A ...

Your friend's birthday is tomorrow. She does not own a watch, yet you know that she would enjoy having one.

(a) Draw a budget constraint / indifference curve graph for your friend, with Quantity of All Other Goods on the vertical axis and Quantity of Watches on the horizontal axis. Show what her indifference curves must look like for her to choose not to buy a watch even though she puts some value on having one.

(b) Now, suppose that you buy a $100 watch and give it to your friend for her birthday. On your graph from part (a), show what your friend's budget constraint looks like after you give her the watch. Does this move her to a higher utility level? Briefly explain.

(c) Your friend is appreciative, but you sense that she would rather have had a gift certificate that is redeemable at a wide variety of places. On your graph from parts (a) and (b), show what your friend's budget constraint would look like if you gave her a $100 gift certificate instead of the watch. Does this move her to a higher utility level? Briefly explain.

(d) Which of the two potential gifts increases your friend's utility by more? Briefly explain.

B......

1. Credit items on the U.S. balance-of-payments statement result in

a.

a deficit on the current account of the United States.

b.

a deficit on the capital and financial account of the United States.

c.

an inflow of foreign exchange for the United States.

d.

an outflow of foreign exchange for the United States.

12. If Japanese investors purchase Treasury bills of the U.S. government, this results in a

a.

debit transaction in the U.S. current account.

b.

credit transaction in the U.S. current account.

c.

debit transaction in the U.S. capital and financial account.

d.

credit transaction in the U.S. capital and financial account.

13. If U.S. investors purchase Treasury bills of the British government, this results in a

a.

debit transaction in the U.S. current account.

b.

credit transaction in the U.S. current account.

c.

debit transaction in the U.S. capital and financial account.

d.

credit transaction in the U.S. capital and financial account.

14. A deficit in the U.S. current account is offset by a surplus

a.

in the U.S. trade account.

b.

in the U.S. balance-of-payments.

c.

in the U.S. capital and financial account.

d.

in the U.S. official reserve assets.

15. A debit in the U.S. current account would be represented by

a.

earnings on U.S. investments abroad flowing into the United States.

b.

gifts that Americans make to the poor in Africa.

c.

Chinese investors purchasing the securities of the U.S. government.

d.

exports of Boeing jetliners to South Korea.

16. When the United States imports goods and services from other countries, the United States

a.

makes payments to other countries.

b.

receives payments from other countries.

c.

becomes a net lender to other countries.

d.

receives interest income from other countries.

17. Mary Smith, a resident of Denver, Colorado, purchases a Swiss watch in Chicago. On the U.S. balance-of-payments statement, this transaction appears on the

a.

official reserve asset account.

b.

net borrowing and lending account.

c.

current account.

d.

services account.

18. A positive balance in the capital and financial account suggests that a country

a.

is realizing a surplus on its current account.

b.

is realizing a deficit on its current account.

c.

is lending to the rest of the world.

d.

exports more goods and services than it imports.

19. If the United States has a negative balance on its current account, it

a.

is a net lender to the rest of the world.

b.

is a net borrower from the rest of the world.

c.

realizes a negative balance on its capital and financial account.

d.

runs a surplus in the budget of the federal government.

20. If Germany has invested over its history more in other countries than other countries have invested in Germany, then Germany is a

a.

net creditor nation.

b.

net debtor nation.

c.

net importer of goods and services.

d.

net exporter of stocks and bonds.

21. If an American receives dividends from the shares of stock she or he owns in Toyota, Inc., a Japanese firm, the transaction would be recorded on the U.S. balance-of-payments as a

a.

capital account debit.

b.

capital account credit.

c.

current account debit.

d.

current account credit.

22. If the United States government sells military hardware to Saudi Arabia, the transaction would be recorded on the U.S. balance-of-payments as a

a.

current account debit.

b.

current account credit.

c.

capital account debit.

d.

capital account credit.

23. The U.S. balance of trade position is in part determined by

a.

exchange rates.

b.

growth of foreign consumers' incomes.

c.

relative prices in world markets.

d.

All of these are correct.

24. A country that is a net international debtor initially experiences

a.

an augmented savings pool available to finance domestic spending.

b.

a higher interest rate, which leads to lower domestic investment.

c.

a loss of funds to trading partners overseas.

d.

a decrease in its services exports to other countries.

25. Credit (+) items in the balance-of-payments correspond to anything that

a.

involves receipts from foreigners.

b.

involves payments to foreigners.

c.

decreases the domestic money supply.

d.

increases the demand for foreign exchange.

26. Debt (-) items in the balance-of-payments correspond to anything that

a.

involves receipts from foreigners.

b.

involves payments to foreigners.

c.

increases the domestic money supply.

d.

decreases the demand for foreign exchange.

27. Reducing a current account surplus requires a country to

a.

increase the government's deficit and increase private investment relative to saving.

b.

increase the government's deficit and decrease private investment relative to saving.

c.

decrease the government's deficit and increase private investment relative to saving.

d.

decrease the government's deficit and decrease private investment relative to saving.

28. Which of the following transactions would result in a credit for the United States?

a.

U.S. households importing beer from German breweries

b.

Chinese investors purchasing securities of the U.S. government

c.

German tourists visiting Yellowstone National Park

d.

U.S. construction firms contracting with Japanese architects to design their buildings

29. A Canadian lumber company purchases a sawmill in the state of Washington. On the U.S. balance-of-payments statement, this transaction appears in the

a.

current account.

b.

net exports account.

c.

net imports account.

d.

capital and financial account.

30. If the United States is a net borrower from, or lender to, the rest of the world, this is best indicated by the U.S.

a.

balance-of-payments position.

b.

current account balance.

c.

merchandise trade balance.

d.

net export balance.

Part ii.

Question 1 Use the Model of Demand and Supply to explain why the price of buffet dinners has decreased recently in Dhaka City. Your answer should include a well-labeled diagram. Question 2 Two candidates, Mr A and Mr B, are running for presidency in Country Z. The people of Country Z can elther vote for Mr A or Mr B. We are interested to study and analyze the total number of votes received by each of the two candidates. Discuss in detail how we can apply the model of Production Possibility Frontier (PPF) in this case. Your answer should include a well-labeled diagram. Discuss how the definition of the PPF needs to be adjusted and modified in this situation. Question 3 The president of Country Z wants to adopt the free market economic system and has come to you for advice. You are the economic advisor of Country Z. a) What would be your advice to the president of Country Z? Discuss your point of view in detail. b] The price of rice has been increasing rapidly in Country Z. Discuss all the possible ways Country Z can tackle (manage) the problem of increasing price of rice. No need to draw diagrams in this answer. Question 4 You have decided to open a small business in Country Z and you want to hire some employees for your business. a) Discuss why you will need a rationing device when hiring employees. b) Discuss in detail about the rationing device you will use when hiring employees. c) Discuss how your choice of rationing device might affect the society of Country Z. d) Discuss how you can use the concept of incentives and negatives to get the best out of your employees. Is this situation related to optimization or efficiency? Discuss in detail. Question 5 Mara and Dona are both consumers and producers of butter and bread. They are both living in a barter economy. The following are the production schedules of Mara and Dona: Production schedule of Mara Production schedule of Dona Butter (units per day) | Bread (units per day) Butter (units per day) | Bread (units per day) 6 0 8 0 3 6 4 4 0 12 0 8 Using the given situation show that specialization and trade can benefit individuals and societies. Show all steps in your analysis. Explain in detail. You can assume that the terms of trade are 5 units of bread for 4 units of butter. Question 6 Discuss in detail how the concept of transaction cost and economic growth may be connected. Try to explain the connection as clearly and precisely as you can. There is no need to draw any diagram.perfectly competitive firms? f. Why do we claim that monopolists reduce output to increase prices? How is this different from a perfectly competitive firm? What does this imply about the overall efficiency of monopoly as a market structure? g. "A perfectly working market requires that all firms are perfectly competitive". Do you agree with this statement? Why or why not? h. What does it mean to produce with excess capacity? Why will imperfectly competitive firms build excess capacity? In what way can excess capacity create a barrier to entry? 3. Use the diagram below to answer the following questions (5 points) Assume you get a job at the Federal Trade Commission and your boss has asked you about the potential economic welfare effects of a merger that would lead to a competitive industry to becoming a monopoly industry. Answer the following questions, given the chart below, Price per D acor