Economics Test 3

The figure to the right shows the U.S. demand and supply for leather footwear. Under​ autarky, the equilibrium price is:

$30.

During which of the following time periods did inflation remain above 5 percent every year?

1973 through 1982.

If the economy is currently producing at point W​, what is the opportunity cost of moving to point Y​?

2 million tons of steel.

Estonia and Morocco can produce both swords and belts. Each country has a total of 40 available labor hours for the production of swords and belts. The table above shows the output per hour of​ work, the production and consumption quantities without​ trade, and the production numbers with trade. With​ trade, what is the total gain in belt​ production?

20

The figure shows various points on three different production possibilities frontiers for a nation. Consider the following​ events: a. a reduction in the patent protection period to no more than 2 years b. a war that destroys a substantial portion of a​ nation's capital stock c. the lack of secure and enforceable property rights system Which of the events listed above could cause a movement from W to V​?

A and C only.

What is a production possibilities frontier (PPF)?

A curve showing the maximum attainable combinations of two goods that can be produced with available resources and current technology. Under the curve is inefficient as it is not using all resources, on the curve is efficient, and over the curve is unattainable.

What is deflation?

A decline in the price level.

What is the Phillips Curve?

A graph showing the short-run relationship between the unemployment rate and the inflation rate.

According to the short-run Phillips curve, which of the following would result in low rates of unemployment?

A higher inflation rate.

What is a real business cycle model?

A model based on real factors to explain fluctuations in real GDP.

What is the too-big-to-fail policy?

A policy under which the federal government does not allow large financial firms to fail, for fear that their failure will damage the financial system.

What is a structural relationship?

A relationship that depends on the basic behavior of consumers and firms and that remains unchanged over long periods. The Phillips curve is NOT a structural relationship. Thus, it can NOT be downward sloping in the long run.

What is disinflation?

A significant reduction in the inflation rate. This is usually at a high price, vasty increasing unemployment in the economy.

A tax imposed by a government on imports of a good into a country is called:

A tariff.

What is the long-run aggregate supply curve?

A vertical line at potential real GDP.

What is the long-run Phillips curve?

A vertical line at the natural rate of unemployment.

According to Lucas and Sargent, workers and firms have rational expectations, and therefore if the Fed pursues an expansionary monetary policy:

Agents will immediately adjust their expectations of inflation up.

What is the "Buy American" program?

An executive order by President Joe Biden that intended to reduce the quantity of imported goods the federal government buys and increase the quantity of goods made within the United States.

What are technology shocks?

An explanation for deviations of real GDP from its potential level/real business cycle models, in which changes to the economy make it possible to either produce more output (a positive shock) or less output (a negative shock) with the same number of workers, machines, or other inputs.

If the government finances an increase in government purchases with an increase in​ taxes, which of the following would you expect to​ see?

An increase in the exchange rate.

Assume the United States is the​ "domestic" country and China is the​ "foreign" country. Which of the following might increase the real exchange rate between the United States and​ China?

An increase in the price level in the U.S.

Assume that Australia has a comparative advantage in producing surfboards and New Zealand imports surfboards from Australia. We can conclude that:

Australia has a lower opportunity cost of producing surfboards relative to New Zealand.

f the purchasing power of the dollar is greater than the purchasing power of the​ euro, purchasing power parity predicts that the exchange rate will:

Be equal to the relative purchasing power across the currencies in the long run.

Refer to the figure. Europe suffers a recession. Assuming all else remains​ constant, this would be represented as a movement from:

C to D.

Consider the Phillips curves shown in the graph. We can conclude from this graph that:

Ceteris Paribus, a fall in the rate of inflation to 5 percent will increase unemployment to 7.5 percent in the short run. The natural rate of unemployment in this economy is 5.5 percent. The expected rate of inflation in this economy is 10 percent.

Which of the following will not have an effect on the natural rate of unemployment.

Changes in monetary policy.

Trade restrictions are often motivated by a desire to save domestic jobs threatened by competition from imports. Which of the following counter−arguments is made by economists who oppose trade​ restrictions?

Consumers pay a high cost for jobs saved through trade restrictions.

Suppose the Fed purchases Treasury securities. Interest rates in the United States will​ __________ and the U.S. dollar will​ __________ against foreign currencies.

Decrease; Depreciate.

Automobiles and many other products are differentiated. As a result:

Different countries may each have a comparative advantage in producing different types of automobiles.

Since 1953 the United States has imposed a quota to limit the imports of peanuts. The figure to the right illustrates the impact of the quota. With a quota in​ place, what is the quantity consumed in the domestic market and what portion of this is supplied by​ imports?

Domestic consumption equals 34 million pounds of which 16 million pounds are imports.

Twenty−eight countries in Europe have formed the European Union​(EU). After the EU was formed it:

Eliminated all tariffs among its member countries.

The currency adopted by most countries in Western Europe is referred to as the:

Euro.

What are rational expectations?

Expectations formed by using all available information about an economic variable.

A real appreciation of the dollar is caused by either a nominal appreciation of the​ dollar, a rise in the foreign price​ level, or a fall in the U.S. price level.

False.

Evidence shows that many people who delay searching for a job for a year or longer after they are laid off:

Find it more difficult to find new employment than if they had searched for a new job soon after they were laid off.

The Bretton Woods exchange rate system was a:

Fixed exchange rate system.

If a​ country's currency is determined only by the demand and supply for that​ country's currency, the country is said to have a:

Floating exchange rate.

Which of the following is not​ "crowded out" by higher interest rates as a result of expansionary fiscal​ policy?

Government spending.

If actual inflation is less than expected inflation, actual real wages will be __________ expected real wages and unemployment will be __________.

Greater Than; Rise.

Pegging a​ country's exchange rate to the dollar can be advantageous in all of the following situations except:

If a country wishes to conduct independent monetary policy.

What is the relationship between unemployment and inflation in the long run?

If the long-run Phillips curve is a vertical line, no trade-off exists between unemployment and inflation in the long-run.

What does it mean for inflation to be embedded in the economy?

If worked, firms, consumers, financial investors, and the government all take the inflation rate into account when making decisions.

If the purchasing power of a dollar is greater than the purchasing power of the​ yen, purchasing power parity would predict that:

In the long​ run, exchange rates will move to equalize the purchasing power of the dollar and the yen.

Under the gold​ standard, the government must have enough gold to back up any:

Increase in the money supply.

A Canadian oil company hires geological survey services from the United States. If all else remains​ equal, this will:

Increase net exports.

An increase in capital inflows will:

Increase the equilibrium exchange rate.

If workers and firms knew that the Federal Reserve is following an expansionary monetary policy, workers and firms will expect inflation to __________ and will adjust wages so that the real wage __________.

Increase; Remains Unchanged.

What happens when the unemployment drops to low levels?

Inflation usually increases.

An open economy is an economy that has:

Interactions in trade or finance with other economies.

Persistent current account deficits in the United States:

Is a vote of confidence in the strength of the U.S. economy.

Under a floating exchange​ rate, the exchange rate:

Is determined by the interaction of supply of the currency and demand for the currency.

China runs a current account surplus with the United States. Which of the following must be true about​ China's balance of payments with the United​ States?

It must run a financial account deficit.

Mateo and Celeste produce custom saddles and spurs. The table above lists the number of saddles and pairs of spurs Mateo and Celeste can each produce in one month. Select the statement that accurately interprets the data in the table.

Mateo has a comparative advantage in making spurs.

Growth in aggregate demand will:

Move the economy to a higher point on the short-run Phillips curve.

According to the saving and investment​ equation, if net foreign investment falls by​ $35 million:

National saving in excess of domestic investment will decrease by​ $35 million.

If the United States has a net export​ surplus, which of the following must be​ true?

Net foreign investment must be positive as well.

Which of the following would result in a trade surplus for the United​ States? Exports of goods​ = $550 billion Imports of goods​ = $575 billion Exports of services​ = $275 billion Imports of services​ = $300 billion Your answer is not correct. B. Exports of goods​ = $625 billion Imports of goods​ = $625 billion Exports of services​ = $300 billion Imports of services​ = $375 billion C. Exports of goods​ = $725 billion Imports of goods​ = $790 billion Exports of services​ = $350 billion Imports of services​ = $260 billion D. None of the above will result in a trade surplus.

None of the above will result in a trade surplus.

Assume​ Dina's Diner only produces sliders and hot wings. A combination of 40 sliders and 50 hot wings would appear:

On​ Dina's production possibilities frontier.

A currency pegged at a value above the market equilibrium exchange rate is:

Overvalued.

Which of the following is not an advantage to a country of choosing to fix its exchange rate against a major​ currency, rather than choosing a floating exchange​ rate?

Pegging allows the country more flexibility in conducting monetary policy.

Refer to the figure. Suppose that the economy is currently at point A. If the Federal Reserve engaged in expansionary monetary policy, where would the economy end up in the short run?

Point C.

__________ is​ (are) unattainable with current resources.

Point C.

Economists believe the most persuasive argument for protectionism is to:

Protect infant industries.

Rob Crusoe and Bill Friday spent their week−long vacation on a desert island where they had to find and prepare their own food. Rob and Bill spent one day each fishing and picking berries. The table lists the pounds of output Rob and Bill produced. Use the table above to select the statement that accurately interprets the data in the table.

Rob has a greater opportunity cost than Bill for picking berries.

A decrease in expected inflation will:

Shift the short-run Phillips curve to the left.

__________ would be the source of a "real" business cycle.

Technology shocks.

Under which exchange rate system was a dollar redeemable for gold only if the dollar was presented by a foreign central​ bank?

The Bretton Woods System

What is economic growth?

The ability of an economy to produce increasing quantities of goods and services.

What happens if actual inflation is less than expected inflation?

The actual real wage is greater than the expected real wage and the unemployment rate rises.

What happens if actual inflation is greater than expected inflation?

The actual wage is less than the expected real wage and the unemployment rate falls.

What is the capital stock?

The amount of machinery and other physical capital available in an economy.

Suppose the economy is at point A in the figure. Which of the following is true?

The current unemployment rate is equal to the natural rate of unemployment.

How does an increase in the budget deficit affect the demand and supply of dollars on the foreign exchange​ market?

The demand for dollars​ rises, and the supply of dollars falls.

In the long run, the Federal Reserve can control which of the following?

The inflation rate.

What is potential GDP?

The level of real GDP in the long run. At potential GDP, firms will operate at their normal level of capacity, and everyone except the structurally and frictionally unemployed will have a job.

What is the real interest rate?

The nominal interest rate minus the expected inflation rate.

What is the natural rate of unemployment?

The normal unemployment rate, consisting of frictional and structural unemployment. This will occur when the economy is at potential GDP. The actual unemployment rate will fluctuate in the short run but always return to the natural state in the long run. Real GDP and potential GDP do the same.

__________ shows that if all resources are fully and efficiently​ utilized, more of one good can be produced only by producing less of another good.

The production possibilities frontier model.

The terms of trade refers to:

The ratio at which a country can trade its exports for imports from other countries.

What is the nonaccelerating inflation rate of unemployment (NAIRU)?

The unemployment rate at which the inflation rate has no tendency to increase or decrease. This, in the long-run, the Federal Reserve can affect the inflation rate but not the unemployment rate.

What is the trade off between unemployment and inflation?

There is a short-run trade-off between unemployment and inflation. Higher unemployment is usually accompanied by lower inflation, and vice versa.

Suppose the U.S. government imposes a​ $0.75 per pound tariff on coffee imports. The figure shows the impact of this tariff. The tariff causes domestic consumption of coffee:

To fall by 9 million pounds.

Protectionism is the use of __________ to protect domestic firms from foreign competition.

Trade barriers.

An increase in the government budget deficit will not lead to a current account deficit if domestic investment declines.

True.

If a country has an absolute advantage in producing a​ product, it may not have a comparative advantage in producing that product.

True.

If net exports are positive for​ China, it must be true that China is experiencing net outflows of capital.

True.

If two countries adhere to a gold​ standard, the exchange rate for their currencies is fixed.

True.

In​ 1995, the General Agreement on Tariffs and Trade​ (GATT) was replaced by the World Trade Organization​ (WTO).

True.

One of the main sources of comparative advantage is natural resources.

True.

If the dollar appreciates against the Mexican​ peso:

U.S. exports to Mexico become more expensive.

During the Chinese experience with pegging the yuan to the​ dollar, the yuan was​ __________. As a​ result, there was a​ __________ of dollars on the​ market, and the Chinese government had to purchase dollars to maintain the peg.

Undervalued; Surplus.

What happens when aggregate demand increases?

Unemployment usually falls, and thus, inflation rises.

What happens when aggregate demand decreases?

Unemployment usually rises, and thus, inflation falls.

The figure to the right shows the U.S. demand and supply for leather footwear. Suppose the government allows imports of leather footwear into the United States. The market price falls to​ $24. What area represents domestic producer​ surplus?

V.

According to the "rational expectations" school of thought in macroeconomics, the short-run Phillips curve is __________ in the face of anticipated changes in monetary policy.

Vertical.

The currency adopted by most countries in​ __________ is referred to as the euro.

Western Europe.

If the nominal exchange rate between the American dollar and the New Zealand dollar is 1.36 New Zealand dollars per American​ dollar, how many American dollars are required to buy a product that costs 3.50 New Zealand​ dollars?

​$2.57.

Based on the following information from a balance of payments​ table, what is the balance on the financial​ account? Exports of goods and services​ = $5 billion Imports of goods and services​ = $3 billion Net income on investments​ = −​$2 billion Net transfers​ = −​$2 billion Increase in foreign holdings of assets in the United States​ = $4 billion Increase in U.S. holdings of assets in foreign countries​ = $1 billion

​$3 billion.

Suppose the U.S. government imposes a​ $0.75 per pound tariff on coffee imports. The figure shows the impact of this tariff. If the tariff was replaced by a quota which limited coffee imports to 12 million​ pounds, the amount of revenue received by coffee importers would equal:

​$30 million.