10 billion

In June 2008, $1 bought 0.5 pounds and in October, $1 bought 0.65 pounds. As a result of this change, ________ between June and October.

the dollar appreciated and the quantity of dollars demanded decreased

People know that the inflation rate will decrease from 7 percent to 3 percent. As a result

the nominal interest rate falls by 4 percentage points

The nominal interest rate approximately equals which of the following?

the real interest rate plus the inflation rate

Which of the following is a microeconomic topic?

the reasons why Kathy buys less orange juice

GDP can be computed as the sum of

the total expenditures of consumption, investment, government expenditure on goods and services, and net exports over a period of time.

The reason tariffs and quotas are imposed is that

their costs are spread among many people and their benefits are concentrated.

International trade is restricted because

there is an uneven distribution of benefits and costs of free trade.

In September 2014, the official U-3 unemployment rate dropped from 6.1 percent to 5.9 percent. This change could have been caused by

unemployed workers giving up looking for a job.

The reason that average labor costs are higher in the United States than in Haiti is that

workers are more productive in the United States.

Of the groups listed below, which is most likely to lobby for protection?

workers in the import industry

The ________ is the total number of people aged 16 years and older (and not in jail, hospital or institutional care) while the ________ is the number of people employed and the unemployed.

working-age population; labor force