Final Test Reviews

International trade currently involves about ______________ worth of goods and services moving around the globe.

$20 trillion

Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. Which of the following terms of trade between apples and oranges would allow both Alpha and Beta to gain by specialization and exchange?

1 apple for 3 oranges

The membership of the WTO includes about __________ nations.

150

If nominal GDP is 1800 and the money supply is 450, then what is velocity?

4

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.

_____________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation.

Automatic stabilizers

____________ means selling goods below their cost of production.

Dumping

Keynesians believe strongly in the quantity theory of money.

False

The US government has never had a surplus.

False

The federal debt will not be a burden for future generations.

False

Which of the following institutions conducts monetary policy?

Federal Open Market Committee

_____________ are numerical limitations on the quantity of products that can be imported.

Import quotas

In India one person can produce 330 pounds of rice or 110 shirts in one year. In China one person can produce 400 pounds of rice or 200 shirts in one year. Which of the following statements is true?

India has a comparative advantage in the production of rice.

____________________________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect?

Long and variable time lags

__________________ are ways that a nation can draw up regulations, inspections, and paperwork to make it more costly or difficult to import products.

Nontariff barriers

Which of the following institutions oversees the safety and stability of the U.S. banking system?

The Federal Reserve

Which of the following would be expected if the tariff on foreign-produced automobiles were increased?

The supply of foreign automobiles to the domestic market would be reduced, causing auto prices to rise.

Why would foreign firms export a product at less than its cost of production—which presumably means making a loss?

This may be part of a long-term strategy in which foreign firms would sell at below the cost of production in the short-term for a time, and when they have driven out the domestic U.S. competition, they would then raise prices

Neoclassicals believe strongly in the quantity theory of money.

True

Which of the following is the best example of a quota?

a limit imposed on the number of men's suits that can be imported from a foreign country

A rule that every imported product must be opened by hand and inspected with a magnifying glass, by one of just three government inspectors available at any given time might be referred to as __________________.

a non-tariff barrier

A tariff differs from a quota in that a tariff is:

a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.

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

Colombia produces coffee with less labor and land than any other country; it therefore necessarily has:

an absolute advantage in coffee production

A ______________________ means that government spending and taxes are equal

balanced budget

A ______________________ is created each time the federal government spends more than it collects in taxes in a given year

budget deficit

If the state of Washington's government collects $75 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be a:

budget surplus.

A central bank that wants to increase the quantity of money in the economy will:

buy bonds in open market operations.

How are the specific interest rates for the lending and borrowing markets determined?

by the forces of supply and demand

When nations increase production in their area of _________________ and trade with each other, both sides can benefit.

comparative advantage

In the long run, if the original level of aggregate demand is AD0, then an expansionary monetary policy that shifts aggregate demand to AD1 will only:

create an inflationary increase in price level.

What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks

discount rate

When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting:

discretionary fiscal policy.

The infant industry argument for protectionism suggests that an industry must be protected in the early stages of its development so that:

domestic producers can attain the economies of scale to allow them to compete in world markets.

If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used?

expansionary

Assume that laws have been passed that require the federal government to run a balanced budget. During a recession, the government will want to implement _____________________, but may be unable to do so because such a policy would ____________________________.

expansionary fiscal policy; lead to a budget deficit

When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected?

federal funds rate

If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will:

follow contractionary monetary policy.

Which of the following is not a short-run impact of imposing quotas on the American industries they seek to protect?

government tax revenues increase

An import quota or tariff on French wine that raises the prices for wine will probably:

hurt domestic wine drinkers but help domestic wineries, which will gain from the higher prices.

According to international trade theory, a country should:

import goods in which it has a comparative disadvantage.

Tariffs are taxes imposed on _________________.

imported products

An import quota does which of the following?

increases the price of the domestic goods to consumers

Economists would say tariffs:

limit voluntary exchanges.

Low-wage U.S. workers suffer from protectionism in all the industries that they don't work in, because:

protectionism forces them to pay higher prices for basic necessities like clothing and food.

Which of the following is described as an innovative and nontraditional method used by the Federal Reserve to expand the quantity of money and credit during the recent U.S. recession?

quantitative easing

When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is ____________________.

regressive

International trade is fundamentally a ________________________.

win-win situation

The government can use _____________ in the form of ____________________ to increase the level of aggregate demand in the economy.

an expansionary fiscal policy; an increase in government spending

If an economy moves into a recession, causing that country to produce less than potential GDP, then:

automatic stabilizers will cause tax revenue to decrease and government spending to increase.

If Canada's economy moves into an expansion while its economy is producing more than potential GDP, then:

automatic stabilizers will decrease government spending and increase tax revenue.

If individual income tax accounts for more total revenue than the payroll tax in the U.S., why would over half the households in the country pay more in payroll taxes than in income taxes?

income tax is a progressive tax

After the USA introduces a tariff in the market for gigastraps, the price of gigastraps in the USA will:

increase

Raising an existing tariff on grapes from Argentina will:

increase American consumption of domestically produced grapes

When the central bank decides to increase the discount rate, the

interest rates increase.

"Tariffs and other trade restrictions increase the domestic scarcity of products in question. Such policies benefit domestic producers of the restricted products at the expense of domestic consumers." This statement:

is essentially correct.

The current level of US government accumulated debt, when measured in nominal dollars:

is higher than it has ever been.

Currently, the US government accumulated debt to GDP ratio:

is lower than its historical high point.

When banks hold excess reserves because they don't see good lending opportunities:

it negatively affects expansionary monetary policy.

Intra-industry trade between similar trading partners allows the gains from ______________________ that arise when firms and workers specialize in the production of a certain product.

learning and innovation

Trade allows each country to take advantage of _________________ in the other country.

lower opportunity costs

The idea behind comparative advantage reflects the possibility that one party:

may be able to produce something at a lower opportunity cost than another party.

The reasons that nations trade includes the fact that:

no one country produces all of what citizens within the country want.

Which of the following is a traditional tool used by the Fed during recessions?

open market operations

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

opportunity cost

If government tax policy requires Peter to pay $15,000 in tax on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is:

regressive.

Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank?

reserve requirements

The time lag for monetary policy is typically ________________ the time lag for fiscal policy.

shorter than

When a country's economy is producing at a level that exceeds its potential GDP, the standardized employment budget will show a __________________ than the actual budget

smaller deficit

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 its comparative advantage in producing potatoes.

When the central bank decides it will sell bonds using open market operations:

the money supply decreases.

When the central bank lowers the reserve requirement on deposits:

the money supply increases and interest rates decrease.

According to the quantity theory of money, if price and output fall while velocity increases, then:

the quantity of money will fall

If the economy is producing less than its potential GDP, _____________________ will show a larger deficit than the actual budget.

the standardized employment budget

The opportunity cost of producing a pair of pants in the USA is 5 bushels of wheat, while in China, it is 2 bushels of wheat. As a result:

there can be mutual gains from trade to the two countries if the USA exports wheat to China in exchange for pants