Homework 5

Consider the following data for a closed economy: Y = $12 trillion C = $8 trillion I = $2 trillion G = $2 trillion TR = $2 trillion T = $3 trillion Based on the information above, what is the level of private saving in the economy?

$3 trillion

If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden, which of the following would explain this pattern of trade?

Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark has a comparative advantage in producing butter.

China has developed a comparative advantage in the production of children's toys. The source of this comparative advantage is

a large supply of unskilled workers and relatively little capital.

If consumers decide to be more frugal and save more out of their income, then this will cause

a shift in the supply curve for loanable funds to the right

Over the past several decades there has been rapid growth in international trade. This growth has been due to all but one of the following factors. Which factor has not contributed to the growth of international trade?

an increase in the tariffs charged on many goods

There is a government budget surplus if... a. tr<t b. t-tr>g c. g>tr d. g>t

b

When Sophie, a French citizen, purchases a Dell computer in Paris, France that was produced in Texas, the purchase is... a. both a U.S. and a French import. b. a U.S. import and a French export. c. neither an export nor an import for either country. d. a U.S. export and a French import.

d

in a closed economy, private saving is equal to which of the following? a. y-c-t b. y-g-t+tr c. y-g-t d. y+tr-c-t

d

When the government runs a budget deficit, we would expect to see that

investments will fall

The demand for loanable funds is downward sloping because the ________ the interest rate, the ________ the number of profitable investment projects a firm can undertake, and the ________ the quantity demanded of loanable funds.

lower; greater; greater

Consider the following data for a closed economy: Y = $12 trillion C = $8 trillion I = $2 trillion G = $2 trillion TR = $2 trillion T = $3 trillion Based on the information above, what is the level of public saving?

negative $1 trillion (a deficit of $1 trillion)

A financial intermediary's main function is to match ________ with excess funds to ________ with a shortage of funds.

savers; borrowers

Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade. These examples are misleading because

some individuals in both countries may be made worse off because of trade.

one difference between stocks and bonds is that...

stocks do not involve a promise to repay a purchaser of the stock, while bonds represent a promise to repay the purchase price of the bond.

In order to avoid the imposition of other types of trade barriers, foreign producers will sometimes agree to limit their exports to a country. What are these types of agreements called?

voluntary export restraints

Whenever a buyer and a seller agree to trade, both must believe they will be made better off

whether the buyer and seller live in the same (or different) city or country.

Members of Congress promising to support each other's legislation is known as... a. explicit collusion. b. logrolling c. protectionism. d. implicit collusion.

b. logrolling

Refer to Figure 10-4. Which of the following is consistent with the graph depicted? a. an increase in household income b. an increase in transfer payments to households c. an increase in the proportion of income after net taxes used for consumption d. an increase in tax revenues collected by the government

c. an increase in the proportion of income after net taxes used for consumption

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.

Economist Steve Landsburg has pointed out that Ebenezer Scrooge's change in behavior from miser to spender might actually be detrimental to the economy because

Scrooge's miserly saving helped contribute to the production of investment goods rather than consumption goods.

Which of the following countries is not one of the top three exporting countries in the world? a. china b. germany c. south korea d. the united states

c

Which of the following will increase investment spending in the economy, holding everything else constant? a. an increase in transfer payments b. an increase in the budget deficit c. an increase in the federal government surplus d. an increase in consumer dissavings

c

Which of the following is the best example of a quota? a. a subsidy from the U.S. government to domestic manufacturers of residential air conditioners to enable them to compete more effectively with foreign producers b. a $150 fee imposed on all imported residential air conditioners c. a tax placed on all residential air conditioners sold in the domestic market to help offset the impact of emissions on the environment d. a limit on the quantity of residential air conditioners that can be imported from a foreign country

d. a limit on the quantity of residential air conditioners that can be imported from a foreign country

The response of investment spending to an increase in the government budget deficit is called... a. private dissavings b. crowding out c. expansionary investment d. income minus net taxes

b. crowding out

All of the following are sources of comparative advantage except... a. a strong foreign currency exchange rate b. technology c. climate and natural resources d. relative abundance of labor and capital

a. a strong foreign currency exchange rate

Which of the following will not occur as the result of a decrease in net taxes? a. decreased household saving b. decreased government saving c. a shift to the left of the supply curve for loanable funds d. all of the above

a. decreased household saving

Autarky is a situation in which a country... a. does not trade with other countries b. only exports products c. only imports products d. has no absolute advantage in any production

a. does not trade with other countries

International trade... a. helps consumers but hurts firms that are less efficient than their foreign competitors. b. helps consumers but harms exporting firms and their workers. c. helps consumers and firms that compete with their foreign competitors. d. harms consumers but helps exporting firms.

a. helps consumers but hurts firms that are less efficient than their foreign competitors.

The United States has developed a comparative advantage in digital computers, airliners, and many prescription drugs. The source of its comparative advantage in these products is... a. technology. b. abundant supplies of natural resources. c. a strong central government. d. a favorable climate.

a. technology

An increase in the demand for loanable funds will occur if there is

an increase in expected profits from firm investment projects.

which of the following is most liquid? a. corporate bond b. dollar bill c. mutual fund share d. government bond

b

An increase in public saving has what impact on the market for loanable funds? a. The demand for loanable funds increases. b. The supply of loanable funds increases. c. The demand for loanable funds decreases. d. The supply of loanable funds decreases.

b. The supply of loanable funds increases.

Which of the following would encourage economic growth through increases in the capital stock? a. an increase in the profitability of new investment due to technological change b. all of the above c. an increase in household saving d. a decrease in the government deficit

b. all of the above

Refer to Figure 10-2. Which of the following is consistent with the graph depicted above? a. The government runs a budget surplus. b. Investment spending is declining due to crowding out. c. New government regulations decrease the profitability of new investment. d. An expected expansion increases the profitability of new investment.

c. New government regulations decrease the profitability of new investment.

Which of the following is the best example of a tariff? a. a limit on the quantity of residential air conditioners that can be imported from a foreign country b. a tax placed on all residential air conditioners sold in the domestic market to help offset the impact of emissions on the environment c. a $150 fee imposed on all imported residential air conditioners d. a subsidy from the U.S. government to domestic manufacturers of residential air conditioners to enable them to compete more effectively with foreign producers

c. a $150 fee imposed on all imported residential air conditioners

Governments sometimes erect barriers to trade other than tariffs and quotas. Which of the following is not an example of this type of trade barrier? a. a requirement that the U.S. government buy military uniforms only from U.S. manufacturers b. restrictions on imports for national security reasons c. a requirement that the employees of domestic firms that engage in foreign trade pay income taxes d. a requirement that imports meet health and safety requirements

c. a requirement that the employees of domestic firms that engage in foreign trade pay income taxes

As percentage of imports, the largest product category of U.S. imports from China is... a. machinery and transportation equipment. b. textiles, apparel, and footwear. c. electronic products. d. chemicals, minerals, and metals.

c. electronic products

Refer to Figure 10-6. The loanable funds market is given in the figure above. If the current real interest rate is 5 percent, which of the following is true? a. The loanable funds market is in equilibrium. b. There is a shortage of loanable funds in the market. c. The quantity of loanable funds being demanded in the market is less than $90 million. d. There is a surplus of loanable funds in the market.

d. There is a surplus of loanable funds in the market.