CH 1

Question 1

Conversion of GDP using Purchasing Power Parity

Answer 1

PPP= gdp price index currency one/gdp price index currency two

Question 2

market exchange rate

Answer 2

money in after exchange/ money in before exchange

Question 3

difference between market exchange rate and rate obtained using ppp

Answer 3

ppp is a more accurate than
market exchange rate b/c it also
includes the impact of non-tradeables, and
is immune to currency manipulation.

Question 4

how to find Lorenz Curve

Answer 4

The 45-degree line shows absolute
equality of income distribution. The Lorenz
curve shows the actual distribution of
income.

Question 5

how to find GINI coefficient

Answer 5

area above Lorenz curve/(area above+below curve) x 100

Question 6

income distribution in advanced vs less advanced countries

Answer 6

less advanced countries have a dramatically skewed income distribution, lack of economic development and unstable government

Question 7

Emerging economies and factors that have helped them achieve faster economic growth

Answer 7

post Soviet Union, 4 tigers less government, more private sectors opening economies to trade

Question 8

The top 3 contributors to IMF

Answer 8

US, Japan, and China

Question 9

International Monetary Fund year of establishment

Answer 9

July 1944

Question 10

The World Bank year of establishment

Answer 10

1944

Question 11

six economic systems

Answer 11

Primitive communism, slavery, feudalism, capitalism, socialism, and communism

Question 12

index of economic freedom

Answer 12

Business, Trade, Monetary, Freedom from Government, Fiscal, Property Rights, Investment, Financial, from Corruption, Labor (This the employer’s freedom to fire and hire labor, pay wages etc.)

Question 13

The Great Leap Forward

Answer 13

1958-1961 Mao introduced encompassing
Soviet style centralized planning, collectivized
farming and government control of the factors of
production

Question 14

why the socialist model did not work in China

Answer 14

technology at the time could not keep track of 1 billion people
farmers pay was based off days not effort
difficult quota given to industry managers

Question 15

Cultural Revolution in China

Answer 15

Maos attempt to change mindset of Chinese people away from “bourgeoisie” and towards “proletariat”

Question 16

India and its balance of payment problem

Answer 16

had high tariffs and restrictions on product licensing

Question 17

Price floor in US

Answer 17

prevent price from going below a certain level
ex) minimum wage

Question 18

Price ceiling in US

Answer 18

to prevent price from going above a certain level. It has been used to make vital goods available to low income
people. It has also been used to control inflation

Question 19

Minimum wage history

Answer 19

First came to Australia in 19th century

Question 20

Agricultural Adjustment Act of 1933

Answer 20

Gave gov authority to intervene in markets for variety of farm goods

Question 21

IMF Mission

Answer 21

stabilize exchange rates, assist in reconstructing international payment system, facilitate international trade, increase employment, and reduce poverty

Question 22

impact of min wage

Answer 22

Some people may lose their job, otherwise modest increases are not harmful. Not effective for poverty, businesses may evade through noncompliance.

Question 23

Derivation of demand

Answer 23

Marginal Product of Labor x Marginal Revenue

Question 24

income effects

Answer 24

income rises, a workers demand for leisure will also rise

Question 25

substitution effects

Answer 25

wages go up, leisure is more expensive so demand for leisure will go down, hours worked will go up