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130 Cards in this Set

  • Front
  • Back
The three principal inputs in the production process are
capital, labor, and total factor productivity
In 1798 Malthus predicted
that the limited natural resources will constrain the population size
The most sustainable engine of growth is:
total factor productivity
Which of the following gained the most from technological advances in the 1950-1990 period?
Developed OECD nations
Between1973-1992, labor input was the most important factor to explain growth in
United States
Holding all other things constant, a firm has the following production schedule:
Units of Labor 0 1 2 3 4
Units of Output0 80 140 180 200

This firm exhibits

(see Quiz)
diminishing marginal product of labor
The two basic forms of capital used in production are
buildings and machinery
Which of the following nations had the largest real GDP per capita in 2000?
Luxembourg
In the last 40 years world poverty:
has been decreasing
A small increase in growth rate (GDP) leads to __________ in the long-run.
Large increase in standard of living.
The marginal product of capital may be decreasing because
each additional machine has fewer workers to operate it
Dramatic economic growth in Asian countries in the latter half of the 20th century was primarily due to
capital accumulation
Long run increases in an economy’s output, achieved without increasing either the capital stock, total labor hours employed, or other inputs can result from
technological progress
A steady state may be defined as
a point at which the capital stock per worker is stabilized
Convergence refers to
poorer countries growing more rapidly than rich countries
During the 20th century, convergence occurred most clearly
between Japan and US
The observation that poorer nations grow more rapidly than richer ones if they share the same steady state, and more slowly if they don’t, is known as
conditional convergence
Which of the following is not included in Institutions?
Years of schooling
Developed economies need to engage in research and development more than do developing economies because developed economies
have largely exhausted the gains from capital accumulation
Which of the following is part of the production function?
total factor productivity
A country that can produce goods or services at a lower cost than another country, is said to have __________ over the other country
an absolute advantage
Consider the following monthly production possibilities for two countries per 100 workers:
Country A Country B
Product Labor Output Labor Output
Food 100 workers 60 tons 100 workers 50 tons
Equipment 100 workers 100 units 100 workers 120 units

By specializing and trading, total global output in food can be increased __________ and total global output in machines can be increased __________ per 100 workers.

(See Quiz 4)
10 tons; 20 units
The major US trading partners are:
Canada, Mexico, China
The earliest statement of the principle of comparative advantage is associated with:
David Ricardo
Table 1:
Output per worker per day
Country Tons of steel VCRs
South Korea 80 40
Japan 20 20

Referring to Table 1, the opportunity cost of one VCR in Japan is:

(See question #5, Quiz 4)
1 ton of steel
Table 1:
Output per worker per day
Country Tons of steel VCRs
South Korea 80 40
Japan 20 20

Refer to Table 1. According to the principle of comparative advantage:

(See question 6, Quiz 4)
South Korea should export steel
If a production possibilities curve is bowed out (i.e., concave) in appearance, production occurs under conditions of:
Increasing opportunity costs
Referring to Figure 1, the relative cost of aluminum in terms of steel is:

(See question 8, Quiz 4)
2.0 tons
A tariff is efficient for:
A large country
The different effects of a tariff in a large country and a small country is because
a tariff by a large country changes the global price.
Which of the following has been suggested as a benefit of free trade?
lower costs through economies of scales
A country might be willing to impose a tariff on imports for all of the following reasons, except:
to encourage imports
An economic union entails

I. free trade among member countries.
II. common barriers to trade for non-member countries.
III. coordination of economic policies
I, II and III
The World Trade Organization was established by the ____ of multilateral trade negotiations:
Uruguay Round
The principle of normal trade relations (most-favored-nation) treatment was established with the passage of the
Reciprocal Trade Agreements Act of 1934
The most recent round of multilateral trade negotiations is the:
Doha Round
The presence of scale economies:
a) Generates more varieties
c) Results in lower prices

e) a and c
If Country 1 is granted most favored nation (MFN) status by Country 2 then
Country 1 will automatically be granted any reductions in trade barriers that are given to all countries with MFN status.
In general, when a small country imposes a tariff this represents a wealth transfer from __________ to __________.
domestic consumers; domestic producers
Rank the following regional trade blocks from highest to lowest according to their share of global trade in 2001.
IV, III, I, II
All of the following drive changes in the long run exchange rates except:
Government surplus
The British pound is worth 2.3198 Swiss francs and the Mexican peso is worth 0.14512 Swiss francs. How many pesos is the British pound worth?
15.985
Under a flexible exchange rate system, countries allow their currency to:
fluctuate so as to clear the exchange market
An appreciation in the value of the U.S. dollar against the British pound would tend to:
Discourage the British from buying American goods
In the interbank market for foreign exchange, the ____ refers to the price that a bank is willing to pay for a unit of foreign currency.
Bid rate
The most important (in terms of dollar value) type of foreign exchange transaction by U.S. banks is the:
Spot transaction
Given a system of floating exchange rates, weaker U.S. preferences for imports would trigger:
A decrease in the demand for imports and a decrease in the demand for foreign currency
A contract that grants the holder the right to buy a given amount of a foreign currency at a predetermined exchange rate until or on a specified date is a currency
call option.
If wheat costs $4 per bushel in the United States and 2 pounds per bushel in Great Britain, then in the presence of purchasing-power parity the exchange rate should be:
$2.00 per pound
That identical goods should cost the same in all nations, assuming it is costless to ship goods between nations and there are no barriers to trade, is a reflection of the:
Law of one price
In the last 40 years (prior to the current recession), the most severe recession in
US was between:
1981-1982
Which one of the following variables is not included in the production function?
Inflation
Which one of the following nations had the highest real GDP per capita in 2000,
according to recent statistics?
Luxumbourg
In most countries, the Malthusian predictions have not been realized because
technology is improving
Which of the following is not one of the gains from economic growth?
Cheap Labor Force
The diminishing marginal product of capital implies:
that additions to the capital stock produce more incremental output in poor
countries than in rich countries
Between 1973-1992, labor input was the most important factor to explain growth
in:
United States
A steady state may be defined as
a point at which the capital stock per worker is stabilized
The FOMC (Federal Open Market Committee) moved aggressively to change the
target federal funds rate in meetings on January 22 and January 30, 2008. Which
of the following events would most likely cause the FOMC to decrease the target
federal funds rate in future meetings?
Rising unemployment and continued weakness in consumption and
investment expenditures
Countries with higher initial levels of GDP per capital
should have lower subsequent growth rates.
The best long run growth strategy for developing economies is probably:
to increase the capital stock
All of the following statements are true, except:
Recessions tend to last longer than expansions
During the 20th century, convergence occurred most clearly
within OECD countries
What is the main reason for fast growth in Asian countries after 1950?
Huge investment rates and high capital accumulation
In which one of the following cases we observe an increase in productivity?
If capital stock increases at a faster rate than labor supply
Which statement is true when thinking of the European countries in the last 30
years?
Central Bank kept increasing interest rates
Which of the following is not included in Institutions:
Years of schooling
According to the “Too much productivity?” article, which of the following is a
potential cost of faster productivity growth?
More job loss
A boom phase in the economy is typically accompanied by:
increases in macroeconomic variables such as consumption and investment
Developed economies need to engage in research and development more than do
developing economies because developed economies
have largely exhausted the gains from capital accumulation
The production function of a country relates:
the capital and labor input to the output
The difference between real GDP and the trend real GDP is the
cyclical part of real GDP
World growth data shows that from 1960 to 2000:
a) the US and other OECD countries grew at moderate rates.
b) sub-Saharan African countries grew at low rates or declined.
c) some countries particularly East Asian countries grew rapidly.

d) all of the above
What is the difference between Real GDP and Nominal GDP?
Real GDP is adjusted for inflation.
Some variables that can cause differences in growth rates of income per capita or
levels of income per capita among countries are:
a) Measures of human capital
b) Market distortions
c) Geography

d) All of the above
Economic growth differs from business cycles in that
economic growth is a long run phenomenon; business cycles are short term
The 2000-2002 recession of the US economy hit the hardest:
The technology sector
The 1997-2006 housing boom/bubble in the US history was driven by all of the
following except:
Expectations of permanent home price depreciation
The period known as the Great Moderation in US is characterized by:
Low output volatility and Low Inflation rates
Convergence refers to:
poorer countries growing more rapidly than rich countries
The semi-official arbiter of when US recessions begin and end is:
the National Bureau of Economic Research
Which of the following is not an element of total factor productivity?
hours worked by the labor force
The observation that poorer nations grow more rapidly than richer ones if they
share the same steady state, and more slowly if they don’t, is known as
conditional convergence
The additional output produced by adding one extra unit of capital to the
production:
the marginal product of capital
Which of the following variables typically moves in the opposite direction from
real GDP?
the unemployment rate
Which of the following gained the most from technological advances in the
1950-1990 period?
Developed OECD nations
Which one of the following statements regarding the Federal Reserve Bank is not
accurate:
used only expansionary policies in the last 10 years
According to the “Economic Growth in the European Union” which of the
following statements correctly describes the relationship between the level of
GDP per capita and economic growth?
a) High GDP per capita implies a high growth rate of GDP per capita.
b) Low GDP per capita implies a low growth rate of GDP per capita.
c) Slow productivity growth implies that GDP per capita will decrease.

d) None of these statements are correct.
A large negative output gap
implies excessive unemployment
According to the Solow growth model, rich countries:
tend to grow slower than poor ones
Referring to Figure 1 (below) the relative cost of steel in terms of aluminum is:

See #1, Exam 2. Version B
0.5 tons
Which one of the following is not an objection to outsourcing?
access to local markets
When a nation requires fewer resources than another nation to produce a product, the
nation is said to have a:
Absolute advantage in the production of the product
Offshoring is:
relocation of an organizational function to a foreign country
According to article” French Riots - Are Labor Policies Part of the Problem?” which of
the following aspects of French labor policy does not necessarily marginalize young, less
qualified workers?
Unionization
International trade allows countries to specialize in the production of goods and
services in which they have an absolute advantage. This usually leads to:
a. big countries exploiting small countries which lack these advantages.
b. an increase in total global output.
c. more efficient allocation of a country’s scarce resources
d. both a) and b)

e. both b) and c)
As suggested by the Aplia article “Winners and Losers from Trade”, who would
benefit the most if the WTO was abolished and rich countries did not have to eliminate their barriers to trade in textiles?
Textile workers in the United States
Increasing opportunity costs suggest that:
Resources are not perfectly shiftable between the production of two goods
In a two-country, two-product world, the statement "Japan enjoys a comparative
advantage over France in steel relative to bicycles" is equivalent to:
France having a comparative advantage over Japan in bicycles relative to
steel
Which one of the following statement is not accurate?
Manufacturing output is decreasing in the US
Tariffs are not defended on the ground that they:
Improve the terms of trade of foreign nations
A lower tariff on imported aluminum would most likely benefit:
Domestic consumers of aluminum
In a large country setting part of a tariff is forward shifted to __________ and part is
backward shifted to __________.
domestic consumers; foreign producers
In relation to outsourcing, the domestic reduction in wages is due to:
a. firings
b. acceptance of lower wages by workers being afraid to be replaced

d. a and b
Firms undertake multinational operations in order to:
a. Hire low-wage workers
b. Manufacture in nations they have difficulty exporting to
c. Obtain necessary factor inputs

d. All of the above
If Country D has an absolute advantage over Country E in the production of all goods
and services then
both countries may still be able to gain from international trade with each
other.
Consider the following monthly production possibilities for two countries per 100
workers:
Country A Country B
Product Labor Output Labor Output
Food 100 workers 500 tons 100 workers 600 tons
Equipment 100 workers 200 units 100 workers 120 units
To maximize total global output Country A should produce __________ and Country
B should produce __________.

See question 17, Exam Version B
only equipment; only food
Which one of the following statement is most probably inaccurate?
Immigration does not seem to affect the wages of low skilled native workers and
prior immigrants
Chevrolet’s contract with Dell for IT services is an example of:
domestic outsourcing
Table 1. Output Possibilities of the U.S. and the U.K.
Output per Worker per day
Country Tons of Steel Televisions
United States 5 45
United Kingdom 10 20

See Question 20, Exam 2, Version B
Referring to Table 1, the United States has the absolute advantage in the production
of:

Televisions
Referring to Table 1, the United Kingdom has a comparative advantage in the
production of:
Steel
Refer to Table 1. If trade opens up between the United States and the United
Kingdom, American firms should specialize in producing:
Televisions
Referring to Table 1, the opportunity cost of producing one ton of steel in the
United States is:
9 televisions
Arguments for U.S. trade restrictions include all of the following except:
Improving incomes for developing countries
NAFTA is a:
Free trade area
Unlike Adam Smith, David Ricardo's trading principle emphasizes the:
Role of comparative costs
The General Agreement on Tariffs and Trade and its successor, the World Trade
Organization, have resulted in:
Reductions in trade barriers via multilateral negotiations
Which of the following represents the stage where economic integration is least
complete?
Free trade area
If we consider the interests of both consumers and producers, then a policy of tariff reduction in the France (assume small country) auto industry is:
In the interest of the France as a whole, but not in the interest of autoproducing
states
The World Trade Organization provides for all of the following except:
Bilateral tariff reductions
The principle of normal trade relations (most-favored-nation) treatment was
established with the passage of the:
Reciprocal Trade Agreements Act of 1934
The shift in demand towards more skilled workers in the US is due to:
a. Increase in the use of computers and high technology
c. Outsourcing of the less skilled jobs to other countries
d. a and b

e. a and c
Which one of the followings statements is not true?
Offshore outsourcing is usually expected to decrease offshore employment
The different effects of a tariff in a large country and a small country is because
a tariff by a large country changes the global price
Which of the following has not been suggested as a benefit of free trade?
Domestic labor force gains from outsourcing the production
The presence of scale economies:
a. Generates more varieties
c. Results in lower prices

e. a and c
All of the following are potential advantages of an international joint venture
except:
Operating at diseconomy-of-scale output levels
As the result of the migration to the United States:
Low skilled native U.S. workers lose
Chevrolet contracts with a call center in India. This is an example of:
offshore outsourcing
A country can produce 500,000 machine parts per week and produce 200,000
board feet of lumber. If the country could also produce 600,000 machine parts and
175,000 board feet of lumber per week then the
average opportunity cost of 1 machine part is 0.25 board feet of lumber.