ECN 211 Review #4

Q1) If the money supply is $300, the price level is $5 and real GDP equals $600 then the velocity of circulation is___ and nominal GDP is_________. A) 5, $3,000 B) 5, $600 C) 1/10, $1500 D) 10, $600 E) 10, $3,000

Q2) In the table above, assume that before specialization and trade, both countries were producing at production possibility C. Now if each country specializes according to comparative advantage, what will be the gains from trade? [A] 10 units of sugar [B] 20 units of sugar and 10 units of coffee [C] 20 units of coffee [D] 20 units of coffee and 10 units of sugar [E] None of the above.

Q3) According to the table above, the opportunity cost of a microchip in Alpha is __________ units of beef, and the opportunity cost of a microchip in Beta is __________ units of beef. The opportunity cost of a unit of beef is __________ units of microchips in Alpha and __________ units of microchips in Beta. [A] 3; 2; 1/3; 1/2 [B] 1/3; 1/2; 3, 2 [C] 1/2; 1/3 ; 2; 3 [D] 1/2; 3; 1/3; 2 [E] 2; 3; 1/2; 1/3

Q4) In the diagram above, assume initially the country is engaged in free trade and the world price is $3. If free trade is banned what is the loss to the domestic economy? a) $150 b) $50 c) $100 d) $200 e) $400

Q5) In the diagram above, assume initially the country is engaged in free trade. If the world price is $2 and a quota of 200 units is imposed, what is the loss to the domestic economy? a) $150 b) $50 c) $100 d) $200 e) $250

Q6) In the diagram above, assume initially the country is engaged in free trade. If the world price is $2 and a tariff of $2 is imposed, how much government revenue is received? a) $100 b) $200 c) $50 d) $150 e) None of the above.

S Price 1 2 3 4 5 6 7 8 W2 D W1 W3 9 Q7) Using the diagram above, if the world price is W1 and free trade is allowed then domestic producer surplus is: A) 6+5. B) 6+5+4+3+9. C) 8+6+5+4+3+9 D) 6+5+4+3. E) 4+3+9.

A) 1+2+3+4-consumers (4 and 3 producer) B) 1+2+3+4+9 C) 8 D) 1+2 Price 1 2 3 4 5 6 7 8 W2 D W1 W3 9 Q8) Using the diagram above, assume initially the country is engaged in free trade. If the world price is W2 and free trade is banned then the loss to the domestic economy is: A) 1+2+3+4-consumers (4 and 3 producer) B) 1+2+3+4+9 C) 8 D) 1+2 E) None of the above.

Q9) Using the table above. Suppose the world price is E Q9) Using the table above. Suppose the world price is E. The government introduces a tariff of (D-E)(price becomes D). What is the area that represents the tariff revenue that the government would receive? A) HJNM B) HJPO C) HUXO D) HUWM E) There would be no government revenue.

Q10) According to the table in the scenario above, Philippines has a comparative advantage in producing [A] neither goods. [B] food. [C] computers. [D] both computers and food. [E] None of the above.

Q11) In the table above, what are the acceptable terms of trade? [A] 0.5 coal ≤ 1 paper ≤ 0.66 coal [B] 0.5 paper ≤ 1 coal ≤ 6 paper [C] 4 paper ≤ 1 coal ≤ 6 paper [D] 0.16 coal ≤ 1 paper ≤ 0.5 coal [E] 2 coal ≤ 1 paper ≤ 6 coal

Q12) Which of the following could the Fed undertake to increase the money supply? A) An increase in the reserve requirement. B) An increase in the discount rate. C) Sell bonds to the public. D) Increase transaction demand. E) Buy bonds from the public.

Q13) Suppose the UK rate of interest is 2% and at the start of the year the exchange rate is $4.80:₤3.0 however at the end of the year it is $4.40: ₤2.20. What is the dollar return from investing in the UK?   A) -23% B) -8.33% C) -6.33% D) 27% E) 10.33%.

Cans Cans Germany Korea 20 10 B A 12 5 4 10 5 10 Food Food Q14) Suppose, in the figure above, points A and B represent Germany’s and Korea’s initial production decision. If each country specializes according to comparative advantage, what are the potential gains to trade? [A] 9 food and 17 cans [B] 6 foods [C] 3 cans and 1 food [D] 6 cans [E] 3 cans

Q15) In the table above, which of the following is true? [A] Iowa has the comparative advantage in cookies. [B] Ohio has the comparative advantage in cookies. [C] Ohio has the comparative advantage in chili. [D] Ohio has an absolute advantage in Chili. [E] None of the above.

Q16) If the Fed wants to decrease aggregate demand it could______ the reserve requirement, which will ________ the money supply, which will ______ interest rates. The change in interest rates will _____ consumption and investment, causing aggregate demand to decrease. A) decrease, increase, decrease, increase, B) increase, decrease, increase, decrease. C) increase, increase, decrease, decrease D) decrease, decrease, increase, increase. E) None of the above.

20 Supply 15 14 13 12 11 10 Demand 25 50 75 100 125 150 175 200 225 Q Q17) Using the diagram above, suppose the country is initially engaged in free trade and the world price is $11. If the government introduces a quota of 50, what is consumer surplus? A)$250 B) $300 C) $600 D) $900 E) None of the above. $450 18

20 Supply 15 14 13 12 11 10 Demand 25 50 75 100 125 150 175 200 225 Q Q18) Using the diagram above, suppose the country is initially engaged in free trade and the world price is $13. If the government introduces a tariff of $1, what is domestic producer surplus? A)$500 B) $400 C) $200 D) $100 E) $300 19

19) Suppose the price of oil in the US is $30 and in the UK it sells for ₤40. If PPP holds then E (dollars per unit of foreign currency) has to be? A)1.33 B)0.75 C)0.5 D)0.66 E)None of the above.

20 Supply 15 14 13 12 11 10 Demand 25 50 75 100 125 150 175 200 225 Q Q20) Using the diagram above, suppose the country is initially engaged in free trade and the world price is $11. If the government introduces a tariff of $3, what is welfare loss? A)$250 B) $450 C) $200 D) $225 E) $300 21