ECON 100 Midterm 3

If a country has net exports of $8 billion and sold $40 billion of goods and services abroad, then it has

$40 billion of exports and $32 billion of imports

During some year a country had exports of $50 billion, imports of $70 billion, and domestic investments of $100 billion. What was its saving during the year?

$80 billion

Suppose that in a closed economy GDP is equal to 20,000, consumption equal to 15,000, government purchases equal 4,000 and taxes equal 3,000. What are private saving, public saving, and national saving.

2000, -1000, and 1000, respectively

The exchange rate is 1.5 Bosnian markas per U.S. dollars. The price of a refrigerator in Bosnia is 1200 markas while in the U.S. it is $1000. The real exchange rate is

5/4

What is the distinction between foreign direct investment and foreign portfolio investment?

A capital investment that is owned and operated by a foreign entity is called foreign direct investment; a capital investment that is financed with foreign money but operated by domestic residents is called foreign portfolio investment

A department store chain in Japan uses yen to purchase 500,000 U.S. dollars from a U.S. bank. It then usesthese dollars to buy DVDs from a U.S. filmmaker. As a result of these transactions: A. By how much and in what direction did U.S. net exports change? B. By how much and in which direction did U.S. net capital outflow change?

A.U.S.netexportsroseby$500,000. B. U.S. net capital outflow rose by $500,000.

The nominal exchange rate is 90 Pakistani rupees per dollar. The price of a shirt in Pakistan is 1800 rupees. The same shirt sells for $25 in the U.S. A: What is the real exchange rate? Show your work. B. Can arbitragers make a profit?C. If your answer to C is yes, where would they buy and where would they sell?

A: The real exchange rate = $25 x 90/ 1800 = 1.25 B: Yes. The real exchange rate differs from 1. C: Buy shirts in Pakistan and sell them in the U.S.

Suppose a lobster supper in Maine costs fewer dollars than a Lobster supper in Paris, France. Explain whythis is inconsistent with purchasing-power parity and explain why the inconsistency may exist.

According to purchasing-power parity, a dollar should buy the same amount of goods everywhere in the world. The inconsistency may exist because lobsters have to be transported to Paris. Price differences can also persist because goods are not perfect substitutes. While eating lobster gazing at the Maine coastline may be a pleasurable experience, eating well-prepared lobster in a fancy French restaurant may be an experience people would be willing to pay more for.

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

Investment = $100, Taxes = $225, Private Saving = $75, National Saving = $100

Which of the following is an example of U.S. foreign portfolio investments?

Nancy, a U.S. citizen, buys bonds issued by a Japanese bank

Last year a country purchased $1.5 trillion worth of goods and services from foreign countries, sold $2 trillion worth of goods and services to foreign countries and had national saving of $1.25 trillion. What wasthe value of its domestic investment? Show your work

Netcapitaloutflow=Netexports=$2trillion-$1.5trillion=$.5trillion. Saving = investment + net capital outflow $1.25 trillion = investment + $.5 trillion $.75trillion = investment

Which of the following statements is correct?

Technological knowledge is a determinant of productivity

Congress and the President implement an investment tax credit. Which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate? Show your answer on a graph clearly labelling equilibrium quantity of loanable funds and the equilibrium interest rate before and after the shift

The demand for loanable funds shifts right. The interest rate rises.

In the U.S. a delivery van costs $30,000. In Uruguay the same delivery van costs 720,000 pesos. Thenominal exchange rate is 20 pesos per dollar A: Find the real exchange rate. Show your work. B: In terms of dollars where is the television cheaper?

The real exchange rate = 30,000 x 20/720,000 = 600,000/720,000 = 5/6. The real exchange rate is less than 1. The television is cheaper in the U.S.

If the government budget deficit increases, which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

The supply of loanable funds shifts left. The interest rate rises

Brazil gives cash payments to its poor citizens on the condition that those citizens' children stay in school. In terms of the determinants of productivity, how might this public policy contribute to higher productivity in Brazil?

This public policy aims to increase the quantity and enhance the quality of Brazilian human capital

If U.S. residents purchase $600 billion worth of foreign assets and foreigners purchase $300 billion worth of U.S. assets,

U.S. net capital is $300 billion; capital is flowing out of the U.S.

When Jaime, a U.S. citizen, purchases a wool jacket made in Ireland, the purchase is

a U.S. import and an Irish export

Which of the following is an example of physical capital?

bulldozer, backhoes and other construction equipment

A leading environmental group recently published a report contending that humans are running a "resource deficit" because we are using natural resources faster than they can be regenerated. The group claims that this means that economic growth will eventually stop, and will even be reversed. An economist would

disagree with the report, in part because it ignores the mitigating effects of technological change.

A U.S. corporation builds a restaurant in China. Its expenditures are U.S.

foreign direct investment that increase U.S. net capital outflow

Which of the following measures how the level of well-being in a country has changed over time?

growth rate of real GDP per person

Perry accumulated a lot of mathematical skills while in high school, college, and graduate school. Economists include these skills as part of Perry's

human capital

Countries that have lower levels of real GDP per person than the United States

in some cases have growth rates that are higher than that of the United States and in other cases lower than that of the United States

When public saving falls by $2b and private saving falls by $1b in a closed economy,

investments falls by $3b

"When workers have a relatively small quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity by a relatively large amount." This statement

is consistent with the view that capital is subject to diminishing returns

When a country saves a larger portion of its GDP than it did before, it will have

more capital and higher productivity

Because of its vast oil reserves, Saudi Arabia is a rich country. Saudi Arabia exemplifies the general fact that differences in __ are responsible for some of the differences in standards of living around the world.

natural resources

The slope of the demand for loanable funds curve represents the

negative relation between the real interest rate and investment

Suppose a Starbucks tall latte cost $4.00 in the United States, 5.00 euros in the euro area and $2.50 Australian dollars in Australia. Nominal exchange rates are .80 euros per dollar and 1.4 Australian dollars per U.S. dollar. Where does purchasing power parity hold?

neither the euro area or Australia

Other things the same, when the interest rate rises,

people would want to lend more, making the quantity of loanable funds supplied increase

"When workers acquire tools, they become more productive." This statement reflects the general fact that __ is a determinant of productivity.

physical capital per worker

Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S. citizens decide to buy more stock in foreign corporations. Other things the same, these actions

raise both U.S. net exports and U.S. net capital outflows

A nation's standard of living is best measured by its

real GDP per person

Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has more capital per worker and so it has more real GDP per worker than the other. Finally, suppose that the saving rate in both countries increases from 4 percent to 7 percent. Over the next ten years we would expect that

the country that started with less capital per worker will grow faster

You are planning graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then

the dollar buys more pesos. Your hotel room in Mexico will require fewer dollars

Ralph is a plumber. Which of the following are included in his human capital?

the knowledge he learned on the job, but not the tools he uses

According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?

the nominal exchange rate, but not the real exchange rate

A nation's standard of living is determined by

the productivity of its workers

In a particular production process, if the quantities of all inputs used are increased by 60%, then the quantity of output increases by 60% as well. This means that

the relevant production function has constant-returns-to-scale

If the government institutes policies that diminish incentives to save, then in the loanable funds market

the supply of loanable funds shifts leftward

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

their investments are being financed by someone else's saving