HW 5 - Intro to Macro Econ

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.

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

One difference between stocks and bonds is that...

b. 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

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

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

investment will fall

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; borrowers

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

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

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

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

Table 7-6 (details output per hour of work, production and consumption without trade, and production with trade respectively) Swords Belts Swords Belts Swords Belts Estonia 5 3 100 40 200 0 Morocco 2 2 160 160 0 200 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

Table 7-6 (details output per hour of work, production and consumption without trade, and production with trade respectively) Swords Belts Swords Belts Swords Belts Estonia 5 3 100 40 200 0 Morocco 2 2 160 160 0 200 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

Table 7-6 (details output per hour of work, production and consumption without trade, and production with trade respectively) Swords Belts Swords Belts Swords Belts Estonia 5 3 100 40 200 0 Morocco 2 2 160 160 0 200 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

Table 7-6 (details output per hour of work, production and consumption without trade, and production with trade respectively) Swords Belts Swords Belts Swords Belts Estonia 5 3 100 40 200 0 Morocco 2 2 160 160 0 200 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

Table 7-6 (details output per hour of work, production and consumption without trade, and production with trade respectively) Swords Belts Swords Belts Swords Belts Estonia 5 3 100 40 200 0 Morocco 2 2 160 160 0 200 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

Table 7-6 (details output per hour of work, production and consumption without trade, and production with trade respectively) Swords Belts Swords Belts Swords Belts Estonia 5 3 100 40 200 0 Morocco 2 2 160 160 0 200 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

Table 7-6 (details output per hour of work, production and consumption without trade, and production with trade respectively) Swords Belts Swords Belts Swords Belts Estonia 5 3 100 40 200 0 Morocco 2 2 160 160 0 200 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

Table 7-1 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 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

Table 7-1 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 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.

Figure 10-2 (real interest rate and loanable funds graph --> demand shifts left, RIR and LF both decrease) 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

Table 7-1 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 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

Table 7-1 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 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

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

Figure 10-6 (RIR and LF graph --> points at (90, 5) (90, 3) (150, 5) (150, 3) and (120,4)) Refer to figure 10-6: The loanable funds market is given in the figure above. If the current real interest rate is 5%, 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

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

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

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?

a. $3 trillion

There is a government budget surplus if...

a. T - TR > G

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)

a. Y + TR - C - T

Which of the following is the most liquid?

a. a dollar bill

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

a. an increase in expected profits from firm investment projects

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

an increase in the federal government surplus

Figure 10-4 RIR and LF graph --> supply shifts left, RIR increases, LF decreases 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

Autarky is a situation in which a country...

does not trade with other countries

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

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

the supply of loanable funds increases

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

1. a decrease in the government deficit 2. an increase in the profitability of new investment due to technological change 3. an increase in household saving

Table 7-6 (details output per hour of work, production and consumption without trade, and production with trade respectively) Swords Belts Swords Belts Swords Belts Estonia 5 3 100 40 200 0 Morocco 2 2 160 160 0 200 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

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.