ECON102 Study Guide - Nominal Interest Rate, Fractional-Reserve Banking, Fiscal Multiplier

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jadehyena319

16 Dec 2013

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University of Waterloo

Department

Economics

Course

ECON102

Professor

Misc

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ECON102 Full Course Notes

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I, ii, iii, and iv: a nation is producing at a point inside of its production possibility frontier. I, ii, and iii: if your nominal income rises 4 percent and your real income falls 1 percent, by how much did the price level change, 5 percent decrease. Inflation: suppose that households increase the demand for u. s. treasury bonds as financial assets. Answers and explanations: a the gains from free trade are based upon the principles of comparative advantage and specialization. Free trade allows nations to consume at points beyond their own ppf. Resources are allocated and goods are distributed by the government, not the price system: a lower taxes increase disposable income. Keynesians believe that prices are sticky in the downward direction, but classical economists believe prices are flexible. Lower money demand, one financial asset, creates rising demand for bonds, an alternative financial asset.

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3. The output per laborer per day in the production of steel and tin for Russia and China are given in the table below. Output per Labor-Day Russia CHINA

STEEL 10 3

TIN 5 6

e) How is the slope of a production possibility frontier related to the opportunity cost of the good on the horizontal axis? (See your answers to parts (a) and (b) of this question.)

3 f) What does a straight-line production possibility frontier imply? g) Which country will specialize in and export Tin?

h) What is a possible terms of trade at which both nations will be willing to trade? (See your answer to 1.g.)

i) Plot a terms of trade line at which both nations will be willing to trade on your production possibility frontiers of part (c), starting the terms of trade line from a point of complete specialization for each nation

. j) How does your diagram from part (i) demonstrate how nations gain from trade?

The opportunity cost of one more slice of pizza in terms of sodas is the

		the total number of pizza slices that we have divided by the total number of sodas that we have.
		the number of sodas we have to give up to get one extra pizza slice.
		the number of pizza slices we have to give up to get one extra soda.
		the total number of sodas that we have divided by the total number of pizza slices that we have.

1 point

QUESTION 2

A production possibilities frontier shows

		how money can be allocated among two kinds of goods.
		the limits to the future growth of a nation.
		the various combinations of output a nation can produce at a certain time, given its available resources and technology.
		that if the price of one good decreases, the price of the other has to increase.

1 point

QUESTION 3

When a production possibilities frontier is bowed outward, as more of one good is produced, its opportunity cost

		remains constant.
		might increase, decrease, or remain constant depending on how much people value the additional units of the good.
		increases.
		decreases.

1 point

QUESTION 4

When all of the available factors of production are being efficiently employed, the

		the economy is producing at a point within its PPF.
		PPF disappears.
		the economy is producing at a point beyond its PPF.
		the economy is producing at a point on its PPF.

1 point

QUESTION 5

If a nation devotes a larger share of its current production to consumer goods, then

		its PPF will shift inward.
		its economic growth will slow down.
		its PPF will shift outward.
		some productive factors will become unemployed.

1 point

QUESTION 6

A point on the production possibilities frontier reflects an

		the attainable point with full employment of all resources.
		attainable point without full employment of all resources.
		unattainable point without full employment of all resources.
		the unattainable point with full employment of all resources.

1 point

QUESTION 7

When drawing a production possibilities frontier, which of the following is held constant?

		the available factors of production and the state of technology
		the amount of money in the economy
		the prices of goods and services
		the quantity of the goods and services that are produced

1 point

QUESTION 8

As we move along the production possibilities frontier,

		more of both goods can be produced.
		the possibilities of tradeoffs diminish.
		a tradeoff is not possible because nations need all goods.
		the production of one good increases as the production of the other good decreases.

1 point

QUESTION 9

Which of the following is an assumption used when drawing a production possibilities frontier?

i.Human wants and desires are limited to what is available.

ii. Only two goods are considered.

iii. The level of technology is fixed and unchanging.

		I and iii
		ii only
		I, ii, and iii
		I only

1 point

QUESTION 10

To achieve gains from trade, a country

		needs to have an absolute advantage in the production of all goods.
		specializes in producing a good in which it has a lower opportunity cost.
		must produce at a point beyond its PPF.
		should produce at the midpoint of its PPF.

1 point

QUESTION 11

Relative to Al, Joe has ________ if Joe can produce a good at a lower opportunity cost than Al.

		a comparative advantage
		more production efficiency
		a marginal benefit
		a comparative benefit

1 point

QUESTION 12

Does economic growth depend upon which of the following?

i.Improving the quality of labor

ii. Technological advancement

iii. Increasing the amount of capital

		iii only
		ii only
		I only
		I, ii, and iii

1 point

QUESTION 13

In one hour John can produce 20 loaves of bread or 18 cakes. In one hour Phyllis can produce 30 loaves of bread or 15 cakes. Which of the following statements is true?

		John has a comparative advantage in producing cakes.
		Phyllis has an absolute advantage in both goods.
		Phyllis has a comparative advantage in producing cakes.
		John has an absolute advantage in both goods.

1 point

QUESTION 14

As an economy produces more of one of the goods on a bowed out production possibilities frontier, what happens to the opportunity cost of producing the good?

		It decreases.
		It might increase, decrease, or remain constant depending on how much people value the additional units of the good.
		It remains constant.
		It increases.

1 point

QUESTION 15

The production possibilities frontier illustrates the

		goods and services that people want.
		maximum combinations of goods and services that can be produced.
		resources the economy possesses, but not it is the level of technology.
		limits to people's wants.

1 point

QUESTION 16

The United States produced approximately ________ worth of goods and services in 2007.

		$14 billion
		$14 trillion
		$140 billion
		$140 trillion

1 point

QUESTION 17

The fact of increasing opportunity cost when moving on the PPF means that

		to increase the production of one product requires smaller and smaller sacrifices of the other good.
		to decrease the production of one product requires smaller and smaller sacrifices of the other good.
		to increase the production of one product requires larger and larger sacrifices of the other good.
		when the government forces a movement from one point on the PPF to another point, no production is lost.

1 point

QUESTION 18

Other things equal, if India devotes more resources to educate its population than China,

		China will grow faster than India.
		India will be able to eliminate scarcity faster than China.
		India will be able to eliminate opportunity cost faster than China.
		India will grow faster than China.

1 point

QUESTION 19

For Ireland to grow more potatoes, wool production must decrease. This situation is an example of

		zero opportunity cost.
		producing at a point that lies beyond the PPF.
		opportunity benefit.
		a tradeoff.

1 point

QUESTION 20

Moving from one point to another on a production possibilities frontier implies

		increasing the production of both goods.
		increasing the production of one good and decreasing the production of another.
		holding the production levels of both goods constant.
		decreasing the production of both goods.

1 point

QUESTION 21

The United States is one of the richest nations in the world,

		but it can still benefit from specialization and trade.
		so does not need to trade with poor nations to achieve any gains from trade.
		so might not have a comparative advantage in producing any goods.
		so it must have a comparative advantage in the production of all goods.

1 point

QUESTION 22

"Comparative advantage" is defined as a situation in which one person can produce

		more of all goods than another person.
		a good for a lower opportunity cost than another person.
		a good for a lower dollar cost than another person.
		more of a good than another person.

1 point

QUESTION 23

The idea of increasing opportunity cost is reflected in the

		the linear shape of the production possibilities frontier.
		bowed in the shape of the production possibilities frontier.
		bowed out the shape of the production possibilities frontier.
		the positive slope of the production possibilities frontier.

1 point

QUESTION 24

Suppose that after specializing according to comparative advantage, a country is trading with another nation that also specializes according to its comparative advantage. Which of the following statements are true for the first country?

i)It enjoys gains from trade.

ii)It must have an absolute advantage in the production of the good it produces.

iii)It is producing at a point beyond its PPF.

		I only.
		I and ii.
		I and iii.
		ii and iii.

1 point

QUESTION 25

If society moves from a period of time with significant unemployment to a time with full employment, its production possibilities frontier will

		shift rightward.
		not shift because the society moves from one point on the frontier to a point inside the frontier.
		not shift because the society moves from a point inside the frontier to a point on the frontier.
		shift leftward.

1 point

ochresea-lion6

TITLE: BENEFITS OF TRADE Trade among nations has been growing faster than the total world GDP. The growth of U.S. exports and imports relative to the U.S. GDP parallels this global trend. Today, exports constitute more than 10 per cent of total national production. In some countries, trade accounts for a much higher share of total economic activity.

Tasks: Consider the table below for the neighbouring nations of Northland and West Coast. The table lists the maximum feasible hourly rates of the production of pastries if no sandwiches are produced and the maximum feasible hourly rates of the production of sandwiches if no pastries are produced. Assume that the opportunity costs of producing these goods are constant in both nations.

Product	Northland	West Coast
Pastries (per hour)	50,000	100,000
Sandwiches (per hour)	25,000	200,000

a. Based on the data provided, what is the opportunity cost of producing pastries and sandwiches in Northland?

b. What is the opportunity cost of producing pastries and sandwiches in West Coast?

c. Which nation has a comparative advantage in producing pastries and which nation has a comparative advantage in producing sandwiches?

d. Suppose the two nations choose to specialize in producing the goods for which both have a comparative advantage. Both agree to trade at a rate of exchange of one pastry for one sandwich. At this rate of exchange, what are the maximum numbers of pastries and sandwiches that both could agree to trade?

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ECON102 Study Guide - Nominal Interest Rate, Fractional-Reserve Banking, Fiscal Multiplier

ECON102 Full Course Notes

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