Tuesday, December 18, 2007

Quiz 11 - Questions 4 and 5

When doing Questions 4-5. Please use the following table. The table in the quiz did not transfer through clearly.

Monday, December 17, 2007

Balance of Payments - what you need to know

For the purposes of the final, here is what you need to know about Chapter 34

1) Balance of Payments - A record of all transactions between households, firms and the government of one country and the rest of the world
a) current account - trade balance + net transfers + net interest income
i) trade balance = exports - imports. Exports +, imports -
ii) net tranfers - gifts between countries. Gift to US +, gift to other countries -
iii) net interest income - income you receive from coupon payments (bonds) and dividends (stocks). US recieves (+), US gives (-)

b) Capital account - measures real asset flows (purchases of stocks, bonds, real estate, etc)
Foreign purchase of a US asset (+)
US purchase of a foreign asset (-)

c) reserve account - account that automatically balances out the BOP, measures official reserves
Foreign government purchase of USD (+)
US Fed purchase of foreign (-)

Basically, anything that would increase the demand for US dollars is a plus for the BOP, anything that would require selling of US dollars would be a negative.

II) USD appreciation/depreciation
a) Fed policy - If the Fed raises interest rates, the return on bonds goes up and this makes holding US dollars more attractive, all else equal. The reverse also holds true
b) Demand for US assets (appreciation)
c) demand for US goods (appreciation)
d) demand for foreign assets (depreciation)
e) demand for foreign goods (depreciation)

Quiz 11 - For study purposes

I will paste the answers below

EC 207 – Intro to Macro Economics
Quiz 11 – In class Quiz on Chapters 33 and 34
Professor Festa

1) _______When nations specialize according to their comparative advantage
a) total production and consumption in the world increases
b) consumption rises in one country but falls in all others
c) Total world production rises but total consumption in the world declines.
d) Poor people suffer

2)_______If there are two goods and two countries, then one country can have
a) a comparative advantage in only one good
b) a comparative advantage in both goods
c) a higher opportunity cost of producing both goods
d) a lower opportunity cost of producing both goods.

3) ______ The ability to produce a good or service at a lower opportunity cost than other producers is
a) absolute advantage
b) the quota system
c) intellectual property
d) comparative advantage.

United States

Refer to the above table for 4-5

4) Referring to the above table, what is the cost of producing (opportunity cost) one bicycle in the United States________? What is the opportunity cost of producing one bicycle for Mexico
a. 4 computers, 0.5 computers
b. 0.25 computers, 2 computers
c. 2.67 bicycles, 0.33 computers
d. 0.375 computers, 3 bicycles.

5) ______Referring to question 4, which of the following would be a correct statement
a) The United States has a comparative advantage in bicycles
b) The United States has a comparative advantage in computers
c) Mexico has a comparative advantage in computers
d) Mexico has a comparative advantage in both goods.

6)_______The balance of trade is
a)The difference between exports and imports
b)The value of all goods and services produced
c) A measure of real asset flows
d) The amount of currency central banks hold

7) _________When the value of exports exceeds the value of imports then
a) changes in productivity will occur
b) international trade is in balance
c) the country is running a deficit
d) the country is running a surplus

8) ________ A record of all transactions between households, firms and the government of one country and the rest of the world is the
a) a balance of trade
b) balance of payments
c) international monetary fund
d) government budget

9) _______Which of the following would be considered a positive contribution to the capital account from the US perspective
a) US purchase of a Nokia Cell Phone
b) US purchases of Nokia stock
c) A Swedish purchases of US Dell stock
d) A Swedish purchase of a US Dell computer

10) _______Which of the following would cause an appreciation in the US dollar, all else equal?
a) The federal reserve unexpectedly raises interest rates
b) The federal reserve unexpectedly lowers interest rates
c) US demand for Swiss Clocks surges, causing imports to rise
d) Foreign demand for Dell computers falls, causing exports to fall.


Thursday, December 13, 2007

Class cancelled tonight, but final still set for Tues

I just got a call from the college. Class has been cancelled tonight so we will not be having our final quiz. So I will have to make some amendments.

2) QUIZ 11 has been permanently cancelled. Instead I will post the quiz online with the answers and you can use it as a reference for studying
3) I will be posting a review for the revelant chapters between today and Sat. The most important being Chapter 34 on the balance of payments.
4) Due to losing our final review class, I will allow you to turn in one final extra credit project. Here are the terms. It is the same as what currently exists (find an article, write a double spaced one page summary relating it to the class). However, instead of applying it to your quiz average I will apply it to the final. Instead of being worth 2 points I will make it worth 4 points on your final.

If you have any questions, please e-mail me.

Sunday, December 09, 2007

Quiz 10 - Due Dec 11

Intro to Macroeconomics - Quiz 10
Professor Matthew Festa
Due in class Tues, Dec 11
Balance of Payments and the exchange rate

1) (5 points) - Tell me whether the following will go in the current, capital or reserve account and whether it is a positive or a negative in its account.
a) A European purchase of a US Dell laptop
b) A US purchase of a Swiss watch
c) A Japanese purchase of Cisco Systems, a US company
d) A US citizen purchase of a Nokia Cell phone, a Swedish company
e) US receipt of interest income from a German bond

2) (5 points) Tell me whether the following would cause an appreciation or depreciation in the US dollar (USD)
a) The new Dell one machine, a US based company, catches fire around the world and is heavily demanded by foreigners.
b) Income among US citizens rises and the demand for foreign produced Cashmere sweaters increases
c) The US housing market is strong and there is good profit to be made by investing in US real estate, even if you don't live in the US
d) Smoogle, the next best Internet search engine, catches on and issues stock. The company is based out of Britain.
e) The federal reserve cuts the Fed funds rate and this causes a general decline in overall rates among US bonds.

Sunday, December 02, 2007

Wednesday, November 28, 2007

Free trade and US sock industry

Greg Mankiw has an interesting post on how the US sock industry has been affected by free trade. Of course, the flip side of this is that socks are being produced more efficiently at a lower cost while jobs/capital has shifted towards areas where we have a comparative advantage,

Monday, November 19, 2007

Class i on Tues

I called the college and classes are our class is scheduled for tomorrow. I will return the tests on that date.