Solve the following

Short Answer (40 points - 10 points each)_Answer each of the following short answer questions in the space provided. Be concise, but do not simply use bullet-points to answer the questions. You may use the backside of these pages if you need more room. 1) Describe the international monetary system known as the Bretton Woods system, or the gold exchange standard that existed from the mid 1940s to the early 1970s. How did the system work? Why did it eventually break down? 2) Why do you suppose that small countries choose to peg their exchange rates, whereas the largest countries float their currencies? 3) To aid in its efforts to get reelected, the current government of a country decides to increase the growth rate of the domestic money supply by two percentage points. The increased growth rate becomes "permanent" because once started it is difficult to reverse. What do you think will happen to the exchange rate value of this currency in the long run? Why? What does this say about purchasing power parity (PPP)?Problems (30 points) For each of the following questions, circling the final answer to each part. Partial credit will be given, so show your work. Problem #1. (14 points) In 1975, the price level for the United States was 100, the price level for Ireland was 100, and in the foreign exchange market one Irish pound (IRf) was equal to $1. In 1995, the US price level had risen to 260, and the Irish level had risen to 390. 1. (5 points) According to PPP, what should the IRf-US$ exchange rate be in 1995? b. (5 points) If the actual dollar-pound exchange rate is $1/IRf in 1995, is the pound overvalued or undervalued relative to PPP? Here is further information on the US and Irish economies: 1975 1995 M Y P M P US 20,000 800 100 65,000 1,000 260 Ireland 10,000 200 100 58,500 300 390 C. (2 points) What is the value for v for the US in 1975? For Ireland? d. (2 points) Using the v found in (c) for each country, does this same v hold for 1995? Problem #2 (16 points - 2 points apiece) The spot exchange rate between the dollar and the British pound is floating or flexible exchange rate. What are the effects of each of the following on this exchange rate? a. There is a large increase in British demand for US exports as US culture becomes more popular in Britain. b. There is a large increase in British demand for investments in US$-denominated financial assets because of a British belief that the US political situation has improved since the Nov. 7 election. . Political uncertainties in Europe have lead US investors to shift their financial investments out of Britain and back into the US. d. US demand for products imported from Britain falls significantly as bad press reports lead Americans to questions the quality of British products. Assume now that the dollar-pound exchange rate is fixed (or pegged) within a narrow band around a central rate. For each (a)-(d) above, what intervention is necessary by the US Federal Reserve to defend the fixed rate if the changes shift the equilibrium exchange rate to outside the exchange rate band. Label your answers (e), (f), (g), and (h), where (e) corresponds to the action the Fed would take in (a), (f) would be the action the Fed would take in (b), (g) with (c), and (h) with (d).1. (13 points) Could two countries with identical abilities to produce (production possibilities curves) and identical tastes (indifference curves) gain from trading with each other? Explain how or why not. You must provide examples to defend your answer. List all assumptions. 2. (13 points) In addition to the production and consumption deadweight losses that result from the implementation of tariffs, what are other potential costs of tariffs? List and define at least three examples. 3. (13 points) In the context of national welfare, prove free trade is preferred to autarky. Provide graphical support to your answer. Problems Clearly label the start of each question in the blue book. Answer all parts of both problems, circling the answer to each part. Partial credit may be given for each question, provided that your work is shown. 1. (12 points - 3 points each) Suppose that both the US and Canada have the factor endowments listed in the table below. Suppose that the production requirement for one unit of steel is two machines and 8 workers, while the production requirement for one of bread is one machine and 8 workers. US Canada Capital 40 machines | 10 machines Labor 200 workers 60 workers Which good, bread or steel, is relatively capital intensive in production? In Labor? Show how you determine this. b. Which country will export bread? Steel? Why? Show how you determined this. c. Explain what happens to the returns of capital and labor in the US and Canada after trade begins. d. Suppose that the US wants to achieve import-replacing (anti-trade or ultra anti- trade) growth. What change in its endowments would achieve this growth? 2. (18 points) Suppose that the world price for a good is 40, and the domestic demand and supply curves are given by the following equations: Demand: P=80-2Q Supply: P=5+3Q a. (3 points) How much is consumed? How much is produced domestically? b. (3 points) What are the values of producer and consumer surplus? c. (3 points) If a 10% tariff is imposed, by how much do consumption and domestic production change? d. (3 points) What is the change in consumer and producer surplus? e. (3 points) How much revenue does the government earn from the tariff? f. (3 points) What is the net national cost of the tariff?Problem 25. A population of 1,000 students spends an average of $10.50 a day on dinner. The standard deviation of the expenditure is $3. A simple random sample of 64 students is taken. a. What are the expected value, standard deviation, and shape of the sampling distribution of the sample mean? b. What is the probability that these 64 students will spend a combined total of more than $715.21? C. What is the probability that these 64 students will spend a combined total between $703.59 and $728.45? 26. It is crucial that the variance of a production process be less than or equal to 25. A sample of 22 is taken. The sample variance equaled 26. a. Construct a 90% confidence interval for the population variance. b. Construct a 90% confidence interval for the population standard deviation. State the null and alternative hypotheses to be tested. Compute the test statistic. e. The null hypothesis is to be tested at the 10% level of significance. Using the critical value approach, state the decision rule for the test. f. What do you conclude about the population variance? 27. Below you are given a partial computer output based on a sample of 25 observations relating the hourly wage (Y), number of years of schooling (X,) and score on an aptitude test (X2). Source of Sum of Degrees of Mean Variation Squares Freedom Square 35 Regression Error TOTAL 100 Coefficient Standard Error Constant 7.00 4.00 X1 1.50 0.50 0.5 0.25 a. Write down the estimated regression equation. Interpret the coefficients of the estimated equation. b. If Jenny has a bachelor's degree and scores 10 on the aptitude test, how much is her estimated hourly wage C. At a = 0.05, test to determine if the number of advertising spots is a significant variable. d. What is the coefficient of determination for this regression? Interpret it. e. At a = 0.05, test for the significance of the regression.Suppose that the market for ice cream cones starls out in an initial equilibrium in which the quantities of ice cream cones demanded and supplied both equal 6 and the price of an ice cream cone is 51.50. a. Suppose next that a hotter than normal summer causes more people to want to eat ice cream cones. In a standard microeconomic supply and demand diagram, will this event work to shift the demand curve or the supply curve? 1lIIII'ilI the curve you mentioned above demand or supply shift to the left or to the right? Suppose for a moment that the price of an ice cream cone remains unchanged at $1.50 after the curve you mentioned above shifts. At this old price, will there be a shortage or a surplus of ice cream cones? d. Now suppose instead that the price of an ice cream cone changes to bring the demand for and supply of ice cream cones back into balance after the curve shifts. Will this new equilibrium price be higher or Iowerthan 51.50? e. In the new equilibrium with the new price, will the quantities of ice cream cones demanded and supplied be larger or smaller than 6? Please indicate whether each statement is true or false [you don't need to explain whyl. a. If firms in an economy produce luxury automobiles that sell for $50,000 each and apples that sell for 51 each, then each automobile contributes the same amount as 50,000 apples to nominal GDP. b. It is possible for real GDP to rise more rapidly than nominal GDP; this happens if an economy is experiencing deflation. c. It is possible for the CPI to fall over time; this happens if an economy is experiencing deflation. d. U5 GDP includes the value of goods purchased by the federal governmentI but not by state and local governments. e. if a US citizen works temporarily in Canada, the market value of the goods he or she produces while in Canada still count as part of US GDP. Please indicate by how much, in dollar terms, each of the follow to! nsactions or set of tmnsactions contributes to US nominal GDP. IfGDP does not change, just write down $0. For simplicity, assume that all goods are sold during the same period in which they are produced. a. A farmer in the US sells a bag of oranges to a juice company for $5; the juice company uses the oranges to make bottles of juice in the US that then get purchased by an individual consumer in the US for $10. The same farmer in the US sells a bag of oranges to an individual consumer in the US for $5. A retired person in the US cashes his or her social security check and spends 550 on groceries, all of which were produced in the US. d. A US consumer takes $100 that he or she has saved and deposits it in the bank. e. A small business in the U5 manufactures and sells $1,011] worth of goods to a foreign customer; the business owner uses $500 to pay his or her rent, $250 to pay his or her workers, and keeps the remaining $250 as profit. In 1960, about 40 percent of all US women of ages 15 years and over had paying jobs outside their homes: by 2010 this number had risen to almost 60 percent. a. How has this increase in women's \"Iaborforce participatio n" affected US GDP specifically, is GDP today higher, lower, or the same as it would be if this trend towards higher labor force participation had not occurred? (Here, all you need to do is to say higher, lower, or the same as, you don"t need to explain why.I b. Suppose that all of the women who joined the Iaborforce between 1960 and 2010 report being happier working at theirjobs than they would have been staying at home. Would the actual growth in GDP during this period overstate or understate the true increase in the quality of life that reects the extra psychological benefits that women gain from working and earning income? [Again, all you need to say is overstate or understate, you don't need to explain why.l 5. Consider a simple economy in which only two goods are produced and sold: pizza and beer. The prices and quantities produced of these two goods over a three-year period are shown in the table below. Year Price of Pizza Quantity of Pizza Price of Beer Quantity of Beer 2009 $2 1 $1 2 2010 $4 $2 2 201 1 $4 2 $2 a. Calculate nominal GDP in 2009, 2010, and 2011. b. Next, using 2009 as your base year, calculate real GDP in 2009, 2010, and 2011. c. Finally, calculate the GDP deflator for 2009, 2010, and 2011. w 6. Go back to the same example from question 5, just above. Consumers in the economy like two goods: pizza and beer. Prices and quantities consumed are the same as before: Year Price of Pizza Quantity of Pizza Price of Beer Quantity of Beer 2009 $2 $1 2 2010 $4 $2 2 2011 $4 2 $2 4 As a first step in computing the consumer price index (CPI), the Bureau of Labor Statistics surveys consumers to determine the "basket of goods" purchased by a typical consumer. Suppose that the BLS chooses 2009 as its base year and, consistent with the data shown in the table, decides that the basket of goods in this economy should consist of one pizza and two beers. a. What is the cost of the basket in each year: 2009, 2010, and 2011? b. Still using 2009 as the base year, what is the CPI in each year: 2009, 2010, and 2011? C. What is the inflation rate in 2010 and 2011? 7. In the mid-1920s, the American author F. Scott Fitzgerald wrote a somewhat comical article for the Saturday Evening Post magazine titled, "How to Live on $36,000 a Year," in which he explained how he and his wife managed to spend their entire annual income of $36,000 without saving anything. . In the mid-1920s, the consumer price index was around 18; in 2010, the CPI was around 225. Using these figures, calculate how much Fitzgerald's income would be worth in 2010's dollars. b. More recently, Forbes magazine published a list of the highest-paid authors, showing that J.K. Rowling, author of the Harry Potter books, earned $10 million in 2010. After adjusting for the effects of inflation, who earned more: Fitzgerald or Rowling? 8. In each case, please indicate whether the statement is true of false (you don't need to explain why). a. In an economy experiencing inflation, the nominal interest rate will be higher than the real interest rate. b. When the price of imported oil rises, that affects the CPI but not the GDP deflator. C. When the price of an aircraft carrier purchased by the US government rises, that affects the GDP deflator but not the CPI. d. Because new goods sometimes get invented that help American consumers enjoy a higher living standard at a lower cost, increases in the CPI tend to understate increases in the true cost of living. e. When calculating the CPI, analysts at the US Department of Labor try to account for the fact that the newest generation of iPods can do a lot more, and are therefore of a higher quality, than older models of ipods, even though the price of those ipods has remained about the same over the years