IS and Econ 13 - Second Midterm 4. Which of the following combination of
Examination KEY policies maximizes the sum of growths for the
S. Skaperdas – February 27, 2012 U.S and China?
(Correct answers are starred “*”) a. China chooses free trade and the U.S.
Version B chooses trade protection.
Please fill in your scantron, INCLUDING b. China chooses trade protection and the
YOUR VERSION (B). Be sure to mark U.S. chooses free trade.
(blacken) the appropriate boxes. (You will not c. They both choose free trade.*
get a grade otherwise.) d. They both choose trade protection.
e. Either a or b should occur.
There are 35 questions in this exam. Questions
1-30 are worth 1 point each. Questions 31-35 5. It would be in the U.S.’s interest to
are worth 2 points each. a. pursue free trade regardless of what
1. An example of a government transfer is a(n) b. pursue trade protection regardless of
a. bequest from a deceased relative. what China does.*
b. subsidy to corn producers.* c. pursue free trade only if China were to
c. tax on inheritance. pursue free trade.
d. salary for members of the armed forces. d. pursue trade protection only if China
e. expenditure on an interstate highway. were to pursue trade protection.
e. pursue either free trade or protection,
2. Restrictions on international trade depending on the level of sunspots.
a. have increased since WWII.
b. include subsidies to exported goods.* 6. It would be in China’s interest to
c. were uncommon before WWII. a. pursue free trade regardless of what the
d. a and b. U.S. does.
e. All of the above. b. pursue trade protection regardless of
what the U.S. does.*
3. The following are factors that help explain c. pursue free trade only if the U.S. were to
trade protection EXCEPT: pursue free trade.
a. The availability of new goods.* d. pursue trade protection only if the U.S.
b. Strategic trade policy. were to pursue trade protection.
b. The security externality of trade. e. pursue either free trade or protection,
c. The infant industry argument. depending on the level of sunspots.
d. Interest-group politics.
7. Then, if the U.S. and China were to choose
Suppose each of two countries, say China and their policies independently of one another so as
the U.S., can either pursue free trade or engage to maximize their own growth, we would expect
in trade protection. If both countries were to a. China to choose free trade and the U.S.
engage in free trade, they would each see their to choose trade protection.
income grow by $50 billion. If both were to b. China to choose trade protection and the
engage in trade protection, they would each grow U.S. to choose free trade.
by $10 billion. If China were to choose free c. both to choose free trade.
trade and the U.S. trade protection, China would d. both to choose trade protection.*
not grow at all and the U.S. would grow by $60 e. Either a or b would occur.
billion. Conversely, if the U.S. were to choose
free trade and China trade protection, China 8. When a quota is imposed on an import,
would grow by $60 billion and the U.S. would typically in the importing country,
not grow at all. Please use this information in a. consumers lose.
the following four questions. (In answering b. domestic producers gain
these questions, you might find helpful to draw c. foreign exporters lose.
the matrix of different outcomes.) d. b and c.
e. All of the above.* 9. The value added of a business is d. lower U.S. GDP.
a. its profit. e. lower Bolivian GDP.
b. the value of final goods and services
c. the value of its sales minus the value of 14. The U.S. unemployment rate in January was
its purchases of inputs from other businesses.* a. 10% but total employment decreased.
d. the value of its purchased inputs. b. below 9 % and total employment
e. the value of its production, including decreased.
intermediate inputs. c. higher than 10% but total employment
10. An example of a government transfer is d. below 9% and total employment
a. a subsidy to U.S. sugar producers.* increased.*
b. The State of California’s support for e. below 8% and total employment
university research. increased.
c. expenditure on fixing a highway.
d. the salary of a Social Security 15. Increases in GDP per capita do not
Administration employee. necessarily translate into improvements in well-
e. the payroll tax. being because
a. pollution and other environmental
11. Which of the following transactions will be externalities could become worse as
included in Canadian GDP? GDP increases.
a. An American buys a bottle of French b. people could work more and have less
perfume. leisure time.
b. Mr. Moneybags buys an existing share c. Activities, like cooking, that were not
of the Bank of Montreal. counted as part of GDP before are now
c. Coca-Cola builds a new bottling plant in counted as part of GDP.
California. d. b and c.
d. United Airlines buys a new plane from e. all of the above.*
e. A California winery produces a bottle of 16. In the country of Walachia, a market basket
Pinot Noir and sells it to a customer in of goods and services cost $120 in 2009 and
Vancouver, Canada. $180 in 2011. Based on this information and
considering 2009 as the base year, the price
12. Suppose Mexico imports flannel shirts index in 2011 was:
from Brazil. The price of a flannel shirt is $25 a. 66.67
and 50,000 shirts are imported into Mexico. The b. 100
Mexican government decides to impose a tariff c. 130
on the shirts at $10 a shirt. How much money d. 150*
will the Mexican government collect from the e. 180
a. $1,750,000 17. Flexible exchange rates
b. $500,000* a. imply that exchange rates are
c. Less than $500,000* determined by the supply and demand
d. More than $500,000 but less than
$1,750,000. b. have existed throughout the West for
e. not enough information is provided. over two centuries.
[Since less than 50,000 will be demanded c c. have been adopted by every country,
could be the correct one, although if the 50,000 including China.
are already imported the government would get