Econ 340 Alan Deardorff Winter Term 2009 Second Midterm Answers Page 1 of 16 NAME: ____________________________________ Student ID No.: ____________________________ Economics 340 International Economics Prof. Alan Deardorff Second Midterm Exam Answers March 30, 2009 INSTRUCTIONS: READ CAREFULLY!!! 1. Please do not open the exam until you are told to do so. 2. ENTER YOUR NAME AND STUDENT ID NO. (THE EIGHT DIGIT NUMBER FROM YOUR M-CARD) ON THE EXAM AND ON THE SCANTRON SHEET. 3. After you are told to open the exam, find the FORM NUMBER at the top of page 2 and copy it to the scantron sheet. 4. This exam has 100 points and you have approximately 80 minutes to complete it. Check that you have all 16 pages of the exam, including this cover sheet. 5. Part 1 consists of 25 multiple choice questions worth 2 points each. Answers to these should be marked on the scantron sheet using a #2 pencil. There are no penalties for guessing. 6. Part 2 consists of short-answer questions for which you must provide written answers on these sheets. Point values for questions in Part 2 are indicated in parentheses. Part 2 has 48 points total. 7. That leaves 2 points unaccounted for. You will get these if (and only if) you correctly enter your name and ID number on both this exam booklet and the scantron sheet (so that the computer can read it), and if you enter the form number (see above) on the scantron. 8. Good luck!Econ 340 Alan Deardorff Winter Term 2009 Second Midterm Answers Page 2 of 16 FORM 0 Economics 340 Second Midterm Exam Part 1: Multiple Choice (2 points each) Select the best answer of those given. Answers to this part should be marked on the scantron sheet using a #2 pencil. There is only one correct answer per question, and there is no penalty for guessing. 1. The solid lines in the figure below show initial supply and demand for labor in two countries, A and B. Migration then occurs, yielding the dashed supply curves shown as SA’ and SB’. What is the effect of this migration on the welfare of factors other than labor in Country A? That is, what happens collectively to the employers of labor and to factors of production other than labor in Country A? a. They lose areas (a+b). b. They gain area a c. They are unaffected. d. They gain area (a+b) e. They lose area (a+b+c) Ans: dEcon 340 Alan Deardorff Winter Term 2009 Second Midterm (with Answers) Page 3 of 16 (17) 2. Immigration into the United States has kept the US population younger, on average, than the population of Japan, where much less immigration occurs. When we speak of the demographic effects of immigration, we observe that a. This helps Japan, because their workers have more experience. b. This helps the US, because more young workers are available to support the elderly. c. This hurts Japan, because their older workers are physically weaker and therefore less productive. d. The hurts the US, because the immigrants are lazy. e. Both the US and Japan gain from this exchange, as the immigrants send remittances to their families in Japan Ans: b 3. When one author on the subject of US immigration complains that “balkanization has replaced assimilation,” he means that a. Today’s immigrants live in enclaves with others like themselves, instead of intermingling with the larger population. b. Today’s immigrants come increasingly from South Eastern Europe, rather than from Asia. c. Immigrants take more from social services than they give back. d. Restrictions on immigration are preventing qualified workers from entering the United States and filling jobs, which therefore go unfilled. e. Immigrants are now being admitted from only a handful of isolated places around the world, in contrast to drawing from the whole world as we used to do. Ans: a 4. In the data on foreign direct investment, Japan is a. Both a large source country and a large host country. b. A large source country but not a large host country. c. A large host country but not a large source country. d. Not significant as either source or host. e. Not distinguished from other countries in Asia, so it is impossible to say what role it plays. Ans: bEcon 340 Alan Deardorff Winter Term 2009 Second Midterm (with Answers) Page 4 of 16 (17) 5. Comparing multinational firms to local firms in the same industry, a. MNCs pay lower wages than local firms. b. MNCs require workers to work longer hours, and in harsher conditions, than local firms. c. MNCs make more extensive use of machinery than do local firms. d. The products of MNCs are less likely to be protected by import tariffs. e. MNCs do not buy raw materials from the local economy Ans: c 6. What is the connection, if any, between comparative advantage (CA) and foreign direct investment (FDI)? a. Countries often engage in FDI in industries where the country they invest in has a comparative advantage. b. If a country attracts large amounts of FDI in order to sell to its home market, that indicates its comparative advantage as an FDI host. c. When a country’s firms invest abroad, this helps to create CA in the same industry at home. d. When a country’s firms invest abroad, this helps to create CA in the same industry in the country where they undertake the investment. e. Nothing. CA has nothing to do with FDI. Ans: a 7. Suppose that a country has the following data on international transactions in a given year: Exports of goods and services 1000 Imports of goods and services 800 Net change in assets owned abroad 500 Net change in foreign-owned assets at home 400 Unilateral transfers received 0 Unilateral transfers paid 200 Investment income paid to foreigners 300 Investment income received from foreigners 400 Then its balance on current account for that year is a. +200 b. +100 c. 0 d. –100 e. –200Econ 340 Alan Deardorff Winter Term 2009 Second Midterm (with Answers) Page 5 of 16 (17) Ans: b 8. The trade deficit of the United States has been very large in recent years, at least until the last few months. How has this been possible? a. It’s not. The data are wrong. b. While the value of imports has been large, the quantity has been small, so that the quantities of US exports and imports have been equal. c. Other countries have been willing to give us the money, as unilateral transfers, to pay for our excess imports. d. The US invested so
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