macro quizzes 17 18 and 3

Assuming the money velocity, V, is constant; the economy produces only one good, cars. In 2016, the economy has enough resources to produce Y = 300 cars; the money supply is $600,000, and each car sells for $10,000. The nominal GDP is:

$3,000,000 and V = 5

If domestic residents of other countries purchase $600 billion of U.S. assets and U.S residents purchase $500 billion of foreign assets, then U.S. net capital outflow is

-$100 billion and the U.S. has a trade deficit.

The Low Rider S from Harley-Davidson sells for $18,000 in the U.S and 20,000 euros in Italy. According to the purchasing-power parity, what is the nominal exchange rate (euros per dollar)?

1.11 euros per dollar

Refer to the figures below. What is the opportunity cost of a kilogram of cheese in Denmark?

1/2 loaves of bread

If P denotes the price of goods and services measured in terms of money, then

1/P represents the value of money measured in terms of goods and services.

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

2

Suppose that the real interest rate is 4%, the inflation rate is 2%, and the tax rate is 25%. According to the Fisher Effect, what is the after-tax real interest rate?

2.5%

If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of chicken in the U.S. is $2.50 per pound, what is the price of chicken in Japan?

250 yen per pound

Refer to the table below. The opportunity cost of a pound of coffee in Argentina is

3 bu. of wheat

Suppose that a bushel of wheat costs $3 in the U.S. and costs 20 pesos in Mexico. If the nominal exchange rate is 10 pesos per dollar, the real exchange rate is

3/2 bushels of Mexican wheat per bushel of American wheat.

Refer to the figures below. If these two countries were to trade, a possible exchange rate would be 1 loaf of bread for

3/2 kg of cheese

If the price level now is 126 and was 120 a year ago, what was the inflation rate?

5.0%

Refer to the table below. If these two countries were to trade, a possible exchange rate would be 1 lb. of coffee to

5/2 bu. of wheat.

Based on the Equation of Exchange (Quantity Equation), if P = 2, Y = 600, and M = 200, then V =

6

Refer to the table below. Suppose these two countries trade with each other but no other countries. With no trade restrictions in effect, what kind of trade if any would occur?

Argentina would import coffee and export wheat.

Refer to the table below. Which country has the absolute advantage in wheat and which has the comparative advantage in wheat?

Brazil has the absolute advantage, Argentina has the comparative advantage.

Refer to the figures below. Suppose these two countries trade only with each other. With no trade restrictions in effect, what kind of trade, if any, would occur?

Denmark would sell cheese to and buy bread from Finland.

Refer to the figures below. Which country has the absolute advantage in producing cheese and which has the comparative advantage producing cheese? (Assuming the resources in these two countries are the same)

Denmark, Denmark

Suppose that France has a comparative advantage in the production of Camembert cheese and that Spain has a comparative advantage in the production of oranges. If the two countries do not trade with any countries but then agree to trade with each other, which of the following will be true concerning French and Spanish consumption possibilities?

France and Spain can each consume more cheese and more oranges

Which of the following statements is true about a country with a trade surplus?

Net exports are positive and net capital outflow must be positive.

Which of the following helps to explain why the inflation fallacy is a fallacy?

Nominal incomes tend to rise at the same time that the price level is rising.

When can two countries gain from trading two goods?

Two countries could gain from trading two goods under all of the above conditions

A depreciation of the U.S. dollar, causes

U.S. exports to rise and U.S. imports to fall.

Other things the same, which of the following would both make foreigners more willing to engage in U.S. portfolio investment?

U.S. interest rates rise, the default risk of U.S. assets fall

When the French company Airbus sells a new plane to Southwest Airlines in the U.S.:

U.S. net exports fall and the U.S. trade deficit rises.

Which of the following by itself increases U.S. net capital outflow?

a U.S. mutual fund purchases Russian bonds.

"Some Americans who work in the production of competing goods, such as clothing and furniture, are made worse off by trade with China."

agree

Maya is a computer programmer residing in the United States. She writes some software and sells it to a French consumer for 5,000 euro. Maya uses the 5,000 euros to buy French wine. Which of the following statements are true?

all of the answers

Tom produces baseball gloves and baseball bats. Steve also produces baseball gloves and baseball bats, but Tom is better at producing both goods. In this case, trade could

benefit both Steve and Tom

Greg's, a U.S. ice cream company, exchanges dollars for Mexican pesos. It then uses these pesos to buy raspberries from Mexico. Which of the following decline?

both U.S. net exports and U.S. net capital outflow

The theory of purchasing-power parity does not always hold in practice because:

both of them are correct- tradable goods are not always perfect substitutes when they are produced in different countries and many goods are not easily traded across borders.

The most obvious benefit of specialization and trade is that they allow us to

consume more goods than we otherwise would be able to consume.

Monetary neutrality means that a change in the money supply

does not change real variables. Most economists think this is a good description of the economy in the long run but not the short run.

If over time the nominal wage rises and the real wage falls, then

dollar wages rose but the price level rose by a larger percentage.

Total output in an economy increases when each person specializes because

each person spends more time producing that product in which he or she has a comparative advantage.

When the money market is drawn with the value of money on the vertical axis, if the price level is below the equilibrium level, there is an

excess supply of money, so the price level will rise

If the Fed increases the money supply, then 1/P

falls, so the value of money falls.

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.

foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow.

If the CPI rises, the number of dollars needed to buy a representative basket of goods

increases, and so the value of money falls

consider the money market with the value of money on its vertical axis. if the federal reserve sells bonds, then the money supply curve shifts

left, causing the price to fall

Higher inflation makes relative prices

more variable, making it less likely that resources will be allocated to their best use.

A country has a trade deficit. Which of the following must also be true?

net capital outflow is negative and domestic investment is larger than saving

According to purchasing-power parity, if the price of a basket of goods in the U.S. rose from $2,000 to $2,104 and the price of the same basket of goods rose from 800 units to 832 units of some other country's currency, then the

nominal exchange rate would depreciate

If purchasing-power parity holds, when a country's central bank increases the money supply, its

price level rises and its currency depreciates relative to other currencies in the world.

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

quantity theory of money.

Economic variables whose values are measured in goods are called

real variables.

A country's trade balance

s greater than zero only if exports are greater than imports

Suppose that inflation causes citizens of a country to reduce their holdings of money, so they make more frequent trips to their banks for daily currency uses. This behavior illustrates

shoe leather bank

Suppose the money supply grows faster in Mexico than Canada. Other things constant,

the Canadian dollar will appreciate relative to the Mexican peso.

The production possibilities frontier illustrates

the combinations of output that an economy can produce

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

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

According to the classical dichotomy, which of the following increases when the money supply increases?

the nominal wage.

The inflation tax refers to

the revenue the government creates by printing money.

Suppose there are only two people in the world. Each person's production possibilities frontier also represents his or her consumption possibilities when

they choose not to trade with one another.

Kelly puts money in a savings account. One year later she has two percent more dollars and can buy three percent more goods. Kelly earned a real interest rate of

three percent and prices fell one percent.

t or f. deflation makes it harder for debtors to pay off their debt

true

An economy's production possibilities frontier is also its consumption possibilities frontier

when the economy is self-sufficient