User talk:Anandsuic


 *  Macroeconomics 


 * BY
 * [[File:Dr. Tang Zhimin.jpg]]
 *                        Dr. Tang Zhimin                  

Group Discussion

 * Group Discussions including Key Learning Points and Multi-choice questions. Key learning points cover the whole chapter giving most important contents of the topic. Multiple choice questions are to be discussed individually or in groups of couple and answer to get level of understanding and application of learnings.

Group Discussion 1.1
Key Learning Points


 * •	What does GDP measure?
 * •	What is the expenditure approach to measure GDP?
 * •	What is the income approach to measure GDP?
 * •	What is the production approach to measure GDP?

1. One method of calculating GDP is to add together:


 * a. Consumption, wages, interest, rental income, and exports.
 * b. Investment, consumption, gross profits, and net exports.
 * c. Consumption, investment, government spending, and net exports.
 * d. Wages, gross profits, net investment, and consumption.

2. Goods produced in year 1 but not sold until year 2 would:


 * a. be counted in year 2 GDP.
 * b. be omitted from both year 1 and year 2 GDP.
 * c. be counted in year 1 GDP as inventory investment.
 * d. be omitted from year 1 GDP.

3. Which of the following is investment as economists use the term?


 * a. Toyota builds an additional assembly plant.
 * b. You put money into your savings account.
 * c. You put money into your checking account.
 * d. You buy a share of GM stock.

4. Which of the following is ADDED to arrive at GDP?


 * a. The value of "free" household services provided by at-home spouses rather than a paid cook, maid, and baby sitter.
 * b. The value of unpaid-for volunteer time.
 * c. The unpaid-for services provided by the natural environment, such as breathable air.
 * d. Net exports: (value of exports - value of imports).

5. A good example of an intermediate good is:


 * a. A loaf of bread bought for home consumption.
 * b. Tires sold by Firestone to Ford Motor Company.
 * c. A used textbook sold by one student to another student.
 * d. A hamburger bought at a fast-food restaurant.

6. A new forklift sold for use in a warehouse is final goods


 * a. true.
 * b. false.

Group Discussion 1.2
Key Learning Points


 * 1) What is inflation? What is deflation?
 * 2) What is the Consumer Price Index? How is the CPI computed?
 * 3) How is the inflation rate computed?
 * 4) What is nominal GDP?  What is real GDP?
 * 5) What is nominal and real interest rate?

1. Your uncle bought a house in 1983 for $40,000 and sold it in January 1989 for $45,000. During this period the CPI rose from 100 to 121. (Assume the CPI for 1983 = 100). In constant or real dollar terms your uncle:


 * a.	Gained $5,000 on the sale.
 * b.	Gained $85,000 on the sale.
 * c.	Lost $2,810 on the sale.
 * d.	Lost $3400 on the sale

2. Nominal GDP was about $3,515 billion in 1983 and rose to $8,332 billion in 1998, during which time the price index increased from 100 to 164 where 1983 = 100. By how much did real (constant dollar) GDP increase?


 * a. $4,817 billion.
 * b. $5,080 billion.
 * c. $1,565 billion.
 * d. $1,236 billion.

3. True or False. Inflation normally increases peoples’ nominal income, but may reduce their real income.
 * a. True
 * b. False

4. The CPI (1982-84 = 100) rose from 166.6 in 1999 to 172.2 in 2000. The annual inflation rate between 1999 and 2000 was:

<p.
 * a. Indeterminate.
 * b. 5.6%.
 * c. 3.4%.

5. Suppose hypothetically that you buy a lot of food such as tofu, veggie burgers, and organic fruit that are not included in the market basket used to compute the CPI. In addition, suppose that all of these goods have become cheaper over the last year, while the overall CPI has increased by 6 percent. Then which of the following is true?


 * a. The CPI will understate the negative impact of inflation on your purchasing power and standard of living.
 * b. The CPI will still accurately state the negative impact of inflation on your purchasing power and standard of living.
 * c. The CPI will overstate the negative impact of inflation on your purchasing power and standard of living.
 * d. None of the above.

6. The formula used to compute the consumer price index has in its numerator:


 * a. The current year market basket multiplied by the current price.
 * b. The base year market basket multiplied by the base year price.
 * c. The base year market basket multiplied by the current price.
 * d. Next year’s market basket multiplied by next year’s price.

Group Discussion 1.3
Key Learning Points
 * •	What is the unemployment rate?
 * •	What is full employment?
 * •	What is frictional unemployment?
 * •	What is structural unemployment?
 * •	What is seasonal unemployment

1. When a discouraged job seeker gives up and stops looking for a job, the unemployment rate:


 * a. Remains unchanged.
 * b. Drops.
 * c. Rises.

2. Suppose the economy is strong and growing, Matt is a skilled worker, and Matt quits a job with the XYZ Corporation in order to look for more rewarding employment. Matt would be


 * a. Counted as cyclically unemployed.
 * b. Included in the economy's "hidden employment."
 * c. Counted as still being employed.
 * d. Counted as frictionally unemployed.

3. Assume the population is 100; 54 people have jobs and 6 people are unemployed. The unemployment rate is:


 * a. 6/54 = 11.1%.
 * b. 6/60 = 10%.
 * c. 6/100 = 6%.
 * d. None of the above.

4. True or False. Full employment means that the unemployment rate is zero.


 * a. True
 * b. False

Group Discussion 2.1
Key Learning Points
 * What is a business cycle? What are the phases of a business cycle?
 * What is the aggregate demand curve?
 * What is the aggregate supply curve?
 * According to Keynes, what will a shift in aggregate demand do?
 * What is the Classical view of the aggregate supply curve?
 * What determines the business cycle?
 * What is cost push and demand pull inflation?

1. Which of the following is associated with peaks in the business cycle?


 * a. Relatively high levels of unemployment.
 * b. Recessions.
 * c. Relatively low levels of unemployment.
 * d. Both a. and b. above.

2. All of the following are sources of cost-push inflation except:
 * a. An increase in workers wages unmatched by productivity gains.
 * b. A decrease in worker productivity.
 * c. An increase in raw material prices.
 * d. An increase in worker productivity.

3. When inflation occurs following a right-ward shift in the AD curve, its called:
 * a. cost-push inflation.
 * b. Selfish inflation.
 * c. Conspiratorial inflation.
 * d. Demand-pull inflation.

4. The vertical range of the AS curve is known as the:
 * a. intermediate range.
 * b. Classical range.
 * c. Keynesian range.
 * d. Supply-side range.

5. A leftward shift in the aggregate supply curve will, ceteris paribus, cause:
 * a. inflation and more output.
 * b. deflation and less output.
 * c. inflation and less output.
 * d. deflation and more output.

6. ___________ inflation can be explained by an ___________ shift in the aggregate __________ curve.
 * a. Demand-pull, inward, demand.
 * b. Cost-push, outward, supply.
 * c. Demand-pull, outward, supply.
 * d. Cost-push, inward, supply.

7. A drop in the price of crude oil would, ceteris paribus, shift aggregate supply to the left.


 * a. True
 * b. False

8. Which of the following will NOT cause the aggregate demand curve to shift?
 * a. a change in government spending.
 * b. a change in expectations.
 * c. a change in net exports.
 * d. a change in the overall price level.

9. An increase in aggregate demand, when the economy is operating in the vertical range of the aggregate supply curve will:


 * a. cause only inflation.
 * b. increase real national output.
 * c. will increase both prices and output.
 * d. deflation.

Group Discussion 2.2
Key Learning Points


 * •	What is a discretionary fiscal policy?
 * •	What is Expansionary fiscal policy or Contractionary fiscal policy?
 * •	With is spending multiplier & its relationship with MPC
 * •	What is the formula for the tax multiplier?
 * •	What is the balanced budget multiplier?

1. If the government wished to shift the AD curve to the right by $100 billion, assuming an MPC of 0.8, it should:


 * a. increase government spending by $20 billion.
 * b. decrease government spending by $25 billion.
 * c. Decrease government spending by $20 billion.
 * d. Increase taxes by $20 billion.

2. In the ____________ range of the aggregate supply curve, expansionary fiscal policy that causes aggregate ____________ to increase will lead to a higher price level and a higher equilibrium level of real GDP.


 * a. Keynesian, supply.
 * b. Classical, demand.
 * c. Intermediate, demand.
 * d. Intermediate, supply.

3. If the MPC is 0.8 the sizes of the government spending and tax multipliers, respectively, are:


 * a. 5 and –4.
 * b. 5 and –5.
 * c. 4 and –4.
 * d. None of the above.

4. The most appropriate fiscal policy that the government might use to combat a recessionary gap is:


 * a. Decreasing G.
 * b. Increasing T.
 * c. Decreasing G and T by equal dollar amounts.
 * d. Increasing G or cutting T.

5. Suppose inflation is a threat because the AD curve will increase by $600 billion. If the MPC is 0.75, federal policy maker could follow Keynesian and restrain inflation by:


 * a. decreasing tax by $600 billion.
 * b. decreasing transfer payment by $200 billion.
 * c. increasing tax by $200 billion.
 * d. increasing government spending by $150 billion.

Group Discussion 2.3
Key Learning Points


 * •	What is an automatic stabilizer?
 * •	What is a budget surplus or deficit?
 * •	What is supply side fiscal policy?
 * •	What is the Laffer Curve?

1. Supply-side policy suggests that if we __________ taxes of workers, the _______________ labor will increase, causing equilibrium wages to ________.


 * a. Raise, supply of, decrease.
 * b. Cut, supply of, increase.
 * c. Raise, demand for, increase.
 * d. Cut, supply of, decrease.

2. Automatic stabilizers create _____________ during recessions from things like increased government spending on welfare and unemployment insurance, and reduced tax revenues, and create ____________ during peak growth periods of the economy from things like reduced government welfare spending and increased tax revenues.


 * a. Fiscal stimulus, fiscal contraction.
 * b. Fiscal stimulus, fiscal stimulus.
 * c. Fiscal contraction, fiscal stimulus.
 * d. Fiscal contraction, fiscal contraction.

3. Supply-side macroeconomic policy is based on the idea that a right shift in the aggregate supply curve will both increase real GDP and the overall price level.


 * a. True
 * b. False

4. The Laffer curve is based on the idea that if the tax rate is sufficiently high, then raising it even more will actually reduce total tax revenues. According to Laffer, this happens because the growing tax rates reduce economic activity at an even faster rate.


 * a. True
 * b. False
 * 5. Which of the following is not an automatic stabilizer?
 * a. Defense spending
 * b. Unemployment benefit.
 * c. Personal income tax.
 * d. Welfare payment

Group Discussion 3.1
Key Learning Points


 * •	What is money? What is fiat money?
 * •	What is cash (currency), narrow money & broad money?
 * •	What is fractional reserve banking?
 * •	What are required reserves and required reserve ratio? What are excess reserves?
 * •	What is the deposit multiplier? What is it equal to?

1. Fiat money is?


 * a. Money used to purchase a car made in Italy.
 * b. Money that can be redeemed in some precious metal.
 * c. Money that has no intrinsic value.
 * d. The new currency used by the Common Market nations.

2. Based on the balance sheet shown, if the reserve ratio is 20%, the ABC bank has excess reserves of


 * a. $7,000.
 * b. $5,000.
 * c. $12,000.
 * d. $3,000.
 * e. zero.

3. Following the above question, the ABC bank could prudently expand its loans by a maximum of


 * a. $35,000.
 * b. $5,000.
 * c. $12,000.
 * d. None of the above.

4. ____________ plus ______________ plus _____________ equals _____________.
 * a. Total deposits, loans, required reserves, excess reserves.
 * b. Loans, required reserves, excess reserves, total deposits.
 * c. Required reserves, total deposits, excess reserves, loans.
 * d. Excess reserves, loans, total deposits, required reserves.

5. Floyd takes $10,000 in cash from selling a Treasury bond to the Fed and deposits it in his checking account at First Bank. First Bank holds $1,000 in reserve and lends out $9,000 to Wilbur, who deposits this $9,000 in his checking account at Second Bank. What is the total money supply so far in this question?


 * a. $19,000.
 * b. $10,000.
 * c. $9,000.
 * d. $1,000.

6. Floyd takes $10,000 in cash from selling a Treasury bond to the Fed and deposits it in his checking account at First Bank. Assume the reserve ratio to be 10%. What is the maximum money supply could be created?


 * a. $19,000.
 * b. $10,000.
 * c. $190,000.
 * d. $100,000

Group Discussion 3.2
Key Learning Points


 * •	What is monetary policy?
 * •	How monetary policy may affect inflation and GDP?
 * •	What are open market operations?
 * •	What is the discount rate?
 * •	What is a required reserve requirement?

1. When the BOT sells bonds, you can expect


 * a. banks’ reserves to increase, money supply to increase, interest rates to fall.
 * b. banks’reserves to increase, money supply to increase, interest rates to rise.
 * c. banks’reserves to decrease, money supply to decrease, interest rates to fall.
 * d. banks’ reserves to decrease, money supply to decrease, interest rates to rise.

2. If at prevailing interest rates the quantity of money demanded is $2 trillion, and the supply of money is $1.5 trillion, then which of the following is true?


 * a. There is a shortage of money, and consequently interest rates must fall in order to achieve an equilibrium in the money market.
 * b. There is a surplus of money, and consequently interest rates must fall in order to achieve an equilibrium in the money market.
 * c. There is a shortage of money, and consequently interest rates must rise in order to achieve an equilibrium in the money market.
 * d. There is a surplus of money, and consequently interest rates must rise in order to achieve an equilibrium in the money market.

3. If the BOT reduces the discount rate, which of the following are most likely to result?


 * a. The money supply shifts outward, and equilibrium interest rates fall in the money market.
 * b. Investment declines, causing the aggregate demand curve to shift inward to the left, reducing equilibrium real GDP and thus slowing the economy.
 * c. Investment rises, causing the aggregate demand curve to shift outward to the right, increasing equilibrium real GDP and thus accelerating the economy.
 * d. Both a. and b. above are correct.
 * e. Both a. and c. above are correct.

4. Suppose that the current money market equilibrium features an interest rate of 5 percent and a quantity of $2 trillion. Suppose that at a 6 percent interest rate, the quantity of money demanded is $1.5 trillion, while at a 4 percent interest rate it is $2.5 trillion. If the Fed does an open-market purchase of $50 billion, and the money multiplier is 10, what will be the new money market equilibrium?


 * a. An interest rate of 6 percent and a quantity of $1.5 trillion.
 * b. An interest rate of 5 percent and a quantity of $2 trillion.
 * c. An interest rate of 4 percent and a quantity of $2.5 trillion.
 * d. None of the above.

5. Which of the following best describes the Keynesian cause-effect chain of an easy or expansionary money policy?


 * a. An increase in the money supply will lower the interest rate, increase investment spending, and increase real GDP.
 * b. An increase in the money supply will raise the interest rate, decrease investment spending, and decrease real national income.
 * c. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease real GDP.
 * d. A decrease in the money supply will lower the interest rate, increase investment spending, and increase real national income.

Group Discussion 4.1
Key Learning Points


 * What is the balance of payments?
 * What is current account and capital account?
 * What is BOP surplus or deficit?


 * What is the balance of trade?

1. FILL IN THE BLANK: The balance of trade is the value of a nation's ______________________.


 * a. Goods and services exports plus goods and services imports.
 * b. Goods exports subtracted from goods imports.
 * c. Goods imports subtracted from goods exports.
 * d. Net goods imports plus net capital inflows.

2. TRUE OR FALSE: It is possible for the balance of trade to be deficit, and the current account to be surplus.


 * a. True
 * b. False

3.	If U.S. buyers purchased $500 billion of foreign goods and foreign buyers purchased $400 billion of U.S. goods, the U.S. balance of trade would be:


 * a. deficit of $100 billion.
 * b. surplus of $100 billion.
 * c. surplus of $400 billion.
 * d. none of the above

4. Which of the following is not included in the current account?


 * a.	Exports of goods.
 * b.	Imports of goods.
 * c.	Capital inflow and outflow.
 * d.	Unilateral transfers.

5. The purchase of Thai assets by foreigners is a:


 * a.	capital inflow.
 * b.	capital outflow.
 * c.	current account deficit.
 * d.    unilateral transfer

Group Discussion 4.2
Key Learning Points


 * What is an exchange rate?
 * What can cause a currency to change value?
 * What is depreciation or appreciation of a currency?

1. If the overall price level in Europe rises much more than in the U.S., ceteris paribus, this will cause:


 * a. The dollar to weaken relative to the Euro.
 * b. The dollar to appreciate relative to the Euro.
 * c. The Euro to appreciate relative to the U.S. dollar.
 * d. None of the above.

2. FILL IN THE BLANKS: If there is bilateral currency trade between Japan and the U.S., then as the supply of U.S. dollars on the world foreign exchange market ______________, the price of a dollar in terms of Japanese yen will __________.


 * a. Increases, fall.
 * b. Decreases, fall.
 * c. Increases, increases.
 * d. Decreases, stays the same.

3. If American tastes shift in favor of Japanese goods, ceteris paribus, what will happen to the value of the dollar relative to the value of the Yen?


 * a. The dollar will weaken or depreciate.
 * b. The dollar will strengthen or appreciate.
 * c. The Yen will depreciate and the dollar will appreciate.
 * d. None of the above.

4. Which of the following would cause a decrease in demand for euro by those holding US$?


 * a. Inflation in France but not in USA.
 * b. Inflation in USA but not in France.
 * c. An increase in the real interest rate in France above those in USA.
 * d. None of the above.

Group Discussion 4.3
Key Learning Points


 * •	What is the regime of fixed exchange rate and managed float?
 * •	How is a BOP surplus or deficit adjusted under the float or managed float exchange rate regime?
 * •	How depreciation or appreciation of a currency may affect BOP of a country?

1. The exchange rate regime in Thailand now is:


 * a. Fixed exchange rate.
 * b. Pure float rate.
 * c. Managed float rate.
 * d. None of the above.

2. TRUE OR FALSE: under the fixed rate system, a BOP deficit may lead to depreciation of Thai Baht.


 * a. True
 * b. False

3. FILL IN THE BLANK: under the fixed rate system, a BOP surplus may produce _________________ in the foreign exchange reserve of Thailand.


 * a. An increase.
 * b. A decrease.
 * c. no change.

4. True or False. Under the float rate system, a BOP deficit may lead to depreciation of Thai Baht.


 * a. True
 * b. False

5. Which of the following would necessary happen if Thailand has a float rate system and it has a BOP deficit?


 * a. Its foreign exchange reserve would decrease.
 * b. Its foreign exchange reserve would increase.
 * c. Thai baht would appreciate.
 * d. None of the above.

6. A “strong” dollar:


 * a. Benefits everybody in the U.S.
 * b. Harms U.S. exporters, but benefits U.S. consumers.
 * c. Benefits U.S. exporters, but harms U.S. consumers.
 * d. All of the above are correct.

7. Suppose the exchange rate changes so that fewer Japanese yen are required to buy a dollar. We can conclude that


 * a. The yen has depreciated in value.
 * b. US citizens will buy fewer Japanese imports.
 * c. Japanese will demand less U.S.exports.
 * d. None of the above.

Group Discussion 5.1
Key Learning Points


 * •	What is free trade and what are the arguments for free trade?
 * •	What is protectionism and what are the arguments for protectionism?
 * •	What is specialization?
 * •	What is absolute advantage and comparative advantage?

1. FILL IN THE BLANK: Absolute advantage is the ability of a country to produce a good with _________________ than another country.


 * a. A lower opportunity cost.
 * b. A higher opportunity cost.
 * c. Fewer resources.
 * d. More resources.

2. True or False. A country is said to have a comparative advantage in a particular good if it can produce that good at lower opportunity cost than other countries.


 * a. True
 * b. False

3. Which of the following statements best describes the results of moving from protectionism to free trade?


 * a. Everyone, both producers and consumers, benefits.
 * b. Everyone, both producers and consumers, are harmed.
 * c. The nation as a whole benefits, however, workers and owners of nonlabor factors of production in import-competing industries are harmed.
 * d. Nobody is really affected very much.

Group Discussion 5.2
Key Learning Points


 * •	What is a tariff barrier and non-tariff barrier?
 * •	What are investment barriers?
 * •	What is liberalization in international trade
 * •	What is liberalization in investment
 * •	What is the role of WTO?
 * •	Explain different stages of regional integration and their contribution to liberalization

1. How is a tariff different from a quota?


 * a. A tariff sets a limit on the quantity of a good that my be imported, while a quota is a tax on an import.
 * b. A tariff and a quota are different words for the same thing.
 * c. A tariff is a tax on an import, while a quota sets a limit on the quantity of a good that may be imported.
 * d. None of the above are correct.

2. Which of the stage of regional integration is ASEAN?


 * a. Free trade area.
 * b. Customs union.
 * c. Common market.
 * d. Economic Union

3. EU is complaining about the export subsidy US government


 * a. Because companies in EU would be better off with lower priced imports
 * b. EU would most probably charge the countervailing duty on the US export.
 * c. EU would most probably charge the anti dumping duty on US export.
 * d. EU would most probably set a quota ion US export

4. Based on which fact we may conclude France and Germany are in the economic Union?


 * a. Because both countries have a same tariff against Japanese export.
 * b. Because the tariff rates between the two countries are very low
 * c. Because there is a free movement of labor between the two countries.
 * d. Because both countries are using the Euro


 * 5. One example of the MFN principles of WTO is:


 * a. Thailand has the ”Early Harvest Program” with China
 * b. Thailand has the ”Treaty of Amity and Economic Relation” with USA
 * c. Thailand is a part of AFTA.
 * d. Thailand has reduced the tariff rate against China when it joins the WTO

6. A foreign tourist has to pay a higher price at a gate of resort in Thailand. This is a case of:


 * a. Local content requirement in tourism industry
 * b. Ownership limit in tourism industry
 * c. Entry barrier in tourism industry
 * d. Non national treatment

7. Thailand used to require Toyota use the components in Thailand in making the cars. This is a case of:


 * a. Local content requirement in automobile industry
 * b. Ownership limit in automobile industry
 * c. Entry barrier in automobile industry
 * d. Non national treatment

-- Anand Lanjewar 10:54, 26 February 2011 (UTC)