AnswersEconomics 340Second Midterm ExamAns: cAns: dAns: bAns: dAns: bAns: cAns: dAns: dAns: aAns: cAns: dAns: bAns: be. None of the above. An appreciation does not cause the aggregate supply or demand curves to shift.Ans: cAns: aAns: bAns: cAns: eAns: cAns: aAns: aAns: dAns: dAns: bAns: cPart II: Short Answer The U.S. $ appreciatesThe Japanese yen appreciatesThe Thai baht appreciatesThe Canadian $ appreciatesIs this an appreciation or a depreciation of the Hong Kong dollar? (circle one) Foreign direct investmentAns.: Acquiring ownership of real capital in another country; Lipsey defines it as occurring “when a company in one country obtains a ‘lasting interest’ in an enterprise in another country.”Crawling pegAns.: A pegged exchange rate in which the pegged value is changed slowly and systematically over time in response to market forces.Maquiladora industryAns.: Industry located in an export processing zone in Mexico, in which inputs are imported duty-free, and outputs then exported to the U.S. subject to tariff only on the Mexican value added.Forward exchange rateAns.: The price (exchange rate) for exchanging currencies at some time in the future.Docking provisionProvision of an FTA that permits new countries easily to add themselves to it.Stability and Growth PactThe agreement that countries adopting the euro must keep budget deficits below 3% of GDP.Econ 340 Alan Deardorff Fall Term 2007 Second Midterm (with Answers) Page 1 of 15 (16) NAME: ____________________________________ Student ID No.: ____________________________ Economics 340 International Economics Prof. Alan Deardorff Second Midterm Exam Answers November 26, 2007 INSTRUCTIONS: READ CAREFULLY!!! 1. Please do not open the exam until you are told to do so. 2. PLACE 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 the test. Check that you have all 15 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. 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 put your name and ID number on both this exam booklet and the scantron sheet, and if you enter the form number (see above) on the scantron. Note that you must fill in circles on the scantron for the computer to read your name, ID, and form number, as well as your answers. 8. Good luck!Econ 340 Alan Deardorff Fall Term 2007 Second Midterm (with Answers) Page 2 of 15 (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. What is the connection, if any, between comparative advantage (CA) and foreign direct investment (FDI)? a. Nothing. CA has nothing to do with FDI. b. Countries engage in FDI in industries where the country they invest in has a comparative disadvantage. c. Countries engage in FDI in industries where the country they invest in has a comparative advantage. d. When a country’s firms invest abroad, this helps to create CA in the same industry at home. e. When a country’s firms invest abroad, this helps to create CA in the same industry in the country where they undertake the investment. Ans: c 2. During the 1950s, foreign direct investment a. Was greater, in proportion to GDP, than it is today because of the need to rebuild after World War II. b. Was greater, in proportion to GDP, than it is today because of the opportunity to apply new technologies that had been invented during the 1940s. c. Took place at about the same rate, in proportion to GDP, as it does today. d. Was smaller, in proportion to GDP, than it is today because governments placed controls on capital flows and exchange of currencies. e. Was smaller, in proportion to GDP, than it is today because only the less developed countries wanted it, and they were too poor to afford it. Ans: dEcon 340 Alan Deardorff Fall Term 2007 Second Midterm (with Answers) Page 3 of 15 (16) 3. Which of the following is an example of foreign direct investment from the United States to Mexico? a. Sale of a U.S. Treasury Bill to a corporation in Mexico. b. Acquisition of a convenience store in Mexico City by lawyer in Chicago on behalf of an American client. c. Deposit by an American professor of US dollars into a bank in Mexico. d. Sale of land in Mexico by an American to a Mexican. e. Sale of land in the U.S. by an American to a Mexican. Ans: b 4. Which of the following would appear as a (positive) credit in the Financial Account of the U.S. balance of payments? a. Purchase by a Florida corporation of an orange-squeezing machine from Germany. b. Purchase by an American student of a villa in the south of France. c. Sale of a Boeing 757 airplane by the U.S.-based Boeing Corporation to Singapore Airlines. d. Deposit in a Chicago bank of $15,000 by a resident of South Africa. e. Sale by a Korean executive to an American executive of shares of stock in the Ford Motor Company. Ans: d 5. Which of the following, in recent years, has been the largest entry in the U.S. balance of payments? a. U.S. exports of goods and services. b. U.S. imports of goods and services. c. Net unilateral transfers. d. Gross domestic product. e. Statistical discrepancy. Ans: bEcon 340 Alan Deardorff Fall Term 2007 Second Midterm (with Answers) Page 4 of 15 (16) 6. A surplus in the balance of trade or in the balance on current account (assume they’re the same for this question) implies that a. The country’s volume of employment is expanding. b. The country is spending on goods and services more than it is earning from producing them. c. The country is
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