Macro exam 2

Comparative advantage A. is the ability of an​ individual, a​ firm, or a country to produce a good or service at a lower opportunity cost than competitors. B. is the ability of an​ individual, a​ firm, or a country to produce a good or service at a higher opportunity cost than competitors. C. is the ability of an​ individual, a​ firm, or a country to produce a good or service at a lower absolute cost than competitors. D. is the ability of an​ individual, a​ firm, or a country to produce a good or service at a higher absolute cost than competitors.

A

GDP is an imperfect measure of economic​ well-being because it fails to measure what types of​ production? A. Household production and the underground economy. B. Household production and foreign production. C. Business investment and foreign production. D. Foreign production and the government sector.

A

Patrick J.​ Buchanan, a former presidential​ candidate, argues in his book on the global economyLOADING... that there is a flaw in David​ Ricardo's theory of comparative advantageLOADING...​: ​"Classical free tradeLOADING... theory fails the test of common sense. According to​ Ricardo's law of comparative advantage. . . if America makes better computers and textiles than China​ does, but our advantage in computers is greater than our advantage in​ textiles, we should​ (1) focus on​ computers, (2) let China make​ textiles, and​ (3) trade U.S. computers for Chinese textiles . . . The doctrine begs a question. If Americans are more efficient than Chinese in making clothes . . . why surrender the more efficient American​ industry? Why shift to a reliance on a Chinese textile industry that will take years to catch up to where American factories are​ today?" ​Source: Patrick J.​ Buchanan, The Great​ Betrayal: How American Sovereignty and Social Justice Are Being Sacrificed to the Gods of the Global Economy​, ​Boston: Little,​ Brown, 1998, p. 66. According to comparative​ advantage, why is​ Buchanan's argument​ incorrect? A. His argument is incorrect because the United States should free up resources to produce the goods in which it has the comparative advantage. B. His argument is incorrect because China does not produce textiles. C. His argument is incorrect because the United States textile industry is not more efficient. The U.S. textile industry produces its goods at a lower opportunity cost than in China. D. None of the above.​ Buchanan's argument is correct.

A

Which of the following statements about the consumption component of GDP is not​ correct? A. Spending on services is smaller than the amount of consumption spending on durable and nondurable goods. B. Since​ 1960, the consumption component of GDP has generally increased as a fraction of GDP. C. Consumption as a fraction of total GDP in the U.S. is larger compared to all other high income nations in the world. D. The consumption component of GDP in the U.S. is greater than all three of the other components​ (government, investment, and net​ exports) combined

A

he following data summarize the trade between Canada and the United States in 2015 and 2016. Exports from the United States to Canada ​(billions of U.S.​ dollars) Exports from Canada to the United States ​(billions of U.S.​ dollars) 2015 ​$280.6 ​$296.2 2016 266.8 278.1 ​Source: U.S. Department of​ Commerce, Census​ Bureau, Economic Indicators Division. In each​ year, the value of​ Canada's exports to the United States exceeded the value of U.S. exports to Canada. Can we conclude that foreign trade between the two countries benefited Canada more than it benefited the United​ States? A. ​No, countries will engage in trade when there is a gain from trade to both parties. B. ​Yes, because exports are a larger portion of​ Canada's economy. C. ​Yes, because Canada exported more to the U.S. than the U.S. exported to Canada. D. ​No, trade benefited the United States more.

A

ndicate whether you agree or disagree with the following​ statement: ​"In years when people buy many shares of​ stock, investment will be high ​and, therefore, so will gross domestic productLOADING... ​(GDP)." A. ​Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and​ inventory, not stock purchases. B. ​Agree: When investment is high​, people must have more money to spend. ​ Therefore, GDP increases. C. ​Agree: GDP​ = C​ + I​ + G​ + NX. ​ Therefore, as​ "I" (Investment) increases​, GDP increases. D. ​Disagree: While GDP will be high in this​ case, it is the result of an increase in consumer expenditure on​ stocks, not investment spending.

A

What is a​ quota? A. A numerical limit a government imposes on the quantity of a good that can be imported into a country. B. An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country. C. A quota is the same thing as a voluntary export restraint. D. All of the above. What is a voluntary export​ restraint? A. An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country. B. A numerical limit on the quantity of a good that can be imported. C. The same thing as a tariff. D. A quota imposed by the WTO.

A, A

In the 2016 Summer Olympic​ Games, Ashton Eaton​ (from the United​ States) won a gold medal in the​ decathlon, which requires athletes to compete in 10 different track and field events. In one of these​ events, Eaton ran a​ 100-meter race in 10.46 seconds. In a separate​ event, Usain Bolt​ (from Jamaica) won a gold medal by running 100 meters in 9.81 seconds. Based on their performance at the 2016 Olympic​ Games, who was the better​ athlete? A. They are equivalent atheletes because they both competed in the Olympics. B. This cannot be determined because this is a normative question. C. Bolt was the better athlete because his time was better in the​ 100-meter race. D. Eaton was the better athlete because he competed in a decathlon.

B

In the 2016 Summer Olympic​ Games, Ashton Eaton​ (from the United​ States) won a gold medal in the​ decathlon, which requires athletes to compete in 10 different track and field events. In one of these​ events, Eaton ran a​ 100-meter race in 10.46 seconds. In a separate​ event, Usain Bolt​ (from Jamaica) won a gold medal by running 100 meters in 9.81 seconds. a. The concept of comparative advantage better explains A. ​Bolt's performance because he is the​ better-known athlete. B. ​Bolt's performance because he specialized in an event and had the fastest time. C. ​Eaton's performance because he competed in a decathlon. D. ​Eaton's performance because his time was only slightly higher and he competed in more events.

B

Suppose a house is built and sold in the year 2008. If the house is resold in the year​ 2019, is the value of the house included in Gross Domestic ProductLOADING... ​(GDP) for​ 2019? A. Yes. The value of the house is included in Personal Consumption Expenditures for 2019. B. No. GDP for 2019 includes only production that occurs during 2019. C. Yes. The value of the house is included in Gross Private Domestic Investment for 2019. D. No. GDP for 2019 includes only the market value of final goods. A house resold in 2019 is an intermediate good.

B

The difference between the price the firm sells a good for and the price the firm paid other firms for intermediate goods is called A. profit. B. value added. .C. fixed investment. D. producer surplus.

B

The graph at right shows the effect on consumer​ surplus, producer​ surplus, government tariff​ revenue, and economic surplus of a tariff of​ $1 per unit on imports of plastic combs into the United States. Use the areas denoted in the graph to answer the following questions. Which​ area(s) show the deadweight loss to the U.S. economy as a result of the tariff on​ combs? A. B​ + C​ + D. B. B​ + D. C. A. D. A​ + B​ + C​ + D.

B

Transfer payments are not included in GDP calculations because A. transfer payments do not include movements of income between countries so they should only be included in foreign country GDPs. B. transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service. C. transfer payments come from taxes and government expenditures so they are already included in government purchases. D. None of the above because transfer payments are included in GDP.

B

What are the four major categories of​ expenditure? A. ​Wages, interest,​ rent, and profit. B. ​Consumption, investment, government​ purchases, and net exports. C. ​Labor, capital, natural​ resources, and entrepreneurship. D. Final​ goods, intermediate​ goods, production, and income.

B

What are the four major components of expenditures in​ GDP? A. ​Consumption, Intermediate​ Goods, Government​ Purchases, and New Expenditures B. ​Consumption, Investment, Government​ Purchases, and Net Exports C. ​Consumption, Investment, Government​ Purchases, and​ Non-Durable Expenditures D. ​Consumption, Intermediate​ Goods, Goods and​ Services, and Net Exports

B

When an industry receives tariff or quota​ protection, there is no effect on other domestic industries. A. True B. False

B

According to the analysis by Hufbauer and​ Lowry, of the additional​ $1.1 billion consumers spent on tires as a result of the tariff on Chinese​ tires, the workers whose jobs were saved in the U.S. tire industry received only about​ $48 million in wages. ​Source: Gary Clyde Hufbauer and Sean​ Lowry, "US Tire​ Tariffs: Saving Few Jobs at High​ Cost," Peterson Institute for International​ Economics, Policy Brief Number​ PB12-9, April 2012. Would it have been cheaper for the federal government to have raised taxes on U.S. consumers and given the money to tire workers rather than to have imposed a​ tariff? ​ A No, because Hufbauer and Lowry concluded that the tariff cost U.S. consumers about​ $19,000 per year for each job saved in the tire industry. ​B Yes, because Hufbauer and Lowry concluded that the tariff cost U.S. consumers more than​ $900,000 per year for each job saved in the tire industry. ​C No, because Hufbauer and Lowry concluded that the tariff cost U.S. consumers about​ $9,000 per year for each job saved in the tire industry. ​D Yes, because Hufbauer and Lowry concluded that the tariff cost U.S. consumers more than​ $1,500,000 per year for each job saved in the tire industry. The federal government did not adopt this alternative policy because A. the Teamster union supported the tire workers and threatened to strike. B. the Service Workers union threatened to only buy Chinese tires if the tariff was passed. C. the Chinese government had sufficient political power to persuade Congress to pass this tariff. D. the United Steelworkers Unions had sufficient political power to persuade Congress to pass this tariff.

B, D

Economic theory suggests countries benefit from international trade by producing more of those good and services for which they have a comparative advantage​ (and less of that for which a country does not have a comparative​ advantage). ​ However, countries rarely specialize completely. ​ Why? Even with international​ trade, countries rarely specialize completely because A. some countries do not have an absolute advantage producing anything. B. consumers in different countries have homogeneous tastes. C. production of most goods involves increasing opportunity costs. D. some countries would lose as a result of free trade. E. all goods and services can be traded internationally.

C

Gross Domestic Product​ (GDP) is A. the amount of income generated from​ wages, rents, and profits in a country during a period of time. B. the quantity of all final goods and services produced in a country during a period of time. C. the market value of all final goods and services produced in a country during a period of time. D. the value of all expenditures made by households and firms in a country during a period of time.

C

How does the size of a​ country's GDP affect the quality of life of the​ country's people? A. When GDP is​ high, production from the underground​ economy, and therefore the crime​ rate, is high. B. There is an inverse relationship between GDP and quality of life. C. ​Generally, the more goods and services people​ have, the better off they are. D. ​Generally, the more goods and services people​ have, the worse off they are.

C

The graph at right shows the effect on consumer​ surplus, producer​ surplus, government tariff​ revenue, and economic surplus of a tariff of​ $1 per unit on imports of plastic combs into the United States. Use the areas denoted in the graph to answer the following questions. Which​ area(s) shows the amount of surplus transferred from consumers to producers as a result of the tariff on​ combs? A. A​ + B. B. B​ + C​ + D. C. A. .D. A​ + B​ + C​ + D.

C

The world is often described as having a global economy. How important is international trade to the United​ States? A. The U.S. exports more than it​ imports, resulting in a trade deficit. B. In the​ U.S., imports make up more than half of GDP. C. In the​ U.S., imports are smaller fractions of GDP than in most other countries. D). In the​ U.S., imports are increasing but not as a portion of GDP. E. The U.S. exports fewer goods than any of the other 8 highest income countries.

C

What is the difference between the value of a​ firm's final product and the value added by the firm to the final​ product? A. The value of a​ firm's final product is​ profit; the value added is the total cost of production. B. The value of a​ firm's final product is the difference between the sale price and the price of intermediate​ goods; value added is the sale price. C. The value of a​ firm's final product is the sale​ price; value added is the difference between the sale price and the price of intermediate goods. D. There is no difference between the value of a​ firm's final product and the value added by the firm to the final product.

C

Why does the consumer price index include the number of goods consumed in its calculation? A) no it does not actually include the number of goods in its calculation b). because prices are difficult to separate from quantities c) because quantities consumed provide a sense of how important the different prices are

C

Would the services of a real estate agent who helped sell​ (or helped​ buy) the house be included in GDP for​ 2019? A. No. GDP for 2019 includes only the market value of final goods. Real estate services are not final goods. B. No. The value of the house is not included in GDP for 2019.​ Therefore, real estate services are not included either. C. Yes. GDP for 2019 includes the market value of final goods and services. This includes real estate services. D. Yes. Real estate services are considered Gross Private Domestic Investment.

C

Indicate whether you agree or disagree with the following statements. ​"If nominal GDP is less than real​ GDP, then the price level must have fallen during the​ year." A. Agree. Nominal GDP will be less than real GDP if the price level falls and is higher than the base​ year's prices. B. Agree. Real GDP will be less than nominal GDP if the price level falls and is lower than the base​ year's prices. C. Disagree. Nominal GDP is less than real GDP if the current price level is less than the base year price level. A fall in the price level during the year is neither necessary nor sufficient to cause nominal GDP to be less than real GDP. D. Disagree. Real GDP will be equal to nominal GDP if the price level increases and is equal to the base​ year's prices. ​ "Whenever real GDPLOADING... ​declines, nominal GDPLOADING... must also​ decline." A. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise. B. Agree. Both real GDP and nominal GDP decline if price falls and output remains constant. C. Agree. Both real GDP and nominal GDP decline if output falls and prices remain constant. D. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices fall. ​ "If a recession is so severe that the price level​ declines, then we know that both real GDP and nominal GDP must​ decline." A. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise. B. Agree. If both output and prices are​ falling, then both real GDP and nominal GDP will fall. C. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices fall. D. Agree. If prices​ fall, real GDP and nominal GDP will both fall if output increases. ​ "If real GDP stayed the same while nominal GDP declined between 2008 and​ 2009, then the GDP deflator must also have​ declined." A. Agree. If nominal GDP declined between 2008 and​ 2009, then the GDP deflator must also have declined. B. Disagree. If nominal GDP declined between 2008 and​ 2009, then the GDP deflator could have gone up. C. Disagree. If nominal GDP increased between 2008 and​ 2009, then the GDP deflator must have remained the same. D. Disagree. If real GDP declined between 2008 and​ 2009, then the GDP deflator must also have declined.

C, A, B, A

What is the difference between absolute advantage and comparative​ advantage? ? advantage is the ability of an​ individual, a​ firm, or a country to produce a good or service at a lower opportunity cost than competitors. While ? advantage is the ability of an​ individual, a​ firm, or a country to produce more of a good or service than competitors when using the same amount of resources. A country will always be an exporter of a good where it has a ? advantage in production.

Comparative, absolute, comparative

Although international trade leads to substantial net​ benefits, not everyone gains from international trade. Which of the following groups is most likely to lose from​ trade? A. businesses outside the import sectors B. businesses that use inputs and products that are being imported C. consumers D. the workers and companies in the industries that compete with the imports

D

Comparative advantage A. is unlikely to​ change, once it has been defined. B. is determined by governments of nations across the globe. C. is independent a countries skilled and unskilled labor quantities. D. may change as time passes and circumstances change.

D

Even if GDP included these types of​ production, why would it still be an imperfect measure of economic​ well-being? A. The value of leisure is not included in GDP. B. GDP is not adjusted for pollution and it does not account for unequal income distribution. C. GDP is not adjusted for crime or other social problems. D. All of the above. E. A and C only.

D

In an economy with rising​ prices, compared to the base​ year, A. nominal GDP is larger than real GDP in years before the base year. B. nominal GDP is equal to real GDP in years before the base year. C. nominal GDP is equal to real GDP in years after the base year. D. nominal GDP is larger than real GDP in years after the base year.

D

In the real​ world, specialization is not complete. Why do countries not completely​ specialize? A. Because not all goods are traded internationally. B. Because production of most goods involves increasing opportunity costs. C. Because tastes for products differ. D. All of the above.

D

Inventories are part of investment and therefore included in GDP because A. inventories represent the amount of factors of production firms have used to produce goods. B. the value added by production goes into goods but not production and since goods start in​ inventory, that component needs to be computed. C. the sale of shares of stock are not included in any other​ component, inventories allow GDP to capture this spending. D. firms produce​ goods, however sometimes the goods may be unsold at the time GDP is computed.

D

Real GDP per capitaLOADING... is often used as a measure of general​ well-being. While increases in real GDP often do lead to increases in the​ well-being of the​ population, why is real GDP not a perfect measure of​ well-being? A. The value of leisure is not included. B. The costs of pollution are not included. C. GDP does not include crime rates or income distribution. D. All of the above

D

Suppose the United States and Japan produce only cell phones and digital music​ players, like​ Apple's iPod. Assume that each country uses only labor to produce each​ good, and that Japanese and U.S. cell phones and digital music players are exactly the same. Output per Hour of Work Cell Phones Digital Music Players Japan 6 3 United States 1 2 Determine the missing opportunity costs in the table below and fill in the missing values. ​(Enter your responses rounded to one decimal​ place.) Opportunity Costs Cell Phones Digital Music Players Japan 0.5 2 United States 2 0.5 From the tables above it is clear that​ _____ has an absolute advantage in the production of both goods and that​ _____ has a comparative advantage in cell​ phones, while​ _____ has a comparative advantage in digital music players. A. the United States​,Japan​,Japan B. the United States​,the United States​,Japan C. Japan​,the United States​,Japan D. Japan​,Japan​,the United States

D

The graph at right shows the effect on consumer​ surplus, producer​ surplus, government tariff​ revenue, and economic surplus of a tariff of​ $1 per unit on imports of plastic combs into the United States. Use the areas denoted in the graph to answer the following questions. Which​ area(s) shows the total loss to U.S. consumers as a result of the tariff on​ combs? A. A. B. B​ + C​ + D. C. C. D.A​ + B​ + C​ + D.

D

We often use real GDP per capitaLOADING... as a measure of a​ country's well-being. Review the definition of real GDP per capita before answering the following question. ​Today, the typical American works fewer than 40 hours per week. In​ 1890, the typical American worked 60 hours per week. Would the difference between the real GDP per capita in 1890 and the real GDP per capita today understate or overstate the difference in the​ population's economic​ well-being? A. The decrease in real GDP per capita between 1890 and today overstates​ well-being because the value of leisure is not included in GDP. B. The increase in real GDP per capita between 1890 and today overstates​ well-being because the value of leisure is not included in GDP. C. The decrease in real GDP per capita between 1890 and today understates​ well-being because the value of leisure is not included in GDP. D. The increase in real GDP per capita between 1890 and today understates​ well-being because the value of leisure is not included in GDP.

D

Who is harmed when individual nations move from autarky to free​ trade? A. The domestic customers of the firms that went out of business. B. The foreign customers of the firms that now specialize. C. The nation taken as a whole. D. The owners of the firms that went out of business.

D

You and your neighbor pick apples and cherries. If you can pick apples at a lower opportunity cost than your​ neighbor, which of the following statements is​ true? A. You have a comparative advantage in picking apples. B. You can trade some of your apples for some of your​ neighbor's cherries, and both of you will end up with more of both fruit. C. Your neighbor is better off specializing in picking cherries. D. All of the above.

D

According to an editorial in the Washington Post​: ​ "Sugar protectionism is a burden on consumers and a​ job-killer." ​Source: "Sourball," Washington Post​, March​ 22, 2010. a. The United States practices​ "sugar protectionism" by A. charging sugar exporters a flat license fee to be able to export sugar in the United States. B. banning sugar imports. C. encouraging sugar exporting countries to use voluntary export restraints. D. imposing a quota on sugar imports. b. In what way is sugar protectionism a burden on​ consumers? As far as the effect of​ "sugar protectionism" on U.S. consumers is​ concerned, A. it requires a consumer to pay a license fee to buy large quantities of sugar. B. it raises the prices of sugar and candy that consumers have to pay and leads to a loss of consumer surplus. .C. it has no appreciable effect on sugar prices. D. it limits the quantity of sugar that a consumer is eligible to buy. ​"Sugar protectionism" is viewed as a​ "job killer" because A. it leads to job losses in the sugar industry. B. any regulation such as a sugar quota leads to a recession and​ economy-wide job loss. C. it leads to job losses in the candy industry and various food manufacturing industries that use sugar. D. it adversely affects the stock market by raising the price of​ "sugar futures". c. If sugar protectionism has the bad effects as stated in the​ editorial, which of the following is a likely reason why Congress and the president do not eliminate​ it? A. Sugar growers have a very strong lobby in Washington. B. Consumers are unaware of the existence of the quota. C. There is little political support for the elimination of the quota. D. All of the above.

D, B, C, D

Why in microeconomicsLOADING... can we measure production in terms of​ quantity, but in macroeconomicsLOADING... we measure production in terms of market​ value? A. ​If, in​ macroeconomics, we measured production using​ quantities, we would add tons of wheat grown by U.S. farmers to the number of iPods produced by​ Apple, to gallons of​ milk, and so on. B. When we measure total​ production, we​ can't just add together the quantities of every good and service because the result would be meaningless. C. Measuring production using market value in dollar terms allows us to add together many different goods and services. D. Both A and C. E. All of the above.

E

? are goods and services produced domestically but sold to other countries. Imports are goods and services bought domestically but produced in other countries. ? are taxes imposed by a government on imports of a good into a country.

Exports, Tariffs

T or F the labor market is a zero sum game for society

False

Is transfer payment a part of GDP

It is NOT

T or F Economists generally believe quotas are more harmful to economic welfare than tariffs.

True

GDP formula

Y=C+I+G+NX

Which equation represents the relationship between GDP and the four major expenditure​ components?

Y=C+I+G+NX

Which of the following equations sums up the components of Gross Domestic Product​ (GDP)?

Y=C+I+G+NX

Assuming that inflation has occurred over​ time, what is the relationship between nominal GDPLOADING... and real GDPLOADING... in each of the following​ situations? a. In years after the base​ year, nominal GDP ? real GDP. b. In the base​ year, nominal GDP ? real GDP. c. In years prior to the base​ year, nominal GDP ? real GDP.

is greater than, is equal to, is less than

Indicate whether each of the following transactions represents the purchase of a final goodLOADING.... 1. The purchase of tires from Bridgestone tire company by an automobile manufacturer. 2. The purchase of two new elementary school buildings by the state government. 3. The purchase of domestic wine by a French consumer. 4. The purchase of a new machine tool by the Ford Motor Company.

is not, is, is, is