ECN 211 Review #4

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, $3,000B) 5, $600C) 1/10, $1500D) 10, $600E) 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

Alpha Beta

Combination Beef Microchips Beef Microchips

A

B

C

D

E

0

25

50

200 0 300

150 25 225

100 50 150

75 50 75 75

100 0 100 0

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) $150b) $50c) $100d) $200e) $400

D

S

5

3

2

$

Wheat 150 200 300 400 450 250 350

4

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) $150b) $50c) $100d) $200e) $250

D

S

5

3

2

$

Wheat 150 200 300 400 450 250 350

4

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) $100b) $200c) $50d) $150e) None of the above.

D

S

5

3

2

$

Wheat 150 200 300 400 450 250 350

4

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+9D) 6+5+4+3.E) 4+3+9.

S

Price

1234

56

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+9C) 8D) 1+2E) None of the above.

S

Price

1234

56

7

8

W2

D

W1

W3

9

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

Coal Paper

Canada

United States

6 tons 1 ton

4 tons 2 tons

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%.

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

12

20

104

5

10

105

Germany Korea

Food Food

Cans Cans

A B

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, decreaseD) decrease, decrease, increase, increase.E) None of the above.

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)$250B) $300C) $600D) $900E) None of the above. $450

10

14

125

12

7550 175 200

Demand

Supply

Q

13

100 150

11

15

25 225

20

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)$500B) $400C) $200D) $100E) $300

10

14

125

12

7550 175 200

Demand

Supply

Q

13

100 150

11

15

25 225

20

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)1.33B)0.75C)0.5D)0.66E)None of the above.

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)$250B) $450C) $200D) $225E) $300

10

14

125

12

7550 175 200

Demand

Supply

Q

13

100 150

11

15

25 225

20