Unit 11 TRADE QUI Chapter 30 and 37 IZ Grade De etails 1.

1. Que estion : Student Answer: An economist wh favors sma ho aller governme would recommend: ent

tax cuts dur ring recession and reductio n ons in governm ment spending g dur ring inflation. tax increase during rece es ession and tax cuts during i x inflation. tax cuts dur ring recession and tax incre n eases during i inflation. increases in government spending dur n ring recession and tax increases during inflation.

2.

Que estion : Student Answer:

The Federal budg deficit is f e get found by:

subtracting government t tax revenues plus governm ment borrowing g from governmen spending in a particular y nt year. subtracting government t tax revenues from governm ment spending in g a particular year p r. cumulating the difference between go es overnment spending and ta ax rev venues over all years since the nation's f founding. subtracting government r revenues from the noninve m estment-type gov vernment spending in a par rticular year.

3.

Que estion :

Oth things equ her ual, an increas of Treasury bonds from $100 billion to se y o $12 billion in th above econ 20 he nomy would: Student Answer:

not change the size of th e public debt. . increase the public debt f e from $460 billion to $480 b billion. increase the public debt f e from $400 billion to $420 b billion. decrease the public debt by $20 billion n.

4.

Que estion : Student Answer:

The true size of Federal budge deficits may be understa e et y ated because:

a portion of government spending is p f public investment. inflation red duces the real value of the public debt. Social Security surpluses are included as government tax revenues s in measuring the budget defic m e cit. foreign hold dings of the de have recently increased ebt d.

5.

Que estion :

If monies added to, or subtrac m cted from, the Social Secur e rity trust fund were excluded fr rom Federal b budget calculations, the cur rrent Federal bud dget:

Student Answer:

deficit would nearly disap d ppear. deficit would be substant d tially larger. surplus wou nearly disa uld appear. surplus wou be substan uld ntially smaller r.

6.

Que estion :

Cou untries engaged in internat tional trade sp pecialize in pro oduction base ed on: :

Student Answer:

relative leve of GDP. els comparative advantage. e relative exchange rates. relative infla ation rates.

7.

Que estion :

Ans swer the next question(s) o the basis o the following information t on of g abo the cost ra out atios for two p products-fish (F) and chicke (C)-in en cou untries Singso ong and Harm ony. Assume that productio occurs und on der con nditions of con nstant costs a nd these are the only two n nations in the e world.

Sin ngsong: 1F = 2C Harmony: 1F = 4C 4 Ref to the above informatio n. In Singsong the domestic real cost of fer f eac chicken: ch Student Answer:

is 1/2 a fish h. is 2 fish. increases with the level o fish caught. w of . decreases with the level of fish caught w t.

8.

Que estion :

It is impossible for a nation to have a comp f o parative advan ntage in pro oducing everyt thing.

Student Answer:

True False

9.

Que estion :

The increased-do e omestic-empl oyment argum ment for tariff protection ho f olds tha at:

Student Answer:

domestic inflation is a de esirable policy goal because it stimulates e exp ports. domestic de eflation is a de esirable policy goal because it stimulates y e s imp ports. an increase in tariffs will reduce net ex xports and stimulate domes stic em mployment. an increase in tariffs will increase net e exports and s stimulate dom mestic employ yment.

10.

Qu uestion : Student Answer:

A protective tarif will: p ff

increase the sales of fore e eign exporters s. increase the price and sa e ales of domest producers. tic

increase the welfare of do e omestic consu umers. create an ef fficiency gain in the domest economy. tic

11.

Qu uestion :

Ans swer the next question(s) o the basis o the following production t on of g pos ssibilities data for Gamma a a and Sigma. Al data are in t ll tons. Gamma production possibilitie es:

Sig gma production possibilities s:

On the basis of the above info t ormation: Student Answer:

Gamma sho ould export bo tea and po to Sigma. oth ots Sigma shou export tea to Gamma an Gamma should export pots uld nd to Sigma. S Gamma sho ould export te a to Sigma an Sigma shou export pot to nd uld ts Gamma. Gamma sho ould export te a to Sigma, b it will not b profitable f but be for the two nations to exchange p e pots.

12.

Qu uestion : Student Answer:

A nation will neit n ther export no import a sp or pecific product when its: t

domestic pr rice (no-intern national-trade price) equals the world price. e s export supp curve lies a ply above its impo demand curve. ort export supp curve is up ply psloping. import demand curve is d downsloping.

13.

Qu uestion :

Ref to the above diagram, w fer where Sd and Dd are the domestic supply y and demand for a product and Pc is the world price of that product. W d d With free trade, that is, assuming n tariff, the o e i no outputs produ uced by domes stic and foreign prod d ducers respect tively would b be: Student Answer:

v and vz. w and wy. w and wz. vx and xz.

14.

Qu uestion :

The nation that has a compar e h rative advanta age in a partic cular product w will be the only world exporter of that product.

Student Answer:

True False

15.

Qu uestion :

Ref to the above diagrams. The solid line are product fer es tion possibilitie es cur rves; the dash hed lines are t trading possib bilities curves. The data sug ggest that: Student Answer:

West Lothia should spec an cialize in, and export, beer. . both countr ries will be bet tter off if they do not engag in y ge spe ecialization an trade involv nd ving these two products. o West Lothia should spec an cialize in, and export, pizza a. East Lothian should spec ialize in, and export, beer. n

16.

Qu uestion :

Ref to the above diagram sh fer howing the do omestic demand and supply y cur rves for a spec cific standardi ized product in a particular nation. If the r e world price for th product is $1.60, this nation will expe his erience a dom mestic: Student Answer:

shortage of 160 units, wh hich it will me with 160 u eet units of import ts. shortage of 160 units, wh hich will incre ase the dome estic price to $1. .60. surplus of 160 units, whic it will expo 1 ch ort. surplus of 160 units, whic will reduce the world price to $1.00. 1 ch e

17.

Qu uestion :

The fact that inte e ernational spe ecialization an trade based on comparative nd d adv vantage can in ncrease world output is dem d monstrated by the reality th y hat:

Student Answer:

the production possibilitie curve of an two nations are identical es ny s l. a nation's production pos p ssibilities and trading possib bilities lines coincide. a nation's tr rading possibi ilities line lies to the right o its productio of on pos ssibilities line. a nation's production pos p ssibilities line lies to the right of its tradin ng pos ssibilities line.

18.

Qu uestion :

A side benefit of international trade is that it links nation interests and s f nal increases the op pportunity cost of war. ts

Student Answer:

True False

19.

Qu uestion :

Ans swer the next question(s) o the basis o the following data for the t on of g e hyp pothetical nations of Alpha and Beta. Qs is domestic quantity suppli ied and Qd is domes d stic quantity d emanded.

Ref to the above data. At a world price of $2: fer f Student Answer:

Alpha will want to import 20 units of s w t steel. Beta will wa to export 2 units of ste ant 20 eel. Alpha will want to export 20 units of st w t teel. neither coun ntry will want to import ste eel.

20.

Qu uestion :

Ref to the above diagrams. The solid line are product fer es tion possibilitie es cur rves; the dash hed lines are t trading possib bilities curves. The trading pos ssibilities curv imply that : ves Student Answer:

both countr ries have a tra ade surplus th will result in economic hat gro owth. the domesti production possibilities c urves entail u ic unemployment t and d/or the dome estic misalloca ation of resources. world resou urces will be a llocated more efficiently if t e the two nation ns spe ecialize and tr rade based on comparative advantage. both nations will be wors off as a result of internat se tional spe ecialization an trade. nd