Macroeconomics Exam 3

According to the short run Phillips curve, which of the following would result in low rates of unemployment? 17

A higher inflation rate

A quota is 7

A limit placed on the quantity of goods that can be imported into a country.

A tax imposed by a government on imports of a good into a country is called 7

A tarrif

___ Is the ability to produce more of a good or service than competitors when using the same amount of resources. 7

Absolute advantage

If people assume that future rates of inflation will follow the pattern of inflation rates in the past, they are said to have 17

Adaptive expectations

Refer to graph 3. Consider the Phillips curves. We can conclude from this graph that 17

All of the above. The expected rate of inflation from this economy is 10%. Ceterius Paribus, a fall in the rate of inflation to 5% will increase unemployment to 7.5% in the short run. The natural rate of unemployment in this economy is 5.5%

which of the following transactions would be included in Japan's current account? 18

An American citizen purchases a new Toyota made in Japan.

How does an increase in a country's exchange rate affect its balance of trade? 18

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

Refer to graph 2. Consider the shift in the short run Phillips curves. This shift may be explained by 17

An increase in the expected rate of inflation from 4.0 to 5.5%.

An economy that has interactions in trade or finance with other economists is referred to as 18

An open economy

Where does the short run Phillips curve intersect the long run Phillips curve? 17

At the point where actual inflation is equal to expected inflation

Assume that Australia has a comparative advantage in producing surfboards and New Zealand imports surfboards from Australia. We can conclude that 7

Australia has a lower opportunity cost of producing surfboards relative to New Zealand

Refer to graph 7. The depreciation of the dollar is represented as a movement from ___ 18

B to A

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? 7

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

Refer to graph 7. The appreciation of the Euro is represented as a movement from ___ 18

D to A

Refer to graph 7. The appreciation of the dollar is represented as a movement from 18

D to C

The balance of trade includes trade in 18

Goods only

Refer to graph 6. Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. The graph shows the impact of this tariff. Without the tariff in place, the U.S 7

Imports 20 million pounds of coffee

An increase in the demand for American made goods will 18

Increase the demand for dollars on the foreign exchange market.

When individuals use all available information about an economic variable to make a decision, expectations are 17

Rational

If actual inflation is greater than expected inflation, 17

Real wages fall

Employees at the university have negotiated a 5% increase in wages for the next year, based on their inflation expectations. If inflation is actually 6% over the next year, which of the following will occur? 17

Real wages for university employees will fall

Employees at the university have negotiated a 5% increase in wages for the next year, based on their inflation expectations. If inflation is actually 4% over the next year, which of the following will occur? 17

Real wages for university employees will rise

If actual inflation is less than expected inflation, which of the following will be true? 17

Real wages will rise

Berries Fish Rob 20 80 Bill 30 60 Rob Crusoe and Bill Friday spent their week long vacation on a desert island where they had to find and make 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. Select the statement that accurately interprets the data. 7

Rob has a comparative advantage in catching fish.

Berries Fish Rob 20 80 Bill 30 60 Rob Crusoe and Bill Friday spent their week long vacation on a desert island where they had to find and make 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. Select the statement that accurately interprets the data. 7

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

Refer to graph 1. What should the federal reserve do if it wants to move from point A to point B in the short run Phillips curve? 17

Sell treasury bills

Dumping refers to 7

Selling a product for a price below its cost of production.

An increase in the expected inflation rate will 17

Shift the short run Phillips curve to the right

According to the ___ Phillips curve, the unemployment rate and the inflation rate are negatively related. 17

Short run

Which of the following is common to both tariffs and quotas? 7

Tariffs and quotas are both designed to reduce foreign competition faced by domestic firms.

The curve showing the short run relationship between the unemployment rate and the inflation rate is called 17

The Phillips curve

Which of the following is an example of foreign direct investment in China? 18

The U.S company walmart buys a warehouse in Shanghai.

If actual inflation is greater than expected inflation, what is the relationship between the actual real wage and the expected real wage? 17

The actual real wage will be lower than the expected real wage.

When a foreign investor buys a bond issued in the U.S 18

The balance on the financial account increases.

The balance of payments includes which three accounts? 18

The current account, the financial account, and the capital account

The balance of trade is defined as 18

The difference between the value of the goods a country exports and the value of the goods a country imports.

When the market value of the dollar rises relative to other currencies around the world, we say that 18

The dollar has appreciated

If there is currently a surplus of dollars, which of the following would you expect to see in the foreign exchange market? 18

The dollar will depreciate

Refer to graph 4. If firms and workers have rational expectations, expansionary monetary policy will have what impact on the short run Phillips curve? 17

The economy will move from point A to point C

Exports of goods and services= $5 billion Imports of goods and services= $3 billion Net income on investments= -$2 billion Net transfers= -$2 billion Increase in foreign holdings of assets in the U.S= $4 billion Increase in U.S holdings of assets in foreign countries= -$1 billion What is the balance on the current account? 18

-$2 billion

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 is Ireland are all priced in Euros. If the camera you're looking at costs 115 Euros, under which of the following exchange rates would you be willing to purchase the camera? (no taxes) 18

0.92 Euros per dollar.

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 is 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? 18

106.25 Euros

Refer to graph 6. Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. The graph shows the impact of this tariff. Without the tariff in place, the U.S produces 7

12 million pounds of coffee

Refer to graph 6. Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. The graph shows the impact of this tariff. With the tariff in place, the U.S produces 7

18 million pounds of coffee

Refer to graph 6. Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. The graph shows the impact of this tariff. With the tariff in place, the U.S consumes 7

38 million pounds of coffee

Refer to graph 6. Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. The graph shows the impact of this tariff. Without the tariff in place, the U.S consumes 7

45 million pounds of coffee.

Refer to graph 6. Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. The graph shows the impact of this tariff. As a result of the tariff, domestic producers increase their quantity supplied by 7

6 million pounds of coffee

The quota on imported sugar costs U.S. consumers more than $2 billion annually and protects very few jobs. Why does congress maintain a sugar quota that protects only a few thousand workers while forcing millions of people to pay higher prices for sugar products? 7

The per person cost of the sugar quota is too small for many people to lobby Congress to make their views known.

The term of trade refers to 7

The ratio at which a country can trade its exports for imports from other countries.

If workers and firms raise their inflation expectations, 17

The short run Phillips curve will shift upward

Refer to graph 6. Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. The graph shows the impact of this tariff. The tariff causes domestic consumption of coffee 7

To fall by 7 million pounds

If the dollar appreciates against the Mexican peso 18

U.S. exports to Mexico become more expensive

If firms and workers have rational expectations, including knowledge of the policy being used by the federal reserve, the short run Phillips curve will be 17

Vertical

In the long run the Phillips curve is a ___ at ___

Vertical line; the natural rate of unemployment

When Sophie, a french citizen, purchases a Dell computer is Paris that was produced in Texas, the purchase is 7

A U.S export and a French import

When Telsa, a U.S. company, purchases Italian made Pirelli tires for its automobiles, the purchase is 7

A U.S import and an Italian export

If the nominal exchange rate between the American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar, how many American dollars are required to buy a product that costs 2.5 Canadian dollars? 18

$2.81

Refer to graph 5. The graph shows the U.S demand and supply for leather footwear. Suppose the government allows imports of leather imports in to the U.S. What will the market price be? 7

$24.

Refer to graph 5. The graph shows the U.S demand and supply for leather footwear. Under autarky, the equilibrium price is 7

$30.

Berries Fish Rob 20 80 Bill 30 60 Rob Crusoe and Bill Friday spent their week long vacation on a desert island where they had to find and make 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. Select the statement that accurately interprets the data. 7

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

Berries Fish Rob 20 80 Bill 30 60 Rob Crusoe and Bill Friday spent their week long vacation on a desert island where they had to find and make 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. Select the statement that accurately interprets the data. 7

Bill has a comparative advantage in picking berries

Imports are goods and services bought domestically 7

But produced in other countries

Refer to graph 1. What should the federal reserve do if it wants to move from point A to point C in the short run Phillips curve? 17

Buy treasury bills

Trade that is within a country or between countries is based on the principle of 7

Comparative advantage

If Californians increase their purchases of Italian wine, assuming all else remains constant, this will ___ of the U.S. 18

Decrease the balance of trade

Autarky is a situation in which a country 7

Does not trade with other countries.

If firms and workers have rational expectations, including knowledge of the policy being used by the federal reserve 17

Expansionary monetary policy is ineffective

Domestically produced goods and services sold to other countries are referred to as 7

Exports

According to the short run Phillips curve, the unemployment rate and the inflation rate are 17

Negatively related

Monetary policy has ___ impact on the long run Phillips curve. 17

No

If the ___ cost of production for two goods is different between two countries then mutually beneficial trade is possible. 7

Opportunity

If firms and workers have adaptive expectations, and expansionary monetary policy will cause the short run equilibrium to move from 17

Point A to point B

Refer to graph 1. Suppose that the economy is currently at point A. If the federal reserve engaged in contractionary monetary policy, where would the economy end up in the short run? 17

Point B

Refer to graph 5. The graph shows the U.S demand and supply for leather footwear. Suppose the government allows imports of leather imports in to the U.S. What will be the quantity of imports? 7

Q2-Q0