ECON7100-M50 Spring 2015

Self-Study16

1. Restriction on technology transfer to low cost countries would
   1. provide incentives for domestic companies to upgrade its technology.
   2. preserve jobs for mature industries with low profit margin.
   3. increase the cost of importable components used by domestic end users.
   4. make it unnecessary to move up the technology ladder for mature products.
2. The domestic income multiplier effect is increased when
   1. more of the domestic consumption is produced overseas.
   2. the leakage of consumption to foreign producers is larger.
   3. the marginal propensity to consume is larger regardless of domestic content.
   4. more of the domestic consumption is produced domestically.
3. US trade deficits can be eliminated if
   1. the US lives within its means.
   2. the US still spends more than its produces.
   3. the US borrows more from China.
   4. only China does not manipulate its currency.
4. China has a greater dependence on exports for its GDP growth than Germany because
   1. its export/GDP ratio is higher than Germany's.
   2. the value-added contents of China's exports is higher than Germany's.
   3. China's exports compete on lower-value-added contents than Germany's.
   4. higher value-added products are less subject to competition.
   5. Both C and D.
5. Technology transfer is efficiency-enhancing if
   1. the domestic market is largely untapped with high profit potentials.
   2. the products are mature with declining domestic profit margin.
   3. the products are innovative requiring little labor.
   4. foreign producers have little labor cost advantage in labor-intensive products.
6. The official Venezuela exchange rate is a form of price control for dollars because
   1. the price of US dollars in terms of bolivars is set officially lower than the underground exchange rate.
   2. the price of bolivars in terms of US dollars is set lower than the underground exchange rate.
   3. fewer US dollars are demanded than the quantity being supplied.
   4. the price of US dollars in terms of bolivars is set higher than the underground exchange rate.
7. If the Purchasing Power Parity (PPP) is larger than the actual exchange rate between Norway and the US, that means the ______ price of Big Mac in Norway is _________ in the US.
   1. dollar; higher than the dollar price
   2. dollar; lower than the dollar price
   3. krona; lower than the kroner price
   4. Both A and C.
8. A trade deficit can result
   1. if the budget gap is negative but smaller than the positive saving-investment gap.
   2. if the saving-investment gap is negative but smaller than the positive budget gap.
   3. if both the saving-investment gap and the budget gap are positive.
   4. if the sum of the saving-investment gap and the budget gap is negative.
9. Currency devaluation is a natural result of
   1. some workers having access to US dollars.
   2. domestic price inflation.
   3. currency trading in the underground currency market.
   4. a divergence between the market exchange rate and the official exchange rate.
10. A country with persistent trade surpluses can reduce them
    1. only by raising its domestic prices and wages.
    2. by a combination of currency appreciation and domestic price rises.
    3. only by currency appreciation.
    4. by sterilizing the inflow of foreign currencies.
11. A country whose currency has a reserve status can borrow at little cost because
    1. it can repay the loan by printing more money.
    2. other countries are willing to accumulate a fair amount of the reserve currency.
    3. its currency does not fluctuate in the foreign exchange market.
    4. its currency is as good as gold.
    5. Both A and B.
12. If labor costs, tax rates and regulatory burdens are different across countries,
    1. mobile resources will be stuck with high cost and high burden.
    2. the least mobile resources will reap most of the benefits of advantage arbitrage.
    3. resources will flow from low-cost and low-burden areas to high-cost and high-burden areas.
    4. resources will flow from high-cost and high-burden areas to low-cost and low-burden areas.
13. Raising China's yuan value could effectively reduce US trade deficit with China
    1. without reducing US domestic consumption.
    2. without increasing China's domestic consumption.
    3. only if US domestic consumption is reduced.
    4. only if China's domestic consumption is increased.
    5. Both C and D.
14. The US housing bubble of 2007 was fueled by
    1. securitization of prime loans.
    2. the fractional-reserve banking system.
    3. high domestic US interest rates.
    4. recycled money generated by the persistent US trade deficits.
15. If a country fixes its exchange rate to below its purchasing power parity but allows its goods to increase in prices over time,
    1. the real exchange rate will eventually fall to equate the actual exchange rate and the purchasing power parity.
    2. the gap between the actual exchange rate and the purchasing power parity will stay the same.
    3. the real exchange rate will not be affected.
    4. the real exchange rate will eventually rise to equate the actual exchange rate and the purchasing power parity.
16. Trade surplus is
    1. a free ride to generate economic growth and domestic jobs for net-exporting countries.
    2. an almost free loan from the net exporting countries to the issuers of US dollars.
    3. the result of a sustainable trade relationship.
    4. a win-win game in world trade.
17. The interests of US multinationals and the US economy might diverge because
    1. US multinationals with large profits also contribute large taxes to the US government.
    2. US multinationals with large profits also create a lot of US domestic jobs.
    3. those who have a hard time getting domestic jobs are more than compensated by their rising stocks in the US multinationals.
    4. high corporate profits need not generate high domestic employment.
18. Price subsidy and price control both
    1. encourage domestic production of price-controlled goods.
    2. encourage smuggling from low-price region to high-price region.
    3. are effective means to control price inflation.
    4. make it possible for Venezuelan citizens to enjoy exclusively lower prices for subsidized and price-controlled goods.
19. A trade surplus can result
    1. if domestic spending is excessive.
    2. if the budget gap is negative but smaller than the positive saving-investment gap.
    3. if the saving-investment gap is positive but smaller than the budget gap.
    4. if both the saving-investment gap and the budget gap are negative.
20. China's trade surplus with the US is a
    1. mirror image of China's excessive domestic consumption.
    2. mirror image of US's excessive domestic saving.
    3. mirror image of China's excessive domestic saving
    4. mirror image of US's excessive domestic consumption.
    5. Both C and D.