7/8/2015 Krugman/Wells Macroeconomics 3e LaunchPad Exam 2

Transcription

1 1. France and England both produce wine and clothing. France will have a comparative advantage in wine production if: a. the absolute cost of producing wine is lower in France than in England. b. the opportunity cost of wine production is lower in France than in England. c. it can produce more wine than England. d. its labor productivity in wine production is greater than England's. 2. You are a college student and not working or looking for work. You are: a. not described by any of the above. b. not part of the labor force. c. in the labor force but not employed. d. unemployed. 3. A survey reveals that on a small island 40 people have jobs, 10 people are looking for jobs, and 30 people are neither working nor looking for work. The unemployment rate on the island is: a. 25%. b. 20%. c. 12.5%. d. 50%. 21/45

2 4. A survey reveals that on a small island initially 100 people have jobs, 25 people are looking for jobs, and 45 people are neither working nor looking for work. Suppose that 15 of the 45 people who weren't looking for work now begin looking for work. There are now 40 people looking for work and 100 people working. What happens to the unemployment rate? a. It rises to 28.6%. b. It rises to 50%. c. Nothing happens to the unemployment rate, because these people weren't working before and they aren't working now. d. It falls to 20%. 5. Table: Unemployment and Employment Data Reference: Ref 8 3 (Table: Unemployment and Employment Data) The labor force in this economy is: a. 170 million. b. 98 million. c. 100 million. d. 140 million. 22/45

3 6. Anna recently moved to Boston in order for her husband Joe to begin a new job as an economics professor at Harvard. Anna is an experienced surgeon who is interviewing with several hospitals in Boston. Anna is: a. cyclically unemployed. b. frictionally unemployed. c. counted as employed, since she is likely to receive a job offer soon. d. structurally unemployed. 7. Goods and services purchased from abroad are, while goods and services sold abroad are. 8. a. exports; quotas b. quotas; factors c. imports; exports d. exports; imports Reference: Ref 5 1 (Table: The Production Possibilities for Cars and Leather Boots) Look at the table The Production Possibilities for Cars and Leather Boots. The opportunity cost of producing one car in Canada is: a. different than it is in the United States. b. 1 (thousand) leather boots. c. 0.5 (thousand) leather boots. d. 2 (thousand) leather boots, which is the same as in the United States. 23/45

4 9. The term autarky refers to a situation in which a country: a. trades goods and services based upon the principle of Ricardian advantage. b. trades goods and services based upon the principle of comparative advantage. c. does not trade with other countries. d. trades goods and services based upon the principle of absolute advantage. 10. Figure: The Production Possibility Frontiers for Jackson and Tahoe Reference: Ref 5 4 (Figure: The Production Possibility Frontiers for Jackson and Tahoe) Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. In autarky, Jackson produces and consumes 30 head of cattle and 80 bushels of wheat, while Tahoe produces and consumes 80 head of cattle and 60 bushels of wheat. With complete specialization according to comparative advantage, the two nations' production of wheat will: a. increase by 60 bushels. b. decrease by 60 bushels. c. remain constant. d. increase by 120 bushels. 24/45

5 11. Figure: The Production Possibility Frontiers for Jackson and Tahoe Reference: Ref 5 4 (Figure: The Production Possibility Frontiers for Jackson and Tahoe) Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. Jackson has an absolute advantage in producing a. both wheat and cattle. b. cattle only. c. wheat only. d. neither wheat nor cattle. 25/45

6 12. Figure: The Market for MP3 Players Reference: Ref 5 13 (Figure: The Market for MP3 Players) Look at the figure The Market for MP3 Players. In the market for MP3 players, if the world price equals $100 and there is free trade, consumer surplus and producer surplus compared to autarky. a. increases; decreases b. decreases; decreases c. decreases; increases d. increases; increases 13. Figure: The Market for Thumb Drives Reference: Ref 5 14 (Figure: The Market for Thumb Drives) Look at the figure The Market for Thumb Drives. Consumer surplus when free trade exists equals the area or areas in the graph. a. A b. A + B + C c. A + B + C + D d. A + B 26/45

7 14. Figure: The Domestic Supply and Demand for SUVs in the United States Reference: Ref 5 15 (Figure: The Domestic Supply and Demand for SUVs in the United States) Look at the figure The Domestic Supply and Demand for SUVs in the United States. Suppose the world price equals $50,000 and there is free trade. The United States would SUVs. a. export 6 million b. import 6 million c. import 2 million d. export 2 million 27/45

8 15. Figure: The Market for Tea in Sri Lanka Reference: Ref 5 17 (Figure: The Market for Tea in Sri Lanka) Look at the figure The Market for Tea in Sri Lanka. In autarky, the price of tea in Sri Lanka is P 1. When the economy is opened to trade, the price rises to P W and consumer surplus will to. a. fall; F + G b. rise; F + G + H + I c. rise; G + H + I d. fall; F 28/45

9 16. Figure: The Market for Laptop Sleeves Reference: Ref 5 19 (Figure: The Market for Laptop Sleeves) Look at the figure The Market for Laptop Sleeves. Identify the area or areas of government tax revenue when a tariff raises the domestic price from the world price to P 1. a. B b. D + F c. E d. D + E + F 29/45

10 17. Figure: The Market for Calculators Reference: Ref 5 21 (Figure: The Market for Calculators) Look at the figure The Market for Calculators. The world price, P W, equals $100. The government imposes a quota restricting imports to 25 calculators. The domestic price rises to and the quota rent is equal to area. a. $120; K + L b. $150; K + H + I + L c. $120; H + I d. $150; G + H + I + J 18. If real GDP grows at an annual rate of 1%, it will double in approximately years. a. 70 b. 35 c. 11 d /45

11 19. Long run economic growth depends almost entirely on: a. population growth. b. the number of hours worked. c. physical capital growth. d. labor productivity growth. 20. Productivity is equal to: a. real GDP divided by the population. b. the number of workers per machine. c. real GDP divided by the number of workers. d. the total output produced. 21. Which of the following will NOT increase the productivity of labor? a. technological improvements b. an increase in the capital stock c. an increase in the size of the labor force d. improvements in education 31/45

12 22. Which of the following would NOT qualify as physical capital? a. mineral deposits b. backhoe c. factory d. shovel 23. Diminishing returns to physical capital implies that when the human capital per worker and the state of technology remain fixed, each successive increase in physical capital leads to: a. negative productivity. b. a decrease in productivity. c. a larger increase in productivity. d. a smaller increase in productivity. 24. An increase in the amount of physical capital per worker, while technological progress. a. b. c. d. moves the economy along the aggregate production function; shifts up the aggregate production function shifts up the aggregate production function; moves the economy along the aggregate production function makes the aggregate production function steeper; changes the slope of the aggregate production function makes the aggregate production function steeper; makes the aggregate production function flatter 32/45

13 25. In the 25 years following the development of the first microprocessor in 1971, the rate of growth of productivity was low because: a. computers were too expensive for most people to buy. b. labor morale was low because machines replaced many workers. c. there were many flaws in the method of measuring GDP. d. it took some time for people to change their way of doing business to take advantage of the new technology. 26. From the standpoint of economic growth, banks are important to: a. channel investment into savings. b. fight inflation. c. channel savings into investment. d. keep interest rates low. 27. Which of the following CANNOT properly be called a part of infrastructure? a. seaports b. roads and bridges c. patents d. power lines 33/45

14 28. Government spending is like investment in each of the following cases except when: a. it helps provide infrastructure for the economy. b. it goes to help pay for education. c. it is used for public health measures. d. it is used for a personal income tax rebate. 29. The convergence hypothesis helps explain why: a. the growth rate in poor countries can be higher than in rich countries. b. high income countries continue their high growth rates. c. high income individuals marry other high income individuals. d. highly educated people converge in high income countries. 30. Economists mostly agree that the problem of climate change should involve government action in the form of market based incentives such as: a. a carbon tax or a cap and trade system. b. tax rebates to those helping the environment. c. a reduction in the personal income tax for being green. d. a reduction in the price of green cars and appliances. 31. When a country utilizes more physical capital per worker over time, there will be: a. lower but always positive growth rates of productivity. b. lower and eventually zero growth rate of productivity. c. higher growth rates of productivity. d. no change in the growth rate of productivity. 34/45

15 32. Scenario: Closed Economy S = I GDP is $12 trillion this year in a closed economy. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. Reference: Ref 10 1 (Scenario: Closed Economy S = I) What is the government budget balance? a. a deficit of $1.5 trillion b. a surplus of $1.5 trillion c. a deficit of $0.5 trillion d. a surplus of $0.5 trillion 33. Scenario: Closed Economy S = I GDP is $12 trillion this year in a closed economy. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. Reference: Ref 10 1 (Scenario: Closed Economy S = I) How much is investment spending? a. $3 trillion b. $3.5 trillion c. $2 trillion d. $2.5 trillion 34. A budget surplus exists when which of the following occurs? a. Taxes are less than government spending. b. Taxes are greater than government spending. c. Investment is less than government spending less taxes. d. Taxes are less than government spending plus investment. 35/45

16 35. Capital inflows represent: a. the amount that domestic savings exceeds foreign savings. b. the excess of domestic physical capital exported minus the amount of physical capital imported. c. the net outflow of funds from a country. d. the net inflow of funds into a country. 36. Net capital inflows equal: a. national savings. b. imports minus exports. c. consumption plus government spending. d. consumption. 37. In an open economy where government spending was $30 billion, consumption was $70 billion, taxes were $20 billion, and GDP was $100 billion this year, investment spending was $10 billion. As a result, there was: a. a trade surplus of $20 billion and a financial deficit of $20 billion. b. a net capital outflow of $10 billion. c. capital inflows of $10 billion and capital outflows of $20 billion. d. a net capital inflow of $10 billion. 36/45

17 38. The interest rate is 5% in the market for loanable funds. Investors wish to borrow $100 million and savers wish to save $125 million at this interest rate. We would expect: a. the interest rate to fall, as there is a surplus of loanable funds. b. the interest rate to fall, as there is a shortage of loanable funds. c. the interest rate to rise, as there is a shortage of loanable funds. d. the interest rate to rise, as there is a surplus of loanable funds. 39. Figure: Loanable Funds Reference: Ref 10 6 (Figure: Loanable Funds) The accompanying graph shows the market for loanable funds in equilibrium. Which of the following might produce a new equilibrium interest rate of 8% and a new equilibrium quantity of loanable funds of $150 billion? a. The federal government has a budget surplus rather than a budget deficit. b. Consumers increase consumption as a fraction of disposable income. c. There is an increase in capital inflows from other nations. d. Businesses become more optimistic about the return on investment spending. 37/45

18 40. A firm does NOT want to borrow money for a project when: a. the rate of return on the project is positive. b. the interest rate is lower than the rate of return on the project. c. the interest rate is higher than the rate of return on the project. d. the interest rate is positive. 41. The price in the loanable funds market is: a. the interest rate. b. the rate of return of a project. c. the consumer price index. d. the price level. 38/45

19 42. Figure: The Market for Loanable Funds II Reference: Ref (Figure: The Market for Loanable Funds II) A decrease in savings by the private sector will shift the supply of loanable funds to the: a. right and increase the interest rate. b. left and increase the interest rate. c. right and decrease the interest rate. d. left and decrease the interest rate. 43. Suppose a lender expects a real interest rate of 6% and the inflation rate is expected to be 3%. In this case, the nominal interest rate is equal to: a. 12%. b. 9%. c. 3%. d. 6%. 39/45

20 44. Which of the following is NOT one of the three tasks of a financial system? a. risk management b. determining fiscal policy c. reduction of transaction costs d. provision of liquidity 45. Transaction costs are: a. the expenses of producing a product. b. the expenses of negotiating and executing a deal. c. the return to moving a product to market. d. the return to an entrepreneur. 46. An illiquid asset: a. provides the owner no return or income. b. cannot quickly be converted into cash with little loss of value. c. is a tangible asset. d. cannot be sold. 47. As an investor, you may choose to purchase a bond or a share of stock. If you choose to purchase the bond, you are likely to receive a return in exchange for a level of risk. a. higher; higher b. higher; lower c. lower; lower d. lower; higher 40/45

21 48. All of the following are examples of financial assets and/or liabilities EXCEPT: a. bank deposits. b. loans. c. real estate. d. stocks and bonds. 49. Shares of stock represent: a. a debt of the issuing company to the investors who purchase the stock. b. shares of ownership in the issuing company. c. a tax liability for the issuing company. d. a tax deduction for the investor. 50. Austerity is defined as a. A stimulus trade policy to increase growth b. Decreasing government expenditures while increasing taxes c. No trade between nations d. Policies recommended by Austrian economists such as von Hayek 51. When tracking economic growth, why do economists prefer real GDP per capita over: a. real GDP? b. nominal GDP per capita? Answer: a. Tracking real GDP would ignore the impact of changes in the population and would not allow for meaningful comparisons between nations of different populations. By dividing by population, we get a sense of each person's share of the national output. b. Nominal GDP per capita would fail to account for changes in the value of a nation's total output that are attributed to simply changes in the price level. 41/45

22 52. If the world price of good X is lower than the domestic (autarky) price of that good, will a nation be an exporter or importer of good X? How will the domestic market price adjust? Draw the graph and explain. Answer: Because the world price of good X is a relative bargain, importers will find it profitable to purchase good X at the world price and sell it at the higher domestic price. Greater supply of good X in the domestic market will eventually drop the domestic price to the world price and importing will stop. 42/45

23 53. Figure: Nations A and B Reference: Ref 9 12 (Figure: Nations A and B) The accompanying graph shows the aggregate production function of two nations, A and B. Suppose that in 1960 each nation had $100 of physical capital for each worker and in 2010 each nation had $400 of physical capital per worker. Clearly in both 1960 and in 2010 nation A was producing more real output per capita with the same amount of physical capital per worker. What could explain the difference in these aggregate production functions? Answer: Nation A might have a population with more human capital than nation B; nation A might have better technology; or nation A might have a more developed infrastructure or a more stable political system. 43/45

24 54. Consider each of these forms of investment. Identify whether it is an example of investment spending, an investment in physical assets, or a financial investment. a. You purchase a classic 1965 Ford Mustang. b. You buy 50 shares of stock in the Ford Motor Company. c. Ford Motor Company builds a new plant in Tennessee. Answer: a. This is an investment in a physical asset. Like any asset, you hope that it appreciates in value so that you can sell it later at a profit, but it does not add to the nation's stock of physical capital. b. This is a financial investment. These shares of stock give you a very small ownership stake in the company and a very small claim on future profits. It is not investment spending because it is not increasing the stock of physical capital. c. This is investment spending. The new plant actually increases the stock of physical capital. 55. Suppose the federal government has a budget deficit and the economy is closed. Using the savingsinvestment spending identity, explain how this affects investment spending. Answer: National savings is equal to private savings plus the budget balance. If the budget is in a state of deficit, then the budget balance is a negative number and national savings is falling. Through the identity, if national savings is falling, investment spending must also be falling. 44/45

25 56. Briefly describe the nature of Greece's current fiscal and economic situation. 45/45