key exam 2 - i it“ us ,9 Examz March 23,2015 Name Ex 1...

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Unformatted text preview: i it“ us «,9 Examz March 23,2015 Name Ex 1. GDP and GNI are two concepts that are often used when refer to a nag ion’s income. a.. The two definitions of a nation’s income, however, are different. What concept is incorporated in pm, GNi that is not accounted for in GDP? 33' “a ' , ,;-. 9 1..” F v y {’3 m g ‘. ,. Mi 3W: GM?“ i” We a its; MM“ ‘ v i ’7’ .. . - " t if era whfi F“ i > b. Theflfoliowing tabie provides information from 2014 for a few countries. The data are expressed in LCU or locai currency units. Country Name l GNI in LCU l GDP in LCU“ 7 E Costa Rica l 25392309311059 l 26,675,006,SO0,0{)O l i Russian Federation l- 68,830,:41,67s,100 l 71,406,399,199,4OG Tonga 810,673,200 802,213,200 l Expiain the situation for Tonga that is revealed in the differential values for GNl and GDP. Specifically, are the earnings of Tonga’s factories located abroad minus earnings of igneigner's factories located in ‘l Tonga positive or negative? gift", l‘rvTLEiLiZs-i i ii ~19 2. if a nation's {call this nation Home) externai wealth is positive then no: a. ROW assets owned by home < home assets owned by ROW. ROW assets owned by home — home assets owned by ROW < 0- WROW assets owned by home - home assets owned by ROW > G. d. Both a and b are correct. 3. Suppose that the net international investment position of Latinland in 2014 is revealed to be 100 USDs. This is made up of the ownership by Latinland residents of 150 USDs worth of iand in New York State and the ownership of land by US investors in Latinland amounting to 50 USDs when converted from pesos into USDs. These are the only cross border investments with respect to the two countries' accounts with one another. Describe what happens to Latiniand’s net wealth denominated in USDs under the foliowing scenarios. in each case specify whethgr net we$ith incre‘aées, decrease or stays the same? iii a giant" 3: ’ 'W‘ ., ‘4': i mm» a.., I UM if“! «we: 7 mm Vim; ‘ix‘ “3?: Vlfi.’ ii’ is , a. memmnane rise from 1 peso an ,re to 2 pa 05 an acre with no change in the exchange _ rate? ital,“ emits. E . i N at. titted-i, W 53“ Weir iii-1"” WWW Wit, ' ,‘ W " ii if Rr'eifmcrfir in is w, b. ThrEii-gg’sma’maepfémciates in value but iand prices in Latinland in pesos stayéche same and iand prices in J “a” $ é“; ,5 m seem antenna, name same. {i Wt? i» in; r; as. me, 0 in «:1... me,— eeom’n FREE-ngL; 2‘: ; 1, Cit“ “it; tease? / i c. atifirTIandexperiences a current account surpius in ZQ;5 that permits exporters to hold more USDs in a hank account in New York. .. 3, a -. w t Mi is int eta h it ~* anwmhfim rmmmw mwmwmmwwm 4mm 4. Economic integration refers to a. promoting rapid economic growth. b. permitting any market to develop in a country. c. having an independent central bank. ' {dfiinkages in iabor, capitai and goods markets across countries or regions. W 5. How is Ecuador’s exchange rate system like France’s exchange rate system and how is it different from France’s exchange rate system. Same l heir his: ‘ g liege- W‘f‘i gift"? ifs-r .lj' M'jwfygfir gig a: . m- - x1: if: rarith 5 iii Wit i r‘rri. . . g “A £26- 6? E r; Tb l 6. The foilowing graph represents what has been going on in the international price for copper over the, past year or so. For each of the situations below describe whether over the year the two countries featured have experienced a common or an asymmetric shock to their economies on account of the rapid change in copper prices. 1 Year Copper Spat r» . . .fi as; ,,..-a. r’mi {3 ornaiimern i find is $5333 ' . N 4 . i “A b. Switzerland and South'Africa, th » a r r i y tin ii c. Chile and Switzerland, the former deriving a substantial portion of their income from coppe the latter a large importer of copper. exports, 7. Original sin refers to the idea that ii a. some countries cannot acquire liabilities in their own currency. mew. . at“: b. Some countries, through no fault of their own, find it difficult to raise capital in the international “é markets unless they agree to pay back or denominate that loan in a foreign currency such as the USD or “M the Euro. _ some countries cannot borrow in their own currency. " ll of the above 8. What are the two assumptions needed to convert the equation of exchange MV = PQ (which is simply a definition) into a theory about inflation/deflation. i- i': 3- l, .,. y it - . i} i amoral l- 5:; if at "5%: E; s Q 9. Under the gold standard a current account deficit is self-correcting. That is, a CA deficit will return to zero. Help me explain the steps by circling the correct response in the parentheses or choosing a or b. may -- The US imports more from a than England imports from the US. Therefore the US experiences a current account (surplus / eficit (PlCK ONE) f“ ' " This implies that in the foreign currency markets there is an excess demSUpply) for British pounds. M -— "to satisfy that imbalance individuals @xchange dollars for gold at the US Central Bank and exchange the gold for pounds in England 33. exchange pounds for gold at the UK Central bank and exchange the gold for dollars at the US central bank.) n This causes a. the US moneyllsupdly to rise and the UK money supply to fall. M I 3" if Kfifius money supply falls while the UK money supply rises. game: "i‘ -- this causes prices of goods in the US to (riseélpl and prices of goods in the UK toilrigeg/fall) causing 1}? imports into the US to decline. k”? 10. The international gold standard amounts to a perfectly floating exchange rate system. Thepgice of {a the US dollar in terms of British pounds would fluctuate on a day to day basis. Is this true or?6 11. The text and in class we discussed the requirements (or ideai conditions} for a group of nations that would constitute an optimum currency area. List these 3 conditions 5 .. tun a; n, M. _.V i .. 1 E W? " ' km 1 1.0”" 5% Q ii £53“. ."E 12. Suppose we are toid that the country of Aragon finds that it is located at point A in the diagram beiow, whiie the country of Castilia is located at point C. Which of these countries is practicing home bias? Mean and 18% “ standard 17. Standard deviation of i deviation of totai 1:01:31 16 portfoiio return portfolio 15 ' return I “1 er ear 1 " “if; ( a p y ) 14 =: Mean oftotal 13 fi portfolio return 12 I: e: 10 ‘- - r w 5 9 2E} 40 60 80 100% Fraction of wealth ti» educated to foreign portfolio mi? 13. Mercantilism refers to the school of thought that Iwe”ewwwwmmwwwwmwié ire-- ' 1 ~ e re in 5”" i Y A. advocates setting up manufacturing plants abroad. % a M Q: in} L ' , . My discredits the use of money. KWWfWSMWF “it if "‘ @advocates accumulationg gold (money) by exporting much and importing little. Wm“ V D. advocates the eiimination of tariffs 14. Suppose i have a firm that produces pens. If i empioy one worker the firm produces 5 pens. Ifl employ a second worker the firm produces 10 pens in total. if i empioy a third workeegheiuamlsoutputwm rises to 15. Given this scenario, what is the marginai product of iabor? E gm???” ref theft. " " ' m. 7 . w M i... s. 15. Last night i ate grapes that were imported from Chiie. The value oft e grapes wiiilmfi‘efigc‘fi‘deg in ' g ’ s" US GDP for 2016 since there were consumed in the US. is this true or alt; 1:} l: M f" t I; i . . r s. ‘ Efl-W‘ffi‘t r; fit it; WEI—‘5 qi"fi'i;¥§3§ ll-“i- tittngiarptgfi ~ W i - - . 16. identify where the following transaction belong in the 0.5. balarice of payments by recording the US doilar amounts in the tabie beiow. a. A US resident earns the equivalent of $500 on a bank account located in Tokyo, Japan. b Googie, a US firm, sells 100,000 030 worth of serve? time to Mitsubitchi ofJapan. c. US aid agency provides Ghana with 2000 USD so that Ghana can make progress on its building of hospitals in rural areas. Q d. jimmy Carter, a peanut farmer from Georgia, USA, sells 5000 USDs worth of. peanuts to Mexico. e. Ford Motor Company sets up an assembly line in Germany in order to produce the Ford Fiesta. Yhey expend USD 50,000 on the plant. f. A Chinese investor, desperate to diversity his wealth buys 100,000 USDs worth of Keliogg’s stock certificates on the US stock exchange. A Simplified Balance of Payments Table (for US) Credits, Receipts Debits Inpayments Supply of PX Demand for US $ I Current Account A. Goods (merchandise) Jim B. Services I C. Income receipts (payments) @ D. Current Unilateral Transfers II. Capital Account HI. Financial Account for y A. Change in US owned assets abroad gpfi i? ' B. Change in Foreign Owned assets in the US 17. Suppose that you have a total income budget of $150,000. The price of CoonAid is $10 a case and donuts are priced at 5 a dozen. A. Depict this budget constraint on the diagram belogyafi. Be sure to ' W» . ' '. f g'iim g incorporate appropriate unit on the x and y axes. in; it}? “i” fret % a“; fi ‘ exi’gif’iiitfirint-skit . .f! mil" s - o 520 2i” i ' t W i w . ism a is W 5 a: WW s w- w """" "” b. What is the slope of the budget fit my . ? ,i constraint. - i W. is we? (sat-i i s? i a "“’ 1 -- ‘ ~ m. . r _ ii if)“ it»? is its donuts to iniiéfilflifigigffl 18. A production possibiiities frontier for the country of Passai is depicted below. Let each square represent one unit. . a. What is the opportunity cost ofgaining one ., elephant if you are at point A. i. 3 0 ‘ L 1% I, zebras “b. What is the opportunity cost of gaining one eiephant if you are at point B? elephants . , c. Are opportunity costs constant With respect to ' a A . this PPF. Egg {:2 19. China is running a current account surplus. a. What does this mean concerning China’s level of production and consumption? b. What might account for this differential in production and consumption? m 9 _ ,. ' " r . fig 5:3 £4 a l gum ‘ J “‘3 i " if} res-sax in it «it - p i "' ’ We" . RE u inn :- i‘ . I r . . = f i i M 20. Both NAFTA and the Eurozone are attempts of economic integration. Which of the two is further aiong in the integration process Briefly explain how the two differ. 4,; .3 if" .f. 21. The objectives and tasks of the European Centrat Bank and the US Federai Reserve System differ. In what respects do they differ? 22. in 2013 Maiaysia’s current account was 11,731,544,450 USD. W a. Assuming that EViaiaysia is operating under a flexible exchange rate regime, what is the sum of Maiaysia’s Capital and FinanciaiAccount? * ' b. How large was Malaysia’s current account in comparison to current leveis of US GDP? That is, divide Wat Malaysia’s current account by the approximate ievel of current US(G:DP:. was? . r “ an. Tm, ...
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