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survey of economics

Questions and Answers of Survey Of Economics

1. Alpha’s balance-of-payments data for 2016 are shown below.All figures are in billions of dollars. What are the (a) balance on goods, (b) balance on goods and services, (c) balance on current
10. Other things equal, if the United States continually runs trade deficits, foreigners will own U.S. assets.LO41.6a. More and more.b. Less and less.c. The same amount of.
9. If the economy booms in the United States while going into recession in other countries, the U.S. trade deficit will tend to. LO41.6a. Increase.b. Decrease.c. Remain the same.
8. Suppose that a country follows a managed-float policy but that its exchange rate is currently floating freely. In addition, suppose that it has a massive current account deficit. Other things
7. Suppose that the government of China is currently fixing the exchange rate between the U.S. dollar and the Chinese yuan at a rate of $1 = 6 yuan. Also suppose that at this exchange rate, the
6. Diagram a market in which the equilibrium dollar price of 1 unit of fictitious currency zee (Z) is $5 (the exchange rate is$5 = Z1). Then show on your diagram a decline in the demand for zee.
5. Suppose that the Fed is fixing the dollar-pound exchange rate at$2.50 = £1. If the Fed’s reserve of pounds falls by £500 million, by how much would the supply of dollars increase, all other
4. A meal at a McDonald’s restaurant in New York costs $8. The identical meal at a McDonald’s restaurant in London costs £4.According to the purchasing-power-parity theory of exchange rates, the
3. The exchange rate between the U.S. dollar and the British pound starts at $1 = £0.5. It then changes to $1 = £0.75. Given this change, we would say that the U.S. dollar has while the British
2. Suppose that a country has a trade surplus of $50 billion, a balance on the capital account of $10 billion, and a balance on the current account of −$200 billion. The balance on the capital and
1. An American company wants to buy a television from a Chinese company. The Chinese company sells its TVs for 1,200 yuan each. The current exchange rate between the U.S.dollar and the Chinese yuan
11. last word If a country like Greece that has joined the European Monetary Union can no longer use an independent monetary policy to offset a recession, what sorts of fiscal policy initiatives
10. What have been the major causes of the large U.S. trade deficits in recent years? What are the major benefits and costs associated with trade deficits? Explain: “A trade deficit means that a
9. Would it be accurate to think of a fixed exchange rate as a simultaneous price ceiling and price floor? LO41.2
8. Explain why you agree or disagree with the following statements.Assume other things equal. LO41.3a. A country that grows faster than its major trading partners can expect the international value
7. Explain why the U.S. demand for Mexican pesos is downsloping and the supply of pesos to Americans is upsloping.Assuming a system of flexible exchange rates between Mexico and the United States,
6. Suppose that a Swiss watchmaker imports watch components from Sweden and exports watches to the United States. Also suppose the dollar depreciates, and the Swedish krona appreciates, relative to
5. Generally speaking, how is the dollar price of euros determined?Cite a factor that might increase the dollar price of euros.Cite a different factor that might decrease the dollar price of euros.
4. “Exports pay for imports. Yet in 2012 the nations of the world exported about $540 billion more of goods and services to the United States than they imported from the United States.”Resolve
3. What do the plus signs and negative signs signify in the U.S.balance-of-payments statement? Which of the following items appear in the current account and which appear in the capital and financial
2. Explain: “U.S. exports earn supplies of foreign currencies that Americans can use to finance imports.” Indicate whether each of the following creates a demand for or a supply of European euros
1. Do all international financial transactions necessarily involve exchanging one nation’s distinct currency for another? Explain.Could a nation that neither imports goods and services nor exports
LO41.7 (Appendix) Explain how exchange rates worked under the gold standard and Bretton Woods.
LO41.6 Identify the causes and consequences of recent U.S. trade deficits.
LO41.5 Explain the current system of managed floating exchange rates.
LO41.4 Describe the differences between flexible and fixed exchange rates, including how changes in foreign exchange reserves bring about automatic changes in the domestic money supply under a fixed
LO41.3 Discuss how exchange rates are determined in currency markets that have flexible exchange rates.
LO41.2 Analyze the balance sheet the United States uses to account for the international payments it makes and receives.
LO41.1 Explain how currencies of different nations are exchanged when international transactions take place.
4. Refer to Figure 3.6. Assume that the graph depicts the U.S. domestic market for corn. How many bushels of corn, if any, will the United States export or import at a world price of $1, $2,$3, $4,
3. The following hypothetical production possibilities tables are for China and the United States. Assume that before specialization and trade, the optimal product mix for China is alternative B and
2. The accompanying hypothetical production possibilities tables are for New Zealand and Spain. Each country can produce apples and plums. Plot the production possibilities data for each of the two
1. Assume that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata:Canswicki: 1 can baby formula ≡ 2 cans tuna fish
13. American apparel makers complain to Congress about competition from China. Congress decides to impose either a tariff or a quota on apparel imports from China. Which policy would Chinese apparel
12. Draw a domestic supply-and-demand diagram for a product in which the United States does not have a comparative advantage.What impact do foreign imports have on domestic price and quantity? On
11. Suppose that if Iceland and Japan were both closed economies, the domestic price of fish would be $100 per ton in Iceland and$90 per ton in Japan. If the two countries decided to open up to
10. Suppose that the current international price of wheat is $6 per bushel and that the United States is currently exporting 30 million bushels per year. If the United States suddenly became a closed
9. True or False: If a country is open to international trade, the domestic price can differ from the international price. LO40.3
8. Which of the following are benefits of international trade? LO40.2 Choose one or more answers from the choices shown.a. A more efficient allocation of resources.b. A higher level of material
7. We see quite a bit of international trade in the real world. And trade is driven by specialization. So why don’t we see full specialization—for instance, all cars in the world being made in
6. Suppose that the opportunity-cost ratio for watches and cheese is 1C ≡ 1W in Switzerland but 1C ≡ 4W in Japan. At which of the following international exchange ratios (terms of trade) will
5. Suppose that the opportunity-cost ratio for fish and lumber is 1F ≡ 1L in Canada but 2F ≡ 1L in Iceland. Then should specialize in producing fish while should specialize in producing lumber.
4. Suppose that the opportunity-cost ratio for sugar and almonds is 4S ≡ 1A in Hawaii but 1S ≡ 2A in California. Which state has the comparative advantage in producing almonds? LO40.2a. Hawaii.b.
3. True or False: If Country B has an absolute advantage over Country A in producing bicycles, it will also have a comparative advantage over Country A in producing bicycles. LO40.2
2. In Country A, the production of 1 bicycle requires using resources that could otherwise be used to produce 11 lamps. In Country B, the production of 1 bicycle requires using resources that could
1. In Country A, a worker can make 5 bicycles per hour. In Country B, a worker can make 7 bicycles per hour. Which country has an absolute advantage in making bicycles?LO40.2a. Country A.b. Country B.
14. last word What was the central point that Bastiat was trying to make in his imaginary petition of the candlemakers?
13. What is offshoring of white-collar service jobs and how does that practice relate to international trade? Why has offshoring increased over the past few decades? Give an example (other than that
12. What form does trade adjustment assistance take in the United States? How does such assistance promote political support for free-trade agreements? Do you think workers who lose their jobs
11. Identify and state the significance of each of the following trade-related entities: (a) the WTO; (b) the EU; (c) the eurozone;and (d) NAFTA. LO40.6
10. How might protective tariffs reduce both the imports and the exports of the nation that levies tariffs? In what way do foreign firms that “dump” their products onto the U.S. market in effect
9. In 2013, manufacturing workers in the United States earned average compensation of $36.34 per hour. That same year, manufacturing workers in Mexico earned average compensation of$6.82 per hour.
8. Evaluate the effectiveness of artificial trade barriers, such as tariffs and import quotas, as a way to achieve and maintain full employment throughout the U.S. economy. How might such policies
7. “The potentially valid arguments for tariff protection—military self-sufficiency, infant industry protection, and diversification for stability—are also the most easily abused.” Why are
6. Why is a quota more detrimental to an economy than a tariff that results in the same level of imports as the quota? What is the net outcome of either tariffs or quotas for the world economy?LO40.4
5. What is an export supply curve? What is an import demand curve? How do such curves relate to the determination of the equilibrium world price of a tradable good? LO40.3
4. Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and
3. Explain: “The United States can make certain toys with greater productive efficiency than can China. Yet we import those toys from China.” Relate your answer to the ideas of Adam Smith and
2. Distinguish among land-, labor-, and capital-intensive goods, citing an example of each without resorting to book examples.How do these distinctions relate to international trade? How do
1. Quantitatively, how important is international trade to the United States relative to the importance of trade to other nations?What country is the United States’ most important trading partner,
LO40.6 Identify and explain the objectives of GATT, WTO, EU, eurozone, and NAFTA and discuss offshoring and trade adjustment assistance.
LO40.5 Analyze the validity of the most frequently presented arguments for protectionism.
LO40.4 Analyze the economic effects of tariffs and quotas.
LO40.3 Describe how differences between world prices and domestic prices prompt exports and imports.
LO40.2 Define comparative advantage and demonstrate how specialization and trade add to a nation’s output.
LO40.1 List and discuss several key facts about international trade.
1. Suppose that the money supply and the nominal GDP for a hypothetical economy are $96 billion and $336 billion, respectively.What is the velocity of money? How will households and businesses react
7. Place “MON,” “RET,” or “MAIN” beside the statements that most closely reflect monetarist, rational expectations, or mainstream views, respectively: LO39.4a. Anticipated changes in
6. Use an AD-AS graph to demonstrate and explain the pricelevel and real-output outcome of an anticipated decline in aggregate demand, as viewed by RET economists. (Assume that the economy initially
5. An economy is producing at full employment when AD unexpectedly shifts to the left. A new classical economist would assume that as the economy adjusted back to producing at full employment, the
4. If the money supply fell by 10 percent, a monetarist would expect nominal GDP to __________. LO39.1a. Rise.b. Fall.c. Stay the same.
3. Suppose that the money supply is $1 trillion and money velocity is 4. Then the equation of exchange would predict nominal GDP to be: LO39.1a. $1 trillion.b. $4 trillion.c. $5 trillion.d. $8
2. First, imagine that both input and output prices are fixed in the economy. What does the aggregate supply curve look like? If AD decreases in this situation, what will happen to equilibrium output
1. If prices are sticky and the number of dollars of gross investment unexpectedly increases, the _________ curve will shift _________. LO39.1a. AD; right.b. AD; left.c. AS; right.d. AS; left.
10. last word Compare and contrast the market monetarist 5 percent target for nominal GDP growth with the older, simpler monetary rule advocated by Milton Friedman.
9. You have just been elected president of the United States, and the present chairperson of the Federal Reserve Board has resigned.You need to appoint a new person to this position, as well as a
8. Explain the difference between “active” discretionary fiscal policy advocated by mainstream economists and “passive”fiscal policy advocated by new classical economists. Explain:“The
7. Use the equation of exchange to explain the rationale for a monetary rule. Why will such a rule run into trouble if V unexpectedly falls because of, say, a drop in investment spending by
6. State and explain the basic equation of monetarism. What is the major cause of macroeconomic instability, as viewed by monetarists? LO39.1
5. Craig and Kris were walking directly toward each other in a congested store aisle. Craig moved to his left to avoid Kris, and at the same time Kris moved to his right to avoid Craig. They bumped
4. Briefly describe the difference between a so-called real business cycle and a more traditional “spending” business cycle. LO39.1
3. How might relationships between so-called insiders and outsiders contribute to downward wage inflexibility? LO39.1
2. What is an efficiency wage? How might payment of an abovemarket wage reduce shirking by employees and reduce worker turnover? How might efficiency wages contribute to downward wage inflexibility,
1. According to mainstream economists, what is the usual cause of macroeconomic instability? What role does the spendingincome multiplier play in creating instability? How might adverse aggregate
LO39.4 Summarize the fundamental ideas and policy implications of mainstream macroeconomics, monetarism, and rational expectations theory.
LO39.3 Identify and describe the variations of the debate over “rules” versus “discretion” in conducting stabilization policy.
LO39.2 Discuss why new classical economists believe the economy will “self-correct” from aggregate demand and aggregate supply shocks.
LO39.1 Describe alternative perspectives on the causes of macroeconomic instability, including the views of mainstream economists, monetarists, real-business-cycle advocates, and proponents of
4. Suppose that for years East Confetti’s short-run Phillips Curve was such that each 1 percentage point increase in its unemployment rate was associated with a 2 percentage point decline in its
3. Suppose that over a 30-year period Buskerville’s price level increased from 72 to 138, while its real GDP rose from $1.2 trillion to $2.1 trillion. Did economic growth occur in Buskerville?If
2. advanced analysis Suppose that the equation for a particular short-run AS curve is P = 20 + 0.5Q, where P is the price level and Q is real output in dollar terms. What is Q if the price level is
1. Use the figure below to answer the following questions.Assume that the economy initially is operating at price level 120 and real output level $870. This output level is the economy’s potential
10. Suppose that firms were expecting inflation to be 3 percent, but then it actually turned out to be 7 percent. Other things equal, firm profits will be: LO38.4a. Smaller than expected.b. Larger
9. Suppose that firms are expecting 6 percent inflation while workers are expecting 9 percent inflation. How much of a pay raise will workers demand if their goal is to maintain the purchasing power
8. Aggregate supply shocks can cause _______ rates of inflation that are accompanied by _______ rates of unemployment.LO38.3a. Higher; higher.b. Higher; lower.c. Lower; higher.d. Lower; lower.
7. Assume there is a particular short-run aggregate supply curve for an economy and the curve is relevant for several years. Use the AD-AS analysis to show graphically why higher rates of inflation
6. Between 1990 and 2009, the U.S. price level rose by about 64 percent while real output increased by about 62 percent. Use the aggregate demand–aggregate supply model to illustrate these outcomes
5. Use graphical analysis to show how each of the following would affect the economy first in the short run and then in the long run. Assume that the United States is initially operating at its
4. Identify the two descriptions below as being the result of either cost-push inflation or demand-pull inflation. LO38.2a. Real GDP is below the full-employment level and prices have risen
3. Suppose that an economy begins in long-run equilibrium before the price level and real GDP both decline simultaneously.If those changes were caused by only one curve shifting, then those changes

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