Deck 18: Overview of Macroeconomics

Question 1

Use the following to answer questions :
Figure 18-1
Note that in Figure 18-1, the production possibilities frontier is closer to the origin for Europe than for the U.S.This is because:

A)it is assumed that there are more people in the United States.
B)it is assumed that Europe has lower output in both industries.
C)it is assumed that the citizens of the United States are generally much better off than their European counterparts.
D)it is assumed that there is more inefficiency in Europe.
E)it is assumed that American labor is less productive than European labor.

Answer 1

it is assumed that Europe has lower output in both industries.

Question 2

Use the following to answer questions :
Figure 18-1
Which of the following could emerge as the ratio of the price of food to the price of clothing if trade were opened between the U.S.and Europe as depicted in Figure 18-1?

A)0.4.
B)0.7.
C)1.0.
D)1.2.
E)3.0.

Answer 2

0.7.

Question 3

Even in a situation where absolute costs for two countries and two products are identical, trade can be mutually beneficial if:

A)tastes differ substantially between the two countries.
B)economies of scale in the production of both products encourages specialization.
C)a third product is introduced and paired with one of the former products.
D)answers a.and b.
E)none of the above.

Answer 3

answers a.and b.

Question 4

With constant labor costs (L), the two countries, X and Y produce units of A and B as shown below.It is clear that with free trade, money wage rates in X will be:

A)3 times those in Y.
B)more than 3 times those in Y.
C)between 2 and 3 times those in Y.
D)less than twice those in Y but how much less is unknown.
E)one-fourth those in Y.

Question 5

Two areas, Europe and America, can produce only goods A and B, under constant costs as indicated below.What will be the result of free trade between the two areas (assuming no transportation costs)?

A)Europe will export A and B to America.
B)Europe will import A and export B.
C)Europe will import B and export A.
D)Europe will import A and B from America.
E)No trade will take place.

Question 6

Assume that the two nations described below produce only the goods listed. What will be the result of opening the door to free trade?

A)A will export both X and Z to B.
B)A will import X and export Z.
C)A will export X and import Z.
D)A will import both X and Z.
E)No trade will take place.

Question 7

In terms of comparative advantage, the most correct explanation of why bananas are imported into the U.S.is that

A)bananas cannot be produced in temperate climates.
B)it would take too much irrigation to produce bananas in the United States.
C)bananas can be produced only with more effort elsewhere.
D)U.S.resources are better employed in producing commodities that are relatively more expensive to produce in other countries and relatively less expensive to produce in the U.S.
E)bananas are in relatively low demand in the United States.

Question 8

Use the following to answer questions :
Figure 18-2
Consider Figure 18-2.Assuming that there is free trade of AC and negligible transportation cost, the price of pounds in terms of dollars is closest to:

A)$1.00.
B)$2.50.
C)$5.00.
D)$10.00.
E)cannot be determined from the diagram.

Question 9

If one of two countries has an absolute advantage in the production of every commodity, then:

A)there is no comparative advantage and therefore no trade.
B)trade would be profitable for the inefficient country, but not for the efficient one.
C)trade would be profitable for the efficient country, but not the inefficient one.
D)total world production cannot be increased by specialization and trade.
E)none of the above are true.

Question 10

Assume that research shows that American agriculture is the most efficient in the world; then:

A)if America is also efficient in the production of all other goods, there would be no gains from trade.
B)with only this information, we cannot say whether it would pay America to be a food exporter or a food importer.
C)it could never pay America to import food.
D)it would always pay America to import food.
E)none of the above is necessarily true all of the time.

Question 11

Under the banner of comparative advantage, the free trade of specialized goods will result in:

A)a reduction in overall economic efficiency.
B)a reduction in the real wage level in one of the two countries.
C)an increase in the real wage levels in both of the countries.
D)an increase in the real wage level in only one of the two countries.
E)an increase in the absolute efficiency of only one of the two nations.

Question 12

Use the following to answer questions :
Figure 18-2
Assume that length AC equals length ac in Figure 18-2 and that $5 = 2 pounds.Then, under free trade, Country A will:

A)produce OA and consume OC.
B)consume OA and produce OC.
C)produce OA and consume OA.
D)produce OB and consume OB.
E)produce OC and consume OC.

Question 13

Use the following to answer questions :
Figure 18-2
The smallest prohibitive tariff for Country A in Figure 18-2 would be:

A)$2.50.
B)$5.
C)$10.
D)some amount greater than $10.
E)none of the above, since trade will occur whatever the tariff set by Country A.

Question 14

If we are to demonstrate gains from trade in the theory of comparative advantage, it is necessary to assume that:

A)one country must have an absolute advantage in the production of both goods.
B)one country cannot have an absolute advantage in the production of both goods.
C)one country must be considerably larger than the other.
D)a country must be relatively more efficient in the production of one of the goods.
E)factors of production have to be free to move between countries.

Question 15

The introduction of decreasing costs into the theory of comparative advantage:

A)makes it possible for trade to be mutually advantageous even if there are no pre-trade differences in comparative costs between two countries.
B)reduces the gain from international trade.
C)means, unlike the constant-cost case, that specialization will probably not be complete.
D)may be an interesting theoretical abstraction, but has little relevance in explaining why specialization and trade have, in fact, occurred.
E)would explain none of the above.

Question 16

Each person in Country X can produce 1 ton of steel or 1 ton of coal.Each person in Country Y can produce 3 tons of steel or 4 tons of coal.Assuming constant costs, X will:

A)export steel and import coal.
B)import steel and export coal.
C)import both coal and steel.
D)export both coal and steel.
E)not trade at all.

Question 17

Use the following to answer questions :
Figure 18-2
Before trade, Country A illustrated in Figure 18-2 will:

A)produce OA and consume OC.
B)consume OA and produce OC.
C)produce OA and consume OA.
D)produce OB and consume OB.
E)produce OC and consume OC.

Question 18

Protectionist tariff and quotas often:

A)do little to stem the tide of cheap foreign imports.
B)reduce the real incomes of the protected workers and consumers.
C)lead to the complete economic isolation of a nation.
D)result in increased world-wide production efficiency.
E)none of the above.

Question 19

Which of the following are some important differences between domestic and international trade?

A)Expanded trading opportunities.
B)Sovereign nations.
C)International finance.
D)all of the above.
E)none of the above.

Question 20

Which of the following are the economic factors that lie behind the patterns of international trade?

A)diversity in natural resources.
B)differences in tastes among nations.
C)decreasing costs of large-scale production.
D)all of the above.
E)none of the above.

Question 21

Quotas are:

A)economically better than tariffs.
B)economically inferior to tariffs.
C)equivalent to tariffs if the government auctions off the limited supply of quota licenses to the highest bidders.
D)less likely than tariffs to generate retaliation from trading partners.
E)never used.

Question 22

Use the following to answer questions :
Figure 18-2
Which of the following is a true statement in reference to Figure 18-2?

A)Country A exports wheat to Country B.
B)Free trade harms Country B.since the price of wheat is greater than in equilibrium.
C)A prohibitive tariff would lower the price of wheat in Country A.
D)The diagram would require no modification if Country A improved its relative efficiency in wheat production.
E)Free trade would lower the price of wheat in Country A.

Question 23

It is likely that a tariff will:

A)improve world welfare.
B)increase the physical volume of trade flows.
C)be the most efficient source of government revenue.
D)improve relations with trading partners.
E)do none of the above.

Question 24

Use the following to answer questions :
Figure 18-4
Suppose the country, importing oil in Figure 18-4 puts on a prohibitive tariff.The smallest prohibitive tariff would be:

A)$0, since there is no trade at the current price.
B)$5.
C)$10.
D)$20.
E)impossible to determine exactly without more information.

Question 25

Use the following to answer questions :
Figure 18-3
If the world price in Figure 18-3 were $1.00, how much revenue would be collected by a tariff that maintained a domestic supply of 200 units?

A)$50
B)$100.
C)$150.
D)$200.
E)None of the above.

Question 26

Use the following to answer questions :
Figure 18-4
Which of the following is a true statement in reference to Figure 18-4, assuming that there is free trade?

A)Country A faces a higher price for oil than without trade.
B)Country A consumes length AB more oil than without trade.
C)Country A consumes length BC more oil than without trade.
D)Country B faces a higher price for oil than without trade.
E)Country A faces a smaller price for oil than without trade.

Question 27

Use the following to answer questions :
Figure 18-5
In Figure 18-5, what would the government revenue gain from the imposition of a $1.00 tariff on the sale of widgets?

A)$1,250
B)$1,000
C)$500
D)$250
E)$50.

Question 28

Use the following to answer questions :
Figure 18-3
At what price level in Figure 18-3 would domestic production levels exactly satisfy demand?

A)$1.00.
B)$2.50.
C)$3.00.
D)$3.25.
E)Domestic production exceeds demand at all points.

Question 29

Use the following to answer questions :
Figure 18-3
If the world price in Figure 18-3 were $2.50, what size quota would be required to keep domestic supply at the no-trade levels?

A)0 units.
B)50 units.
C)100 units.
D)150 units.
E)200 units.

Question 30

Use the following to answer questions :
Figure 18-5
In Figure 18-5, which area represents the net loss in consumer surplus for a $1 tariff?

A)A.
B)B.
C)C.
D)D.
E)E.

Question 31

Use the following to answer questions :
Figure 18-3
Which of the points labeled in Figure 18-3 could be considered to be a point of no trade?

A)A.
B)B.
C)C.
D)D.
E)E.

Question 32

Use the following to answer questions :
Figure 18-3
If the world price in Figure 18-3 were $1.00, what size tariff would be required to a maintain domestic supply of 200 units?

A)$0.50.
B)$1.00.
C)$1.50.
D)$2.00.
E)$2.50.

Question 33

Countries in the European Union (EU):

A)enjoy a free flow of capital among member countries.
B)enjoy a free flow of labor among member countries.
C)abolished their individual national currencies.
D)All of the above.
E)A and B only.

Question 34

It can be argued that tariffs and other restrictions of trade:

A)lower the standard of living both in the initiator countries and those countries against which they are directed.
B)usually lower the standard of living only in the countries that initiate them.
C)usually lower the standard of living of only the countries against which they are directed.
D)cause little welfare loss provided there is full employment both before and after the tariff.
E)none of the above.

Question 35

Use the following to answer questions :
Figure 18-3
If the world price were $1.00 in Figure 18-3, what size quota would be required to a maintain domestic supply of 200 units?

A)0 units.
B)50 units.
C)100 units.
D)150 units.
E)200 units.

Question 36

By "terms of trade," we mean:

A)the treaty arrangements for international trade.
B)the difference between exports and imports.
C)the ratio of short-term capital movements to long-term capital movements.
D)the ratio of exports to imports.
E)the ratio of export prices to import prices.

Question 37

Use the following to answer questions :
Figure 18-5
In Figure 18-5, what level of output would domestic production achieve under a $1 tariff?

A)50 units.
B)100 units.
C)150 units.
D)200 units.
E)None of the above.

Question 38

Use the following to answer questions :
Figure 18-5
In Figure 18-5, what quota is equivalent to a $1 tariff?

A)0 units.
B)50 units.
C)100 units.
D)200 units.
E)None of the above.

Question 39

Use the following to answer questions :
Figure 18-4
Assume that there is free trade and negligible transportation costs between Country A and Country B.Which of the following is false in reference to Figure 18-4?

A)Country A exports oil.
B)Country B is relatively inefficient in the production of oil.
C)Country B imports oil.
D)Country B consumes more oil than it would in equilibrium without trade.
E)All of the above are true.

Question 40

Use the following to answer questions :
Figure 18-3
Utilizing Figure 18-3, what would be the smallest prohibitive tariff if the world price were $1.00?

A)$1.75.
B)$2.25.
C)$3.25.
D)Over $4.00.
E)A prohibitive tariff cannot be determined.

Question 41

Under international free trade, countries shift production toward their areas of comparative advantage.

Question 42

The major advantage of international trade is that it expands the scope of trade.

Question 43

In most countries, open trade has increased the standard living.

Question 44

Political barriers play no part in international trade.

Question 45

In 2007, the United States exported more automotive vehicles and parts than it imported.

Question 46

International trade between Countries A and B can be mutually profitable even though A can produce every commodity more cheaply than B.

Question 47

A prohibitive tariff is one that is so high that it chokes off all imports

Question 48

It is only common sense that countries will produce and export goods for which they are uniquely qualified.

Question 49

Protectionist tariffs and quotas are the only way that a government, through writing economic policy, can preserve domestic employment.

Question 50

Nonprohibitive tariffs may actually increase trade between countries.

Question 51

If the ratio of clothing price to food price is 3 to 1 in America and in is 2 to 1 in Europe before trade, then if trade is opened up, America would most likely export food.

Question 52

In 2007, U.S.imports exceeded exports by around $700 billion, reflecting large borrowing from abroad.

Question 53

A tariff will tend to raise price, lower the amounts consumed and imported, and raise domestic production.

Question 54

Trade may take place because of the diversity in productive possibilities among countries.

Question 55

The principle of comparative advantage changes dramatically when trade is extended to three or more countries simultaneously.

Question 56

Trade promotes specialization.

Question 57

Economist David Ricardo showed that international specialization benefits a nation.

Question 58

Outsourcing refers to locating services or production processes abroad.

Question 59

Economists generally believe that international free trade promotes a mutually beneficial division of labor among nations.

Question 60

International economics involves many of the most controversial questions of the day.

Question 61

Use the following to answer questions :
Figure 18-6
In Figure 18-6, a $1.50 tariff given a world price of $1.00 would allow domestic suppliers to handle two-thirds of domestic demand.

Question 62

The tariff provides an efficient tool for reducing long term unemployment.

Question 63

If two countries trade corn and steel, each must have an absolute advantage in the good it exports.

Question 64

Use the following to answer questions :
Figure 18-6
Given a world price of $1.00 in Figure 18-6, the quota equivalent to a $1.50 tariff is 200 units.

Question 65

Properly designed tariffs or quotas can increase the real wages of workers in the domestic industry involved.

Question 66

A nation that enjoyed the lower absolute costs for all its consumptive goods could have little reason to trade.

Question 67

Under an import tariff, any fluctuation in domestic demand is felt directly by importers.

Question 68

The theory of comparative advantage is proven invalid when the United States sells steel to Japan and purchases the final products from Japan.

Question 69

The basic effect of a tariff is to divert resources from their most efficient uses.

Question 70

Trade restrictions do not necessarily force a country to produce at a level below its production possibilities.

Question 71

If a foreign country imposes a tariff on our exports, then it would always pay us to retaliate.

Question 72

Use the following to answer questions :
Figure 18-6
In Figure 18-6, the no trade price of goods price is $3.25.

Question 73

The United States today is a high-tariff country relative to its past.

Question 74

In the long run, a tariff can increase the real wages of workers in the domestic industry.

Question 75

Quotas always create higher efficiency costs than their equivalent tariffs.

Question 76

Many tariffs are the result of political pressures.

Question 77

The degree of openness of an economy is defined as the ratio of exports or imports to GDP.

Question 78

Transportation costs are the costs of moving bulky and perishable goods, and have the same effects as tariffs, reducing the extent of beneficial regional specialization.

Question 79

In the short run.it is possible that the imposition of a tariff could raise U.S.real wages.

Question 80

The benefits of trade based on comparative advantage may not be fully realized in countries that exhibit chronic unemployment or sticky wages and prices.