Multiple-Choice Questions for International Economics
by
Bob Carbaugh
Department of Economics
Central Washington University
Chapter 1: The International
Economy and Globalization
1. A primary reason why nations conduct international trade
is because:
a.
Some nations prefer to produce one thing while others produce another
*b.
Resources are not equally distributed to all trading nations
c.
Trade enhances opportunities to accumulate profits
d.
Interest rates are not identical in all trading nations
2.
A main advantage of specialization results from:
*a. Economics of large scale production
b. The specializing country behaving as a
monopoly
c. Smaller production runs resulting in
lower unit costs.
d. High wages paid to foreign workers
3.
International trade in goods and services is sometimes used as a substitute for all
of the following except:
a. International movements of
capital.
b. International movements of
labor.
c. Domestic production of the
same goods and services
*d.
Domestic production of different goods and services
4.
If a nation has an open economy it means that the nation:
a. Allows private ownership of
capital.
b. Has flexible exchange rates
c. Has fixed exchange rates
*d.
Conducts trade with other countries
5.
International trade forces domestic firms to become more competitive in terms of:
a. The introduction of new
products
b. Product design and quality
c. Product price
*d. All of the above
6. The
movement to free international trade is most likely to generate short-term unemployment in
which industries:
a. Industries in which there are neither
imports nor exports
*b. Import-competing industries.
c. Industries that sell to domestic and
foreign buyers
d. Industries that sell to only foreign
buyers
7.
International trade is based on the idea that:
a. Exports should exceed imports
b. Imports should exceed exports
c. Resources are more mobile
internationally than are goods
*d. Resources are less mobile
internationally than are goods
8.
Arguments for free trade are sometimes disregarded by politicians because:
a. Maximizing
domestic efficiency is not considered important
*b. Maximizing
consumer welfare may not be a chief priority
c. There
exist sound economic reasons for keeping one’s economy isolated from other economies
d. Economists
tend to favor highly protected domestic markets
9.
Which American industry has least been affected by import competition in
recent years
a. Automobiles
b. Steel
c. Radios and TVs
*d. Microsoft software
10.
The largest amount of trade with the United States in recent years has been
conducted by:
*a. Canada
b. West Germany
c. Mexico
d. United Kingdom
11.
Increased foreign competition tend to
a. Intensify inflationary pressure at
home
b. Induce falling output per worker-hour
for domestic workers
*c. Place constraints on the wages of
domestic workers
d. Increase profits of domestic
import-competing industries
12.
For the
United States, exports plus imports are about ______ of its gross national product:
a.
5 percent
b.
10 percent
*c.
25 percent
d.
55 percent
13.
Major trading partners of the United States including all of the following
countries except:
a. Canada
b. Mexico
c. China
*d. North Korea
14.
Free traders maintain that an open economy is advantageous in that it provides all
of the following except:
a. Increased competition
for world producers
b. A wider selection of
products for consumers
c. The utilization of the
most efficient production methods
*d. Relatively high wages levels for all
domestic workers
15.
Recent pressures for protectionism in the United States have been motivated by all
of the following except:
a. U.S. firms shipping component
production overseas
*b. High profit levels for
American corporations
c. Sluggish rates of productivity
growth in the United States
d. High unemployment rates among
American workers
16. International trade
tends to cause welfare losses to at least some groups in a country the:
*a. Less mobile the
country’s resources
b. More mobile the
country’s resources
c. Lower the
country’s initial living standard
d. Higher the
country’s initial living standard
17. For the United
States, automobiles are:
a. Imported, but not exported
b. Exported, but not
imported
*c. Exported and imported
d. Neither imported not exported
18. A feasible effect of
international trade is that a (an):
*a. Monopoly in the home
market becomes an oligopoly in the world market
b. Oligopoly in the home
market becomes a monopoly in the world market
c. Purely competitive firm
becomes an oligopolist
d. Purely competitive firm
becomes a monopolist
19. International trade in
goods and services tends to:
a. Increase all domestic costs and prices
b. Keep all domestic costs and prices at
the same level
c. Lessen the amount of
competition facing home manufacturers
*d. Increase the amount of competition
facing home manufacturers
20. The real income of
domestic producers and consumers can be increased by:
a. Technological progress, but not
international trade
b. International trade,
but not technological progress
*c. Technological progress and
international trade
d. Neither technological progress nor
international trade
21.
For the United States, commercial jetliners are
a.
Imported, but not exported
b. Exported, but not
imported
*c.
Imported and exported
d.
Neither exported nor imported
22. Technological
improvements are similar to international trade since they both:
a. Provide benefits for
all producers and consumers
*b. Increase the nation’s aggregate
income
c. Reduce unemployment for all domestic
workers
d. Ensure
that industries can operate at less than full capacity
23. A sudden shift from
import tariffs to free trade may induce short-term unemployment in:
*a. Import-competing
industries
b. Industries that are only exporters
c. Industries that sell domestically as
well as export
d. Industries that neither import nor
export
24. A reduced share of the
world export market for the United States would be attributed to:
*a. Decreased productivity in U.S.
manufacturing
b. High incomes of American households
c. Relatively low interest rates in the
United States
d. High levels of
investment by American corporations
Chapter 2: Foundations of Modern Trade Theory
Use the information in the table below
to answer the next six questions.
Country
Tons of steel
VCRs
South Korea
80
40
Japan
20
20
1. The opportunity cost of one VCR in Japan is:
*a. One ton of steel
b. Two tons of steel
c. Three tons of steel
d.
Four tons of steel
2.
The opportunity cost of one VCR in South Korea is:
a. One-half ton of steel
b. One ton of steel
c. One and one-half tons of steel
*d. Two tons of steel
3.
According to the principle of absolute advantage; Japan should:
a. Export steel
b. Export VCRs
c. Export steel and VCRs
*d. There is no basis for gainful
specialization and trade
4.
According to the principle of comparative advantage:
*a. South Korea should export steel
b. South Korea should
export steel and VCR
c. Japan should export steel
d. Japan should export steel and VCRs
5.
With international trade, what would be the maximum amount of steel that South
Korea would be willing to export to Japan in exchange for each VCR:
a. One-half ton of steel
b. One ton of steel
c. One and one-half tons
of steel
*d. Two tons of steel
6.
With international trade, what would be the maximum number of VCRs that Japan would
be willing to export to South Korea in exchange for each ton of steel:
*a. One VCR
b.
Two VCRs
c. Three VCRs
d.
Four VCRs
7.
The earliest statement of the principle of comparative advantage is associated
with:
a. Adam Smith
*b. David Ricardo
c. Eli Heckscher
d. Bertil Ohlin
8.
If Hong Kong and Taiwan had identical production possibilities curves
that are subject to increasing
opportunity costs:
*a. Trade would depend on
differences in demand conditions
b. Trade would depend on
economies of large-scale production
c. Trade would depend on the use of
different currencies
d. There would be no basis for gainful
trade
9.
If the international terms of trade settle at a level that is between each
country’s opportunity cost
a. There is no basis for gainful trade
for either country
*b. Both countries gain from trade
c. Only one country gains from trade
d. One country gains and the other
country loses from trade
10. International trade is
based on the notion that:
a. Different currencies are an obstacle
to international trade
*b. Goods are more mobile
internationally than are resources
c. Resources are more mobile
internationally that are goods
d. A country’s exports should always
exceeds its imports
11. Mercantilism
a. Is the philosophy of
free international trade.
*b. Was a system of export promotion and
barriers to imports practiced by governments.
c. Was praised by Adam Smith in The Wealth
of Nations.
d. Both (a) and (c).
12. The classical trade
theories of Smith and Ricardo predict that
a. Countries will completely specialize
in the production of export goods.
b. Considerable trade will
occur between countries with different levels of technology
c. Small countries could obtain all of
the gains from trade when trading with large countries.
*d. All of the above.
13. The gains from
international trade are closely related to:
a. The labor theory of value
*b. How much the autarky price differs
from terms of trade change
c. The
fact that on country must lose from trade.
d. all of the above
14. According to the
classical theory of international trade:
a. Only countries with low wages will
export
b. Only countries with
high wages will import
c. Countries with high wages will have
higher prices
*d. all the above are false
15. In the classical
model of Ricardo, the direction of trade is determined by:
a. absolute advantage
*b. comparative advantage
c. physical advantage
d. which way the wind blows
16. Absolute advantage is
determined by:
*a. actual differences in labor
productivity between countries.
b. relative differences in
labor productivity between countries.
c. both (a) and (b)
d. neither (a) nor (b)
17. Comparative advantage
is determined by:
a. actual differences in labor
productivity between countries.
*b. relative differences in labor
productivity between countries.
c. both (a) and (b)
d. neither (a) nor (b)
Answer questions 18 through 22
based on the below production table.
Country: Output per Labor Hour
A
B
Product X
3
9
Product Y
4
2
18. Country A has an
absolute advantage in
a. Product X
*b. Product Y
c. Neither X nor Y
d. Both
X and Y
19. Country B has an
absolute advantage in
*a. Product X
b. Product Y
c. Neither X nor Y
d. Both X and Y
20. If the countries were
to trade along the lines of absolute advantage:
a. A would export X to B
*b. B would import Y from A
c. Neither country would want to trade
21.
If countries were to trade along the lines of comparative advantage:
a. A would export X to B
*b. A would export Y to B
c. Neither country would want to trade
22.
In autarky, the relative price of X, in terms of Y, in A would be:
a. 1/2 Y
b. 3/4 Y
c. 1 Y
*d. 4/3 Y
Answer questions 23-27 based on
the below production table.
Country:
Output per Labor Hour
A
B
Beer
3
9
Wine
1
2
23.
Country A has an absolute advantage in:
a. Beer
b. Wine
c. Both product
*d. Neither product
24.
In autarky, the relative price of wine, in terms of beer, in Country A is:
a. 1W = 1B
b. 1W = 2B
*c. 1W = 3B
d. 1W = 1/3B
25.
In autarky, the relative price of wine, in terms of beer, in Country B is:
a. 1W = 3B
*b. 1W = 41/2 B
c. 1W = 5B
d. 1W = 6B
26.
Country A has the comparative advantage in:
*a. Wine
b. Beer
c. Both wine and beer
d. Neither wine nor beer
27. Country B has the
comparative advantage in:
a. Wine
*b. Beer
c. Both wine and beer
d. Neither
wine nor beer
Answer questions 28-31 based on
the following production possibilities diagram.
28.
The relative price (MRT) of S in terms of T is:
a. 2
*b. ½
c. 500
d. 1000
29. The relative price
(MRT) of
T in terms of S is:
*a. 2
b. ½
c. 500
d. 1000
30. If the relative price
(MRT)
of S were to increase, then the price line would:
a. shift out in a parallel fashion.
b. shift in a parallel
fashion.
*c. Become steeper.
d. Become flatter.
31. If the relative price
(MRT)
of T were to increase, then the price line would:
a. shift out in a parallel fashion.
b. shift
in a parallel fashion.
c. become steeper.
*d. become
flatter.
32. If a country has a
bowed out (concave to the origin) production possibility frontier, then production is said
to be subject to:
a. constant opportunity costs.
b. decreasing opportunity costs.
c. first increasing and then decreasing
opportunity costs.
*d.
increasing opportunity costs.
33. If a country has a
straight (downward sloping) production possibilities frontier, then production is said to
be subject to:
*a. constant opportunity costs.
b. decreasing opportunity costs.
c. first increasing and then decreasing
opportunity costs.
d. increasing opportunity costs.
34.
The terms of trade is given by the prices:
a. Paid
for all goods exported by the home country.
b. Received
for all goods exported by the home country.
*c. Received
for exports and paid for imports.
d. Of
primary products as opposed to manufactured products.
Given the terms of trade
information in the table below, answer the next three questions:
Export Price Index
Import Price Index
Nation
1990
2000
1990
2000
Mexico
100
220
100
200
Sweden
100
160
100
150
Spain
100
155
100
155
France
100
170
100
230
Denmark
100
120
100
125
35.
Which countries’ terms of trade improved between 1990 and 2000.
a. Mexico and Denmark
b. Sweden and Denmark
c. Sweden and Spain
*d. Mexico
and Sweden
36.
Given free trade, small nations tend to benefit the most from trade since
they:
a.
Are more productive than their large trading partners.
b.
Are less productive than their large trading partners.
c.
Have demand preferences and income levels lower than their large trading partners.
*d. Enjoy terms of trade lying near the
opportunity costs of their large trading partners.
37.
In autarky, when a community maximizes its standard of living, its consumption
point is:
a. below the production
possibility frontier.
*b. on the production possibility
frontier.
c. above the production possibility
frontier.
d. can’t
tell without more information.
38.
In autarky equilibrium,
a. production equals
consumption.
b. exports equal imports.
c. there is no trade.
*d. all of the above.
39.
In autarky, when a community maximizes its standard of living, its production point
is:
a. below the production possibility
frontier.
*b. on the production possibility
frontier.
c. above the production possibility
frontier.
d. can’t tell without more
information.
40. If the autarky price
of S were lower in country A than in country B, then if trade were allowed:
*a. A would likely export S to B.
b. A would likely import S from B.
c. neither
country would want to trade.
d. none of the above.
41. Under free trade,
Canada would not enjoy any gains from trade with Sweden if Canada:
*a.
Trades at the Canadian rate of transformation.
b. Trades at Sweden’s
rate of transformation.
c. Specializes completely in the
production of its export good.
d. Specializes partially in the
production of its export good.
Chapter
3: Sources of Comparative Advantage
1.
The Heckscher-Ohlin theory explains comparative advantage as the result of
differences in countries’:
a. Economies
of large-scale production.
*b. Relative
abundance of various resources.
c. Relative
costs of labor.
d. Research
and development.
2.
Boeing aircraft company was able to cover its production costs of the first
“jumbo jet” in the seventies because Boeing could market it to several foreign
airlines in addition to domestic airlines. This
illustrates:
*a. How
economies of scale make possible a larger variety of products in international trade.
b. A transfer of wealth from domestic
consumers to domestic producers as the result of trade.
c. How a
natural monopoly is forced to behave more competitively with international trade.
d. How a natural monopoly
is forced to behave less competitively with international trade.
3.
Which trade theory contends that a country which initially develops and exports a
new product may eventually become an importer of it, and may no longer manufacture the
product:
a. Theory of factor endowments
b. Theory
of overlapping demands
c. Economies
of scale theory
*d. Product
life cycle theory
4.
The theory of overlapping demands predicts that trade in manufactured goods is unimportant
for countries with very different:
a. tastes
and preferences
b. expectations
of future interest rate levels
*c. Per-capita
income levels
d. labor
productivities
5.
The trade model of the Swedish economists Heckscher and Ohlin maintains:
a. Absolute
advantage determines the distribution of the gains from trade.
b. Comparative
advantage determines the distribution of the gains form trade.
c. The
division of labor is limited by the size of the world market.
*d. A
country exports goods for which its resource endowments are most suited.
6. According
to the factor endowment model of Heckscher and Ohlin, countries heavily endowed with land will:
a. Devote excessive
amounts of resources to agricultural production.
b. Devote insufficient amounts of
resources to agricultural production.
*c. Export products that are
land-intensive.
d. Import products that
are land-intensive.
7.
For the United States, empirical studies indicate that over the past two decades
the cost of international transportation relative to the value of U.S. imports has:
a.
Increased
*b. Decreased
c. Not changed
d.
Any of the above
8. Should
international transportation costs decrease, the effect on international trade
would include a (an):
*a. Increase in the volume
of trade
b.
Smaller gain from trade
c. Decline in the
income of home producers.
d. Decrease in the
level of specialization in production.
9. That the division of
labor is limited by the size of the market best applies to which explanation of trade:
a. Factor
endowment theory
b. Product
life cycle theory
*c. Economies of scale theory
d. Overlapping
demand theory
10. A larger variety of
products results from international trade especially if:
a. International trade
affords producers monopoly power.
b. National governments levy import
tariffs and quotas.
c. Producing goods entails increasing
costs.
*d. Economies
of scale exist for producers.
11. According to the
Heckscher-Ohlin model, the source of comparative advantage is a country’s:
a. technology
b. advertising
*c. factor endowments
d. both (a) and (c)
12.
The Heckscher-Ohlin model rules out the classical model’s basis for trade by
assuming that ________ is (are) identical
between countries.
a. factor endowments
b. factor
intensities
*c. technology
d. opportunity
costs
13.
If tastes are identical between countries then comparative advantage is determined
by:
*a. supply conditions
only.
b.
demand conditions only.
c.
supply and demand conditions.
d.
can’t tell without more information.
14.
The Heckscher-Ohlin theorem states that a country will have comparative advantage
in the good whose production is relatively intensive in the ________ with which the
country is relatively abundant.
a.
tastes
b.
technology
*c. factor
d.
opportunity cost
15.
One of the predictions of the Heckscher-Ohlin model is that:
a. countries with different factor
endowments but similar technologies and preferences will have a
strong basis for trade with each other.
b. countries will tend to
specialize, but not completely, in their comparative advantage good.
c. reciprocal demand leads
to an equilibrium terms of trade by inducing changes in both
demand and
supply.
*d. all of the above.
16.
G. MacDougall compared export ratios and labor productivity ratios for the United
States and the United Kingdom in order to test the
*a. Ricardian theory of
comparative advantage
b. the Heckscher Ohlin
theory of comparative advantage
c.
The Linder hypothesis
d.
all of the above
17.
W. Leontief used an input-output table in order to test the
a. Ricardian theory of
comparative advantage
*b. the Heckscher Ohlin theory of
comparative advantage
c. the Linder hypothesis
d. all of the above
18.
G. MacDougall showed in his tests that
a. relatively higher U.S. labor
productivity was associated with relatively higher U.K. export
ratios.
*b. relatively higher U.K. labor productivity
was associated with relatively higher U.K. export
ratios. c. labor productivity ratios and export ratios
were not associated with each other.
d. none of the above
19. G. MacDougall’s
results can be interpreted as
a. evidence against the
classical model
b. evidence against the
Heckscher-Ohlin model
*c. support for the Ricardian model
d. support for the Heckscher-Ohlin model
20.
The Heckscher-Ohlin assumes that _______ are identical between countries.
a. tastes
b. technology levels
c. factor endowments
*d. both (a) and (b)
21.
In his empirical tests, W. Leontief used an input-output table to
*a. calculate the capital and labor
required to produce $1 million of U.S. exports and
imports.
b. calculate the labor
productivity of American workers relative to foreign workers.
c. calculate the capital
productivity of American capital relative to foreign capital.
d. all of the above
22.
In his empirical test of comparative advantage,
W. Leontief found that
a. U.S. exports are capital
intensive relative to U.S. imports
b. U.S. imports are labor
intensive relative to U.S. exports
c. U.S. exports are neither labor
nor capital intensive
*d. none of the above
23. Leontief’s
results were considered paradoxical because the United Stated was believed to be
a. technologically
efficient relative to the rest of the world
*b. capital abundant
relative to the rest of the world
c. labor abundant relative
to the rest of the world
d. all of the above
24. According to the
Heckscher-Ohlin model
a. everyone automatically
gains from trade
*b. the gainers from trade outnumber the
losers from trade
c. the scarce factor
necessarily gains from trade
d. none of the above
25. W. Leontief’s
results can be interpreted as
a. evidence against the
Ricardian model
*b. evidence against the Heckscher-Ohlin
model
c. support for the Ricardian model
d.
support for the Heckscher-Ohlin model
26.
The assumption of increasing opportunity costs in the Heckscher-Ohlin model
increases the likelihood that
*a. there will be incomplete
specialization in production after trade begins
b. countries will be better off with free
international trade
c. countries will maximize their
standards of living from free international trade
d. all
of the above.
27. The factor endowment
theory was pioneered by:
a.
Adam Smith
b. David
Ricardo
c. Wassily Leontief
*d. Eli Heckscher and Bertil Ohlin
28.
By adjusting the model of comparative advantage to include transportation costs
along with production costs, we would expect
a. the prices of traded goods to be lower than
when there are no transportation costs
b. specialization to stop when the production costs of the
trading partners equalize
*c. the volume of trade to be less than when there are no
transportation costs
d. the gains from trade to be greater than when there are
no transportation costs
29.
Assume that Country A is relatively abundant in labor and Country B is
relatively abundant in land. Note that wages are the returns to labor and rents
are the returns to land.
According to the factor price equalization theorem,
once Country A begins specializing according to comparative advantage and
trading with Country B
a. wages and rents should fall in Country A
b. wages and rents should rise in Country A
*c. wages should rise and rents
should fall in Country A
d. wages should fall and rents
should rise in Country A
30. According to the
factor price equalization theorem, the __________ factor should oppose free trade policies
in any given country,
a. abundant
*b. scarce
c. neither
d. can’t tell
without more information
31. A product will
be traded only if the pretrade price difference between the two countries
a. is less than the cost of transporting it
between them
*b. is greater than the cost of
transporting it between them
c. equals the cost of transporting it
between them
d. more information is needed to answer
this question
Chapter 4: Tariffs
1. A tax of
20 cents per unit of imported cheese would be an example of:
a. Compound tariff
b. Effective tariff
c. Ad valorem tariff
*d. Specific tariff
2.
A tax of 15 percent per imported item would be an example of:
*a. Ad valorem tariff
b.
Specific tariff
c.
Effective tariff
d.
Compound tariff
3. Which
type of tariff is not used by the American government:
a. Import tariff
*b. Export tariff
c.
Specific tariff
d. Ad
valorem tariff
4. Which
trade policy results in the government levying a specific tariff and an ad-valorem tariff
on imported goods:
*a. Compound tariff
b. Nominal tariff
c. Effective tariff
d. Revenue tariff
5. If we
consider the impact on both consumers and producers, then protection of the steel industry
is: a. In the interest of the U.S. as a
whole, but not in the interest of the state of
Pennsylvania
b. In the interest of the
U.S. as a whole and in the interest of the state of Pennsylvania
*c. Not in the interest of the U.S. as a
whole, but it might be in the interest of the state of
Pennsylvania
d. Not in the interest of
the U.S. as a whole, nor in the interest of the state of
Pennsylvania
6. If I
purchase a stereo from South Korea, I obtain the stereo and South Korea obtains the
dollars. But if I purchase a stereo produced
in the United States, I obtain the stereo and the dollars remain in America. This line of reasoning is:
a. valid for stereos, but
nor for most products imported by the U.S.
b. valid for most
products imported by the U.S., but not for stereos
*c. deceiving since Koreans eventually
spend the dollars on U.S. goods
d. deceiving since the dollars spent on
a stereo built in the U.S. eventually wind up
overseas
7. A
country gains from international trade if its post-trade __________ point lies outside its
production possibility frontier.
a. production
b. autarky
*c. consumption
d. all of the above
8. ___________
gains from trade refer to the situation where, over time, international trade leads to an
outward shift in a country’s production possibility frontier.
a. static
*b. dynamic
c. political
d. outward
9. Ad
valorem tariffs are collected as
a. fixed amounts of money
per unit traded
*b. a percentage of the price of the
product
c. a percentage of the quantity of
imports
d. all of the above
10. Specific tariffs are
collected as
*a. fixed amount of money
per unit traded
b. a percentage of the
price of the product
c. a percentage of the quantity of
imports
d. all of the above
11. Most tariffs have
a. only revenue effects
b. only protective
effects
*c. both protective and revenue effects
d. neither protective or revenue effects
Answer questions
12-18 based upon the following diagram for Mexico, assumed to be a small country in the
world calculator market.
12. With free trade, the
total quantity of imports would equal
a. 10,000 units
*b. 40,000 units
c. 42,000 units
d. 50,000 units
13. With free trade, the
total value of imports would equal
a. $100,000
*b. $400,000.
c. $600,000
d. $800,000.
14. With the tariff, the
quantity of imports falls to
a. 12,000 units
* b. 20,000 units
c. 30,000
units
d. 42,000
units
15. With the tariff, the
government collects
a.
$75,000.
*b. $100,000.
c. $125,000.
d. $150,000.
16. The deadweight cost
of the tariff equals
a. $10,000.
b. $25,000.
*c. $50,000.
d. $75,000.
17. Domestic producers
gain _________ because of the tariff.
a. $50,000.
*b. $75.000
c. $120,000
d. $150,000.
18. A tariff of ________
would be prohibitive, causing imports to fall to zero.
a. $10
*b. $15
c. $20
d. $25
19. The difference
between what consumers have to pay for a particular and what they are willing to pay is
known as
*a. consumer surplus
b. producer surplus
c. deadweight costs
d. deadweight surplus
20. A tariff can
_________ raise a country’s welfare
a. never
*b. sometimes
c. always
21. In developed
countries, tariffs on raw materials tend to be
a. highest of all
b. higher than on
manufactured goods
c. equal to tariffs on manufactured
goods
*d. lower than on manufactured goods
22. In today’s
world, most countries impose tariffs
*a. only on imports
b. only on exports
c. on both imports and
exports
d. on imports, exports
and nontraded goods
23. If a small country imposes a tariff on an imported
good, its terms of trade will
a. improve
b. worsen
*c. not change
d. any of the above
24. If the world price of steel is $500 a ton, a specific
tariff of $50 is equivalent to an ad valorem tariff of
a. 5 percent
*b. 10 percent
c. 15 percent
d. 20 percent
25. If a country an imposes an import tariff, its welfare
can improve if
a. the country is a "small country" rather than a "large
country
*b. its terms of trade improve enough
c. the tariff enhances the welfare of its trading partners
d. its government's tax revenue increases because of the tariff
26. Suppose that the
United States imposes a tariff on ballpoint pens of 25 cents per pen plus 12
percent of the pen's value. This is an example of a (an)
a. specific tariff
b. ad valorem tariff
*c. compound tariff
d. effective tariff
27. Suppose that
the nominal tariff rate on finished computers is 12 percent and that the
weighted average of the nominal tariff rates on the inputs used in producing
computers is 18 percent. Thus, the effective rate of protection for the
computer industry must
*a. be less than 12 percent, and can be negative
b. be less than 12 percent, but must be
greater than zero
c. equal 6 percent
d. exceed 30 percent
28. Suppose that
the offshore assembly provisions (OAP) of the United States are granted to
finished computers that are imported and also produced domestically. This
policy will tend to
a. cause foreign assemblers of computers to use more computer
components that are supplied by countries other than the United States
b. increase the price of computers to consumers in the United
States
c. increase the production of computers in the United States
*d. increase the production of computer components in the
United States
29. Concerning a
government's trade policy, all of the following generally apply except
a. economic downturn and recession generally result in greater
protectionism
*b. because domestic consumers outnumber domestic producers,
policy makers usually enact free-trade policies to satisfy the consumer majority
c. when domestic exporting companies are organized, policy
tends to favor freer trade
d. policy tends to favor freer trade in countries whose
imports are inputs into critical industries
30. If no imported
inputs (hard-disk drive) go into the domestic production of a final product
(desktop computer), then the
*a. nominal tariff rate on the final product equals the
effective tariff rate on the product
b. nominal tariff rate on the final product is greater than
the effective tariff rate on the product
c. nominal tariff rate on the final product is less than the
effective tariff rate on the final product
d. none of the above
Chapter 5: NonTariff Trade Barriers
1. If a
tariff and import quota lead to equivalent increases in the domestic price of steel, then:
a. the quota results in
efficiency reductions but the tariff does not
b. the tariff results in
efficiency reductions but the quota does not
c. they have different
impacts on how much is produced and consumed
*d. they have different impacts on how
income is distributed
2.
If a tariff and import quota lead to equivalent increases in the domestic price of
steel, then:
a. the quota results in
efficiency reductions but the tariff does not
b. the tariff results in
efficiency reductions but the quota does not
*c. they have identical impacts on how
much is produced and consumed
d. they have identical
impacts on how income is distributed
3.
From the perspective of the American public as a whole, export subsidies levied by
overseas governments on goods sold to the United States:
*a. help more than they hurt
b. hurt more then they
help
c. are equivalent to an
import quota
d. are equivalent to an
export quota
4.
Export subsidies levied by foreign governments on products in which the United
States has comparative disadvantage:
a. lower the welfare of
all Americans
*b. lead to increases in U.S. consumer
surplus
c. encourage U.S.
production of competing goods
d. encourage U.S. workers
to demand higher wages
5.
If import licenses are auctioned off to domestic importers in a competitive market,
their scarcity value (revenue effect) accrues to:
a. foreign corporations
b. foreign workers
c. domestic corporations
*d. domestic governments
6.
A specification of a maximum amount of a foreign produced good that will be allowed
to enter the country over a given time period is referred to as a (an):
a. domestic subsidy
b. export subsidy
*c. import quota
d. export quota
7.
Import quotas tend to lead to all of the following except:
*a. domestic producers of the imported
good being harmed
b. domestic consumers of
the imported good being harmed
c. prices increasing in
the importing country
d. prices falling in the
exporting country
8.
To maintain that South Koreans are dumping their VCRs in the United States is to
maintain that:
*a. Koreans are selling VCRs in the U.S.
below their production cost
b. Koreans are selling
VCRs in the U.S. above their production cost
c. the cost of
manufacturing VCRs in Korea is lower in Korea than in the U.S. since wages are lower in Korea
d. the cost of
manufacturing VCRs in Korea is higher in Korea than in the U.S. since wages are higher in Korea
9.
If the home country government grants a subsidy on a domestically produced good,
domestic producers tend to:
a. capture the entire
subsidy in the form of higher profits
*b. increase their level of production
c. reduce wages paid to
domestic workers
d. consider the subsidy
as an increase in production cost
10.
For years the U.S. government levied quotas on inexpensive oil imported from the
Middle East. The quotas led to cost increases
for U.S. consumers totaling $3 billion for oil products.
An apparent justification for this policy was that:
a. U.S. oil companies and
workers deserved higher incomes
b. U.S. oil was of
superior quality and merited higher prices
*c. one should not be too dependent on
foreign suppliers of crucial resources
d. the U.S. government
needed the quota revenue to balance its budget
11.
In certain industries, Japanese employers hesitate to lay off workers. Therefore, they sometimes have excess supplies of
goods that they cannot sell on the home market without lowering prices. To hold down losses, they sell goods in overseas
markets at prices well beneath those in Japan. This
practice is best referred to as:
a. orderly marketing
b. trigger pricing
c. domestic content
pricing
*d. dumping
12.
Quotas are government imposed limits on the ________ of goods trade between
countries.
a. prices
*b. quantity
c. revenue
d. costs
13.
________ are quotas that lead to a complete abolishment of trade.
*a. embargoes
b. voluntary export
restraints
c. nontariff barriers
d. orderly marketing
agreements
14.
Similar to import tariffs, import quotas tend to result in
*a. higher prices and reduced
imports
b.
increased government revenue
c.
increased consumer surplus
d. decreased producer surplus
15.
The welfare effects of a quota depend to considerable extent upon
a. who has the quota
license
b. the size of the quota
c. elasticities of
domestic demand and supply
*d. all of the above
16.
__________ are profits that accrue to whomever has the right to import the
good that is
restricted by the quota.
a. quota license
*b. quota
rents
c. quota prices
d. none of the above
17.
The home-country government can confiscate the revenue effect of an
import quota if
a. quota licenses are given to foreign
exporting companies
*b. quota licenses are
auctioned to the highest-bidding importing company
c. if quota licenses are
given to domestic consumers of the good
d. both (a) and (c)
18.
Governments around the world tend to auction quota licenses
a. never
*b. seldom
c. often
d. always
19.
A(n) __________ is an example of a quota where foreigners hold quota licenses.
*a. voluntary export restraint
b. embargo
c. auction quota
d. tariff quota
20. International dumping may involve
a. selling goods to foreigners at a price below that charged domestic
consumers
b. selling goods to foreigners at a price below the cost of production
c. antidumping duties being levied on the imported, dumped goods
*d. all of the above
21. Nontariff trade barriers include all of the following
except
a. domestic content laws
b. government procurement policies
c. health, safety, and environmental standards
*d. all of the above are nontariff barriers to trade
22. A production subsidy that is granted to a producer of
an import-competing good
a. does not require governmental tax revenues to finance it
b. yields the same deadweight welfare loss as an import tariff or import
quota
c. has only a consumption deadweight loss
*d. has only a production deadweight loss
23. A tariff quota is essentially a
*a. two-tier tariff applied to a country's imports
b. three-tier tariff applied to a country's imports
c. two-tier quota applied to a country's exports
d. three-tier quota applied to a country's exports
24. A ______ attempts to limit outsourcing of jobs to
foreigners by requiring that a minimum percentage of a product's value must be
produced domestically if that good is to be sold in the domestic market.
a. domestic subsidy
b. voluntary restraint agreement
*c. domestic content requirement
d. tariff-rate quota
25. ______ occurs when a firm disposes on foreign markets a temporary
increase in inventories caused by unforeseen changes in supply and demand
conditions in the home economy
*a. sporadic dumping
b. predatory dumping
c. persistent dumping
d. foreign dumping
25. According to the cost-based definition of dumping, dumping
occurs when a firm sells a product abroad at a price that is less than
*a. average total cost
b. average variable cost
c. average fixed cost
d. marginal cost
26. What type of trade barrier was used to protect U.S. auto
firms from foreign competition during 1981-1984?
*a. export quotas imposed by the Japanese government
b. export tariffs imposed by the Japanese government
c. import quotas imposed by the U.S. government
d. domestic subsidies granted by the U.S. government
27. A ______ allows a specified number of goods to be imported
each year, but it does not specify from where the product is shipped or who is
permitted to import
a. import quota
b. export quota
c. selective quota
*d. global quota
Chapter
6: Trade Regulations and Industrial Policies
1. In 1980 the U.S. imposes trade sanctions (export quotas) on grain sold to
the Soviet Union in response to its armed invasion of Afghanistan. If other nations do not increase grain
exports to the Soviets, all the following would likely occur except:
a. Grain prices would
rise in the Soviet Union
b. Consumer surplus would
decrease for the Soviets
*c. Grain prices would rise in the United
States
d. Export revenues would
decrease for U.S. producers
2.
Referring to the above question, the embargo was mainly resisted by:
a. U.S. grain consumers
and producers of bread
*b. U.S. farmers and grain companies
c. Grain producers in
foreign countries
d. Grain consumers in
foreign countries
3.
Concerning economic sanctions, export embargos induce greater losses in consumer surplus for the target country
the:
a. lesser its initial
dependence on foreign produced goods
b. more elastic the
target country demand schedule
c. greater the available
output from alternative suppliers
*d. more inelastic the target country
supply schedule
4.
Suppose the President lowers tariffs on radios as the result of negotiations under
the trade agreements program. Radio
producers in the United States can appeal under the:
*a. escape clause if rising imports
substantially injure the U.S. radio industry.
b. escape clause if
rising unemployment occurs even though imports remain unchanged
c. infant industry clause
if rising imports cause unemployment to rise among U.S. radio workers.
d. infant industry clause
if rising imports result in losses for U.S. radio companies
5.
During the post-World War II era:
a. Nontariff barriers
(NTBs) and tariffs have increased in importance
b. NTBs and tariffs have
decreased in importance
*c. NTBs have increased and tariffs have
decreased in importance
d. NTBs have decreased
and tariffs have increased in importance
6. The
strongest political pressure for a trade policy that results in higher protectionism comes
from:
*a. domestic workers lobbying for import
restrictions
b. domestic workers
lobbying for export restrictions
c. domestic consumers
lobbying for export restrictions
d. domestic consumers
lobbying for import restrictions
7.
The average tariff rate today on dutiable imports into the United States is
approximately:
*a. 4-5 percent of the value of imports
b. 15 percent of the
value of imports
c. 20 percent of the
value of imports
d. 25 percent of the
value of imports
8.
Those who argue in favor of import protection generally give the impression that
such restricted trade will:
a. decrease the level of
national security
b. provide benefits to
some particular industry
*c. provide benefits to the entire nation
d. not yield welfare
losses for the nation
9. Countervailing
duties levied by the U.S. government are imposed to offset
a. foreign dumping of goods in the U.S.
* b. subsidies granted to foreign firms that export to the U.S.
c. "buy national" policies of foreign governments
d. stringent environmental regulations of
foreign governments
10. All of the following are fundamental to
the World Trade Organization except
* a. bilateral tariff reductions to promote trade liberalization
b. the use of the most-favored-nation clause
c. nondiscrimination in trading relationships
d. the prohibition of import quotas and export quotas
11. The World Trade Organization is sometimes
criticized for all of the following reasons except
a. it reduces the sovereignty of member countries
b. favors free trade over the quality of the environment
*c. it has no way to solve trade disputes among member countries
d. it is a "puppet" of multinational corporations
12. Under the the Smoot-Hawley Act of 1930,
the United States
a. liberalized trade with most of its trading partners
b. abolished tariff-rate quotas as a trading instrument
c. resulted in the termination of the General Agreement on
Tariffs and Trade
*d. increased its import tariffs to an average of 53 percent
13. Following World War II, the United States
and other countries sought to liberalize trade among each other. The first
major postwar step toward trade liberalization was the
*a. General Agreement on Tariffs and Trade
b. World Trade Organization
c. Smoot-Hawley Organization
d. McKinley Agreement on Trade Policy
14. Antidumping duties applied to imported
goods
a. are abolished by the World Trade Organization
* b result in decreases in consumer surplus for domestic households
c. are imposed by industrial countries but not developing countries
d. result in lower-priced goods for domestic consumers
15. According to the United States, ________
is the number one violator of intellectual property rights
a. Canada
b. Australia
c. Japan
*d. China
16. The trade adjustment assistance program
results in the U.S. government
a. imposing tariffs on goods from countries that do not
practice fair trade
b. imposing quotas on goods from countries that do not
practice fair trade
*c. providing financial assistance and training to workers who
lose jobs because of rising imports
d. buying the assets of companies that are driven out of
business by foreign competition
17. Section 301 of the 1974 Trade Act emphasized
*a. unfair trading practices of U.S. trading partners
b. the use of industrial policies
c. wage differentials of developing countries and
advanced countries
d. the welfare effects of import quotas
18. If ______ is/are approved, the president
has a limited time period in which to complete trade negotiations, and Congress
must vote up-or-down on the negotiated agreement within 90 legislative days of
submission
a. the escape clause
b. safeguards
*c. trade promotion authority (fast-track)
d. trade remedy laws
19. According to U.S. trade law, maintaining
"normal trade relations" with another country is also known as providing
*a. most favored nation treatment
b. trade remedy treatment
c. safeguard treatment
d. escape clause treatment
20. Which round of international trade
negotiations resulted in the creation of the World Trade Organization?
a. Kennedy Round of 1964-1967
b. Tokyo Round of 1973-1979
*c. Uruguay Round of 1986-1993
d. Doha Round of 2003-2007
21. The effect of the most-favored-nation
clause is to
a. eliminate all
tariffs between countries
b. increase all
tariff rates between countries
*c. maintain a
nondiscriminatory structure of tariffs
d. maintain a
discriminatory structure of tariffs
22. The theory of ______ suggests that
government can assist domestic companies in capturing economic profits from
foreign competitors
a. international dumping
b. countervailing duties
*c. strategic trade policy
d. export promotion policy
23. The U.S. has granted China permanent
most-favored-nation treatment (normal trade relations). This means that
the tariff schedules which apply to U.S. imports from China
a. have tariff rates equal to zero, suggesting a free trade
policy for the United States
b. have lower tariff rates than the rates that apply to any
other country sending goods to the United States
*c. have tariff rates that are identical to the rates that apply to other
countries to which the U.S. grants most-favored-nation
treatment
d. have lower tariff rates than the rates that apply to other
countries to which the U.S. grants most-favored-nation treatment
Chapter
7: Trade Policies for the Developing Nations
1. Which
industrialization policy have developing countries used which places emphasis on the
comparative advantage principle as a guide to resource allocation:
*a. export promotion
b. import substitution
c. international
commodity agreements
d. multilateral contract
2.
A widely used indicator to differentiate developed countries from developing
countries is:
a. international trade
per capita
*b. real income per capita
c. unemployment per
capita
d. calories per capita
3.
Concerning the hypothesis that there has occurred a long-run deterioration in the
developing countries’ terms of trade, empirical studies provide:
*a. mixed evidence that does not
substantiate the deterioration hypothesis
b. overwhelming support
for the deterioration hypothesis
c. overwhelming
opposition to the deterioration hypothesis
d. any of the above
4.
For the oil-importing countries, the increases in oil prices in 1970s and
early 2000s resulted in all of the following except:
a. balance of trade
deficits
b. price inflation
c. constrained economic
growth
*d. improving terms of trade
5.
Hong Kong and South Korea are examples of developing nations that have recently
pursued __________ industrialization policies:
a. import substitution
*b. export promotion
c. commercial dumping
d. multilateral contract
6. To be
considered a good candidate for an export cartel, a commodity should:
a. be a manufactured good
b. be a primary product
c. have a high price
elasticity of supply
*d. have a low price elasticity of demand
7. To be
considered a good candidate for an export cartel, a commodity should:
a. be a manufactured good
b. be a primary product
*c. have a low price elasticity of supply
d. have a high price
elasticity of demand
8. To help
developing nations strengthen their international competitiveness, many industrial nations
have granted non-reciprocal tariff reductions to developing nations under the:
a. international
commodity agreements program
b. multilateral contract
program
*c. generalized system of preferences
program
d. export-led growth
program
9. All of the
following are trade problems of developing countries except
a.
unstable export markets
*b. improving terms
of trade
c.
limited access to the markets of industrial countries
d.
highly elastic demand curves for their products
10. To stabilize
the prices of primary products, international commodity agreements have utilized
all of the following except
*a. tariff-rate
quotas applied to imported goods
b. production and
export controls
c. buffer stocks
d. multilateral
contracts
11. The ability of
the Organization of Petroleum Exporting Countries (OPEC) to maximize profits is
hampered by
a. a lack of
substitutes for oil
b. similar cost
schedules for member countries
c. highly inelastic
world demand curve for oil
*d. economic
recession for oil importing nations
12 Among the
institutions and policies that have been created to support developing countries
are
a. the World Bank
b. the
International Monetary Fund
c. the generalized
system of preferences
*d. all of the
above
13. Most of
developing country exports consist of
*a. primary
products such as tin and bauxite
b.
intermediate products
c. labor-intensive
agricultural products
d. labor-intensive
manufacturing products
14. Import
substitution is an example of
a. the principle of
comparative advantage
b. the principle of
absolute advantage
c. an
outward-looking growth strategy
*d. an
inward-looking growth strategy
15. Export-led
growth strategies tend to emphasize
a. resource
allocation based on the principle of absolute advantage
*b. resource allocation
based on the principle of comparative advantage
c. trade protection
for import-competing firms
d. trade protection
for exporting-competing firms
16. Developing
countries that emphasize the production of raw materials or agricultural goods
may realize a long-run deterioration in the international terms of trade because
of
a. relatively low
import tariffs maintained by advanced countries
b. highly elastic
demand for these products in advanced countries
c. declines in the
supplies of these products on world markets
*d. sluggish demand for these
products in advanced countries
17. _______
policies attempt to foster industrialization by establishing high barriers to
imports of foreign goods to promote local production
a. absolute
advantage
b. comparative
advantage
c. export-led
growth
*d. import
substitution
18. The Generalized
System of Preferences (GSP) program allows
*a. developing
country exports to advanced countries to receive preferential tariff treatment
b. developing
country imports from advanced countries to receive preferential tariff treatment
c. any developing
country to ignore the most-favored-nation clause
d. any advanced
country to ignore the most-favored-nation clause
19. In this
question, Px = export price index, Pm = import price index, Qx = export quantity
index, and Qm = import quantity index. Developing countries tend to maintain
that their commodity terms of trade have declined over the long run, suggesting
that ______ has declined
*a. Px/Pm
b. Pm/Px
c. (Pm/Px)Qm
d. (Px/Pm)Qx
20. Suppose
that he world price of tin is above the target (ceiling) price that is defined
by an international commodity agreement. To move the world price toward
the target price, a buffer stock agreement would require its buffer stock
manager to _____ tin, and an export quota agreement would require that member
countries _____ their exports of tin
a. purchase; decrease
b. purchase; increase
*c. sell; increase
d.. sell; decrease
21. Suppose that
the demand curve for tin is highly inelastic. If the supply curve of tin
decreases and increases cyclically along the demand curve for tin, then in this
market the size of the price fluctuations will be ______ the size of the
quantity fluctuations.
*a. relatively greater than
b. relatively less than
c. the same as
d. any of the above
22. Suppose that
the supply curve of tin is highly inelastic. If the demand curve of tin
decreases and increases cyclically along the supply curve of tin, then in this
market the size of the quantity fluctuations will be ______ the size of the
price fluctuations.
a. relatively greater than
*b. relatively less than
c. the same as
d. any of the above
23. An export quota
agreement to stabilize the price of bauxite tends to be more successful when the
member producer countries as a percentage of the world's producer countries is
______, and the ______ it is for the member producer countries to
store/stockpile bauxite.
a. relatively small; more difficult
b. relatively small; easier
c. relatively large; more difficult
*d. relatively large; easier
Chapter
8: Regional Trading Arrangements
1. The
NAFTA is a:
a. monetary union
*b. free trade area
c. common market
d. customs union
2. Under
the EU’s Common Agricultural Policy, a variable import levy equals the:
*a. amount by which the EU’s support
price exceeds the world price
b. amount by which the
world price exceeds the EU’s support price
c. support price of the
EU
d. world price
3. Members
of the EU find that “trade creation” is fostered when their economics are:
*a. highly competitive
b. highly noncompetitive
c. small in economic
importance
d. geographically distant
4. The
European Union has achieved all of the following except:
*a. adopted a common fiscal policy for
member nations
b. established a common
system of agricultural price supports
c. disbanded all tariffs
between its member countries
d. levied common tariffs
on products imported from nonmembers
5. Which
country is not a member of the European Union:
a. Spain
b. Germany
c. France
*d. Iceland
6. The
implementation of the European Union has:
*a. made it harder for Americans to
compete against the Germans in the British market
b. made it easier for
Americans to compete against the Germans in the British market
c. made it harder for
Americans to compete against the Japanese in the British market
d. made it easier for
Americans to compete against the Japanese in the British
7.
The Common Agricultural Policy of the European Union has:
a. increased American
farm exports to the EU
*b. decreased American farm exports to
the EU
c. lowered the price of
American farm exports to the EU
d. not affected the price
of American farm exports to the EU
8.
As of 2002, the _____ became the official currency union of the European Monetary
System:
a. dollar
b. mark
c. franc
*d. euro
9.
The implementation of a common market involves all of the following except:
a. elimination of trade
restrictions among member countries
*b. a common tax system and monetary
union
c. prohibition of
restrictions on factor movements
d. a common tariff levied
in imports form nonmembers
10.
Under the Common Agricultural Policy, exports of any surplus quantities of EU
produce are encouraged through the usage of:
a. variable levies
*b. export subsidies
c. trigger prices
d. countertrade
Answer 11-14
based upon the following diagram which depicts country A’s market for its importable.
11.
In free trade, A will import
a. 700 units from country
C.
b. 700 units from C and
600 units from country B.
*c. 600 units from C.
d. 600 units from C and
400 units from B.
12.
If A imposes a per unit tariff of $10 on imports from both B and C, A will import
a. 400 units from B.
*b. 200 units from C.
c. 200 units from each
d. 400 units from B and
200 units from C.
13.
If A forms a customs union with B, A will import
*a. 400 units from B.
b. 200 units from C.
c. 200 units from each.
d. 400 units from B and
200 units from C.
14.
If A forms a customs union with C, the value of trade diversion will be
*a. $0
b. $10,000.
c. $20,000.
d. $40,000.
15.
The European Monetary Union is an example of a
a. customs union
b. free trade area
c. reciprocal trade
agreement
*d. monetary union
16.
________ is said to exist when the formation of a regional trading group leads to
the reduction of trade with nonmember countries in favor of member countries.
a. trade creation
*b. trade diversion
c. trade exclusion
d. trade distortion
17.
________ is said to exist when the formation of a regional trading group leads to
an expansion of trade above pregroup levels.
*a. trade creation
b. trade diversion
c. trade exclusion
d. trade distortion
18. A ______ is a
regional trading bloc in which member countries eliminate internal trade
barriers but maintain existing barriers against countries that are not members
*a. free trade area
b. customs union
c. common market
d. monetary union
19. Which level of
economic integration best applies to the United States?
a. free trade area
b. customs union
c. common market
*d. monetary union
20. A positive, dynamic effect of economic
integration is illustrated by
a. trade diversion effect
b. increased monopoly power of firms
c. decreased customs costs
*d. economy-of-scale effect
21. Suppose that tomatoes from Mexico face a
20 percent tariff in the United States and a 25 percent tariff in Canada.
If the United States and Canada maintain free trade between each other, the
these two countries belong to a
*a. free-trade area
b. customs union
c. common market
d. monetary union
22. Trade creation will more likely outweigh
trade diversion for Country X that forms a customs union if the level of tariffs
in Country X prior to the customs union is ________ and the total number of
countries forming the customs union is ______.
*a. relatively high; relatively large
b. relatively high; relatively small
c. relatively low; relatively large
d. relatively low; relatively small
23. When imports from a higher-cost supplier
within a customs union replace imports from a lower-cost supplier outside the
custom union, there exists
a. trade creation
*b. trade diversion
c. dynamic welfare effects
d. comprehensive welfare effects
Chapter
9: International Factor Movements and Multinational Corporations
1. The
market power effect of an international joint venture can lead to welfare losses for the
domestic economy unless offset by cost reductions. Which
type of cost reduction would not lead to offsetting welfare gains for the overall
economy:
a. R&D generating
welfare improved technology
b. development of more
productive machinery
c. new work rules
promoting worker efficiency
*d. lower wages extracted from workers
2.
All of the following are potential advantages of an international joint venture except:
a. sharing research and
development costs among corporations
b. forestalling
protectionism against imports
c. establishing work
rules promoting higher labor productivity
*d. operating at diseconomy-of-scale
output levels
3.
The migration of employable workers from low-paying nations to
high-paying nations tends to decrease
a. total wage income in the world
*b. wage disparities
c. business or capitalist income in the world
d. the productivity of labor
4.
Multinational corporations:
*a. increase the transfer of technology
between nations
b. make it harder to
nations to foster activities of comparative advantage
c. always enjoy political
harmony in nations where their subsidiaries operate
d. require governmental
subsidies in order to conduct worldwide operations
5.
Firms undertake multinational operations in order to:
a. hire low-income
workers
b. manufacture in nations
they have difficulty exporting to
c. obtain necessary
factor inputs
*d. all of the above
6.
Multinational corporations face problems since they:
a. cannot benefit from
the advantage of comparative advantage
*b. may raise political problems in
countries where their subsidiaries operate
c. can only invest at
home, but not overseas
d. can only invest
overseas, but not at home
7.
American labor unions have maintained that U.S. multinational corporations have
been:
*a. exporting American jobs by investing
overseas
b. exporting American
jobs by keeping investment in the U.S.
c. importing cheap
foreign workers by shifting U.S. investment overseas
d. importing cheap
foreign workers by keeping U.S. investment at home
8.
Accusations of American labor unions against U.S. multinational firms include all
of the following except:
a. enjoy unfair advantage
in taxation
b. export jobs by
shifting technology overseas
c. export jobs by
shifting investment overseas
*d. operating at output levels where
scale economies occur
9.
Which business device involves the creation of a new business by two or more
companies, often for a limited period of time:
a. multinational
corporation
*b. international joint venture
c. horizontal merger
d. vertical merger
10.
International joint ventures can lead to welfare losses when the newly established
firm:
a. adds to the
pre-existing productive capacity
b. enters markets neither
parent could have entered individually
c. yields cost reductions
unavailable to parent firms
*d. gives rise to increased amounts of
market power
11.
Multinational corporations:
a. always produce primary
goods
b. always produce
manufactured goods
*c. produce primary goods or manufactured
goods
d. none of the above
12. The migration of employable workers from
low-paying nations to high-paying nations will
a. decrease wage rates in the low-paying nations
b. decrease productivity and real output in the world
*c increase business or capitalist incomes in the high-paying
nations
d. increase business or capitalist incomes in the low-paying
nations
13. The migration of electricians from
low-paying nations to high-paying nations is most likely to be challenged by
*a. electrician unions in the high-paying nations
b. electrician unions in the low-paying nations
c. electrician employers in the high-paying nations
d. electricians who stay in the low-paying nations
14. ______ refers to the price charged for
products sold to a subsidiary to a multinational corporation by another
subsidiary in another country
a. marginal cost pricing
b. full cost pricing
c. price discrimination
*d. transfer pricing
15. "Guest worker" programs usually result in
temporary migration of workers from
a. impoverished countries to impoverished countries
*b. impoverished countries to wealthy countries
c. wealthy countries to wealthy countries
d. wealthy countries to impoverished countries
16. Which of the following is not an
example of foreign direct investment?
a. the construction of a new auto assembly plant overseas
b. the acquisition of an existing steel mill overseas
*c. the purchase of bonds or stock issued by a textile company
overseas
d. the creation of a wholly owned business firm overseas
Chapter 10:
The Balance of Payments
International Investment Position of the U.S., 2007
U.S. Assets Abroad
U.S. government assets
$800 billion
U.S. private assets 200
Foreign Assets in the U.S.
Foreign official assets
600
Foreign private assets 300
1. Referring
to the above table, the U.S. balance of international indebtedness suggests that the U.S.
is a net:
a. debtor
*b. creditor
c. spender
d. exporter
2.
For the first time since World War I,
in 1985 the United States became a net international:
a. exporter
b. importer
*c. debtor
d. creditor
3.
A country that is a net international debtor initially experiences a (an):
*a. augmented savings pool available to
finance domestic spending
b. higher interest rate
which leads to lower domestic investment
c. loss of funds to
trading partners overseas
d. decrease in its
services exports to other countries
4.
Credit (+) items in the balance of payments correspond to anything that:
*a. involves receipts from foreigners
b. involves payments to
foreigners
c. increases the domestic
money supply
d. decreases the demand
for foreign exchange
5. Debit
(-) items in the balance of payments correspond to anything that:
a. involves receipts from
foreigners
*b. involves payments to foreigners
c. increases the domestic
money supply
d. decreases the demand
for foreign exchange
6.
When all of the debit or credit items in the balance of payments are
combined:
a. merchandise imports
equal merchandise exports
b. capital imports equal
capital exports
c. services exports equal
services imports
*d. the total surplus or deficit equals
zero
7.
In the balance of payments, the statistical discrepancy is used to:
*a. insure that the sum of all debits
matches the sum of all credits
b. insure that trade
imports equal the value of trade exports
c. obtain an accurate
account of a balance-of-payments deficit
d. obtain an accurate
account of a balance-of-payments surplus
8.
All of the following are credit items in the balance of payments, except:
a. investment inflows
b. merchandise exports
c. payments for American
services to foreigners
*d. private gives to foreign residents
9.
All of the following are debit items in the balance of payments, except:
a. capital outflows
*b. merchandise exports
c. private gifts to
foreigners
d. foreign aid granted to
other nations
10.
The role of ____________ is to direct one nation’s savings into investments of
another nation:
a. merchandise trade
flows
b. services flows
c. current account flows
*d. capital flows
11.
The current account includes
a. the value of trade in
merchandise
b. services
c. unilateral transfers
*d. all of the above
12.
The U.S. balance of payments is constructed by
a. the U.S. Department of
Labor
b. the U.S. Department of
Agriculture
*c. the U.S. Department of Commerce
d. the Council of
Economic Advisers to the President
13.
Debit entries on the balance of payments are the entries that would
*a. mean a loss of foreign exchange
b. bring foreign exchange
into the country
c. indicate a surplus
exists
d. exist at the bottom
line after all accounts are totaled
14.
In the balance of payments, travel and tourism are included in the category of
a. unilateral transfers
b. capital account
c. merchandise account
*d. services account
15.
Current account deficits are offset by
a. merchandise trade
deficits
b. merchandise trade
surpluses
*c. capital/financial account surpluses
d. capital/financial account
deficits
16.
In the calculation of gross domestic product, net exports are
*a. the sum of merchandise trade and
services
b. the current account
plus long-term capital
c. the value of
merchandise exports minus imports
d. short-term capital
plus the basic balance
17.
A current account surplus implies that
*a. the country is a net lender to the
rest of the world
b. the country is running
a net capital account surplus
c. foreign investment in
domestic securities is at very low levels
d. all of the above
18.
Security purchases in the United States by foreigners is
a. a credit item in the
current account
b. a debit item in the
capital account
*c. a credit item in the capital account
d. a debit item in the
current account
19. In balance-of- payments accounting, tourism and travel
are classified in the
a. merchandise
trade account
*b. services
account
c. unilateral
transfers account
d. capital account
20. The "balance of trade" is a record of
a. exports and
imports of financial assets
b. the current
account plus capital account
c. the net export
of goods and services
*d. the value of
merchandise exports minus imports
21. Direct investment and security purchases are classified
as
*a. capital account
transactions
b. current
account transactions
c. unilateral
transfer transactions
d. merchandise
trade transactions
Chapter 11:
Foreign Exchange
1.
The supply of foreign currency tends to be:
*a. upward-sloping
b. backward
c. vertical
d. any of the above
2.
Suppose that a Swiss television set that costs 400 francs in Switzerland costs $200
in the United States. The exchange rate
between the franc and the dollar is:
*a. 2 francs per dollar
b. 1 franc per dollar
c. $2 per franc
d. $3 per franc
3.
In the early eighties, the Federal Reserve pursued a tight monetary policy. All else being equal, the impact of that policy
was to _____________ interest rates in the United States relative to those in Europe and
cause the dollar to ___________ against European currencies.
a. decreases, depreciate
b. decreases, appreciate
c. increases, depreciate
*d. increases, appreciate
4.
Under a system of floating exchange rates, the pound would depreciate in value if
there occurs:
a. price inflation in the
United States
b. an increase in U.S.
real income
c. a decrease in the
British money supply
*d. falling interest rates in Britain
5.
A depreciation of the dollar will have its most pronounced impact on imports if the
demand for imports is:
a. constant
b. inelastic
*c. elastic
d. unitary elastic
6.
During the era of dollar appreciation, from 1981 to 1985, a main reason why the
dollar did not fall in value was:
*a. flows of foreign investment into the
United States
b. rising price inflation
in the United States
c. a substantial decrease
in U.S. imports
d. a substantial increase
in U.S. exports
7.
Which financial instrument provides a buyer the right to purchase or sell a fixed
amount of currency at a prearranged price, within a few days to a couple of years:
a. letter of credit
*b. foreign currency option
c. cable transfer
d. bill of exchange
8.
Given the foreign currency market for the Swiss franc, the supply of francs
slopes upward, because as the dollar price of the franc rises:
a. America’s demand
for Swiss merchandise rises
b. America’s demand
for Swiss merchandise falls
*c. Switzerland’s demand for
American merchandise rises
d. Switzerland’s
demand for American merchandise falls
9.
In a supply-and-demand diagram for Japanese yen, with the exchange rate in dollars
per yen on the vertical axis, the demand schedule for yen is drawn sloping:
a. upward
b. vertical
*c. downward
d. horizontal
10.
Suppose there occurs an increase in the Canadian demand for Japanese computers. This results in a (an):
*a. increase in the demand for yen
b. decrease in the demand
for yen
c. increase in the supply
of yen
d. decrease in the supply
of yen
11.
The exchange rate is kept the same across geographically-separate markets by
a. hedging
b. speculation
c. government regulation
*d. arbitrage
12.
The reduction or covering of foreign exchange risk is called
*a. hedging
b. speculation
c. intervention
d. arbitrage
13.
An important feature of a __________ is that the holder has the right, but not the
obligation, to buy or sell currency.
a. swap
b. foreign exchange
arbitrage
*c. foreign exchange option
d. futures market
contract
14.
The least common type of transaction in the foreign exchange is a
*a. forward transaction
b. spot transaction
c. swap transaction
d. none of the above
15.
If the bank is selling francs for $0.45, then what is the implied franc price of
the dollar?
a. 2.0
b. 1.999
c. 2.323
*d. 2.222
16.
The difference between bid (buying) rates and ask (selling) rates is called the
a. profit
b. arbitrage
*c. spread
d. forward transaction
17.
Riskless transactions to take advantage of profit opportunities due to a price
differential or a yield differential in excess of transaction costs are called
a. differential actions
b. cash transactions
*c. arbitrage
d. forward transactions
18.
The essential feature of a ___________ is that it immediately fixed the rate at
which a specified amount of one currency is to be delivered in exchange for a specific
amount of another at a future date.
*a. forward contract
b. spot contract
c. money contract
d. bid contract
19.
The franc is said to be selling at a __________ if the spot dollar price is $0.48
and the nine-month forward rate is $0.42.
*a. forward discount
b. forward premium
c. forward spread
d. none of the above
20. Suppose that Boeing is to receive payment
in euros in 6 months and wants to engage in hedging. The firm would ______
euros on the 6-month forward market in order to protect itself from a/an ______
of the euro.
a. sell; appreciation
*b. sell; depreciation
c. buy; depreciation
d. buy; appreciation
21. If Sweden's currency depreciates relative
to Norway's currency
a. Norway's export goods become more expensive to Norway's
residents
b. Norway's exports goods become cheaper to Sweden's residents
*c. Sweden's export goods become cheaper to Norway's residents
d. Seden's export goods become cheaper to Sweden's residents
22. If the exchange rate is 11 Mexican pesos
per U.S. dollar, then it takes _______ to buy 1 peso
*a. $0.0909
b. $0.1002
c. $0.2826
d. $1.1024
23. Which of the following is not a
reason why Joe Smith (an American) might participate as a demander in the
foreign exchange market?
a. his desire to open a bank account in Japan
*b. his desire to purchase an automobile produced domestically
c. his desire to travel to Europe
d. his desire to purchase Treasury bills issued by the British
government
Chapter 12: Exchange-Rate Determination
1. The
relationship between the exchange rate and the prices of tradable goods is known as the:
*a. purchasing power parity theory
b. asset markets theory
c. monetary theory
d. balance of payments
theory
2.
If the exchange rate between Swiss francs and British pounds is 5 francs per pound,
then the number of pounds that can be obtained for 200 francs equals:
a. 20 pounds
*b. 40 pounds
c. 60 pounds
d. 80 pounds
3. Relatively
low real interest rates n the United States tend to:
*a. decrease the demand for dollars,
causing the dollar to depreciate
b. decrease the demand
for dollars, causing the dollar to appreciate
c. increase the demand
for dollars, causing the dollar to depreciate
d. decrease the demand
for dollars, causing the dollar to appreciate
4. Relatively
high real interest rates in the United States tend to:
a. decrease the demand
for dollars, causing the dollar to depreciate
b. decrease the demand
for dollars, causing the dollar to appreciate
c. increase the demand
for dollars, causing the dollar to depreciate
*d. increase the demand for dollars,
causing the dollar to appreciate
5.
Assume that the United States faces an 8 percent inflation rate while no (zero)
inflation exists in Japan. According to the
purchasing power parity theory, over the long run the dollar would be expected to:
a. appreciate by 8
percent against the yen
*b. depreciate by 8 percent against the
yen
c. remain at its existing
exchange rate
d. any of the above
6.
In the presence of purchasing power parity, if one dollar exchanges for 2 British
pounds and if a DVD player costs $400 in the United States, then in Britain the
DVD player should cost:
a. 200 pounds
b. 400 pounds
c. 600 pounds
*d. 800 pounds
7.
If wheat costs $4 per bushel in the United States and 2 pounds per bushel in Great
Britain, then in the presence of purchasing power parity the exchange rate should be:
a. $.50 per pound
b. $1.00 per pound
*c. $2.00 per pound
d. $8.00 per pound
8.
A primary reason that explains the appreciation in the value of the U.S.
dollar would be:
a. large trade surpluses
for the United States
b. high inflation rates
in the United States
c. lack of investor
confidence in U.S. monetary policy
*d. high interest rates in the United
States
9.
The high foreign exchange value of the U.S. dollar in the early 1980s can best
be explained by:
*a. additional investment funds made
available from overseas
b. lack of investor
confidence in U.S. fiscal policy
c. market expectations of
rising inflation in the United States
d. American tourists
overseas finding costs increasing
10.
When the price of foreign currency (i.e. the exchange rate) is below the
equilibrium level:
*a. an excess demand for that currency
exists in the foreign exchange market
b. an excess supply of
the currency exists in the foreign exchange market
c. the demand for foreign
exchange shifts outward to the right
d. the demand for foreign
exchange shifts backward to the left
11.
When the price of foreign currency (the exchange rate) is above the
equilibrium level:
*a. an excess supply of that currency
exists in the foreign exchange market
b. an excess demand for
that currency exists in the foreign exchange market
c. the supply of foreign
exchange shifts outward to the right
d. the supply of foreign
exchange shifts backward to the left
12.
The appreciation in the value of the dollar in the early 1980s is
explained by all of the following except:
a. the United States
being considered a safe haven by foreign investors
b. relatively high real
interest rates in the United States
c. confidence of foreign
investors in the U.S. economy
*d. relatively high inflation rates in
the United States
13.
Suppose Canada and Switzerland were the only two countries in the world. There exists an excess supply of Swiss francs on
the foreign exchange market. This suggests
that:
a. the Canadian
current-account balance is in surplus
*b. the Swiss current-account balance is
in deficit
c. the Canadian
current-account balance is in equilibrium
d. the Swiss
current-account balance is in equilibrium
14.
If Canada runs a balance-of-payments surplus and exchange rates are
floating:
a. the value of other
currencies will rise relative to the dollar
b. the dollar will
depreciate relative to other currencies
*c. the price of foreign goods will
become cheaper to Canadians
d. the price of foreign
goods will rise for Canadians
15.
If Japan runs current-account deficit
and exchange rates are floating:
a. Japanese exports
become more expensive to foreign buyers
*b. Japanese exports become less
expensive to foreign buyers
c. Japanese imports
become less expensive for German buyers
d. Japanese imports
become more prestigious to German buyers
16.
The international exchange value of the U.S. dollar is primarily determined by:
a. the rate of inflation
in the United States
b. the number of dollars
printed by the U.S. government
*c. the international demand and supply
for dollars
d. the monetary value of
gold held at Fort Knox, Kentucky
17.
For the United States, suppose the annual interest rate on government securities
equals 8 percent while the annual inflation rate equals 4 percent. For Switzerland, the annual interest rate on
government securities equal 10 percent while the annual inflation rate equals 7 percent. The above variables would cause investment funds
to flow from:
a. the United States to
Switzerland, causing the dollar to depreciate
b. the United States to
Switzerland, causing the dollar to appreciate
*c. Switzerland to the United States,
causing the franc to depreciate
d. Switzerland to the
United States, causing the franc to
appreciate
18.
For the United States, suppose the annual interest rate on government securities
equals 12 percent while the annual inflation rate equals 8 percent. For Japan, the annual interest rate on government
securities equals 10 percent while the annual inflation rate equals 5 percent. The above variables would cause investment funds
to flow from:
*a. the United States to Japan, causing
the dollar to depreciate
b. the United States to
Japan, causing the dollar to appreciate
c. Japan to the United
States, causing the mark to depreciate
d. Japan to the United
States, causing the mark to appreciate
19.
Given a system of floating exchange rates, rising income in the United
States would trigger a (an):
*a. increase in the demand for imports
and an increase in the demand for foreign currency
b. increase in the demand
for imports and a decrease in the demand for foreign currency
c. decrease in the demand
for imports and an increase in the demand for foreign currency
d. decrease in the demand
for imports and a decrease in the demand for foreign currency
20.
Given a system of floating exchange rates, falling income in the United
States would trigger a (an):
a. increase in the demand for imports and
an increase in the demand for foreign currency
b. increase in the demand
for imports and a decrease in the demand for foreign currency
c. decrease in the demand for imports and
an increase in the demand for foreign currency
*d. decrease in the demand for imports
and a decrease in the demand for foreign currency
21.
Under a system of floating exchange rates, relatively low productivity and high
inflation rates in the United States results in a (an):
*a. increase in the demand
for foreign currency, a decrease in the supply of foreign
currency, and a depreciation in the dollar
b. increase in the demand for foreign
currency, an increase in the supply of foreign currency, and an appreciation in the dollar
c. decrease in the demand for foreign
currency, a decrease in the supply of foreign currency,
and a depreciation in the dollar
d. decrease in the demand for foreign
currency, and increase in the supply of foreign currency,
and an appreciation in the dollar
22. Under a system of
floating exchange rates, relatively high productivity and low inflation rates in the
United States results in a (an) a. increase in the demand for foreign
currency, a decrease in the supply of foreign currency,
and a depreciation in the dollar
b. increase in the demand for foreign
currency, an increase in the supply of foreign currency,
and an appreciation in the dollar
c. decrease in the demand for foreign
currency, a decrease in the supply of foreign currency,
and a depreciation in the dollar
*d. decrease in the demand
for foreign currency, an increase in the supply of foreign currency,
and an appreciation in the dollar
23.
Which example of market expectations causes the dollar to appreciate
against the yen---expectations that the U.S. economy will have:
a. faster economic growth
than Japan
*b. higher future interest rates than
Japan
c. more rapid money
supply growth than Japan
d. higher inflation rates
than Japan
24.
Which example of market expectations causes the dollar to depreciate against
the yen–expectations that the U.S. economy will have:
*a. faster growth than Japan
b. higher future interest
rates than Japan
c. more rapid money
supply growth than Japan
d. lower inflation rates
than Japan
25.
Starting from a position where the nation’s money demand equals the money
supply and its balance of payments is in equilibrium, economic theory suggests that the
nation’s balance of payments would move into a surplus position if there
occurred in the nation a (an):
*a. decrease in the money supply
b. increase in the money
supply
c. decrease in the money
demand
d. any of the above
26.
Starting from a position where the nation’s money demand equals the money supply and its balance of payments is in
equilibrium, economic theory suggests that the nation’s balance of payments would
move into a surplus positions if there occurred in the nation a (an):
*a. increase in the money demand
b. decrease in the money
demand
c. increase in the money
demand
d. any of the above
27. Assume identical
interest rates on comparable securities in the United States and foreign countries. Suppose investors anticipate that in the future
the U.S. dollar will depreciate against foreign currencies. Investment funds would tend to:
*a. flow from the United States to
foreign countries
b. flow from foreign
countries to the United States
c. remain totally in
foreign countries
d. remain totally in the
United States
28.
Suppose that rising U.S. income leads to higher sales and profits in the United
States. This would likely result in:
a. increasing portfolio
investment into the United States
b. decreasing portfolio
investment into the United States
*c. increasing direct investment into the
United States
d. decreasing direct
investment into the United States
29. Due to Japan's high saving rate, suppose
that the Japanese invest abroad. This investment may result in a/an ______
of the Japanese yen and therefore a _______ for Japan.
a. appreciation; trade surplus
b. appreciation; trade deficit
*c. depreciation; trade surplus
d. depreciation; trade deficit
30. Suppose that the purchasing-power-parity
estimate of the dollar/euro exchange rate is $1.30 per euro, and the current
spot rate is $1.38 per euro. Comparing these two exchange rates, from a
long-run viewpoint you would
a. anticipate the dollar to depreciate against the euro
*b. anticipate the dollar to appreciate against the euro
c. anticipate the dollar's exchange rate against the euro to
remain constant
d. have no anticipation concerning future movements in the
dollar/euro exchange rate
31. Assume that a "Big Mac" hamburger costs $3
in the United States and 2 pesos in Mexico. The implied
purchasing-power-parity exchange rate between the peso and the dollar is
*a. 0.67 pesos = $1
b. 0.8 pesos = $1
c. 1.25 pesos = $1
d. 1.67 pesos = $1
Chapter 14:
Exchange-Rate Adjustments and the Balance of Payments
1.
Suppose that U.S. dollar depreciates 70 percent against the yen, yet
Japanese export prices to Americans did not decrease by the full extent of the dollar
depreciation. This is best explained by:
*a. partial currency pass through
b. complete currency pass
through
c. partial J-curve effect
d. complete J-curve
effect
2.
Because of the J-Curve effect and partial currency pass through, a depreciation of
the domestic currency tends to increase the size of a:
a. trade surplus in the
short run
b. trade surplus in the
long run
*c. trade deficit in the short run
d. trade deficit in the
long run
3.
Economic theory predicts that a currency depreciation will least lead to an
improvement in the home country’s trade balance when:
*a. home demand for imports is inelastic
and foreign export demand is inelastic
b. home demand for
imports is elastic and foreign export demand is inelastic
c. home demand for
imports is inelastic and foreign export demand is elastic
d. home demand for
imports is elastic and foreign export demand is elastic
4.
If foreign manufacturing costs and profit margins in response to a depreciation in
the U.S. dollar, the effect of these actions is to:
a. shorten the amount of
time in which the depreciation leads to a smaller trade deficit
b. shorten the amount of
times in which the depreciation leads to a smaller trade surplus
*c. lengthen the amount of time in which
the depreciation leads to a smaller trade deficit
d. lengthen the amount of
time in which the depreciation leads to a smaller trade surplus
5.
The shift toward imperfectly competitive markets in domestic and international
trade questions the concept of:
a. official exchange
rates
*b. complete currency pass through
c. exchange arbitrage
d. trade adjustment
assistance
6.
Given a two country world, suppose Japan devalues the yen by 20 percent and West
Germany devalues the mark by 15 percent. This
results in a (an):
a. appreciation in the
value of both currencies
b. depreciation in the
value of both currencies
c. appreciation in the
value of the yen against the mark
*d. depreciation in the value of the yen
against the mark
7.
The extent to which a change in the exchange rate leads to changes in import and
export prices is known as the:
a. J-Curve effect
b. Marshall-Lerner
effect
c. absorption effect
*d. pass-through effect
8.
Complete currency pass through arises when a 10 percent depreciation in the
value of the dollar causes U.S.:
a. import prices to fall
by 10 percent
*b. import prices to rise by 10 percent
c. export prices to rise
by 10 percent
d. export prices to rise
by 20 percent
9.
Which approach predicts that is an economy operates at full employment and faces a
trade deficit, currency devaluation will improve the trade balance only if domestic
spending is cut, thus freeing resources to produce exports:
*a. the absorption approach
b. the Marshall-Lerner
approach
c. the monetary approach
d. the elasticities
approach
10.
I f export contracts are written in terms of foreign currency and import contracts
are denominated in domestic currency, a depreciation of the dollar during the currency
contract period
a. should increase the
dollar value of exports
b. should not have any
effect on the dollar value of U.S. imports
c. must increase the balance of trade
*d. all of the above
11.
The notion that, following a currency depreciation, the balance of trade falls for a while
before increasing is called a __________ effect
a. relative price
b. elasticity
*c. J-Curve
d. pass-through
12.
Suppose that the United Kingdom devalues the pound.
If both exports and imports are written in terms of pounds, then the United Kingdom
balance of trade _______ during a currency contract period.
a. improves
b. worsens
*c. is unaffected
d. falls for a while
before increasing
13.
The _________ analysis considers the ability of domestic and foreign prices to
adjust to devaluation in the short run.
*a. pass-through
b. absorption
c. adjustment mechanism
d. currency contract
period
14.
The shorter the “pass-through” period, the ___________ the desirable BOT
effects of evaluation on quantities traded will appear.
*a. sooner
b. longer
c. bigger
d. smaller
15.
The balance of trade can only worsen if income _________ relative to absorption.
a. increases
*b. decreases
c. does not change
d. none of the above
16.
Empirical evidence regarding the effects of currency depreciation on the balance of trade
indicates that
a. depreciation generally
improves the trade balance
b. depreciation generally
hurts the trade balance
*c. no strong generalization are
possible
d. depreciation has no
effect on the trade balance
17. According to the Marshall-Lerner
condition, if a country's currency depreciates its trade balance will worsen if
a. elasticity of demand for exports = 0.9; elasticity of
demand for imports = 0.4
b. elasticity of demand for exports = 0.7; elasticity of
demand for imports = 0.3
c. elasticity of demand for exports = 0.5; elasticity of
demand for imports = 0.7
*d. elasticity of demand for exports = 0.3; elasticity of
demand for imports = 0.6
Chapter 15:
Exchange-Rate Systems and Currency Crises
1.
The exchange rate system that best characterizes the present international
monetary arrangement used by industrialized countries is:
a. freely fluctuating
exchange rates
b. adjustable pegged
exchange rates
*c. managed floating exchange rates
d. pegged or fixed
exchange rates
2.
Which exchange rate mechanism is intended to insulate the balance of payments form
short-term capital movements while providing exchange rate stability for commercial
transactions?
*a. dual exchange rates
b. managed floating
exchange rates
c. adjustable pegged
exchange rates
d. crawling pegged
exchange rates
3.
Which exchange rate mechanism calls for frequent redefining of the par value
by small amounts to remove a payments disequilibrium?
a. dual exchange rates
b. adjustable pegged
exchange rates
c. managed floating
exchange rates
*d. crawling pegged exchange rates
4.
Under managed floating exchange rates, if the rate of inflation in the United
States is less than the rate of inflation of its trading partners, the dollar will
likely:
*a. appreciate against foreign currencies
b. depreciate against
foreign currencies
c. be officially revalued
by the government
d. be officially devalued
by the government
5.
Under adjustable pegged exchange rates, if the rate of inflation in the United
States exceeds the rate of inflation of its trading partners:
a. U.S. exports tend to
rise and imports tend to fall
*b. U.S. imports tend to rise and exports
tend to fall
c. U.S. foreign exchange
reserves tend to rise
d. U.S. foreign exchange
reserves remain constant
6.
Under a pegged exchange rate system, which does not explain why a country
would have a balance-of-payments deficit?
a. very high rates of
inflation occur domestically
b. foreigners
discriminate against domestic products
c. technological advance
is superior abroad
*d. the domestic currency is undervalued
relative to other currencies
7.
Which exchange rate system does not require monetary reserves for official
exchange rate intervention?
*a. floating exchange rates
b. pegged exchange rates
c. managed floating
exchange rates
d. dual exchange rates
8.
Small nations whose trade and financial relationships are mainly with a single
partner tend to utilize:
*a. pegged exchange rates
b. freely floating
exchange rates
c. managed floating
exchange rates
d. crawling exchange
rates
9.
Small nations with more than one major trading partner tend to peg the value of
their currencies to:
a. gold
b. silver
c. a single currency
*d. a basket of currencies
10.
Which exchange rate system involves a “leaning against the wind” strategy
in which short-term fluctuations in exchange rates are reduced without adhering to
any particular exchange rate over the long run?
a. pegged of fixed
exchange rates
b. adjustable pegged
exchange rates
*c. managed floating exchange rates
d. freely floating
exchange rates