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Name____________________ Student ID____________________ Midterm Exam Economics 2000 Tuesday, October 30th, 2012 Write your answers on this white exam paper. Multiple Choice (1/2 point each) 1. Which Multinational Institution takes charge of ensuring short-term financial liquidity by providing short-term loans during a financial crisis? a. b. c. d. Bank for International Settlements World Bank Asian Development Bank International Monetary Fund ______________ 2. Green GDP can be calculated by: a. b. c. d. Adding environmental cleanup costs to GDP Subtracting environmental cleanup costs from GDP Adding value of natural resources extracted to GDP Adding value of natural resources discovered to GDP ______________ 3. An Argentine worker can make 5 automobiles per month or 15 motorcycles. An American worker can make 1 automobile per month or 2 motorcycles. We can say: a. America has both an absolute and a comparative advantage in making automobiles. b. America has an absolute advantage in automobiles but not a comparative advantage. c. America has a comparative advantage in automobiles but not an absolute advantage. d. America has neither an absolute nor a comparative advantage in automobiles. ______________ 1 4. Your firm wants to invest in a heavy industrial factory making machine tools which requires a disciplined workforce able to follow precise rules and a committed management teams. According to Hofstede’s Cultural Dimensions theory, a culture with a high measurement along which dimensions might have a strong competitive advantage. a. Power Distance and Uncertainty Aversion b. Uncertainty Aversion and Individualism c. Uncertainty Aversion and Traditional Values d. Power Distance and Individualism ______________ Short Answer 5. (2 points) Economic journalist Thomas Friedman wrote in his book The Lexus and the Olive Tree “That’s why I define globalization this way: it is the inevitable integration of markets, nation-states and technologies to a degree never witnessed before – in a way that is enabling individuals, corporations and nation-states to reach around the world farther, faster, deeper and cheaper than ever before.” Construct two arguments against Friedman’s remarks. A. B. 6. (2 points) Name an objective and a subjective measure of potential institutional gaps in goods markets. A. B. 2 7. (2 points) The Human Development Index tries to measure development along the lines of economic philosopher Amartya Sen. This index measures standard of living using national income, life expectancy and health. Explain why national income might better capture Sen’s idea of development than would GDP. 8. (2 points) According to the theories of Elinor Ostrom, why might having a high level of interpersonal trust create efficiencies in society? 3 9. (2 points) The OECD under its Better Life Initiative is attempting to create measures of well-being to compare with GDP. They have conducted surveys of people in all member countries on their health. A representative sample of people in each country was asked “How is your health? Very good, good, not very good, or poor.” At their web site, http://www.oecdbetterlifeindex.org/topics/health/ the OECD reports the % of people answering good or very good including the following countries. % Answering Good or Very Good Germany 65% Korea 44% Japan 33% USA 75% Compare these results from subjective measures of health with objective measures such as life expectancy. Life Expectancy Germany Japan 80.0 Korea 82.9 USA 80.8 78.2 Describe some advantages and disadvantages of using subjective measures vs. objective measures of health 4 10. (2 points) OECD researchers also tested the quality of education by travelling to member countries and implementing standardized tests for reading competence on a representative group of 17 year olds. Students were given a score of 200 to 600. Reading Comprehension Score: Average Student Germany 497 Korea 549 Japan 520 USA 500 Suppose you wanted to construct a Development Index which combined survey indices of health with quality measures of education. Describe precisely how you would construct such an index. Calculate that Index for the USA. 5 Calculations 11. (2 points) In 2011, the British pound traded at an exchange rate of US$1.48 per British pound. The following chart shows the GDP per capita in 2011 in local currency units along with the PPP conversion factor in local currency units per US$. Convert GDP levels into US dollars using both the exchange rate and PPP conversion method. UK GDP per Capita PPP Conversion factor 2011 £24,067.06 0.62 PPP Conversion Exchange Rate Conversion ______________ ______________ 6 12. (3 points) You have data from a fictional version of Indonesia in 2009 and 2010. In this version of Indonesia, only two goods are produced: consumption and investment. In 2009, consumption goods were 69% of GDP. The volume growth rate of consumption was 4.04% while the volume growth rate of investment was 10.41%. a. Calculate the volume growth rate of GDP in 2010. ______________ b. Calculate investments contribution to GDP growth. ______________ 13. (3 points) You are given information on the PPP GDP per Capita for Indonesia 2005 measured in international dollars, $3102. In addition, you are given a measure of the Lorenz curve cumulative distribution by quintile. 20th Percentile 40th Percentile 60th Percentile 80th Percentile 100th Percentile Lorenz Curve 0.0834 0.2034 0.3614 0.5714 1 a. Estimate the median income for Indonesia in 2005. ______________ b. Estimate the GINI coefficient for in 2005. ______________ 7 11. (3 points) The World Values Survey argues that cultures can be best explained by looking at 2 key dimensions. a. Label the axes of the following chart with these dimensions. b. Country A has a very high divorce rate. Represent country A as a point on the graph. c. Place Hong Kong or other East Asian growth countries on the graph. 2 ____________________vs,____________________ 0 -2 0 _________________vs, ____________________ 8 2