Macroeconomics Exam 3 chapters- 33,

why has the target rate of unemployment changed over time?

- demographics: different age groups have different unemployment rates (because younger people change jobs more frequently, a younger workforce will mean overall job change will be higher, leading to higher structural unemployment - our economy's changing social and institutional strucuture: not just men work, but women do now today as well. - government institutions have also changed (as people have become more choosier about jobs, a debate has raged over the extent of government's responsibility for unemployment - globalization

some microeconomic categories of unemployment are:

- how people become unemployed. - demographic unemployment - duration of unemployment - and unemployment by industry

2. smaller countries get a larger proportion of the gain than larger countries

- more opportunities are opened up for smaller countries by trade than for larger countries. - but since the traders often come from the larger country, the smaller country doesn't get this share of the gains from trade; the larger country's international traders do.

trade allows:

- specialization and the division of labor - when each country follows its comparative advantage, production is more efficient - the possibility curve shifts out

is Chinese and Indian outsourcing different from previous outsourcing?

- what isn't different is the existence of outsourcing. - what is different about outsourcing to china and india today is the potential size of outsourcing. - as technology opens up more areas to trade, and as india and china move up the technology ladder, the U.S will face higher competition.

short-run Phillips curve.

(see picture)

economists generally oppose trade restrictions because:

1. from a global perspective, free trade increases total output 2. international trade provides competition for domestic companies 3. restrictions based on national security are often abused or evaded 4. trade restrictions are addictive

Four reasons economists and laypeople differ in their views of trade are:

1. gains are often steath 2. opportunity cost is relative 3. trade is broader than manufactured goods 4. trade has distributional effects.

why economists and laypeople differ in their views of trade:

1. laypeople often do not recognize the gains of trade ex: today a shirt costs far less, in terms of the number of hours you have to work to buy it) than it did a decade or two ago. - the reality is that much of our current lifestyle in the U.S has been made possible by trade. 2. laypeople believe America will lose all their jobs to trade. - the comparative advantage model assumes that a country's imports and exports are equal. 3. laypeople often think of trade as trade in just manufactured goods. - it actually includes the services that traders provide. Countries can have comparative advantage in trade itself. 4. the benefits are highly unevenly distributed. - globalization has caused many people who work in manufacturing to lose their jobs; blue collar America was hard hit by globalization

what are some type of regulatory trade restrictions?

1. one type has to do with protecting the health and safety of a country's residents ex: a country might restrict imports of all vegetables grown where certain pesticides are used - building codes. 2. involves making import and customs procedures so intricate and time-consuming that importers simply give up. ex: france required all imported electronics be individually inspected in Toulouse. this eventually prevented imported electronics from taking market share from french companies. - these restrictions are designed simply to make importing more difficult.

three policies used to restrict trade:

1. tariffs 2. quotas 3. regulatory trade restrictions (government-imposed procedural rule that limit imports)

three determinants of the terms of trade are:

1. the more competition, the less the trader gets 2. smaller countries get a larger proportion of the gain than larger countries 3. countries producing goods with economies of scale get a larger gain from trade.

reasons for restricting trade include:

1. unequal internal distribution of the gains from trade 2. haggling by companies over the gains from trade 3. haggling by countries over trade restricitoins 4. specialized production: learning by doing and economies of scale 5. macroeconomics aspect of trade 6. national security 7. international policitcs 8. increased revenue brought in by tariffs

what are two reasons why world trade fluctuates?

1. when output rises, international trade rises, and when output falls, international trade falls. 2 countries impose trade restrictions from time to time.

the U.S has been running trade deficits since the

1970's - and in 2006, the U.S trade deficit reached over nearly $800 billion

Production Possibility Schedules for Two South Pacific Island Nations Refer to the table shown. In Kiribati, the opportunity cost of producing one mango (in terms of coconuts) is:

4. - Since Kiribati can produce 100 more mangoes only by giving up 400 coconuts, Kiribati's opportunity cost of producing another mango is 4 coconuts.

(chapter 10) in 1928 the ratio of world trade to U.S GDP was almost

60%. - in 1950 it was only 20% - today it is about 210% with world trade amounting to $38 trillion

embargo or sanction

A restriction on the imports or exports of a country's goods - established for international political reasons

Which of the following people would be considered unemployed?

A woman who has quit college to move to New York where she is looking for a modeling job - A woman who has quit college to move to New York where she is looking for a modeling job

Which of the following exchange rates between the dollar and the peso would a Mexican buyer of American goods most prefer? A. $0.20 = 1 peso B. $0.25 = 1 peso C. $0.05 = 1 peso D. $0.15 = 1 peso

B. $0.25 = 1 peso

The text mentions 10 sources of U.S. comparative advantage. Which of the following is not one of them? A. U.S. natural resources B. Weak environmental protection laws C. The fact that English is the international language of business D. Wealth from past production

B. Weak environmental protection laws - The United States tends to have stronger environmental laws than most developing countries.

Immigration is

Both good and bad for the U.S. economy. - While immigration has lowered wages in some sectors, it has also contributed to higher output and allowed U.S. companies to keep production in the United States rather than outsourcing production to foreign countries.

News Story: Workers at a car-manufacturing plant in Flint, Michigan are laid off because the economy is weak and GM cars are not selling well. GM isn't sure when the plant will reopen. What type of unemployment describes the workers' situation?

Cyclical unemployment - Cyclical unemployment is unemployment resulting from fluctuations in economic activity. The drop in demand for cars is most likely the result of a fall in aggregate income.

When people talk about U.S. intellectual property rights, what are they talking about?

Ideas and knowledge protected by patents and copyrights

An import quota does which of the following? A. Increases the price of the domestic good for the consumer B. Decreases the price of the imported good for the consumer C. Redistributes income from domestic producers to domestic consumers D. Decreases the price received by foreign producers

Increases the price of the domestic good for the consumer - The price of the domestic good increases because the quota reduces the quantity of imports and thus creates a shortage.

In the United States, the outsourcing of service jobs such as those in call centers has become a political issue. How do economists typically view outsourcing?

It helps both countries in the long run. - Outsourcing is just another example of foreign trade resulting from comparative advantage. Both countries benefit overall, though there will be individuals in those countries who are harmed.

Production Possibility Schedules for Two South Pacific Island Nations Refer to the table shown. A comparative advantage in the production of coconuts is held by:

Kiribati. - Kiribati produces coconuts at a lower opportunity cost (1/4 mango) than Tuvalu (1/3 mango) and therefore has a comparative advantage in coconuts.

In the United States, globalization has caused workers in the education, healthcare, and government sectors to face:

Little or no downward pressure on their wages. - Workers in education, healthcare, and government sectors felt little or no downward pressure on their wages from globalization because these sectors produce goods and services that cannot be easily traded on the global market.

Which of the following groups might be expected to support high USDA standards for imported citrus fruit that are enforced so strictly that few foreign producers would be able to meet the requirements?

Orange growers in Florida - Regulatory trade restrictions can have the same impact as a tariff or quota.

The price index that measures the average rate of change in the prices received by domestic producers of goods and services is called the:

PPI. - producer price index (PPI)

As a country develops economically, what changes usually take place in the goods it exports?

Raw materials and agricultural products decline in importance and are replaced by services and manufactured goods. - As a country develops, its higher level of capital and its better-educated workforce allow it to specialize in those goods in which well-capitalized, well-educated nations have a comparative advantage: services and manufactured goods.

In considering the distribution of the gains from trade:

Smaller countries usually get a larger proportion of the gains from trade. - Smaller countries usually find that their production possibilities are changed more, and hence they benefit more.

Mexico can produce vine-ripened tomatoes at a lower opportunity cost than firms in the United States. Through trade negotiations, the United States lifted quotas limiting the import of tomatoes from Mexico. Some firms in Florida, in the face of this new competition, had to close their farms and let go their workers. Many of the workers could not find new jobs right away. What type of unemployment describes the workers' situation?

Structural unemployment -

Workers at a car-manufacturing plant are let go because automated machinery has been installed that requires fewer employees to operate. What type of unemployment describes the workers' situation?

Structural unemployment - Structural unemployment is unemployment caused by economic restructuring that makes some skills obsolete.

Mexico can produce vine-ripened tomatoes at a lower opportunity cost than firms in the United States. Through trade negotiations, the United States lifted quotas limiting the import of tomatoes from Mexico. Some firms in Florida, in the face of this new competition, had to close their farms and let go their workers. Many of the workers could not find new jobs right away. What type of unemployment describes the workers' situation?

Structural unemployment - Structural unemployment is unemployment caused by economic restructuring. Lifting quotas falls under economic restructuring.

Countries restrict international trade for all of the following reasons except: A. It is sometimes difficult to decide where a country's comparative advantage lies when "learning by doing" effects are important. B. International trade probably will lead to the displacement of workers. C. Economies of scale can mean that a country is able to develop a comparative advantage by protecting infant industries. D. The benefits of trade usually are limited to small groups, whereas the costs are widely scattered across the population.

The benefits of trade usually are limited to small groups, whereas the costs are widely scattered across the population. - Consumers benefit from more open trade, and there are far more consumers than producers who compete with imports.

What will likely lower cyclical unemployment?

The economy expands. - Cyclical unemployment rises with contractions and falls with expansions. Workers who are unemployed while the move from sector to sector reflects structural unemployment and the Fed selling bonds tends to contract the economy.

Which of the following is not one of the assumptions of the quantity theory of money?

The money growth rate is constant.

exchange rates

The rate at which one currency is converted to another. - eliminates trade imbalances

Production Possibility Schedules for Two South Pacific Island Nations Refer to the table shown. A comparative advantage in the production of mangoes is held by:

Tuvalu. - Tuvalu produces mangoes at a lower opportunity cost (3 coconuts) than Kiribati (4 coconuts) and therefore has a comparative advantage in mangoes.

a portion of the benefits of trade accrues to

U.S advertising firms, which can pay more to creative people who do those ads. - goods manufactured in China, india, and other asian countries are creating demand for advertising, management and distribution, and are therefore creating jobs and income in the U.S - leads to world economic growth

Which of the following groups would be most likely to benefit from a tariff on Japanese-manufactured light trucks (i.e., pickup trucks)? A. Japanese auto workers B. U.S. consumers of pickup trucks C. U.S. firms that export products to Japan D. U.S. domestic pickup truck manufacturers

U.S. domestic pickup truck manufacturers - U.S. domestic pickup truck manufacturers would benefit from the higher price of their foreign competition, whereas pickup truck buyers would not. Japanese auto workers' jobs would be at risk, and U.S. firms that export products would find that their Japanese customers were having greater difficulty acquiring the dollars they needed to buy U.S.-made goods and services.

The international organization whose primary function is to promote free and fair trade between countries worldwide is the:

WTO.

The WTO authorized several countries to impose about $150 million in trade sanctions against the United States in retaliation for a U.S. import law that the WTO ruled to be illegal. The organization that issued this ruling against the United States is known as the:

World Trade Organization.

The outsourcing of service jobs such as those in call centers has become a political issue. Do economists see any benefit to outsourcing?

Yes; it tends to reduce prices to American companies and consumers. - Outsourcing is just another example of foreign trade resulting from comparative advantage. Both sides benefit. One benefit the United States receives is lower-cost services.

okun's rule of thumb

a 1% point rise in the unemployment rate will tend to be associated with a 2% fall in output from it trend and vice versa.

most-favored nation

a country that will be charged as low a tariff on its exports as any other country

currency depreciation

a decrease in the market value of one currency relative to another currency ex: when the dollar price of euros falls from $1.20 to $1.10, the euro is depreciating.

A group of countries that allows free trade among its members and puts up common barriers against all other countries' goods is called:

a free trade association.

quota

a limit placed on imports - increase price and reduce quantity - government collects no revenue

If the United States were to stop trading with other nations, economists would predict that in the long run the United States would end up with:

a lower standard of living. - In the long run, the number of jobs does not depend on international trade. What people with those jobs do, however, and their level of income do depend on international trade. With less specialization, we would end with a lower standard of living.

(chapter 10 quiz) The United States has limits on Chinese textile imports. Such limits are an example of:

a quota. - The government collects no revenue, and so this restriction is a quota.

General Agreement on Tariffs and Trade (GATT)

a regular international conference to reduce trade barriers

Germany restricts the use of nonrefillable bottles and cans. The European Union argues that the rules aren't just protecting the environment; they also are protecting German beverage makers from competition. The EU sees Germany's environmentalism as:

a regulatory trade restriction. - Regulatory trade restrictions restrict trade by indirect means unlike taxes or quotas; for example, Germany is using environmental reasons to restrict trade.

nontradable sector

a sector such as education where it cannot easily shifted.

World Trade Organization (WTO)

a trade organization that replaced the old General Agreement on Tariffs and Trade (GATT)

Inflationary expectations are important because widespread changes in inflationary expectations affect:

actual inflation. - If people expect more inflation, they will bargain for higher wages and prices, which will in turn generate more inflation.

One reason economists have begun focusing on the Personal Consumption Expenditure measure for inflation is that the PCE deflator:

allows for a changing basket of goods. - The PCE deflator is a measure of prices of goods that consumers buy that allows yearly changes in the basket of goods, which better reflects actual consumer purchasing habits. The measure smoothes out some of the problems associated with the CPI.

currency appreciation

an increase in the market value of one currency relative to another currency

(chapter 9) comparative advantage

as long as the relative opportunity costs of producing goods (what must be given up of one good in order to get another good) differ among countries, then there are potential gains from trade.

Another name for a financial bubble is:

asset price inflation. - In an asset price inflation, people think that the real value of assets has risen, when in fact they have not. Known as a bubble, this increase will inevitably be followed by asset price deflation.

Asset inflation is when:

asset prices rise more than their real value.

the U.S economy is currently financing its trade deficit by selling off

assets- such as stock, bonds, or real assets such as real estate and corporation.

learning by doing

becoming better at a task the more often you perform it - when there's learning by doing, it's much harder to attribute inherent comparative advantage to a country.

The lowest sustainable rate of unemployment that policy makers believe is achievable under existing conditions is:

called the target rate of unemployment.

the primary trading partners of the united states are:

canada, mexico, the european union and the pacific rim countries.

what is the % that china and india account for regarding U.S good imports:

china accounts for 20% - for india they have increased 20-fold over that time- from .1% to 2%. - today we have been importing high-tech manufactured goods from these countries.

more people were unemployed for more than 27 weeks in the 2008 recession because fewer people were able to find a

comparable job at comparable pay to the one they lost.

transferable comparative advantage

comparative advantages based on factors that can change relatively easily. ex: comparative advantages that depend on capital, technology, or education can change.

maintaining existing comparative advantages through investment in education and infrastructure, while continuing to provide an environment conducive to innovation so that we develop

comparative advantages in new countries.

inherent comparative advantage

comparative advantages that are based on factors that are relatively unchangeable ex: comparative advantages due to resources and climate change

The foreign exchange market is the market in which:

currencies of different countries are bought and sold.

(chapter 33 quiz) Unemployment caused by recession is called:

cyclical unemployment. - Cyclical unemployment is unemployment resulting from fluctuations in economic activity.

in the decades after world war 2, unemployment was seen primarily as

cyclical unemployment. And the methods used to eliminate was monetary and fiscal policy.

exports can stimulate domestic aggregate demand and

decrease unemployment

strategic bargaining

demanding larger share of the gains from trade than you can reasonably expect

The balance of trade measures the:

difference between the value of imports and that of exports.

When people stop looking for work, because they cannot find a job but still want a job, they're called:

discouraged workers.

(chapter 33) what does entrepreneurship have to do with unemployment?

entrepreneurship creates jobs; if someone is entrepreneurial, he or she can never be unemployed.

If John's nominal wage rises slower than the price level then we can say that John's real wage has _____ that the purchasing power of John's income has ______

fallen; fallen. - Because prices have increased by more than the increase in wages, John will find that he has to buy less of what he currently buys.

Most economists:

favor free trade. - because they believe that it promotes efficiency, avoids trade wars, and increases domestic and global competition.

David Ricardo

first made the comparative advantage arguement in the late 1800's.

Cyclical unemployment is defined as unemployment that results from:

fluctuations in economic activity.

The fact that the United States has a trade deficit means that:

foreign countries can have comparative advantages in more goods compared to the United States. - A trade deficit means that the United States is consuming more than it is producing. The comparative advantage model assumes that there is no trade deficit or surplus. Since there is a trade deficit, foreign countries can have more comparative advantages compared to the United States as long as they are willing to buy U.S. assets or lend to the United States to pay for those imports.

imposing new tariffs and quotas is specifically ruled out by the WTO, but

foreign countries know that WTO rule are voluntary

most economists believe that the U.S will be better off if it allows

free trade.

Asset price inflation can be a problem because it:

gives people the illusion that their real wealth has increased more than it really has. - The illusion of an increase in their real wealth led people to make risky decisions and when asset price deflation occurred, the government had to come in and prop up the financial market.

The decline in the price of American goods is due in part to:

globalization and increased trade. - The gains from trade are largely in the form of lower prices of many goods.

regulatory trade restrictions

government-imposed procedural rules that limit imports

free trade associations

groups of countries that have reduced or eliminated trade barriers among themselves

A situation in which the price level increases at an extremely high rate is called:

hyperinflation.

countries we export to are also the countries we

import from

one way countries try to reduce trade deficits is to reduce

imports by restricting trade.

when countries don't have full employment,

imports can decrease domestic aggregate demand and increase unemployment.

law of one price;

in a competitive market, there will be pressure for equal factors to be priced equally - if factor prices aren't equal, firms can reduce costs by redirecting production to countries where facotrs are priced lower.

The quantity theory of money implies that an increase in the money supply will ultimately:

increase the price level and leave real GDP unchanged. - The assumptions of this theory, when combined with the equation of exchange, imply this result.

All of the following are arguments in support of protectionist legislation except: A. increasing political pressure on rogue nations. B. increasing income equality. C. increasing tax revenues. D. increasing competition for domestic producers.

increasing competition for domestic producers. - Protectionist legislation reduces competition for domestic producers by limiting competition from imports.

The Phillips curve represents a relationship between:

inflation and unemployment. - The Phillips curve is drawn with inflation on the vertical axis and unemployment on the horizontal axis.

A price index in its base year:

is always equal to 100. - Since price indexes are computed by dividing the price level in a year by the price level in the base year and multiplying the result by 100, any price index must equal 100 in the base year.

Asset deflation generally:

is more harmful than the preceding inflation was helpful. - because people cannot reverse purchases

if economic output falls 2% below its trend, what does okun's rule predict happens to the unemployment rate?

it predicts the unemployment rate will rise by 1%

to push the economy so that unemployment falls below target rate is like driving your car 90 miles an hour,

it's not realistic.

The number of people over age 16 in an economy willing and able to work, is known as the:

labor force.

the achievable unemployment rate differs among countries and depends on

labor institutions, labor laws, the country's exchange rate, and worker productivity.

If inflation increases unexpectedly, then:

lenders tend to lose.

structural unemployment

long-term unemployment that occurs because of changes in the structure of the economy. - ex: a person who loses his job as a stenographer because his job is replaced by voice recognition software - cannot be resolved by expansionary monetary and fiscal policy - they will have to retrain

Globalization has tended to:

lower people's reservation wage. - Globalization has led to unemployment it has put downward pressure on wages in the tradable sector. Some of the unemployed have had to accept lower wage jobs to find work.

The target rate of unemployment is defined as the:

lowest sustainable rate of unemployment achievable under existing conditions.

strategic bargaining can lead to higher gains from trade for the side that drives the hardest bargain, but it also can

make the deal fall through.

A one-time rise in the price level is:

not inflation. - Inflation is an ongoing rise in the price level.

In order to avoid some of the problems with the CPI, some policy makers have recently been focusing:

on the PCE deflator. - The PCE deflator is a measure of prices of goods that consumers buy that allows yearly changes in the basket of goods that reflect actual consumer purchasing habits. The measure smoothes out some of the problems associated with the CPI.

The foreign exchange rate is the rate at which:

one country's currency can be traded for another country's currency.

when one sector of an economy gains a comparative advantage,

other sectors must lose their comparative advantage or there will be a trade imbalance.

When a U.S. company establishes a call center in India that answers its customer service calls, the United States is

outsourcing, a form of importing services. - Importation of services often is called outsourcing. The call centers are a popular example.

Structural unemployment is caused by:

people losing a job when their skills become obsolete due to technological innovations.

Frictional unemployment is most closely associated with:

people quitting a job just long enough to look for and find another one.

in the long-run, benefits of trade go to the

producers and consumers in the trading countries, but this long run can be years away.

immigration sector

production that can be undertaken by non-U.S., largely unskilled immigrants.

trade adjustment assistance programs

programs designed to compensate losers for reductions in trade restrictions

equilibrium is when

quantity supplied = quantity demanded

A voluntary restraint agreement:

raises the price of imports in the same way as a quota. - A voluntary restraint agreement limits the volume of trade between two countries in the same way as a quota; the only difference is that a VRA is imposed by an exporting country whereas a quota is imposed by an importing country.

Most economists support free trade in part because trade restrictions:

reduce international competition. - Trade restrictions can raise revenue through tariffs, but they also are intended to protect domestic producers from foreign competition at the expense of domestic consumers.

The infant industry argument for protection is:

rejected by most economists because many infant industries become reliant on protection and do not mature. - Experience demonstrates that many infant industries lobby for the continuation of protection and do not attempt to become more competitive or efficient.

the available support for people without a job plays an important role in where one sets one's

reservation wage.

for most countries, imports and exports

roughly equal one another. - for the U.S in recent years, imports have significantly exceeded exports, which is a trade imbalance

the first person who recognizes a trading opportunity often makes a

sizeable fortune - the second and third, make smaller fortunes and so one.

most infamous tariff in U.S history is the

smoot-Hawley Tariff of 1930, which raised tariffs on imported goods to an average of 60% - international trade plummeted from %60 billion to $25 billion; unemployment worsened

social responsibility framework

society owes people jobs commensurate with their training and job experience at a respectable wage

Countries can expect to gain from international trade as long as they:

specialize according to their comparative advantage. - Specialization according to comparative advantage means that each country produces the goods for which it has a relatively low opportunity cost.

benefits of trade are generally widely scattered among the entire population. In contrast, costs of free trade often fall on

specific small groups

One of the 10 sources of U.S. comparative advantage mentioned in the text is:

stable U.S. government institutions. - Business wilts when the rules of the game are uncertain, as happens when the government is precarious or when there is no rule of law.

globalization requires

structural change.

Technological change can result in:

structural unemployment.

A decline in the number of immigrants into the United States would most likely reduce:

structural unemployment. - To the extent that immigrants compete for jobs that American-born citizens would take, fewer immigrants would open jobs for Americans and lower structural unemployment. The unemployment is not caused by a change in output and therefore is not cyclical.

tradable sector

such as manufacturing, where production can easily be shifted to a foreign country

Duties imposed by the U.S. government on imported Chinese frozen and canned shrimp are an example of:

tariffs. - A duty is a tariff. The Bush Administration put a tariff on shrimp.

tariff

tax that place on internationally trade goods. - make imported goods more expensive, which encourages the consumption of domestically produced goods. - on average, U.S tariffs raise the price of imported goods by less than 3%. - government collects revenue

cyclical unemployment

temporary unemployment that can be expected to end as the economy recovers - ex: a person being temporarily laid off as a waiter because fewer people are going to restaurants in a recession - can be resolved by: expansionary fiscal and monetary policy

One reason expectations of inflation are important from a macroeconomic point of view is that people:

tend to raise prices and wages more when they expect inflation. - To keep their relative prices the same, people tend to raise prices and wages more when they expect inflation.

A measurement problem associated with the CPI is:

that it is based on a fixed basket of goods. - A fixed basket of goods does not recognize that consumers change the goods they buy, substituting goods not included in the basket.

effects of a quota in a small country

the benefits of a higher price accrue to the foreign and domestic producers

balance of trade

the difference between a country's total exports and total imports

effects of a tariff in a small country

the domestic government collects the revenue from the higher price

Another term for the "target rate of unemployment" is:

the natural rate of unemployment.

A nation's comparative advantage in the production of an item is determined by:

the opportunity cost of producing the item relative to a trading partner's opportunity cost. - A country with a comparative advantage in the production of a good produces that good at a lower opportunity cost than its trading partner can.

Globalization represents:

the opposite of isolationism. - Isolationism is an attempt to minimize a nation's interactions with the rest of the world; globalization is an engagement with the rest of the world. They are opposites.

resource curse

the paradox that countries with an abundance of resources tend to have lower economic growth and more unemployment than countries with fewer natural resources - what happens is that the country that has a comparative advantage in resources finds that the demand for its resources pushes its exchange rates up - a higher exchange rate reduces the the comparative advantage of other tradeable goods, shifting the world supply curve, and hence domestic production of these goods down.

(chapter 9 quiz)The analysis of international trade suggests that trading companies earn higher than normal profits in:

the short run but not in the long run. - In the long run, entry by other traders will drive down the profits of trading companies.

economies of scale

the situation in which cost per unit of output fall as output increases. - manufacturing industries exhibit this

1. the more competition, the less the trader gets

the trader's big gains from the trade occur in markets that are newly opened or if the product is unique and cannot be easily copied.

People who work part-time, or have a full-time job that doesn't use all their skills, are included in:

the underemployed. - Discouraged workers don't have jobs. See definition of underemployed in the text.

reservation wage

the wage a person requires before accepting a job - the higher the reservation wage, the more likely one is to be unemployed.

a country will have a zero trade balance (net imports will be zero) when

the world price level equals the domestic price level

if unemployment remains constant,

then real output should grow at the underlying trend rate. - if it falls, then output should grow by more than that.

strategic trade policies

threatening to implement tariffs to bring about a reduction in tariffs or some other concession from the other country

there is a reason most existing government programs are designed as they are-

to help both the middle class and the least well off.

The text suggests that if economists had a mantra, it would be:

trade is good. - Economists see trade as mutually beneficial, something that is not always obvious to noneconomists.

tariffs affect

trade patterns

free trade is preferable to

trade restrictions

following World War 2 the U.S ran

trade surpluses - it was an international lender - it acquired larger amounts of foreign assets.

individual responsibility framework

unemployment is impossible if people are willing to work at any job for any pay

macropolicies won't solve

unemployment.

(chapter 34 quiz) The slope of the long-run Phillips curve is thought by many economists to be:

vertical. - As discussed in the text, the long-run Phillips curve is vertical. Actually, there is some debate about whether it is downward sloping, but the text focuses on the vertical nature of the curve, so that is our answer here. Remember that you are choosing the best answer relative to what is presented in the text.

to avoid the imposition of new tariffs on their goods, countries often

voluntarily restrict their exports - the effect of such voluntary restraint agreements; - limit the quantity of imports, increasing the price of of the good and helping domestic producers.

what are two likely adjustments that will reduce the trade deficit between china and the U.S?

wages in china rise relative to wages in the U.S, or the U.S exchange rate falls. - both will make chinese goods relatively more expensive and U.S goods relatively cheap.

trade surpluses

when exports exceed imports

trade deficit

when imports exceed exports

Underemployment includes people:

who are working part time, or not using all their skills, at a full-time job. - People who stop looking for work are discouraged workers, and people whose skills are not in demand are part of the structurally unemployed. See definition of underemployment in the text.

infant industry argument

with initial protection, an industry will be able to become competitive - this is used to justify tariffs on new high-tech products such as solar panels. U.S firms have pushed for tariffs on chinese solar panels so that they can develop the technology here in the U.S rather than have the technology developed in china

Nontradables

workers in education, health care, and government sectors

The appreciation of a currency will:

worsen a country's comparative advantages. - Because the appreciation of a currency raises the price of foreign goods, it worsens the comparative advantages of the domestic country.

if you believe the guaranteed job proposal does not solve the unemployment problem,

you are following a social responsibility normative frame.

if you believe the guaranteed job proposal solves the unemployment problem,

you are following an individualist normative view.

to demand one currency,

you must supply another currency