If Inflation Is Running At 23% Per Month, What Is

If Inflation Is Running At 23 Per Month What Is

Practice 7a Money1 If Inflation Is Running At 23 Per Month What Is

Practice 7a Money 1. If inflation is running at 23% per month, what is the annual rate? a. 276% b. 400% c. 800% d. 1600% 2. Which of the following is NOT one of three defining characteristics of money? a. it is backed by gold b. it is a unit of account c. it is a store of value d. it is a medium of exchange 5. Fiscal deficits normally cause the money supply to increase a. true b. false 6. Fiscal deficits should be avoided because they generally lead to inflation a. true b. false 7. Inflation is harmful to development because a. a 15% inflation reduces real incomes by 15% b. inflation produces arbitrary redistributions of income and increases social tensions c. both a and b d. neither a nor b 8. Inflation is harmful to development because a. chronic inflation often leads to acute or runaway inflation b. inflation distorts the signals of the price system c. both a and b d. neither a nor b Practice 8 Ricardo model I strongly suggest that you form a 2x2 table with Home and Foreign across the top and Goods A and B down the side. Then you should draw the PPC’s for the two countries. I suggest that you put Good A on the horizontal axis and Good B on the vertical axis. 1. In the Ricardian model, labor is the only factor of production and we assume that labor inputs per unit of output are constant. Assume there are two goods, A and B, and two countries, United States and Mexico. The labor inputs per unit of output are as follows. In the United States, it takes 6 hours to produce a unit of A and 3 hours to produce a unit of B. In Mexico, it takes 12 hours to produce a unit of A and 9 hours to produce a unit of B. In the United States, the opportunity cost of a unit of A is a. half a unit of B b. one unit of B c. two units of B d. three units of B 2. In Mexico, it takes 12 hours to produce a unit of A and 9 hours to produce a unit of B. In Mexico, the opportunity cost of a unit of A is a. 0.75 units of B b. one unit of B c. 1.333 units of B d. two units of B 3. In the United States, it takes 6 hours to produce a unit of A and 3 hours to produce a unit of B. In Mexico, it takes 12 hours to produce a unit of A and 9 hours to produce a unit of B. The United States has an absolute advantage in a. A b. B c. both A and B d. neither A nor B 4. In the United States, it takes 6 hours to produce a unit of A and 3 hours to produce a unit of B. In Mexico, it takes 12 hours to produce a unit of A and 9 hours to produce a unit of B. The United States has a comparative advantage in a. A b. B c. both A and B d. neither A nor B 5. In general, a country has a comparative advantage in a product if the autarky price of that product (relative to the other product) is a. lower than in the other country b. higher than in the other country (The autarky price of A is just the opportunity cost of A in terms of B.) 6. The gains from trade for a country are greater, a. the greater the difference between the country’s autarky price and the international terms of trade b. the smaller the difference between the country’s autarky price and the international terms of trade 7. Assume the autarky price of A is 4 in Argentina and 6 in Brazil. An acceptable terms of trade (Pa/Pb) is a. one half b. two thirds c. three halves (3/2) d. five 8. In question 7, in which product will Argentina specialize? 9. For the data in question 7, explain why Argentina benefits from trade. Then explain why Brazil benefits from trade. Practice 9 Ricardo2 1. In the Ricardian theory of comparative advantage, international trade benefits all workers a. true b. false 2. According to the Heckscher-Ohlin theory of comparative advantage, a. a country will export the commodity in which it has the highest output per worker b. a country will export the commodity that is intensive in its abundant factor c. both a and b d. none of the above 4. The gains from trade are greater, a. the greater the difference between the autarky price and the terms of trade b. the smaller the difference between the autarky price and the terms of trade c. neither a nor b; no general statement can be made 6. In the Ricardian model, the labor requirements are as follows; in Chile; 4 hours for A, and 6 hours for B. In Peru, 5 hours for A, and 10 hours for B. The opportunity cost of A in Peru is a. 0.50 b. 0.67 c. 1.5 d. 2.0 Practice 10 Primary Trade 1. Smaller nations generally have more to gain from international trade than larger nations because (more than one may apply) a. their markets are more likely to be too small to take advantage of economies of scale if they don’t engage in trade b. their markets are more likely to be too small to take advantage of learning by doing if they don’t engage in trade c. small nations are more likely to suffer from domestic monopoly power if they don’t engage in trade 2. Which of the following goods are primary products? a. timber b. rice c. shrimp d. copper e. natural gas f. petroleum g. cotton h. beef i. cell phones j. bicycles k. athletic shoes l. automobiles m. aircraft n. steel 3. Less-developed countries generally have comparative advantage in primary products rather than manufactured products for the following reasons (more than one may apply) a. many LDCs have abundant natural resources and scarce labor and human capital b. manufactured products require good transportation and communication infrastructure to a greater extent than primary products do c. manufactured products require good property rights and contract enforcement to a greater extent than primary products do d. manufactured products are generally more skill intensive than primary products 5. The Resource Curse. This term refers to the generally disappointing development experiences of resource-rich countries. This discussion considers countries rich in “non-renewable resources” such as minerals, oil, and gas. When these resources dominate exports or fiscal revenues above a certain threshold, the countries are often characterized by slow growth, corruption, and poor development outcomes. The explanation involves the economic structure and governance challenges associated with resource dependence. a. Which countries? Countries with a high share (>20%) of GDP derived from resource exports or revenues are considered resource-rich. b. These resources generate large resource rents, which, despite high development potential, often lead to governance issues including corruption and rent-seeking behaviors. c. Industries based on non-renewable resources are capital-intensive, provide limited employment, and have minimal backward and forward linkages, limiting broader economic development. d. Effective government management is crucial in resource-rich countries to mitigate adverse effects and promote sustainable growth, emphasizing the importance of institutions and policy frameworks. e. Empirical evidence indicates that resource-dependent countries tend to grow more slowly and often have lower income levels compared to resource-diversified economies. 6. The empirical evidence shows that “resource-rich countries” (see 14a above) tend to grow more slowly than other countries. a. true b. false 7. Countries abundantly endowed with non-renewable natural resources tend to be poorer than other countries. a. true b. false 8. Which of the following linkages is (are) likely to be small in the case of a petroleum export industry? a. forward linkage b. backward linkage c. consumption linkage d. all of the above e. none of the above Practice 11 FE Mkt 1. Consider the supply-demand graph of an imported commodity, say textiles. Assume there is free trade. An increase in domestic income, which shifts the domestic demand for textiles to the right, will cause the domestic price to a. rise b. fall c. remain the same 2. Consider the supply-demand graph of an imported commodity, say textiles. Assume there is free trade. A rise in the domestic wage rate, which shifts the domestic supply curve up, will cause the domestic price to a. rise b. fall c. remain the same 3. Consider the supply-demand graph of an imported commodity, say textiles. Assume there is free trade. A rise in the domestic wage will cause the quantity of imports to a. rise b. fall c. remain the same 4. Consider the supply-demand graph of an imported commodity, say textiles. Assume there is free trade. A technological improvement in the domestic textile industry, which will shift the supply curve down, will cause the level of imports to a. rise b. fall c. remain the same 5. Consider the supply-demand graph of an imported commodity, say textiles. Assume there is free trade. A rise in the import price will cause domestic production of textiles to a. rise b. fall c. remain the same 6. Consider the supply-demand graph of an export commodity, say copper. Assume free trade. The world price of copper is represented by a horizontal price line. A technological improvement in the copper industry, which will shift the supply curve down, will cause the domestic price of copper to a. rise b. fall c. remain the same 7. Consider the supply-demand graph of an export commodity, say copper. Assume free trade. The world price of copper is represented by a horizontal price line. A technological improvement in the copper industry will cause the level of domestic production to a. rise b. fall c. remain the same 8. Consider the supply-demand graph of an export commodity, say copper. Assume free trade. An increase in the world price of copper will cause the level of exports to a. rise b. fall c. remain the same 9. Consider the supply-demand graph of an export commodity, say copper. Assume free trade. An increase in the world price of copper will cause the domestic consumption of copper to a. rise b. fall c. remain the same 10. Let the exchange rate be 20 pesos per dollar and the world price of copper be $3 per pound. Then the domestic price of copper is a. 20 pesos b. 60 pesos c. 6.67 pesos 11. Let p1 be the world price of copper in dollars. Let p1 be the domestic price of copper in pesos. Let ER be the exchange rate (pesos per dollar). The relationship between the domestic price and world price can be written a. p1= (p1) times ER b. p1 = (p1) + ER c. p1= p1 12. In the supply-demand graph of an import commodity, a rise in the exchange rate will cause the horizontal price line to a. shift up b. shift down c. remain the same 13. In the supply-demand graph of an import commodity, a rise in the exchange rate will cause the quantity of imports to a. rise b. fall c. remain the same 14. In the supply-demand graph of an export commodity, a rise in the exchange rate will cause the quantity of exports to a. rise b. fall c. remain the same 15. Consider a graph of the foreign exchange market. The exchange rate (ER) is on the vertical axis and the quantity of foreign exchange (dollars) is on the horizontal axis. The supply curve of foreign exchange is given by export earnings, or E1 times p1. The demand curve for foreign exchange is given by import expenditures, or M2 times p2. A technological improvement in the export industry will cause a. exports to increase and the supply curve of foreign exchange to shift to the right b. exports to increase and the demand curve of foreign exchange to shift to the right c. exports to fall and the supply curve of foreign exchange to shift to the left d. none of the above 16. Consider a graph of the foreign exchange market. The exchange rate (ER) is on the vertical axis and the quantity of foreign exchange (dollars) is on the horizontal axis. The supply curve of foreign exchange is given by export earnings, or E1 times p1. The demand curve for foreign exchange is given by import expenditures, or M2 times p2. An import tariff will cause a. the quantity of imports to fall and the demand curve for foreign exchange to shift to the left b. the quantity of imports to fall and the supply curve of foreign exchange to shift to the left c. the quantity of imports to fall and the demand curve of foreign exchange to shift to the right d. none of the above 17. Consider a graph of the foreign exchange market. The exchange rate (ER) is on the vertical axis and the quantity of foreign exchange (dollars) is on the horizontal axis. The supply curve of foreign exchange is given by export earnings, or E1 times p1. The demand curve for foreign exchange is given by import expenditures, or M2 times p2. An import tariff will cause the exchange rate to a. rise b. fall c. remain the same 18. Consider a graph of the foreign exchange market. The exchange rate (ER) is on the vertical axis and the quantity of foreign exchange (dollars) is on the horizontal axis. The supply curve of foreign exchange is given by export earnings, or E1 times p1. The demand curve for foreign exchange is given by import expenditures, or M2 times p2. A rise in p1* will cause a. the demand curve for foreign exchange to shift to the right b. the supply curve of foreign exchange to shift to the right