ECN 211

The U.S. is considering reducing tariffs placed on steel imported from China. What would be the effects of this policy?

U.S. steel producers would lose; U.S. steel consumers would gain. Chinese steel producers would gain; Chinese steel consumers would lose.

A survey of U.S. businesses, households, and governments yields the following estimates for the economy: Consumption Spending: $10 trillion Investment Spending: $6 trillion Government Spending: $4 trillion Exports: $2 trillion Imports: $3 trillion What is GDP?

We can use the Expenditure Method to calculate GDP: GDP = C + I + G + X - M The question lists out each component of the equation in order. So... GDP = $10T + $6T + $4T + $2T - $3T Note that the 'T' just represents "trillion". When we add these values together we get: GDP = $19 trillion!

What are the three basic questions every economic system must answer?

What will we produce? How will we produce it? Who will get it?

Referring to the same table above, what is the trade-off this island nation faces if they want to go from producing 50 thousand to 100 thousand pounds of bananas? What about going from 100 thousand to 150 thousand pounds?

When you have diminishing marginal returns, you also have increasing opportunity costs.

The Texas Instruments TI-84 calculator had a retail price of $150 in 2005, when the CPI was 195.267. In 2020, the retail price has remained $150, but the CPI has risen to 258.844. Adjusted for inflation, how much did a 2005 TI-84 cost in 2020 dollars?

$150 x (258.844 / 195.267) = $198.84

From 2016 to 2017, the CPI rose from 240.005 to 245.136. What was the rate of inflation between these years?

(New - Old) / Old (245.136 - 240.005) / 240.005 = 0.0214 or 2.14%

Circa 1200 BCE, a decreasing supply of tin due to wars and the breakdown of trade led to a drastic increase in the price of bronze in the Middle East and Greece (tin being necessary for its production). It is around this time that blacksmiths developed iron- and steel-making techniques (as substitutes for bronze). What does the increasing price of bronze signal?

It tells people that bronze is getting harder to find and its higher price will signal consumers to conserve it more or seek substitutes.

Every point directly on the Production Possibilities Frontier exhibits..

Productive efficiency

Which two elements are the keys to Adam Smith's conception of a market economy?

Property Rights Free Markets

If nominal GDP increases by 5%, but the price level increases by 8%, what is happening to real GDP?

Real GDP is decreasing

A tech firm has shifted their production, moving 100 workers from making tablets to making smartphones. As a result, they have increased their smartphone production by 10,000 units. According to the Law of Diminishing Marginal Returns, what would be the result of shifting another 100 workers from tablets to smartphones?

Smartphone production will increase by less than 10,000 units.

In which ways did ancient cities like Uruk offered new economic advantages to humanity?

Specialization and the division of labor.

The exchange rate between Galleons and Pen is 1 Galleon for 12 Pen. One Pen will get you 0.8 Republic Credits. What is the exchange rate between Galleons and Republic Credits?

1 Galleon buys you 12 Pen. If 1 Pen gets you 0.8 Republic Credits, then 12 Pen would then get you 9.6 Republic Credits (12 x 0.8). When we convert our 9.6 Republic Credits back into Galleons, we should end up with what we started with: 1 Galleon. So, 1 Galleon = 9.6 Republic Credits. Or, dividing both numbers by 9.6, 1 Republic Credit = 0.104 Galleons.

A country has $300 billion in imports and $600 billion in exports. Net income on investment is $20 billion, and net transfers are -$10 billion. What is the balance on the Capital Account?

Current Account + Capital Account = 0 $600 billion - $300 billion = $300 billion $300 billion + $20 billion - $10 billion = $310 billion $310 billion + Capital Account = 0 To make that true, the Capital Account must be -$310 billion.

Consider the market for eyeglasses. What happens after the price of contact lenses, a substitute for eyeglasses, increases?

Demand for eyeglasses shifts to the right

Initially, the Pagong and Tagi tribes are not trading with each other. Each tribe devotes half of their resources to catching fish, and the other half to the collection of coconuts. What are the islandwide gains from trade if each tribe specialized and traded with the other? Fish Coconuts pagong 250 200 tagi 175 225

Each tribe is splitting their resources between fish and coconuts, so each tribe gets half of their maximum production for each. Total Fish: 125 from Pagong + 87.5 from Tagi = 212.5 fishTotal Coconuts: 100 from Pagong + 112.5 from Tagi = 212.5 coconuts (200 coconuts) / (250 fish) = 0.8 coconuts per fish The opportunity cost of fish at Tagi is: (225 coconuts) / (175 fish) = 1.2857 coconuts per fish Total Fish: 250 from Pagong + 0 from Tagi = 250 fish Total Coconuts: 0 from Pagong + 225 from Tagi = 225 coconuts Our After-Trade totals show a gain of 37.5 fish and 12.5 coconuts!

Additional statistics reveal the following: Income paid as interest: $5 trillionIncome paid as rent: $4 trillionIncome paid as profits: $3 trillion Given your answer to question 1, how much income was paid as wages?

GDP = Wages + Interest + Rent + Profits $19T = Wages + $5T + $4T + $3T $19T = Wages + $12T $19T - $12T = Wages$7T = Wages That means the income paid as wages was $7 trillion!

This same country has a population of 330 million people. What is their GDP per Capita? Are there living standards higher or lower than a country with a GDP per Capita of $70,000?

GDP per Capita = $19 trillion / 330 million GDP per Capita = $19,000,000,000,000 / 330,000,000 GDP per Capita = $57,575.76

According to work by the economist Michael Clemens, what would be the impact on global GDP if all the nations of the world opened their borders and allowed free migration of people across them?

Global GDP would double

"Should we make smartphones with LCD screens or with OLED screens?" This is an example of a question asking...

How will we produce it?

Which of the following tracks prices for the same basket of goods and services over time which is representative of a typical urban family of four?

The Consumer Price Index (CPI)

On January 1st, 2020, $1 bought you €0.89 (Euros). On January 1st, 2021, $1 bought you €0.82.

The U.S. dollar depreciated relative to the Euro.

What is Productive Efficiency?

The least costly production techniques are used to produce wanted goods and services.

Consider the market for gold. What happens when new gold deposits are found and excavated?

The market price of gold decreases; The market quantity of gold increases.

Consider the market for oil. What happens when the price of solar energy, a substitute for oil, decreases?

The market price of oil decreases; The market quantity of oil decreases

What is the opportunity cost of producing cloth in England and in Portugal?

The opportunity cost of cloth in England is found by: (125 wine)/(150 cloth) = 0.8333 wine per cloth The opportunity cost of cloth in Portugal is found by: (200 wine) / (175 cloth) = 1.1429 wine per cloth

Which country has a comparative advantage in cloth? Which one has a comparative advantage in wine?

The opportunity cost of cloth in England was: (125 wine)/(150 cloth) = 0.8333 wine per cloth The opportunity cost of cloth in Portugal was: (200 wine) / (175 cloth) = 1.1429 wine per cloth

Which of the following has an impact on our standard of living, but is not picked up by GDP?

The value of our leisure time

Which of the following would be included in GDP?

They each give the same result

Capital Inflows total $700 billion. Capital Outflows total $1.2 trillion. What is the balance on the Current Account?

500 billion 500 0.5 trillion 0.5 .5 trillion .5

If the CPI for a given year was 90, what could you accurately say about that year?

Prices are 10% lower compared to the base year.

The U.S. is considering reducing tariffs placed on steel imported from China. What would be the effects of this policy?

U.S. consumer gains would outweigh U.S. producer loses.

A person's income rose from $50,000 to $55,000, but at the same time the CPI rose from 100 to 120. What was the change in this person's real income?

$55,000 x (100 / 120) = $45,833.33 ($45,833.33 - $50,000) / $50,000 = -0.0833 or -8.33%

Dawn was earning a salary of $60,000 in 2018, when the CPI was 251.102. In 2019, the CPI was 255.653. What would Dawn's nominal salary need to be in 2019 in order for her real salary to stay the same?

$61,087.45

If 1 USD = 0.9 EUR, and 1 EUR = 1.5 AUD, then 1 USD = ___ AUD. Fill in the blank.

1.35

Use the data below to calculate the growth rate in real GDP per Capita from 1987 to 1988. Nominal GDP1987: $ 4,855,216,000,0001988: $ 5,236,438,000,000 Population1987: 242,843,000 1988: 245,061,000 CPI1987: 113.6171988: 118.275

1987: $4,855,216,000,000 / 242,843,000 = $19,993.23 1988:$5,236,438,000,000 / 245,061,000 = $21,367.90 $21,367.90 x (113.617 / 118.275) = $20,526.37 ($20,526.37 - $19,993.23) / $19,993.23 = 0.0267 or 2.67%

Last year the CPI was 220, and there has been 4% inflation since then. What is the CPI now?

228.8

Amber is a freelancer who earns $30 per project she completes, and projects take her 1 hour to complete. Amber gets enough projects that she can complete as many as she wants. When working on a project, she typically spends 80% of her time working on graphic design. However, she could hire graphic designers who are as productive as she is for $20 per hour. How many graphic designers should she hire?

4

What is a Quota?

A limit on the quantity of imports

Which of the following would shift the market demand for blueberries to the left?

A reduction in average incomes for consumers

Use the chart below to answer each question. Cloth Wine England 150 125 Portugal 175 200 Which country has an absolute advantage in cloth? Which one has an absolute advantage in wine?

Absolute Advantage goes to the country who can produce the most. If England produces only cloth, they can produce 150 units of it compared to Portugal's 175. That gives Portugal the absolute advantage in cloth.

Why do you think iron and steel became more common around the same time as the increase in price of bronze?

An increase in the price of bronze encourages innovation to produce substitutes.

Which country has the higher standard of living? The Bahamas, with 393,250 people and a GDP of $11.25 billion; or Bermuda, with 63,900 people and a GDP of $7.5 billion?

Bermuda, with a GDP per Capita of $117,370.89.

How do economists define "Capital"?

Capital is the tools we use for production.

What is the most likely reasons for why the Neolithic Revolution occurred when it did?

Changes in the Earth's climate altered the seasonality in different regions, and longer winters forced tribes to stay in one place, which encouraged the development of farming.

An economy which answers the three basic questions by having a centralized government power plan how and what we produce and distribute it according to their decrees is a...

Command Economy

An economy which answers the basic economic questions by decentralizing decision-making on how and what we produce through private ownership and distributing it through open trade is a...

Market Economy

In most ancient societies, what was typically the only route for an ordinary person to improve their economic situation?

Military service

Many argue that trade restrictions can be used to support key industries which have added benefits for the economy which outweigh the costs of the restrictions. Which of the following industries is a good candidate for protection under this argument?

Music Streaming Services, which offer a large music catalog at a low monthly price.

The U.S. maintains a strategic oil reserve that can be used by order of the President in times of emergencies. This reserve is meant to reduce our reliance on foreign oil producers. What argument for protectionism is this an example of?

National Security

Which of the following items is included in the Current Account for the Balance of Payments?

Net transfers Exports of Goods and Services

Thomas Malthus offered a theory which explained why most people of the past lived in poverty based on what properties of population and food production?

Population grows exponentially, but food production grows linearly.

In response to trade restrictions imposed by the U.S. on South Korean refrigerators, South Korea's government imposes trade restrictions on U.S.-made automobiles. Who benefits, and who is harmed, by these countervailing barriers?

Trade barriers reverse the effects of opening up for trade. When we impose tariffs on imported goods: Domestic consumers lose Domestic producers gain When another country imposes tariffs on our exports: Domestic consumers gain Domestic producers lose Policy 1: The U.S. imposes trade restrictions on South Korean refrigerators. U.S. refrigerator consumers lose U.S. refrigerator producers gain Korean refrigerator consumers gain Korean refrigerator producers lose Policy 2: South Korea imposes trade restrictions on U.S. automobiles. Korean car consumers lose Korean car producers gain U.S. car consumers gain U.S. car producers lose

Which of the following supports the case for free trade?*

Trade restrictions do more harm than good for the economy.

An economy which answers the three basic questions by looking to culture and time-honored beliefs to guide decisions on how and what we produce and distributing it through a reciprocal gift exchange is a...

Traditional Economy