S. Skaperdas February 23, 2015 Version A Please fill in your scantron, INCLUDING YOUR VERSION/TEST FORM (A) There are 35 questions in this exam (for a total of 45 points). Questions 1-25 are worth 1 point each. Questions 26-35 are worth 2 points each.
6. Which of the following is an example of
negative externality? a. Cathy dislikes her new hairstyle b. Mike ate too much bread and felt sick c. Rachel missed an episode of her favorite TV show d. John drives recklessly* e. None of the above
1. When a country has a trade deficit,
a. Exports exceed imports b. The countrys economy produces more than it consumes c. Imports exceed exports* d. The current account is positive. e. a and b.
7. Suppose that Brazil has a comparative
advantage in coffee and Peru has a comparative advantage in tomatoes. Which of the following groups would be worse off if these countries specialize and trade? a. Coffee producers in Peru* b. Coffee producers in Brazil c. Tomato producers in Peru d. Always everybody is better off when specialization and trade take place e. All groups are worse off when specialization and trade take place
2. The following are factors that help explain
trade protection EXCEPT for a. trade policy creating losers as well as gainers from freer trade. b. strategic trade policy. c. security concerns. d. the infant industry argument. e. comparative advantage* 3. Pursuing freer trade is a. always best for a country. b. sometimes not in the interest of a country.* c. always bad for a country. d. always benefits the citizens of a country. e. a and d. 4. If the social cost of fishing is greater than its private cost, then we can conclude that a. a positive externality exists b. government should encourage fishing c. there is no externality d. a negative externality exists* e. None of the above 5. In general, the social benefit of an activity equals a. Its private benefit b. Its external benefit c. Its private benefit plus its external benefit* d. Its price e. All of the above
8. When you talk during class with your friend
a. you create a positive externality because your friend is lonely. b. you create a positive externality because your friend has a positive view of you. c. you create a positive externality when your friend was late in class. d. you create a negative externality because you bother others around you.* e. a and b. 9. The ozone depletion in the upper layers of the atmosphere a. is an example of a positive externality. b. has been largely mitigated through the banning of chlorofluorocarbons (CFCs).* c. is a worsening problem. d. has reduced air pollution is Southern California. e. a and d. 10. Methane produced by cattle, an activity that adversely affects the environment, a. could be reduced by subsidizing cattle production. b. could be increased by taxing cattle production. c. could be reduced by taxing cattle production.* d. is an example of a positive externality. e. b and d.
11. A well-maintained yard
a. induces a positive externality because it increases the homes market value. b. induces a negative externality because it increases the property tax liability of the owner. c. induces a positive externality because it increases the value of adjacent properties in the neighborhood.* d. cannot provide any type of externality. e. a and c. 12. The smoking ban on all UC campuses a. can be expected to yield few known benefits as a result of the absence of second-hand smoke.* b. can be expected to yield large benefits as a result of the absence of second-hand smoke. c. is expected to have no costs. d. a and c. e. b and c. 13. When an activity has a positive externality, a. its social costs exceed its private costs. b. its private costs exceed its social costs. c. its social benefits exceed its private benefits.* d. its private benefits exceed its social benefits. e. its external costs exceed its social costs. 14. Gross Domestic Product (GDP) consists of a. Consumption plus Savings plus net exports. b. Consumption plus Investment plus Government expenditures. c. Consumption plus Investment plus Savings plus net exports. d. Consumption plus Savings plus the Current Account Surplus. e. Consumption plus Investment plus Government expenditures plus net exports.* 15. An Iowa farmer buys a new truck made in Connecticut by a Japanese company. As a result a. US GDP increases, but Japanese GDP is unaffected* b. GDP for both US and Japan increase c. US GDP increases, but Japanese GDP decreases d. Japanese GDP increases, but US GDP is unaffected e. None of the above
Suppose in year 1, company XYZ produces 3000
light bulbs and 300 tables, selling at the price of $2 per light bulb and $50 per table. In year 2, company XYZ produces 4000 light bulbs and 200 tables, selling at the price of $3 per light bulb and $60 per table. Assuming that year 1 is the base year, use this information to answer the following questions: 16. Nominal income for year 1 is: a. $20,000 b. $21,000* c. $24,000 d. $18,000 e. $25,000 17. Nominal income for year 2 is: a. $20,000 b. $21,000 c. $24,000* d. $18,000 e. $25,000 18. Real income for year 2 using year 1 as the base year is: a. $20,000 b. $21,000 c. $24,000 d. $18,000* e. $25,000 19. An example of a government transfer is a(n) a. expenditure on an interstate highway. b. inheritance from a deceased relative. c. tax on inheritance. d. subsidy to corn producers.* e. salary for members of the armed forces. 20. Which of the following transactions will be included in Canadian GDP? a. An American buys a bottle of French perfume. b. Mr. Moneybags buys an existing share of the Bank of Montreal. c. Coca-Cola builds a new bottling plant in California. d. A California winery produces a bottle of Pinot Noir and sells it to a customer in Vancouver, Canada. e. United Airlines buys a new plane from Canadas Bombardier.*
21. Suppose that the Chinese Renminbi has
appreciated relative to the US dollar. What happens to Chinese and US imports? a. Imports for both China and US fall b. Imports for both China and US rise c. Chinese imports fall, US imports rise d. Chinese imports rise, US imports fall* e. None of the above 22. Which of the following is not a factor behind the demand for US dollars? a. Tourists who want to visit US b. Those who want to buy US assets c. Those who want to invest in the US stock market d. American tourists abroad* e. Speculators betting in favor of US dollars. 23. The Financial (or, Capital) account equals a. Foreign purchases of US assets minus US purchases of foreign assets plus reserves adjustments.* b. Net income received from investment abroad c. Net transfer payments from abroad d. Exports minus imports e. Trade balance 24. The exchange rate is the a. interest rate differential between counties. b. balance of trade differential between countries. c. price of gold. d. the price of different goods in different countries. e. relative price of currencies of different countries.* 25. Examples of activities that typically have positive externalities include a. fishing. b. smoking. c. eating junk food. d. driving. e. public debate.*
Please note that questions 26-35 are worth 2
points each. 26. Which of the following are benefits of trade? a. Specialization in production and Comparative advantage b. Availability of new goods c. Learning-by-doing d. Productivity gains due to competition e. All of the above* 27. Government subsidies to U.S. farm products a. are highly uncommon. b. tend to lower their international price. c. can be considered a form of trade protection d. b and c.* e. All of the above. 28. Suppose the U.S. market for a certain industry, say textiles, opens to international competition through a complete elimination of trade barriers. Then, other things being equal, we can expect a. no effect on employment or wages since industries such as textiles are never affected by international competition. b. an increase in the number of U.S. workers employed in that industry and an increase in their wages. c. a decrease in the number of U.S. workers employed in that industry and an increase in their wages. d. an increase in the number of U.S. workers employed in that industry and a decrease in their wages. e. a decrease in the number of U.S. workers employed in that industry and a decrease in their wages.* 29. When you ask a question in class a. you create a positive externality because your friend has a positive view of you b. you create a negative externality because you interrupt the train of thought of others around you. c. you create a positive externality because you make a positive impression on the professor. d. you create a positive externality because other students who had the same question, but did not ask, benefit.* e. you never induce an external effect on others.
30. Mitigating the effects of climate change is
complicated because of a. the uncertainty about future costs and the effects of possible measures. b. domestic and international politics. c. making proper intergenerational valuations. d. a and b. e. all of the above.* 31. Flexible exchange rates a. have existed continuously throughout the West for over two centuries. b. have been adopted by every country, including China. c. were an integral part of the industrial revolution. d. imply that exchange rates are determined by the supply and demand for currencies.* e. a and d. 32. The Bretton Woods system was characterized by a. the universal adoption of the Gold standard. b. the absence of recessions. c. flexible exchange rates. d. low levels of cross-country capital movements.* e. All of the above. 33. For the past decade, the US a. had a yearly trade deficit (negative trade balance). b. had a yearly trade surplus (positive trade balance). c. some years it had a trade deficit and some years a trade surplus. d. consumed more goods and services than it produced. e. a and d.*
34. When a country has a trade surplus,
a. The financial (or, capital) account must necessarily be negative. b. The financial account is positive. c. The financial account is zero. d. the value of its exports is higher than the value of its imports.* e. a and d. 35. Since 1971 a. restrictions on trade gradually increased. b. only the U.S. dollar has been backed by gold. c. no currency has been backed by either gold or silver.* d only a new currency, the euro, followed the practice of the Swiss franc to be backed by gold. e. only the Icelandic kroner has been backed by a precious metal successfully.