ECON 114B Lecture Notes - Lecture 3: Exchange Rate
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In recent years, the BRIC (Brazil, Russia, India and China) countries have received much attention due to their growing importance in the world economy. Now that you are equipped with knowledge about macroeconomic data, you can take a first-hand look at how quickly these countries have been growing, how much inflation they have, and how developed they are when compared to the USA.
Brazil | Russia | India | China | USA | |
Nominal GDP in 2013 (local currency, Million) | 4,844,815 | 66,755,300 | 113,550,735 | 56,884,521 | 16,768,100 |
Nominal GDP in 2000 (local currency, Million) | 1,179,482 | 7,305,600 | 21,774,127 | 9,921,455 | 10,284,800 |
Price Level in 2013 (index 2010=100) | 124.12 | 121.63 | 132 | 111.1 | 106.8 |
Price Level in 2000 (index 2010=100) | 51.4 | 30.75 | 54.2 | 81 | 79 |
Population in 2013 (in Million) | 200.4 | 143.5 | 1,252 | 1,357 | 316.1 |
Population in 2000 (in Million) | 174.5 | 146.6 | 1,042 | 1,263 | 282.2 |
Dollar/Local Currency Exchange rate 2013 | 1/2.4 | 1/32.6 | 1/62.18 | 1/6.07 | 1 |
PPP Conversion Factor 2013 | 1/1.9 | 1/19.47 | 1/18.24 | 1/3.36 | 1 |
The PPP conversion factor is the price in US dollars of a basket of goods (chosen by the World Bank) in the USA divided by the price in local currency of a comparable basket in that country.
For each of the BRIC countries and the US, over the period 2000-2013, answer the following:
1.What was the average annual inflation rate?
2.What was the average annual growth rate of population?
3.What was the average annual growth rate of real GDP?
4.What was the average annual growth rate of real GDP per capita?
5.For each of the BRIC countries, in the year 2013, how did real income per capita compare to that in the US? (To make this comparison, report real GDP per capita for each country as a percentage of the US.) Report two answers, one based on market exchange rates and one adjusted for differences in purchasing power.
Person |
Judy |
Sandy |
Dee |
Shawntae |
Martha |
Income |
$40,000 |
$75,000 |
$85,000 |
$35,000 |
$110,000 |
The above table lists the incomes for the 5 people who live on the remote island nation of Richland.
1. Refer to Table 21.1. If Martha's income doubled to $220,000 while the incomes of the other four residents did not change, what would happen to the original median income onâ Richlandia?
A.It would increase by $22,000.
B.It would increase by $44,000.
C.It would not change.
D.It would double.
2.When we compare shares of income earned by U.S. households over the past 40 years, which of the following statements about the distribution of income isâ true?
A.The percentage of total income represented by each quintile has decreased.
B.Lower income households gained at the expense of higher-income households.
C.The largest gain in income percentage is in the top 5% of households.
D.The percentage of total income represented by each quintile has increased.
3.From 1970 to 2012, the Gini coefficient in the United States has
A.dramatically decreased.
B.remained is relatively unchanged.
C.steadily increased.
D.more than doubled.
4.Income distribution in the United States over the past 40 years has become more equal.
True
False
5.Income inequality in the United States has increased in part due to technological change. How does technological change contribute to incomeâ inequality?
A.It is responsible for a majority of new products on the market, and these products are only affordable to higher-income households.
B.It reduces the cost of producing goods and therefore lowers the value of labor services.
C.It allows manufacturers to produce products with lessâ labor, and this reduction in the demand for labor lowers wages at all skill levels.
D.It has created many higher-income jobs for skilled and trainedâ workers, leaving the income of less-skilled workers relatively unchanged by comparison.
6.Income inequality in the United States has increased in part due to globalization. How does globalization contribute to incomeâinequality?
A.It allows domestic firms to hire low skilled workers anywhere in the world, putting U.S. workers in competition with foreign workers. This has caused the wages of low skilled workers to fall relative to the wages of other workers.
B.It increases the demand for a wide variety of products which in turn increases prices beyond the reach of average income
households.
C.It allows producers to exploit workers and reduce the wages they are willing to pay those workers.
D.It reduces the cost of producing goods and therefore lowers the value of labor services.
7.Rachel, a large pineapple producer in Hawaii, lobbies Congress to limit imports of pineapples to be able to sell her pineapples at a higher price and greatly increase her income. This possible source of income inequality is due to
A.technology changes.
B.rent seeking.
C.globalization.
D.productivity differences.
8.If growing income inequality results from changes in technology that, as a whole, make society better off, this will
A.decrease the size of the economic pie because of income inequality.
B.increase the size of the economic pie.
C.not change the size of the economic pie because the positive technology changes will be offset by the increases in income inequality.
D.result incomplete income inequality as technology continues to change in the future.
9.The belief that having more of something makes you happier but in successively smaller increments is called
A.utilitarianism.
B.diminishing marginal utility.
C.the benefits received principle.
D.transcendentalism.
10.The results of a survey conducted by Dan Ariely and Michael Norton found that Americans
A.show absolutely no preference for the amount of equality in wealth distribution in the nation.
B.have a preference for much less equality in wealth distribution than currently exists.
C.have a preference for roughly the amount of equality in wealth distribution that currently exists.
D.have a preference for much greater equality in wealth distribution than currently exists.
11.In the United States, the highest quintile of income earners contribute ________ of all federal tax dollars received, and the lowest quintile of income earners contribute ________ of all federal tax dollars received
A. 24%; 1.5%
B. 20%; 20%
C. 68.8%; 0.4%
D. 29.4%; 11.5%
12.The question "Is the U.S tax system disproportionate enough?" is a ________ question, and the question "How would higher taxes make the rich behave?" is a ________ question.
A. normative; positive
B. positive; normative
C. positive; positive
D. normative; normative