E3C3O0N2_MAXE_5.0

Absolute advantage

(the first one makes more sense but both are correct...) ------------------------- -the ability to produce a good using fewer inputs than another producer. ------------------------- -comparing the productivity of one nation to that of another.

Technology's impact on PPF

- better technology will lead to out world shift in production possibility curve; o It means that more goods can be produced with the same amount of resources. o Quantity and quality of input resources remains the same.

Exports

- inflow of funds from a country since they are payments made by foreign companies (the exporters) to overseas entities (the importers). o high level of exports indicates robust domestic supply and a growing economy.

Imports

- outflow of funds from a country since they are payments made by local companies (the importers) to overseas entities (the exporters). o high level of imports indicates robust domestic demand and a growing economy.

Opportunity Costs

- the loss of potential gain from other alternatives when one alternative is chosen. ------------------------- (same thing but...) ------------------------- - the benefits an individual, investor or business misses out on when choosing one alternative over another.

Net Exports

-Net exports refer to the **value of a country's total exports** minus (-) the **value of its total imports.** -It is used to calculate a country's aggregate expenditures, or GDP, in an open economy.

1. Trade Surplus 2. Trade Deficit

0. Trade Balance = (Total Value of Exports - Total Value of Imports) -If formula ^^^^^ is; Positive=Surplus Negative=Deficit ------------------------- 1. A trade surplus is an economic measure of a positive balance of trade, where a country's exports exceed its imports. ----------------------- 2. A trade deficit is an economic measure of a negative balance of trade, where a country's imports exceed its exports.

1. Federal Budget Deficit 2. Federal Budget Debt

1. 2.

1. Budget Deficits 2. Surpluses under automatic Fiscal Policy

1. 2.

1. Efficient PPF 2. Above the PPF 3. Below the PPF

1. Any point on the PPF; a "1 for 1" trade or "Tradeoff" 2. 3.

1. Automatic Stabilizers 2. Discretionary Fiscal Policy

1. Automatic Stabilizers (AD Increase) -Recession i.Tax Revenues -To the Gov't Fall *automatically* Because: Income tax revenues, Sales Tax etc..., Decrease ii. Gov't Spending Increases *automatically* Because: welfare/transfer; Payments, unemployment, insurance, etc... Increase -BUT: If tax revenue Decrease & Gov't spending Increasesà Budget Deficit (BD) Increases oExpansion i.Tax Revenues; Increase *automatically* -AD Decreases *auto.* ii. Gov't spending Decreases *automatically* -AD Decreases *auto.* iii.Meaning: Budget Deficit FALLS -Balance & useà BD Increases 2. Discretionary Fiscal Policy (opposite of Auto. Stabilizers)à -When president & congress pass special legislation to help macroeconomy

Fiscal Years

1. During Recessions; Gov't spending multipliers are around and above "1.5" 2. But outside of recession; Less than very low multipliers o Gov't spending; causes high deficits - and borrowing (Crowding out effect) and crowds out other investors o (Drives up Interest rates and takes loans that otherwise would go to Consumers/Firms) o ---Missing Infor---

1. Monetary policy 2. Fiscal policy

1. Monetary supply is... - ...the amount of money available, usually as determined by the central bank and the banking system. 2. The government's choice regarding levels of spending and taxation.

1. Real Exchange Rates 2. Nominal Exchange Rates

1. Real Effective Exchange Rates (REER): - The real effective exchange rate (REER) is the weighted average of a country's currency in relation to an index or basket of other major currencies. The weights are determined by comparing the relative trade balance of a country's currency against each country within the index. ------------------------- REER = CER^n x CER^n x CER^n x... (CER = Country exchange rate) ------------------------- 2. Nominal Exchange Rates: - The number of units of the domestic currency that are needed to purchase a unit of a given foreign currency. ------------------------- Formula: 1/exchange rate -------------------------

1. Appreciation 2. Depreciation

1. an increase in the value of a currency when compared to others. It means that one unit is capable of buying more foreign currency than before. 2. a fall in the value of that currency, so it can buy less; this process is also known as devaluation.

Purchasing Power Parity (PPP)

1. analysis metric to compare economic productivity and standards of living between countries 2. an economic theory that compares different countries' currencies through a "basket of goods" approach. 3. the two currencies are in equilibrium—known as the currencies being at par—when a basket of goods is priced the same in both countries, taking into account the exchange rates. ------------------------- KEY TAKEAWAYS: o Purchasing power parity (PPP) is a popular metric used by macroeconomic analysts. o PPP compares economic productivity and standards of living between countries. o Some countries adjust their gross domestic product (GDP) figures to reflect PPP. -------------------------

Define acronyms in formula: GDP = C + I + G + (X − M)

C=Consumer spending on goods and services I=Investment spending on business capital goods G=Government spending on public goods and services X=Exports M=Imports​

Production Possibilities Frontier (PPF)

a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available

If the government increases purchases by $200 billion and the marginal propensity to consume is 0.80, then the change in real GDP will be... a) $1 trillion b) $800 billion c) $200 billion d) None of the above.

a) $1 trillion

If the exchange rate is 125 yen per $1, a bottle of rice wine that costs 2,500 yen costs... a) $20. b) $25. c) $22. d) None of the above is correct.

a) $20.

If the MPC is 0.75, a $10 billion increase in government purchases will increase real GDP by... a) $40 billion b) $30 billion c) $0.33 billion d) $0.25 billion

a) $40 billion

According to purchasing-power parity theory, if a McDonald's Big Mac cost $2.50 in the United States and 5 euros in France, then the exchange rate should be... a) 2 euros per dollar. b) 1 euro per dollar. c) 1/2 euro per dollar. d) None of the above is correct.

a) 2 euros per dollar.

NOTE: The Chart attached is ONLY for reference, NOT actual chart for the Problem; ::To assist, here are some dummy values to give to the chart's slope in form of (x,y): -slope's intercepts points: o (0,5); y-intercept o (5,0); x-intercept --------------------------------------- (Using Dummy Variables) Point locations upon chart: -A; (0,8); Chart's y-intercept, higher than slope. -B; (2,3); on slope, similar to "B" on the attached image, Below Slope. -C; (4,4) Located similar to "E" on the attached image; Above slope. -D; (2,2); Located similar to "D" on the attached image; Below slope. -E; (5,0); Slope's x-intercept. --------------------------------------- On the production possibilities frontier shown above, the economy can produce at which point or points? a) B, D, E b) A, B, D, E c) D, C d) D

a) B, D, E

Use the (hypothetical) information in the following table to answer: --------------------------------------- Country Currency Currency per U.S. Dollar U.S. Price Index Country Price Index: __________________________________________________ Brazil | Real: 4.00 | 200 | 800| Japan | Yen: 125.00 | 200 | 50,000| Mexico | Peso: 10.00 | 200 | 2,000| Sweden | Krona: 9.00 | 200 | 2,000| Thailand | Baht: 45.00 | 200 | 8,000| --------------------------------------- For which country(ies) in the table does purchasing-power parity hold? a) Brazil and Mexico b) Japan, Sweden, and Thailand c) Japan and Sweden d) Thailand

a) Brazil and Mexico

Production Possibilities Frontier:: Straight Downward Sloped Graph: o x-axis: Corn o y-axis: Wheat -Paul's 'x' & 'y' axis; (10,8) -Cliff's 'x' & 'y' axis; (4,6) ------------------------------------- According to the graph, which of the following is true for Cliff and Paul? a) Paul has an absolute advantage in both wheat and corn. b) Paul has an absolute advantage in wheat and Cliff has an absolute advantage in corn. c) Cliff has an absolute advantage in wheat and Paul has an absolute advantage in corn. d) Cliff has an absolute advantage in both wheat and corn.

a) Paul has an absolute advantage in both wheat and corn.

A country sells more to people overseas than it buys from them. It has a) a trade surplus and positive net exports. b) a trade surplus and negative net exports. c) a trade deficit and positive net exports. d) a trade deficit and negative net exports.

a) a trade surplus and positive net exports.

Trade... a) allows a person to consume at a point outside his production possibilities frontier. b) limits a person's ability to produce goods and services on her own. c) must benefit both traders equally. d) is based on absolute advantage.

a) allows a person to consume at a point outside his production possibilities frontier.

The process of taking advantage of different prices for a good in different markets is called... a) arbitrage. b) absolute advantage. c) capitalism. d) the law of one price.

a) arbitrage.

Production Possibilities Frontier:: Straight Downward Sloped Graph: o x-axis: Ice Cream o y-axis: Cones -Ben's 'x' & 'y' axis-intercepts; (2,8) ::Point 'A' (1,4) -Jerry's 'x' & 'y' axis-intercepts; (6,6) ::Point 'A' (2,3) --------------------------------------- According to the graphs above, Ben has a comparative advantage in... a) cones and Jerry has a comparative advantage in ice cream. b) ice cream and Jerry has a comparative advantage in cones. c) neither good and Jerry has a comparative advantage in both goods. d) both goods and Jerry has a comparative advantage in neither good.

a) cones and Jerry has a comparative advantage in ice cream.

The aggregate demand curve decreases when the government... a) cuts spending. b) decreases taxes. c) Both of the above are correct. d) None of the above is correct

a) cuts spending.

Government spending... a) decreases during expansions and increases during recessions b) decreases during expansions and recessions c) increases during expansions and decreases during recessions d) increases during expansions and recessions

a) decreases during expansions and increases during recessions

Because of automatic stabilizers, when real GDP decreases... a) government expenditures increase and tax revenues decrease. b) government expenditures decrease and tax revenues increase. c) government expenditures equal tax revenues. d) the economy will automatically go to full employment.

a) government expenditures increase and tax revenues decrease.

Foreign-produced goods and services that are sold domestically are called... a) imports. b) exports. c) net imports. d) net exports.

a) imports.

When taxes decrease, consumption increases as shown by... a) increasing the aggregate demand curve. b) decreasing the short run aggregate supply curve. c) a movement to the right along a given aggregate demand curve. d) None of the above is correct.

a) increasing the aggregate demand curve.

NOTE: The Chart attached is ONLY for reference, NOT actual chart for the Problem; --------------------------------------- On a production possibilities frontier, production is efficient if the production point is... a) on the frontier. b) outside the frontier. c) on or inside the frontier. d) inside the frontier.

a) on the frontier.

If taxes increase by $40 billion and the marginal propensity to consume is equal to 0.7, then in the short run... a) real GDP decreases by $93 billion. b) real GDP increases by $12 billion. c) real GDP increases by $28 billion. d) real GDP decreases by $28 billion.

a) real GDP decreases by $93 billion.

Whenever the federal government spends more than it receives in tax revenue, then by definition it... a) runs a budget deficit. b) operates a balanced budget. c) increases economic growth. d) runs a budget surplus.

a) runs a budget deficit.

Production Possibilities Frontier:: Straight Downward Sloped Graph: o x-axis: Corn o y-axis: Wheat -Paul's 'x' & 'y' axis; (10,8) -Cliff's 'x' & 'y' axis; (4,6) ------------------------------------- According to the graph above, the opportunity cost of 1 bushel of wheat for Cliff is... a) 1/3 bushel of corn. b) 2/3 bushel of corn. c) 1 bushel of corn. d) 3/2 bushels of corn.

b) 2/3 bushel of corn.

The law of one price states that a) a good must sell at the price fixed by law. b) a good must sell at the same price at all locations. c) a good cannot sell for a price greater than the legal price ceiling. d) domestic producers of a good are guaranteed a subsidy by law.

b) a good must sell at the same price at all locations.

Any point on a country's production possibilities frontier represents a combination of two goods that an economy... a) will never be able to produce. b) can produce using all available resources and technology. c) can produce using some of its resources and technology. d) may be able to produce sometime in the future with additional resources and technology.

b) can produce using all available resources and technology.

Historically, the budget deficit has tended to... a) decrease during recessions. b) increase during recessions. c) remain the same over the business cycle. d) decline steadily over time.

b) increase during recessions.

Table: | Pounds produced in 40 hours: | /Meat\ /Potatoes\ Farmer: 5 20 Rancher: 10 8 --------------------------------------- According to the table above, the Farmer has an absolute advantage in... a) meat, and the Rancher has an absolute advantage in potatoes. b) potatoes, and the Rancher has an absolute advantage in meat. c) meat, and the Rancher has an absolute advantage in meat. d) neither good, and the Rancher has an absolute advantage in both goods.

b) potatoes, and the Rancher has an absolute advantage in meat.

The exchange rate is the... a) nominal interest rate in one country divided by the nominal interest rate in the other country. b) rate at which a person can trade the currency of one country for the currency of another. c) price of a good in one country divided by the price of the same good in another. d) the number of goods a person can trade for a similar good in another country.

b) rate at which a person can trade the currency of one country for the currency of another.

Net exports measure an imbalance between a country's... a) income and expenditures. b) sale of goods and services abroad and purchase of foreign goods and services. c) sale of domestic assets abroad and purchase of foreign assets. d) All of the above are correct.

b) sale of goods and services abroad and purchase of foreign goods and services.

The government buys a bridge. The owner of the company that builds the bridge pays her workers. The workers increase their spending. Firms that the workers buy goods from increase their output. This type of effect on spending illustrates... a) the crowding-out effect. b) the multiplier effect. c) the marginal propensity effect. d) None of the above is correct.

b) the multiplier effect.

The government's budget deficit or surplus equals the... a) change in expenditures divided by change in revenue. b) total tax revenue minus total government expenditures. c) change in revenue minus change in government expenditures. d) average government expenditure divided by average tax revenue

b) total tax revenue minus total government expenditures.

If a country's imports are greater than its exports, the country is said to have a... a) trade surplus. b) trade deficit. c) comparative advantage. d) absolute advantage.

b) trade deficit.

Suppose that a country exports $100 million of goods and services and imports $75 million of goods and services, what is the value of net exports? a) $175 million b) $100 million c) $25 million d) -$25 million

c) $25 million

Production Possibilities Frontier:: Straight Downward Sloped Graph: o x-axis: Ice Cream o y-axis: Cones -Barney's 'x' & 'y' axis-intercepts; (14,7) -Betty's 'x' & 'y' axis-intercepts; (15,20) --------------------------------------- Refer to Figure above. The opportunity cost of 1 loaf of bread for Barney is a) 1/4 pie. b) 1/2 pie. c) 2 pies. d) 1 pie.

c) 2 pies.

NOTE: Image is not exact! its for reference, the values are NOT apart of the problem! -------------------------------------- (Real) Graph's Nominal Values [in intervals of "5"]: NOTE: the slope is curved downward from 35 to 70; (70,35) ( x , y ) Y-axis: 0-35 X-axis: 0-70 Points: A; (30,30) - On slope's curve B; (30,20) - Inside slope's curve C; (50,25) - Outside of curve D; (60,10) - On slope's curve On the production possibilities frontier shown above, the opportunity cost to the economy of getting 30 additional toothbrushes by moving from point A to point D is... a) 10 toasters. b) 15 toasters. c) 20 toasters. d) 25 toasters.

c) 20 toasters.

Table: | Pounds produced in 40 hours: | /Meat\ /Potatoes\ Farmer: 5 20 Rancher: 10 8 --------------------------------------- According to the table above, the opportunity cost of 1 pound of meat for the farmer is... a) 1/4 hour of labor. b) 4 hours of labor. c) 4 pounds of potatoes. d) 1/4 pound of potatoes.

c) 4 pounds of potatoes.

If the MPC equals 0.76, then the government purchases multiplier equals... a) 3.16 b) 1.32 c) 4.16 d) 1.24

c) 4.16 Calculation: 1/(1-0.76) = 4.16 NOTE: this formula is only meant for "Multiplier" questions, but can be used as an alternate formula.

NOTE: Image is not exact! its for reference, also " Point 'Y' " does NOT exist (Real) Graph's Nominal Values [in intervals of "50"]: NOTE: the slope is curved downward from 200 to 400; (400,200) ( x [bananas] , y [Baseballs] ) Y-axis: 0-200 X-axis: 0-400 Points: A; (0,200) - On slope's curve B; (200,150) - On slope's curve C; (100,300) - On slope's curve D; (100,100) - Inside slope's curve According to the graph, if this economy put all available resources into the production of bananas, it could produce... a) 200 bananas and also 150 baseballs. b) 300 bananas and also 100 baseballs. c) 400 bananas and no baseballs. d) It is impossible to know unless we know the quantity of resources available.

c) 400 bananas and no baseballs.

The exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing power parity to hold? a) 20 florin b) 40 florin c) 80 florin d) 100 florin

c) 80 florin

NOTE: The Chart attached is ONLY for reference, NOT actual chart for the Problem; ::To assist, here are some dummy values to give to the chart's slope in form of (x,y): -slope's intercepts points: o (0,5); y-intercept o (5,0); x-intercept --------------------------------------- (Using Dummy Variables) Point locations upon chart: -A; (0,8); Chart's y-intercept, higher than slope. -B; (2,3); on slope, similar to "B" on the attached image. -C; (4,4) Located similar to "E" on the attached image; not on slope. -D; (2,2); Located similar to "D" on the attached image; not on slope. -E; (5,0); Slope's x-intercept. --------------------------------------- On the production possibilities frontier shown above, the economy CANNOT produce at which point or points? a) A b) C c) A, C d) A, C, D,

c) A, C

Which of the following is the most accurate statement about production possibilities? a) An economy can produce only on the production possibilities frontier. b) An economy can produce at any point inside or outside a production possibilities frontier. c) An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier. d) An economy can produce at any point inside the production possibilities frontier, but not on or outside the frontier.

c) An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier.

Production Possibilities Frontier:: Straight Downward Sloped Graph: o x-axis: Ice Cream o y-axis: Cones -Paul's 'x' & 'y' axis-intercepts; (10,8) -Cliff's 'x' & 'y' axis-intercepts; (4,6) --------------------------------------- Refer to the Figure above. Which of the following is true for Cliff and Paul? a) Cliff has a comparative advantage in both wheat and corn. b) Paul has a comparative advantage in both wheat and corn. c) Cliff has a comparative advantage in wheat and Paul has a comparative advantage in corn. d) Paul has a comparative advantage in wheat and Cliff has a comparative advantage in corn.

c) Cliff has a comparative advantage in wheat and Paul has a comparative advantage in corn.

Which of the following government bodies does NOT participate directly in the formulating of fiscal policy? a) The president of the U.S. b) The Senate c) The Federal Reserve d) The House of Representatives

c) The Federal Reserve

Which of the following is NOT correct? a) Trade allows for specialization. b) Trade is good for nations. c) Trade is based on absolute advantage. d) Trade allows individuals to consume outside of their individual production possibilities curve.

c) Trade is based on absolute advantage.

Automatic stabilizers... a) are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession. b) are disliked by many economists because of time lags between the time of identification of a recession and the time of final passage of legislation aimed at stopping the recession. c) are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession. d) All of the above are correct.

c) are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession.

Absolute advantage is found by... a) comparing opportunity costs. b) calculating the dollar cost of production. c) comparing the productivity of one nation to that of another. d) first determining which country has a comparative advantage.

c) comparing the productivity of one nation to that of another.

Over the past two decades, the United States has... a) generally had, or been very near to a trade balance. b) had trade deficits in about as many years as it has trade surpluses. c) persistently had a trade deficit. d) persistently had a trade surplus

c) persistently had a trade deficit.

The sum of accumulated annual federal budget deficits in excess of budget surpluses refers to... a) the federal government net worth. b) the cyclically unbalanced budget. c) the national debt. d) the trade deficit.

c) the national debt.

If the MPC equals 0.75, then by how much should the government decrease taxes to increase real GDP by $600 billion? a) $300 billion b) $900 billion c) $600 billion d) $200 billion

d) $200 billion

In 2001, Denmark had net exports of $8.3 billion and sold $52.4 billion of goods and services abroad. Denmark had a) $60.7 billion of imports and $52.4 billion of imports. b) $60.7 billion of exports and $52.4 of imports. c) $52.4 billion of imports and $44.1 billion of exports. d) $52.4 billion of exports and $44.1 billion of imports.

d) $52.4 billion of exports and $44.1 billion of imports.

Table: | Pounds produced in 40 hours: | /Meat\ /Potatoes\ Farmer: 5 20 Rancher: 10 8 --------------------------------------- According to the table above, the opportunity cost of 1 pound of meat for the rancher is... a) 4 hours of labor. b) 5 hours of labor. c) 5/4 pounds of potatoes. d) 4/5 pound of potatoes.

d) 4/5 pound of potatoes.

If the MPC = 0.80, the government purchases multiplier is... a) 0.20 b) 1.25 c) 4.00 d) 5.00

d) 5.00

An example of a discretionary fiscal policy is when... a) food stamp payments rise when the economy is in a recession. b) unemployment compensation payments rise with unemployment rates. c) tax receipts fall as incomes fall. d) Congress passes a law that raises personal marginal tax rates.

d) Congress passes a law that raises personal marginal tax rates.

Which of the following statements is TRUE? a) The U.S. has always had yearly budget deficits. b) The U.S. has always had a national debt. c) All short-term macroeconomic business cycle theories agree on the primary causes of recessions. d) None of the above are true statements.

d) None of the above are true statements.

Mike and Sandy are two woodworkers who both make tables and chairs. In One month, Mike can make 4 tables or 20 chairs; where Sandy can make 6 tables or 18 chairs. Given this, we know that... a) Mike has a comparative advantage in tables. b) Sandy has an absolute advantage in chairs. c) Mike has an absolute advantage in tables. d) Sandy has a comparative advantage in tables.

d) Sandy has a comparative advantage in tables.

Government tax revenue... a) increases during recessions and decreases during expansions b) decreases during recessions and expansions c) increases during recessions and expansions d) decreases during recessions and increases during expansions

d) decreases during recessions and increases during expansions

If the government decreases taxes by $100 billion and the MPC equals 0.80, then real GDP will... a) decrease by $ 500 billion. b) increase by $ 80 billion. c) decrease by $ 80 billion. d) increase by $ 400 billion.

d) increase by $ 400 billion.

The tax multiplier equals... a) 1/1 minus MPC. b) minus 1 minus MPC/ MPC. c) MPC/1 minus MPC. d) minusMPC/1 minus MPC.

d) minusMPC/1 minus MPC. "(-MPC)/(1-MPC)"

Production Possibilities Frontier:: Straight Downward Sloped Graph: o x-axis: Ice Cream o y-axis: Cones -Barney's 'x' & 'y' axis-intercepts; (14,7) -Betty's 'x' & 'y' axis-intercepts; (15,20) --------------------------------------- Refer to the Figure above. Barney has a comparative advantage in... a) both goods and Betty has a comparative advantage in neither good. b) loaves of bread and Betty has a comparative advantage in pies. c) neither good and Betty has a comparative advantage in both goods. d) pies and Betty has a comparative advantage in loaves of bread.

d) pies and Betty has a comparative advantage in loaves of bread.

Real Exchange Rates

how much the goods and services in the domestic country can be exchanged for the goods and services in a foreign country.

Gains from trade

i. Through Trade with others can move Move above PPF ii. Not every trade can work iii. But everyone has a trade iv. But everyone has a trade or set of trades that can move them above PPF v. Requirements: Gains from trade require the following: 1. Specialization (in your "Comparative Advantage" is optimal), Then; 2. Trading ------------------------- - Trade allows individuals to consume outside of their individual production possibilities curve.

Big Mac Index

published by The Economist; An informal way of measuring the purchasing power parity (PPP) between two currencies and provides a test of the extent to which market exchange rates result in goods costing the same in different countries.

Law of One Price

the price of an identical asset or commodity will have the same price globally, regardless of location, when certain factors are considered.

Arbitrage

the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.