Test 7

Which of the following statements is​ true?

With free​ trade, some workers in each nation will be harmed.

The current account is equal to net exports plus net income from existing investments abroad and net transfers from abroad. The financial account is the value of a​ country's net sales of assets. The capital account is the net value of a​ country's capital transfers and the purchase or sale of​ nonproduced, nonfinancial assets. The sum of these accounts is zero.

current financial capital zero

Finding Comparative Advantage. In one​ minute, Country B can produce either 500 TVs and no computers or 250 computers and no TVs.​ Similarly, in one​ minute, Country C can produce either 2,400 TVs or 600 computers. This information is summarized by the following table. Calculate the opportunity cost of production for each country. Output and Opportunity Cost Quantity produced per minute Opportunity Cost of TVs Opportunity Cost of Computers Country B 500 TVs one half12 Computers 22 TVs 250 Computers Country C 2,400 TVs one fourth14 Computers 44 TVs 600 Computers Based on the comparative opportunity cost data in your​ table, the comparative advantage in TVs lies with Country Upper CC​, while the comparative advantage in computers is held by Country Upper BB.

1/2 2 1/4 4 C B

Shoeville will pay up to 17 pairs of shoes for a box of​ oranges, and Orange Town will pay up to 9 oranges for a pair of shoes.

17 9

a. Suppose the two countries split the difference between the willingness to pay for computers and the willingness to accept computers. The terms of​ trade, that​ is, the rate at which the two countries will exchange computers and​ shoes, will be 6060 pairs of shoes per computer. ​(Enter your response rounded to one decimal​ place.) b. Suppose the two countries exchange one computer for the number of shoes dictated by the terms of trade you computed above. The net benefit from trade for each country will be 4040 pairs of shoes per computer. ​(Enter your response rounded to one decimal​ place.)

60 40

Countries will always export the goods in which they have an absolute advantage.

False

Consumers Automobile firms Domestic parts manufacturers

favor it because it lowers car prices. favor it because they can produce less expensive cars. oppose it because they face global competition.

A decrease in the​ EUR/USD exchange rate​ (i.e., # of euros to buy a U.S.​ dollar) means it takes fewer euros to buy dollars . If this​ occurs, European residents will want to purchase more American goods.

fewer euros to buy dollars more

In the short​ run, you would be hurt as your industry would lose business.

hurt lose

When the government imposes a limit on the quantity of​ children's toys that can be imported into the​ country, this is

import quota

f the real U.S. dollar​ appreciates, prices of U.S. goods will increase relative to foreign goods. This will reduce U.S. exports because U.S. goods will become more expensive. On the other​ hand, imports to the U.S. will increase because foreign goods have become less expensive.

in re more increase less

If the real U.S. dollar​ appreciates, prices of U.S. goods will increase relative to foreign goods. This will reduce U.S. exports because U.S. goods will become more expensive. On the other​ hand, imports to the U.S. will increase because foreign goods have become less expensive. As a​ result, net exports will fall .

in re more increase less fall

This will increase the supply of British pounds. As a​ result, the British pound will depreciate with respect to the yen.

increase the supply of depreciate

The infant ​-industry argument is often given to provide a rationale for tariffs for new firms.

infant

Explain why this definition requires foreign exchange intervention in order to be classified as a currency manipulator. In this​ case, to manipulate a currency means the government must take action to lower its value in the foreign exchange market. To achieve the desired​ result, the country must increase the supply of its​ currency, thereby lowering its price in the foreign exchange market. This in turn lowers the cost of the​ country's exports, thus giving that country an unfair trade advantage.

lower increase lowering lowers

Suppose the United States has a comparative advantage in goods that use skilled labor. If we trade with a country that has a comparative advantage in goods using unskilled​ labor, the wage differences between skilled and unskilled labor in the United States will widen

widen

a. Suppose importers can sell their shirts on the world market at a price of​ $12 per shirt. In order to entice customs officials to look the other​ way, an importer would be willing to pay anything less than ​$1111 per shirt. ​(Enter your response as an​ integer.) b. Your job combating shirt smuggling into Chipland would be made easiest if​ Chipland's trade policy changed from a ban to free trade.

$11 free trade

Which of the following statements is​ true?

A nation that decides to specialize and trade is no longer limited to the options shown by its production possibilities curve.

This greatly benefited Country​ B, which now has a higher standard of​ living, but what happens to the welfare of Country​ A? ​(Hint​: Think of the gains from​ trade.)

Once Country B has the same​ technology, there is no longer any opportunity for trade.​ So, Country A loses the benefits from trade and is made worse off.

Trade requires comparative advantage to make both parties better off. True

T

Given the opportunity costs reflected in these​ curves, it can be deduced that the comparative advantages are held by If the two countries split the difference between the​ buyer's willingness to pay for tables and the​ seller's willingness to​ accept, in terms of the number of chairs for 1​ table, the terms of trade will be 1.5 ​(Enter your response rounded to one decimal​ place.)

Tableland in tables and Chairland in chairs. 1.5

What is likely to happen to employment in the long​ run? In the long​ run,

The sector that opens up loses sales to the international companies. some workers will be better off and some will be worse off.

If the euro depreciates against the dollar​, then the dollar also appreciates against the euro. In the market for​ dollars, the supply curve slopes upward under the assumption​ that, as the value of the dollar decreases​, fewer dollars will be supplied in exchange for euros for purchasing relatively more expensive European goods and assets. In the market for​ dollars, the demand curve slopes downwards under the assumption​ that, as the value of the dollar decreases​, more dollars will be demanded in exchange for euros for purchasing relatively less expensive U.S. goods and assets. Equilibrium in the market for dollars occurs where the demand curve intersects the supply curve. The equilibrium exchange rate is measured in euros per dollar.

appreciates fewer; more more; less euros per dollar

In the long​ run, you are

better off as a​ consumer, but worse off as a worker.

A decrease in the demand for euros will depreciate the euro's exchange rate. Higher U.S. interest rates or lower U.S. prices will decrease the demand for euros.

depreciate higher lower

Regional trade agreements may lead to reduced tariffs for neighboring or member countries but they

do not promote efficiency across the globe.

Pricing below production cost or selling at prices in foreign markets less than domestic markets is known as

dumping

The government sells foreign currency for dollars if it wants to peg the exchange rate at a higher rate than would normally prevail in the market.

sells

Net transfers from abroad are a surplus (positive) entry on the current account.

surplus(position)

The U.S. dollar will depreciate if

there is an increase in the supply of dollars.

The government may want to engage in foreign exchange market intervention

to keep net exports from falling when its currency appreciates.