Practice Midterm #2

If a country's economy records a surplus, how will the X and M components be represented in its national savings and investment identity?

(X - M); left side

Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. The opportunity cost of producing 1 orange for Alpha and Beta, respectively, are:

0.5 apples; 0.25 apples.

One of the questions on Anders' economics exam provided him with the algebraic term: I + (G - T) = S + (M - X) and asked him to choose its matching written identity. Of the following possible answers presented on the exam, which one is the correct choice? A) Demand for financial capital = Supply of financial capital B) Investment + government savings = Supply + trade surplus C) Trade surplus + government savings = Supply + trade deficit D) Domestic investment + public savings = Domestic savings + trade deficit

A) Demand for financial capital = Supply of financial capital

Say that Alland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can produce 16 units of food per year or 10 units of clothing. Which of the following is true? A) Georgeland has a comparative advantage, but not an absolute advantage, in producing clothing. B) Georgeland has both a comparative and absolute advantage in producing clothing. C) Alland has a comparative advantage, but not an absolute advantage, in producing food. D) Alland has an absolute advantage, but not comparative advantage, in producing food.

A) Georgeland has a comparative advantage, but not an absolute advantage, in producing clothing.

From a macroeconomic perspective, if GDP economic indicators show a decline of 10% or more in a single year, then which of the following outcomes is most likely to result? A) deep economic recession B) influx of foreign capital C) lessening of foreign aid D) merchandise trade surplus

A) deep economic recession

A country's trade in manufactured goods diminished substantially, causing it to lose tax revenue and become a net borrower of foreign funds. For the next two decades, its government used the borrowed funds to upgrade the nation's waste-water treatment plants and to develop efficient rapid transit systems, creating substantial gainful employment for its workforce. Thereafter, the country began to quickly repay its past borrowing debt. Which of the following most strongly supported this country's successful economic recovery? A) ensuring borrowed funds were invested in long-term productive economic assets B) ensuring that larger borrowing reduced the need for more private savings C) the creation of a trade deficit through more aggressive buying of imports D) global policies of low interest rates charged on funds borrowed by governments

A) ensuring borrowed funds were invested in long-term productive economics assets

Which of the following would most likely be included in the negative side of the current account balance? A) money earned by Canadian firms in the U.S. B) money spent by Canadian tourists in the U.S. C) returns paid to U.S. investors in Southeast Asia D) European aid sent to the U.S. to fund the Iraq war

A) money earned by Canadian firms in the U.S.

Which of the following represents a financial inflow to the U.S. economy? A) returns paid on U.S. financial investments in Switzerland B) computer chip imports from Israel C) oil imports from Canada D) foreign aid from the U.S. to Ethiopia

A) returns paid on U.S. financial investments in Switzerland

Which of the following represents the national savings and investment identity - Supply of financial capital = Demand for financial capital - expressed in algebraic terms? A. (M - X) = I - S - (T - G) B. S + (M - X) = I + (G - T) C. X - M = S + (G - T) - I D. I - S - (T - G) = (M - X)

B. S + (M - X) = I + (G - T)

Which of the following represents a financial outflow from the U.S. economy? A) U.S. computer exports to Poland B) returns paid on U.S. financial investment in Hong Kong C) U.S. investors buying foreign assets in Germany D) British investors buying real estate in Kentucky

C) U.S. investors buying foreign assets in Germany

To a macroeconomist, a trade deficit is synonymous with which of the following? A) outflow of financial capital B) outflow of goods and services C) inflow of financial capital D) inflow of goods and services

C) inflow of financial capital

The extent to which a national economy is involved in global trade: A) is not very strongly related to the issue of whether the economy has a substantial trade imbalance. B) is not very strongly related to the underlying economic meaning of trade imbalances. C) is not very strongly related to either a or b above. D) is very strongly related to both a and b above.

C) is not very strongly related to either a or b above.

From a macroeconomic perspective, an economic transaction in the form of a financial investment is synonymous with which of the following? A) a productive economic asset B) trade resulting from unilateral transfers C) trade in the financial capital market D) a stream of payments leaving the country

C) trade in the financial capital market

The national saving and investment identity teaches that the rest of the economy can absorb an inflow of foreign financial capital by: A) reduced private savings, leaving domestic investment and public saving unchanged. B) higher domestic investment, leaving private and public savings unchanged. C) greater government borrowing, leaving domestic saving and investment unchanged. D) leaving domestic saving and investment unchanged using any of the above.

D) leaving domestic savings and investment unchanged using any of the above

The term "full employment GDP" is synonymous with which of the following? A) aggregate GDP B) Keynesian zone C) macroeconomic equilibrium D) potential GDP

D) potential GDP

In the U.S., all companies involved in international flows of capital must file reports, which are ultimately compiled by the:

Department of the Treasury

A country's current national savings and investment identity is expressed in algebraic terms as I - S - (T - G) = (M - X). Assume that the level of domestic investment in a country rises, while the level of private and public saving remains unchanged. In this instance, the rise in domestic: investment will mean...

a higher trade deficit.

In an AD/ASAD/AS diagram, _______ could explain a rise in cyclical unemployment?

a shift in AS to the left

The two main sources for the supply of capital in the U.S. economy are:

domestic savings from individuals and firms inflows of financial capital from foreign investors.

Trade surpluses and trade deficits can be _______ for an economy in certain circumstances.

either beneficial or harmful

Under what conditions would a nation be viewed as being neither a net borrower nor a net lender in the international economy?

its trade balance is zero

The equilibrium quantity of labor decreases and the equilibrium wage increases when:

labor supply shifts to the left, if wages are flexible.

The equilibrium quantity of labor increases and the equilibrium wage decreases when:

labor supply shifts to the right, if wages are flexible.

In most high-income economies, including the United States, goods currently make up ___________, while services currently compose ____________.

less than half of total production; more than half of total production

One insight that can be obtained from the national saving and investment identity is that a nation's balance of trade is determined by:

each nation's own levels of domestic saving and domestic investment.

The equilibrium quantity of labor and the equilibrium wage level decrease when:

labor demand shifts to the left, if wages are flexible.

Under what circumstances would it most likely be considered beneficial for a government to be a large borrower of foreign investment capital?

when those funds are invested in a way that sustains economic growth over time

In 2010, a country imported goods worth $500 billion and exported goods worth $443 billion. It exported services worth $248 billion and imported services worth $330 billion. Payments on investments abroad totaled $199 billion, while returns paid on foreign investments were $125 billion. Unilateral transfers from the country to other nations amounted to $94 billion. What was the country's current account deficit for 2010?

$159 billion

A country finds itself in the following situation: a government budget surplus of $900; total domestic savings of $200, and total domestic physical capital investment of $1300. According to the national saving and investment identity, if investment decreases by $300 while the government budget surplus and savings remain the same, what will happen to the current account balance?

$200 deficit changes to $100

In 2010, the country of Vesey exported goods worth $312 billion and services worth $198 billion. It imported goods worth $525 billion and services worth $255 billion. It sent $1.2 billion in famine relief to Africa, and received $3 billion to support its first democratic election efforts. What was the merchandise trade deficit in Vesey in 2010?

$213 billion

In 2010, the country of Vesey exported goods worth $312 billion and services worth $198 billion. It imported goods worth $525 billion and services worth $255 billion. It sent $3 billion in famine relief to Africa, and received $1.2 billion to support its first democratic election efforts. What was the current account deficit in Vesey for 2010?

$271.8 billion

During the past year a country's government ran a budget surplus. How will this be represented as a component of in the country's national savings and investment identity?

(T - G), saving side

Alternate Outputs from One Day's Labor Input: USA: 12 bushels of wheat or 3 yards of textiles. India: 3 bushels of wheat or 12 yards of textiles. The opportunity cost of one bushel of wheat in India is:

4 yards of textiles.

The economy is in a recession and the government wants to increase output. If the multiplier equals 3 and the government increases spending by 250, how much will output increase by?

750

The surge in international trade related to services to be performed in one country and sold in another that began in the 1990s has been powered by which of the following? A) technological advances B) telecommunications C) computers D) customer service, finance, law

A) technological advances

Which of the following will strongly influence a nation's level of trade? A) size of its economy, its geographic location, and its history of trade B) size of its government, its history of trade, and its geographic location C) government trade policy, its history of trade, and the size of its economy D) ratio of exports to GDP, balance of trade, and government trade policy

A) size of it's economy, it's geographic location, and its history of trade.

Changes in the price level of the different components of aggregate demand are reflected in the AD/ASAD/AS macroeconomic model by a ________________________.

downward sloping AD curve

In the United States, which of the following government institutions would most likely provide economists with the basic data for merchandise trade? A) Census Bureau B) Department of Commerce C) Bureau of Economic Analysis D) Department of the Treasury

A) Census Bureau

Which of the following will cause the multiplier to be smaller and cause changes in investor confidence to have a smaller effect in an economy? A) bigger leakages B) smaller leakages C) increased trade D) decreased trade

A) bigger leakages

In what way are the factors used to calculate the current account balance similar to each other?

each involves a flow of financial payments between countries

Which of the following countries suffered deep recessions as a result of pessimistic foreign investors moving their money to other countries? A. Russia, and Indonesia B. Thailand, Argentina and Malaysia C. North Korea and Malaysia D. South Korea and a and b

B) Thailand, Argentina, and Malaysia

According to the Keynesian framework, which of the following may help a country reduce inflation, but will not help that country to get out of a recession? A) increased spending by the government on health care B) an increase in taxes on business investments C) an increase in military spending D) a decrease in the tax rate on consumer income

B) an increase in taxes on business investments

According to the Keynesian framework, which of the following will not help a country to get out of a recession, but may help that country reduce inflation? A) an increase in military spending B) a decrease in military spending C) increase in spending by the government on health care D) decrease in spending by government on health care

B) decrease in military spending

Which of the following must be present in order for the aggregate supply curve to form an upward slope? A) the lure of higher profits to induce continued production B) fixed cost of inputs combined with rising prices for outputs C) rise in aggregate quantity of supplied goods and services D) constant price level for intermediate goods and services

B) fixed cost of inputs combined with rising prices for outputs

A series of macroeconomic events has led an economy into a deep recession. Which of the following factors is most likely to have initiated this series of events? A) level of trade B) unbalanced trade C) deficit level of trade D) merchandize trade imbalance

B) unbalanced trade

_____________ identifies the area where a producer's absolute advantage is relatively greatest, or where the producer's absolute disadvantage in productivity is relatively least.

Comparative advantage.

Which of the following is true? A) A nation can have a comparative advantage in the production of a good only if it also has an absolute advantage. B) A nation can have a comparative advantage in the production of every good, but not an absolute advantage. C) A nation cannot have an absolute advantage in the production of every good. D) A nation cannot have a comparative advantage in the production of every good.

D) A nation cannot have a comparative advantage in the production of every good.

A country's current national savings and investment identity is expressed in algebraic terms as I - S - (T - G) = (M - X). Assume that the level of domestic savings rises, while the level of domestic investment and private saving remains unchanged. In this instance: A) less foreign financial capital is required to meet investment needs. B) government policy will involve increasing private savings. C) the country's trade deficit will decline. D) all of the above

D) all of the above

One of the following must be used as a starting point in order to perform an analysis that will determine what the connections between imbalances of trade in goods and services and the flows of international financial capital are. Which one is it? A) sketch patterns of trade deficits B) sketch patterns of trade surpluses C) define the level of trade D) define the balance of trade

D) define the balance of trade

Only one of the following statements about the trade surplus is correct. Which one is it? A) the government should always strive for a trade surplus and a healthy inflow of foreign capital B) the government generating a trade surplus is better than increasing foreign capital inflows C) increasing foreign capital investment is better than generating a trade surplus D) generating a trade surplus and an overall net inflow of capital is impossible

D) generating a trade surplus and an overall net inflow of capital is impossible

If the USA could produce 1 ton of potatoes or 0.5 tons of wheat per worker per year, while Ireland could produce 3 tons of potatoes or 2 tons of wheat per worker per year, there can be mutual gains from trade if:

The USA specializes in potatoes because of it's comparative advantage in producing potatoes.

Jethro has a(n) _________ in all aspects of camping: he is faster at carrying a backpack, gathering firewood, paddling a canoe, setting up tents, making a meal, and washing up.

absolute advantage

The __________________ in an AD/AS diagram is most relevant to Keynes's Law.

flat portion of the AS curve

In macroeconomics, _____________________ denotes the relationship between the total quantity of goods and services and the price level for output.

aggregate demand (AD)

According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession.

an increase; domestic investment

The ________________ refers to the gap that can exist between what a nation's _____________, and a nation's ____________________.

balance of trade; producers sell abroad; imports

When did the U.S. current account balance experience the largest surplus?

before the 1980s

A country finds itself in the following situation: the government budget surplus is 2% of its GDP; private savings is 30% of GDP; and physical investment is 33% of GDP. Based on the national saving and investment identity, if the government budget surplus falls to zero, what will happen to this country's current account balance?

deficit increases form 1% to 3% of GDP

A country finds itself in the following situation: the government budget surplus is 2% of its GDP; private savings is 30% of GDP; and physical investment is 33% of GDP. Based on the national saving and investment identity, if private savings fall to zero, what will happen to this country's current account balance?

deficit increases form 1% to 31% of GDP

A country finds itself in the following situation: a government budget deficit of $800; total domestic savings of $1800, and total domestic physical capital investment of $1300. According to the national saving and investment identity, what is the current account balance?

deficit of $300

A country finds itself in the following situation: the government budget surplus is 2% of its GDP; private savings is 30% of GDP; and physical investment is 33% of GDP. Based on the national saving and investment identity, what is this country's current account balance?

deficit of 1% of GDP

A country's current national savings and investment identity is expressed in algebraic terms as (M - X) = I - S - (T - G). In this instance:

domestic investment in higher than domestic savings.

If imports ______________, then the economy is said to have a trade deficit.

exceed exports

If exports ______________, then the economy is said to have a trade surplus.

exceed imports

If a Keynesian expenditure-output model shows that aggregate demand for both goods and labor has shifted to the left to D1, while wages remained at w0 and prices remained at P0, what will be the result?

excess supply

From a macroeconomic perspective, a payment made by a foreign firm to a U.S. investor looks just like an:

export of a service.

Goods and services produced in one country that are then sold in other countries are called ____________.

exports

When some countries increase their imports as a result of worldwide economic growth, other countries must be increasing their:

exports as demand in all countries substantially rise.

With respect to the national saving and investment identity for any country, the quantity of ________ at any given time by savings must _______ for purposes of making investments.

financial capital supplied; equal the quantity of capital financial demand

The _____________ holds that a rise in price level will make domestic goods relatively more expensive, ____________ exports and _______________ imports.

foreign price effect, discouraging, encouraging

The term __________ is used to describe what those in one country buy from those in other countries.

imports

According to the Keynesian framework, ____________________________ will not help reduce inflation, but may help a country get out of a recession.

increased spending by the government on health care

If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy:

is producing at a point where output is less than potential GDP.

The statement that GDP = C + I + G + X - M is an identity, because ____________.

it is true according to the definition of GDP

An economics professor is discussing a measure of trade that involves a comparison of exports and imports of goods for the year just ended. What name is given to this measurement?

merchandise trade balance

The sum of all the income received for contributing resources to GDP is called _____.

national income (Y)

The slope of the production possibility frontier is determined by the ____ of expanding production of one good, measured by how much of the other good would be lost.

opportunity cost

The underlying reason why trade benefits both sides of a trading arrangement is rooted in the concept of __________________.

opportunity cost

Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering a ______________________ for minimizing their effects.

policy prescription

What term is used to describe the maximum quantity that an economy can produce, in the context of its existing inputs, market and legal institutions?

potential GDP

A country's current national savings and investment identity is expressed in algebraic terms as X - M = S + (T - G) - I. In this instance:

private and public domestic savings are higher than domestic investment.

Aggregate supply curves are ________________________ for low levels of output, and ____________________________ for high levels of output.

relatively flat, relatively steep

The ____________________ in an AD/AS diagram is most relevant to Say's Law.

steep portion of the AS curve

The onset of a trade deficit is most likely supported by a country's:

strong economic growth

Why would an analyst include, among other things, airplane parts, legal services and software, in an analysis of international economic trade?

to determine the current account balance

The term ______ describes circumstances where a country's imports exceed its exports.

trade deficit

A period of strong economic growth tends to make a __________________.

trade deficit larger

A recession tends to make a _____________________.

trade deficit smaller

At the outset of the 21st century, most global trade took the form of:

trade surpluses in the service sector.