Test 7
Which of the following statements is true?
With free trade, some workers in each nation will be harmed.
The current account is equal to net exports plus net income from existing investments abroad and net transfers from abroad. The financial account is the value of a country's net sales of assets. The capital account is the net value of a country's capital transfers and the purchase or sale of nonproduced, nonfinancial assets. The sum of these accounts is zero.
current financial capital zero
Finding Comparative Advantage. In one minute, Country B can produce either 500 TVs and no computers or 250 computers and no TVs. Similarly, in one minute, Country C can produce either 2,400 TVs or 600 computers. This information is summarized by the following table. Calculate the opportunity cost of production for each country. Output and Opportunity Cost Quantity produced per minute Opportunity Cost of TVs Opportunity Cost of Computers Country B 500 TVs one half12 Computers 22 TVs 250 Computers Country C 2,400 TVs one fourth14 Computers 44 TVs 600 Computers Based on the comparative opportunity cost data in your table, the comparative advantage in TVs lies with Country Upper CC, while the comparative advantage in computers is held by Country Upper BB.
1/2 2 1/4 4 C B
Shoeville will pay up to 17 pairs of shoes for a box of oranges, and Orange Town will pay up to 9 oranges for a pair of shoes.
17 9
a. Suppose the two countries split the difference between the willingness to pay for computers and the willingness to accept computers. The terms of trade, that is, the rate at which the two countries will exchange computers and shoes, will be 6060 pairs of shoes per computer. (Enter your response rounded to one decimal place.) b. Suppose the two countries exchange one computer for the number of shoes dictated by the terms of trade you computed above. The net benefit from trade for each country will be 4040 pairs of shoes per computer. (Enter your response rounded to one decimal place.)
60 40
Countries will always export the goods in which they have an absolute advantage.
False
Consumers Automobile firms Domestic parts manufacturers
favor it because it lowers car prices. favor it because they can produce less expensive cars. oppose it because they face global competition.
A decrease in the EUR/USD exchange rate (i.e., # of euros to buy a U.S. dollar) means it takes fewer euros to buy dollars . If this occurs, European residents will want to purchase more American goods.
fewer euros to buy dollars more
In the short run, you would be hurt as your industry would lose business.
hurt lose
When the government imposes a limit on the quantity of children's toys that can be imported into the country, this is
import quota
f the real U.S. dollar appreciates, prices of U.S. goods will increase relative to foreign goods. This will reduce U.S. exports because U.S. goods will become more expensive. On the other hand, imports to the U.S. will increase because foreign goods have become less expensive.
in re more increase less
If the real U.S. dollar appreciates, prices of U.S. goods will increase relative to foreign goods. This will reduce U.S. exports because U.S. goods will become more expensive. On the other hand, imports to the U.S. will increase because foreign goods have become less expensive. As a result, net exports will fall .
in re more increase less fall
This will increase the supply of British pounds. As a result, the British pound will depreciate with respect to the yen.
increase the supply of depreciate
The infant -industry argument is often given to provide a rationale for tariffs for new firms.
infant
Explain why this definition requires foreign exchange intervention in order to be classified as a currency manipulator. In this case, to manipulate a currency means the government must take action to lower its value in the foreign exchange market. To achieve the desired result, the country must increase the supply of its currency, thereby lowering its price in the foreign exchange market. This in turn lowers the cost of the country's exports, thus giving that country an unfair trade advantage.
lower increase lowering lowers
Suppose the United States has a comparative advantage in goods that use skilled labor. If we trade with a country that has a comparative advantage in goods using unskilled labor, the wage differences between skilled and unskilled labor in the United States will widen
widen
a. Suppose importers can sell their shirts on the world market at a price of $12 per shirt. In order to entice customs officials to look the other way, an importer would be willing to pay anything less than $1111 per shirt. (Enter your response as an integer.) b. Your job combating shirt smuggling into Chipland would be made easiest if Chipland's trade policy changed from a ban to free trade.
$11 free trade
Which of the following statements is true?
A nation that decides to specialize and trade is no longer limited to the options shown by its production possibilities curve.
This greatly benefited Country B, which now has a higher standard of living, but what happens to the welfare of Country A? (Hint: Think of the gains from trade.)
Once Country B has the same technology, there is no longer any opportunity for trade. So, Country A loses the benefits from trade and is made worse off.
Trade requires comparative advantage to make both parties better off. True
T
Given the opportunity costs reflected in these curves, it can be deduced that the comparative advantages are held by If the two countries split the difference between the buyer's willingness to pay for tables and the seller's willingness to accept, in terms of the number of chairs for 1 table, the terms of trade will be 1.5 (Enter your response rounded to one decimal place.)
Tableland in tables and Chairland in chairs. 1.5
What is likely to happen to employment in the long run? In the long run,
The sector that opens up loses sales to the international companies. some workers will be better off and some will be worse off.
If the euro depreciates against the dollar, then the dollar also appreciates against the euro. In the market for dollars, the supply curve slopes upward under the assumption that, as the value of the dollar decreases, fewer dollars will be supplied in exchange for euros for purchasing relatively more expensive European goods and assets. In the market for dollars, the demand curve slopes downwards under the assumption that, as the value of the dollar decreases, more dollars will be demanded in exchange for euros for purchasing relatively less expensive U.S. goods and assets. Equilibrium in the market for dollars occurs where the demand curve intersects the supply curve. The equilibrium exchange rate is measured in euros per dollar.
appreciates fewer; more more; less euros per dollar
In the long run, you are
better off as a consumer, but worse off as a worker.
A decrease in the demand for euros will depreciate the euro's exchange rate. Higher U.S. interest rates or lower U.S. prices will decrease the demand for euros.
depreciate higher lower
Regional trade agreements may lead to reduced tariffs for neighboring or member countries but they
do not promote efficiency across the globe.
Pricing below production cost or selling at prices in foreign markets less than domestic markets is known as
dumping
The government sells foreign currency for dollars if it wants to peg the exchange rate at a higher rate than would normally prevail in the market.
sells
Net transfers from abroad are a surplus (positive) entry on the current account.
surplus(position)
The U.S. dollar will depreciate if
there is an increase in the supply of dollars.
The government may want to engage in foreign exchange market intervention
to keep net exports from falling when its currency appreciates.