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Homework answers / question archive / University of California, Santa Barbara Econ 2 Final Spring 2011 1)Trade can make everybody better off because it increases cooperation among nations

University of California, Santa Barbara Econ 2 Final Spring 2011 1)Trade can make everybody better off because it increases cooperation among nations

Economics

University of California, Santa Barbara

Econ 2 Final Spring 2011

1)Trade can make everybody better off because it

      1. increases cooperation among nations.
      2. allows people to specialize according to comparative advantage.
      3. requires some workers in an economy to be retrained.
      4. reduces competition among domestic companies.

 

 

Table 3-7

 

Assume that Japan and Korea can switch between producing cars and producing airplanes at a constant rate.

 

 

Hours Needed to Make 1

Quantity Produced in 2400 Hours

Car

Airplane

Cars

Airplanes

Japan

30

150

80

16

Korea

50

150

48

16

 

 

  1. Refer to Table 3-7.  Japan’s opportunity cost of one airplane is  
      1. 1/5 car and Korea’s opportunity cost of one airplane is 1/3 car.
      2. 1/5 car and Korea’s opportunity cost of one airplane is 3 cars.
      3. 5 cars and Korea’s opportunity cost of one airplane is 1/3 car.
      4. 5 cars and Korea’s opportunity cost of one airplane is 3 cars.

  

  1. Refer to Table 3-7.  Assume that Japan and Korea each has 2400 hours available.  Originally, each country divided its time equally between the production of cars and airplanes.  Now, each country spends all its time producing the good in which it has a comparative advantage.  As a result, the total output of cars increased by a. 16.
      1. 40.
      2. 64.
      3. 80.

 

 

Table 3-9

 

Barb and Jim run a business that sets up and tests computers.  Assume that Barb and Jim can switch between setting up and testing computers at a constant rate.  The following table applies.

 

 

Minutes Needed to 

Number of Computers

Set Up or Tested in a

40-Hour Week

Set Up 1 Computer

Test 1

Computer

Computers Set Up

Computers Tested

Barb

48

?

50

40

Jim

30

40

80

60

 

 

  1. Refer to Table 3-9.  Barb’s opportunity cost of setting up one computer is testing  
      1. 4/5 computer and Jim’s opportunity cost of setting up one computer is testing 3/4 computer.
      2. 4/5 computer and Jim’s opportunity cost of setting up one computer is testing 4/3 computers.
      3. 5/4 computers and Jim’s opportunity cost of setting up one computer is testing 3/4 computer.
      4. 5/4 computers and Jim’s opportunity cost of setting up one computer is testing 4/3 computers.

 

 

Figure 3-4

 

Perry’s Production Possibilities Frontier           Jordan’s Production Possibilities Frontier

 

 

1

2

3

4

5

6

7

8

novels

2

4

6

8

10

12

14

16

18

20

poems

1

2

3

4

5

6

7

8

novels

2

4

6

8

10

12

14

16

18

20

poems

 

   

  1. Refer to Figure 3-4.  If the production possibilities frontiers shown are each for one year of writing, then which of the following combinations of novels and poems could Perry and Jordan together not write in a given year? a. 1 novel and 21 poems
      1. 2 novels and 20 poems
      2. 3 novels and 15 poems
      3. 5 novels and 6 poems

 

 

Figure 3-5

 

Puneet’s Production Possibilities Frontier        Chirag’s Production Possibilities Frontier

 

 

1

2

3

4

5

6

7

8

9

10

purses

1

2

3

4

5

6

7

8

9

10

wallets

1

2

3

4

5

6

7

8

9

10

purses

1

2

3

4

5

6

7

8

9

10

wallets

 

   

  1. Refer to Figure 3-5.  Puneet has an absolute advantage in the production of 
      1. purses and Chirag has an absolute advantage in the production of wallets.
      2. wallets and Chirag has an absolute advantage in the production of purses.
      3. both goods and Chirag has an absolute advantage in the production of neither good.
      4. neither good and Chirag has an absolute advantage in the production of both goods.

 

 

Figure 3-8

 

Belgium’s Production Possibilities Frontier       Latvia’s Production Possibilities Frontier

 

 

2

4

6

8

10

12

14

16

18

20

waffles

2

4

6

8

10

12

14

16

18

20

pancakes

2

4

6

8

10

12

14

16

18

20

waffles

2

4

6

8

10

12

14

16

18

20

pancakes

 

   

  1. Refer to Figure 3-8.  Belgium has an absolute advantage in the production of 
      1. waffles and Latvia has an absolute advantage in the production of pancakes.
      2. pancakes and Latvia has an absolute advantage in the production of waffles.
      3. both goods and Latvia has an absolute advantage in the production of neither good.
      4. neither good and Latvia has an absolute advantage in the production of both goods.

  

  1. Gross domestic product is defined as
      1. the quantity of all final goods and services demanded within a country in a given period of time.
      2. the quantity of all final goods and services supplied within a country in a given period of time.
      3. the market value of all final goods and services produced within a country in a given period of time.
      4. Both (a) and (b) are correct.

  

  1. If you buy a burger and fries at your favorite fast food restaurant,
      1. then neither GDP nor consumption will be affected because you would have eaten at home had you not bought the meal at the restaurant.
      2. then GDP will be higher, but consumption spending will be unchanged.
      3. then GDP will be unchanged, but consumption spending will be higher.
      4. then both GDP and consumption spending will be higher.

  

  1. When an American household purchases a bottle of Italian wine for $100,
      1. U.S. consumption does not change, U.S. net exports decrease by $100, and U.S. GDP decreases by $100.
      2. U.S. consumption does not change, U.S. net exports increase by $100, and U.S. GDP increases by $100.
      3. U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change.
      4. U.S. consumption increases by $100, U.S. net exports do not change, and U.S. GDP increases by $100.

  

  1. When an Egyptian firm purchases a cement mixer from Slovakia,
      1. Egyptian investment does not change, Egyptian net exports decrease, Egyptian GDP decreases, Slovakian net exports increase, and Slovakian GDP increases.
      2. Egyptian investment increases, Egyptian net exports decrease, Egyptian GDP is unaffected, Slovakian net exports increase, and Slovakian GDP increases.
      3. Egyptian investment decreases, Egyptian net exports increase, Egyptian GDP is unaffected, Slovakian net exports decrease, and Slovakian GDP decreases.
      4. Egyptian investment increases, Egyptian net exports do not change, Egyptian GDP increases, Slovakian net exports do not change, and Slovakian GDP is unaffecte

 

 

Table 23-2

 

The table below contains data for the country of Wrexington for the year 2008.

 

Household purchases of durable goods

$1293

Household purchases of nondurable goods

$1717

Household purchases of services

$301

Household purchases of new housing

$704

Purchases of capital equipment

$310

Inventory changes

$374

Purchases of new structures

$611

Depreciation

$117

Salaries of government workers

$1422

Government expenditures on public works

$553

Transfer payments

$777

Foreign purchases of domestically produced goods

$88

Domestic purchases of foreign goods

$120

 

 

  1. Refer to Table 23-2.  What was Wrexington’s investment in 2008?
      1. $1178
      2. $1295
      3. $1882
      4. $1999

  

  1. Refer to Table 23-2.  What were Wrexington’s imports in 2008? a. -$32
      1. $32
      2. $88
      3. $120

  

  1. In the economy of Wrexington in 2008, real GDP was $5 trillion and the GDP deflator was 200.  What was Wrexington’s nominal GDP in 2008? a. $2.5 trillion
      1. $10 trillion
      2. $40 trillion
      3. $100 trillion

  

  1. If 2004 is the base year, then the inflation rate for 2005 equals

 

a.

 

 

b.

 

 

c.

 

 

d.

 

 

 

  

  1. The price index was 110 in the first year, 100 in the second year, and 96 in the third year.  The economy experienced
      1. 9.1 percent deflation between the first and second years, and 4 percent deflation between the second and third years.
      2. 9.1 percent deflation between the first and second years, and 4.2 percent deflation between the second and third years.
      3. 10 percent deflation between the first and second years, and 4 percent deflation between the second and third years.
      4. 10 percent deflation between the first and second years, and 4.2 percent deflation between the second and third years.

  

  1. Suppose a basket of goods and services has been selected to calculate the consumer price index.  In 2005, the basket of goods cost $108.00; in 2006, it cost $135.00; and in 2007, it cost $168.75.  Which of the following statements is correct?
      1. Using 2005 as the base year, the economy’s inflation rate was higher in 2007 than it was in 2006.
      2. If 2007 is the base year, then the CPI is 33.75 in 2006.
      3. If the CPI is 156.25 in 2007, then 2005 is the base year.
      4. Using 2005 as the base year, the economy’s inflation rate for 2006 was 27 percent.

 

 

Table 24-4

 

The table below pertains to Wrexington, an economy in which the typical consumer’s basket consists of 20 pounds of meat and 10 toys.

 

Year

Price of Meat

Price of a Toy

2004

$3 per pound

$2

2005

$1 per pound

$7

2006

$4 per pound

$5

 

 

  1. Refer to Table 24-4.  The cost of the basket in 2006 was
      1. $9.
      2. $130.
      3. $140.
      4. $270.

  

  1. The goal of the consumer price index is to measure changes in the
      1. costs of production.
      2. cost of living.
      3. relative prices of consumer goods.
      4. production of consumer goods.

  

  1. A decrease in the price of large tractors imported into the United States from Russia
      1. leaves the GDP deflator unchanged but decreases the consumer price index.
      2. decreases the GDP deflator but leaves the consumer price index unchanged.
      3. decreases both the GDP deflator and the consumer price index.
      4. leaves both the GDP deflator and the consumer price index unchange

  

  1. In 1931, President Herbert Hoover was paid a salary of $75,000.  Government statistics show a consumer price

index of 15.2 for 1931 and 207 for 2007.  President Hoover’s 1931 salary was equivalent to a 2007 salary of about a. $5507.

      1. $1,021,382.
      2. $1,140,000.
      3. $15,525,000.

  

  1. Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006.  The consumer price index was 177 in 2001 and

221.25 in 2006.  Ruben's 2006 salary in 2001 dollars is

      1. $20,000; thus, Ruben's purchasing power increased between 2001 and 2006.
      2. $20,000; thus, Ruben's purchasing power decreased between 2001 and 2006.
      3. $64,000; thus, Ruben's purchasing power increased between 2001 and 2006.
      4. $64,000; thus, Ruben's purchasing power decreased between 2001 and 2006.

  

  1. During a certain year, the consumer price index increased from 150 to 159 and the purchasing power of a person’s bank account increased by 3.5 percent.  For that year, a. the nominal interest rate was 6 percent.
      1. the nominal interest rate was 9.5 percent.
      2. the inflation rate was 3.5 percent.
      3. the inflation rate was 9.5 percent.

  

  1. A nation's standard of living is best measured by its
      1. real GDP.
      2. real GDP per person.
      3. nominal GDP.
      4. nominal GDP per person.

 

 

  1. Both Tom and Jerry work 10 hours a day. Tom can produce six baskets of goods per hour while Jerry can produce four baskets of the same goods per hour. It follows that Tom's a. productivity is greater than Jerry's.
      1. output is greater than Jerry's.
      2. standard of living is higher than Jerry's.
      3. All of the above are correct.

 

 

Scenario 25-1.   An economy’s production form takes the form Y = AF(L, K, H, N).

 

  1. Refer to Scenario 25-1. If the production function has the constant-returns-to-scale property, then if we know the values of A, K/L, H/L, and N/L, we also know the value of a. output.
      1. labor productivity.
      2. K.
      3. All of the above are correct.

  

  1. The president of Improvia, a developing country, proposes that his country needs to help domestic firms by imposing trade restrictions.
      1. These are outward-oriented policies and most economists believe they would have beneficial effects on growth in Improvi
      2. These are outward-oriented policies and most economists believe they would have adverse effects on growth in Improvia.
      3. These are inward-oriented policies and most economists believe they would have beneficial effects on growth in Improvia.
      4. These are inward-oriented policies and most economists believe they would have adverse effects on growth in Improvia.

  

  1. Other things the same, which bond would you expect to pay the highest interest rate?
      1. a bond issued by the U.S. government
      2. a bond issued by IBM
      3. a bond issued by a new restaurant chain
      4. they all would most likely pay the same interest rate

  

  1. Lacey, a financial advisor, has told her clients the following things. Which of her statements is not correct?
      1. "U.S. government bonds generally have a higher rate of interest than municipal bonds."
      2. "The interest received on corporate bonds is taxable."
      3. "U.S. government bonds have the lowest default risk."
      4. "If you purchase a bond, you must hold it until it matures."

  

  1. Compared to bondholders, stockholders 
      1. face higher risk and have the potential for higher returns.
      2. face higher risk but receive a fixed payment.
      3. face lower risk and have the potential for higher returns.
      4. face lower risk but receive a fixed payment.

  

  1. Which of the following statements about mutual funds is correct?
      1. A mutual fund is a financial intermediary.
      2. A mutual fund acquires its funds primarily by selling shares to the public.
      3. People who buy shares from a mutual fund accept all of the risk and return associated with the mutual fund’s portfolio.
      4. All of the above are correct.

 

 

  1. Which of the following statements is correct?
      1. The total income in the economy that remains after paying for consumption and government purchases is called private saving.
      2. The sum of private saving and national saving is called public saving.
      3. For a closed economy, the sum of private saving and public saving must equal investment.
      4. For a closed economy, the sum of consumption, national saving, and taxes must equal GDP.

  

  1. Suppose a closed economy had public saving of $3 trillion and private saving of $2 trillion. What are national saving and investment for this country? a. $5 trillion, $5 trillion
      1. $5 trillion, $2 trillion
      2. $1 trillion, $5 trillion
      3. $1 trillion, $2 trillion

 

 

Scenario 26-1.  Assume the following information for an imaginary, closed economy.

 

  GDP = $110,000; consumption = $70,000; private saving = $8,000; national     saving = $12,000.

 

 

  1. Refer to Scenario 26-1.  This economy’s government is running a 
      1. budget surplus of $4,000.
      2. budget surplus of $8,000.
      3. budget deficit of $4,000.
      4. budget deficit of $8,000.

  

  1. Consider three different closed economies with the following national income statistics. Country A has taxes of $40 billion, transfers of $20 billion, and government expenditures on goods and services of $30 billion. County B has private savings of $60 billion, and investment expenditures of $50 billion. Country C has GDP of $300 billion, investment of $70 billion, consumption of $180 billion, taxes of $60 billion and transfers of $20 billion. From this information we know that there is a $10 billion government budget deficit for  a. only country A.
      1. only country B.
      2. only country C.
      3. all three countries.

  

  1. Other things the same, a higher interest rate induces people to
      1. save more, so the supply of loanable funds slopes upward.
      2. save less, so the supply of loanable funds slopes downward.
      3. invest more, so the supply of loanable funds slopes upward.
      4. invest less, so the supply of loanable funds slopes downwar

  

  1. Which of the following would not be a result of replacing the income tax with a consumption tax so that interest income was no longer taxed?
      1. The interest rate would decrease.
      2. Investment would decrease.
      3. The standard of living would eventually rise.
      4. The supply of loanable funds would shift right.

  

  1. An increase in the budget deficit would cause a
      1. shortage of loanable funds at the original interest rate, which would lead to falling interest rates.
      2. surplus of loanable funds at the original interest rate, which would lead to rising interest rates.
      3. shortage of loanable funds at the original interest rate, which would lead to rising interest rates.
      4. surplus of loanable funds at the original interest rate, which would lead to falling interest rates.

  

  1. Which of the following is correct?
      1. In a closed economy equilibrium in the market for loanable funds occurs where saving = investment.
      2. Investment is the source for the supply of loanable funds.
      3. If there is a surplus in the market for loanable funds, the interest rate rises.
      4. All of the above are correct

 

 

Figure 26-1.  The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves.

 

 

S1

Demand

S2

 

   

  1. Refer to Figure 26-1.  What is measured along the vertical axis of the graph? a. the nominal interest rate
      1. the real interest rate
      2. the quantity of investment
      3. the quantity of saving

  

  1. Refer to Figure 26-1.  Which of the following events would shift the supply curve from S1 to S2?
      1. In response to tax reform, firms are encouraged to invest more than they previously invested.
      2. In response to tax reform, households are encouraged to save more than they previously saved.
      3. Government goes from running a balanced budget to running a budget deficit.
      4. Any of the above events would shift the supply curve from S1 to S2.

  

  1. Which of the following changes would decrease the present value of a future payment?
      1. a decrease in the size of the payment
      2. an increase in the time until the payment is made
      3. an increase in the interest rate
      4. All of the above are correct.

 

 

  1. Suppose the interest rate is 4 percent. Which of the following has the greatest present value?
      1. $100 today plus $190 one year from today
      2. $150 today plus $140 one year from today
      3. $200 today plus $90 one year from today
      4. $250 today plus $40 one year from today

  

  1. You have a contract with someone who has agreed to pay you $20,000 in four years. She offers to pay you now instead. For which of the following interest rates and payments would you take the money today?. a. 8 percent, $15,000
      1. 7 percent, $16,000
      2. 6 percent, $17,000
      3. All of the above are correct.

  

  1. Which of the following is not correct?
      1. The higher average return on stocks than on bonds comes at the price of higher risk.
      2. Risk-averse persons will take the risks involved in holding stocks if the average return is high enough to compensate for the risk.
      3. Insurance markets reduce risk, but not by diversification.
      4. Risk can be reduced by placing a large number of small bets, rather than a small number of large bets.

  

  1. Cyclical unemployment is closely associated with
      1. long-term economic growth.
      2. short-run ups and downs of the economy.
      3. fluctuations in the natural rate of unemployment.
      4. changes in the minimum wage.

  

  1. Suppose that a large number of men who used to work or seek work now no longer do either(they now do not work and are not seeking work).  Other things the same, this makes
      1. the number of people unemployed rise but does not change the labor force.
      2. the number of people unemployed rise but makes the labor force fall.
      3. both the number of people unemployed and the labor force fall.
      4. the number of people unemployed fall but does not change the labor force.

 

 

Table 28-1

 

Labor Data for Wrexington

 

Year

2004

2005

2006

Adult population

2000

3000

3200

Number of employed

1400

1300

1600

Number of unemployed

200

600

200

 

 

  1. Refer to Table 28-1.  The labor force of Wrexington
      1. increased from 2004 to 2005 and increased from 2005 to 2006.
      2. increased from 2004 to 2005 and decreased from 2005 to 2006.
      3. decreased from 2004 to 2005 and increased from 2005 to 2006.
      4. decreased from 2004 to 2005 and decreased from 2005 to 2006.

 

 

Table 28-2

 

2009 Labor Data for Wrexington

 

Number of adults

20,000

Number of adults who are paid employees

8,000

Number of adults who work in their own businesses

1,600

Number of adults who are unpaid workers in a family member’s business

1,000

Number of adults who were temporarily absent from their jobs because of an earthquake

400

Number of adults who were waiting to be recalled to a job from which they had been laid off

200

Number of adults who do not have a job, are available for work, and have tried to find a job within the past four weeks

1,400

Number of adults who do not have a job, are available for work, but have not tried to find a job within the past four weeks

780

Number of adults who are full-time students

3,000

Number of adults who are homemakers or retirees

3,620

 

 

  1. Refer to Table 28-2.  How many people were not in Wrexington’s labor force in 2009? a. 4,400
      1. 6,620
      2. 7,400
      3. 8,690

  

  1. In a fractional-reserve banking system, a bank 
      1. does not make loans.
      2. does not accept deposits.
      3. keeps only a fraction of its reserves in deposits.
      4. keeps only a fraction of its deposits in reserve.

 

 

Table 29-2.  An economy starts with $10,000 in currency.  All of this currency is deposited into a single bank, and the bank then makes loans totaling $9,250.  The T-account of the bank is shown below.

 

Assets                Liabilities

Reserves              Deposits         

$750         $10,000

Loans                       

9,250

 

 

  1. Refer to Table 29-2.  If all banks in the economy have the same reserve ratio as this bank, then an increase in reserves of $150 for this bank has the potential to increase deposits for all banks by  a. $866.67.
      1. $1,666.67.
      2. $2,000.00.
      3. an infinite amount.

 

 

Table 29-5.  

 

Bank of Kopeka

                 

Assets   Liabilities

 

Reserves            $2,000              Deposits                $20,000

Loans                   18,000                               

 

 

  1. Refer to Table 29-5. If the Fed’s reserve requirement is 9 percent, then what quantity of excess reserves does the Bank of Kopeka now hold? a. $200
      1. $250
      2. $400
      3. $1,000

  

  1. If the reserve ratio is 4 percent, then $81,250 of new money can be generated by a. $325 of new reserves.
      1. $3,250 of new reserves.
      2. $20,312.50 of new reserves.
      3. $2,031,250 of new reserves.

  

  1. If the public decides to hold less currency and more deposits in banks, bank reserves
      1. decrease and the money supply eventually decreases.
      2. decrease but the money supply does not change.
      3. increase and the money supply eventually increases.
      4. increase but the money supply does not change.

  

  1. Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 7 percent?
      1. a real interest rate of 2.5 percent and an inflation rate of 2 percent
      2. a real interest rate of 4 percent and an inflation rate of 11 percent
      3. a real interest rate of 6 percent and an inflation rate of 1 percent
      4. a real interest rate of 5.5 percent and an inflation rate of 3 percent

  

  1. If a country exports more than it imports, then it has
      1. positive net exports and positive net capital outflows.
      2. positive net exports and negative net capital outflows.
      3. negative net exports and positive net capital outflows.
      4. negative net exports and negative net capital outflows.

  

  1. If a country has Y > C + I + G, then it has
      1. positive net capital outflow and positive net exports.
      2. positive net capital outflow and negative net exports.
      3. negative net capital outflow and positive net exports.
      4. negative net capital outflow and negative net exports.

  

  1. Domestic saving must equal domestic investment in
      1. both closed and open economies.
      2. closed, but not open economies.
      3. open, but not closed economies.
      4. neither closed nor open economies.

  

  1. If purchasing power parity holds, the price level in the U.S. is 120, and the price level in Canada is 140, which of the following is true?
      1. the real exchange rate is 120/140.
      2. the real exchange rate is 140/120.
      3. the nominal exchange rate is 120/140
      4. the nominal exchange rate is 140/120

  

  1. Because a government budget deficit represents
      1. negative public saving, it increases national saving.
      2. negative public saving, it decreases national saving.
      3. positive public saving, it increases national saving.
      4. positive public saving, it decreases national saving.

  

  1. If a government of a country with a zero trade balance increases its budget deficit, then the real exchange rate a. appreciates and there is a trade surplus.
      1. appreciates and there is a trade deficit.
      2. depreciates and there is a trade surplus.
      3. depreciates and there is a trade deficit.

  

  1. If there is capital flight from the United States, then the demand for loanable funds
      1. and the supply of dollars in the foreign-exchange market shift right.
      2. and the supply of dollars in the foreign-exchange market shift left.
      3. shifts left while the supply of dollars in the foreign-exchange market shifts right.
      4. shifts right while the supply of dollars in the foreign-exchange market shifts left.

  

  1. If the world thought that many banks in a certain country were at or near the point of bankruptcy, then that country’s real exchange rate 
      1. and net exports would rise.
      2. would rise and net exports would fall.
      3. would fall and net exports would rise.
      4. and net exports would fall.

  

  1. If government policy encouraged households to save more at each interest rate, then
      1. the real exchange rate and net exports would rise.
      2. the real exchange rate and net exports would fall.
      3. the real exchange rate would rise and net exports would fall.
      4. the real exchange rate would fall and net exports would rise.

  

  1. If a country institutes policies that lead domestic firms to desire more capital stock
      1. net capital outflows rise and the real exchange rate rises.
      2. net capital outflows rise and the real exchange rate falls.
      3. net capital outflows fall and the real exchange rate rises.
      4. net capital outflows and the real exchange rate falls.

  

  1. Which of these is NOT a way that the Fed can control the money supply?
      1. Changing the federal funds rate
      2. Open market operations
      3. Changing the required reserve ratio
      4. Changing the real interest rate

  

  1. Which of these is NOT included in the calculation of private savings? a. Output
      1. Net Exports
      2. Consumption
      3. Taxes

  

  1. Which of the following is NOT included in Total Factor Productivity?
      1. Technology
      2. Weather
      3. Education
      4. Government

  

  1. Suppose a computer costs $1000 in the US and 125,000 yen in Japan. What must the nominal exchange rate be in order for purchasing power parity to hold? a. 125 dollars per yen
      1. 100 yen per dollar
      2. 125 yen per dollar
      3. 80 yen per dollar

  

  1. The opportunity cost of producing a car in country A is 50 toys. The opportunity cost of producing a car in country B is 75 toys. Which of the following statements must be true?
      1. Country A has a comparative advantage in producing cars.
      2. Country B has a comparative advantage in producing cars.
      3. Country A has an absolute advantage in producing cars.
      4. Country B has an absolute advantage in producing cars.

  

  1. What is the lowest interest rate at which you would prefer $100,000 today over $105,000 tomorrow? a. 3%
      1. 4%
      2. 6%
      3. 10%

  

  1. Which of the following statements are true?
      1. Ceteris paribus, the lower the price level, the higher the velocity of money will be.
      2. Ceteris paribus, the lower the money supply, the higher the velocity of money will be.
      3. Ceteris paribus, the higher the value of money, the higher the velocity of money will be.
      4. None of the above statements are true.

  

  1. If the US economy quadruples in size in 35 years, what is the approximate average annual growth rate of GDP? a. 2%
      1. 4%
      2. 6%
      3. 8%

  

  1. If the U.S. real interest rate rises relative to foreign interest rates,
      1. foreign bonds are attractive investments
      2. the dollar depreciates
      3. the real exchange rate decreases
      4. net exports fall

  

  1. Which of the following would cause a country's real exchange rate to increase ceteris paribus? a. a decrease in the nominal exchange rate
      1. a decrease in foreign interest rates
      2. an increase in foreign prices
      3. a decrease in domestic prices

 

 

  1. If the price of a Big Mac is currently $3 and the price is growing at a rate of 7%, after about how many years will the price be $12? a. 20
      1. 4
      2. 1,000
      3. 10

  

  1. What is the value of receiving $2 every year forever at an interest rate of 0.2%? a. $2,000
      1. $200
      2. $100
      3. $1,000

  

  1. A decrease in the budget deficit would have the following effects, ceteris paribus:
      1. It would lower the current interest rate in the market of loanable funds, increase the Net Capital Outflow, decrease the exchange rate of foreign currencies relative to the dollar, depreciate the dollar
      2. It would raise the current interest rate in the market of loanable funds, decrease the Net Capital Outflow, increase the exchange rate of foreign currencies relative to the dollar, depreciate the dollar
      3. It would lower the current interest rate in the market of loanable funds, increase the Net Capital Outflow, decrease the exchange rate of foreign currencies relative to the dollar, appreciate the dollar
      4. It would raise the current interest rate in the market of loanable funds, decrease the Net Capital Outflow, increase the exchange rate of foreign currencies relative to the dollar, appreciate the dollar

  

  1. An instantaneous 6% increase in the velocity of money and a 3% decrease in the money supply would cause a: a. Increase in the price level of 3%
      1. Increase if the price level of 9%
      2. Decrease in the price level of 3%
      3. The effect on the price level is not calculable with the information available.

  

  1. According to the marcoblog article, "The Changing Operational Face of Monetary Policy", why does the penalty rate (that is the penalty the banks pay for holding reserves below the required amount) matter? a. If the penalty rate is too low, Banks will not care about their reserve levels because their profits are already very high.
      1. If the penalty rate is too high, it will discourage new banks from entering the market and will give existing banks monopoly power.
      2. If the penalty rate is below the market interest rate, banks can still make profits by lending the reserves they are supposed to hold while paying the penalty.
      3. If the penalty rate is above the market interest rate, it will disincentivize banks from lending and capital in the economy will 'lock-up.'

 

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