International Economics 4th Edition

Solutions Manual to End-of-Chapter Questions 1 Trade in the Global Economy 1. In this question, you are asked to update the numbers for world trade that are shown in Table 1-1. a. Go to the World Trade Organization’s website at http://www.wto.org, and look for its trade data under “Documents, data and resources: Publications” for the

the steamship and railroad expansion, all of which encouraged trade. This golden age that lasted up until 1920 experienced large increases in trade and globalization. In fact, the United Kingdom saw an increase of 30%, while Australia, Canada, and Europe all experienced 20% increases at their peaks. Japan reached a ratio of 15%

1 Trade in the Global Economy Notes to Instructor Chapter 1 provides a good overview of international trade as well as a summary of what is covered in each of the chapters in the International Trade textbook. The goal of the study of international trade is to come to an understanding of the forces that

The ECB's key characteristics are as follows: Instruments and goals: Instrument: Interbank lending rate Goals: Primary: "Maintain price stability" Secondary: "Support the general economic policies in the Community with a view to contributing the achievement of the objectives of the Community" These goals are similar to those of other

b. Suppose that based on the OCA, Country A and Country B join the CU but Country C does not. Illustrate the OCA line on your diagram based on this information. Answer: See the previous diagram. Country A and Country B lie above the OCA line. Yes, it is possible that this is optimal

10 Export Policies in Resource-Based and High-Technology Industries 1. In Figure 10-8 we showed the value of Chinese exports of rare earth minerals, along with their average price and quantity sold, in three categories of exports. The source for the data in Figure 10-8 is the China Customs Statistics. In this problem, you

10 (21) The Euro 1. Discovering Data Do some research on the Internet to construct an updated version of the map in Figure 21-1. You can find membership information on the websites of the European Union (europa.eu) and the European Central Bank (www.ecb.int). Since this book was written, have any new countries joined the

A government-applied tariff results in a price of 𝑃𝑃𝑊𝑊 − 𝑡𝑡, as shown in Figure 10-6, causing the export supply curve in panel (b) to shift upward by the amount of the tariff from X to X + 𝑡𝑡, resulting in a new equilibrium (point C) in the export supply and import demand

10 Export Subsidies in Agriculture and High-Technology Industries Notes to Instructor Chapter Summary The trade policies we examine in this chapter are those that promote exports, often at the expense of consumers and import nations dependent on the product. Export subsidies are used by many countries, developed and developing, to increase the competitive advantage of domestic producers.

expectation that these costs will be repaid at the government rate. Indirect subsidies to the military divisions are limited to 4% of the company’s annual sales and prohibit production subsidies and, in addition, limit the government from offering buyers low interest rates. This agreement lowered subsidies from estimates of 7.5% to 12% of the

21 The Euro Notes to the Instructor Chapter Summary This chapter examines the theory of optimum currency areas, focusing on the Eurozone or Euro area. The chapter provides a historical background on Europe to better understand the euro's origins. It then develops the theory of optimum currency areas and

positive consumption externality from the installation of solar panels since this source of energy does not emit carbon, which contributes to global climate change. This means that the SMB curve is above the demand curve and thus leads to additional social gains when more consumption occurs. These extra gains (area 𝑑𝑑) are added

hold. Changes in the nominal exchange rate reflect: Inflation differentials Convergence in the real exchange rate to its equilibrium value Changes in the equilibrium real exchange rate resulting from changes in productivity and growth 2 Exchange Rates in the Short Run: Deviations from Uncovered Interest Parity The UIP condition

Suppose a tariff in the amount of t dollars is applied on all importers before NAFTA. Then the United States imports Q1 units of auto parts at a price of PAsia + t given by point A, where the quantity Q2 is supplied by Mexico with the remaining amount arriving from Asia (i.e.,

exchange rate actually moved. (Go to http://www.imfstatistics.org/imf/. This is a subscription website, but five-day free trials are available.) Teaching Tip 3: The break-even condition for lenders (the equation following Figure 2210) implies a value of the lending rate. Solving for rL, we get rL = (1 + r − p)/p = [(1 + r)/p]

11 (22) Topics in International Macroeconomics 1. (PPP) Richland and Poorland each have two industries: traded TVs and nontraded house maintenance. The world price of TVs is R$100 (R$ = Richland dollar). Assume for now that the exchange rate is R$1 = 1 PP (PP = Poorland peso) and that prices are flexible. It

11 International Agreements: Trade, Labor, and the Environment 1. In Application: The Trans-Pacific Partnership, we summarized some of the provisions of TPP and the views of consumer and environmental groups. The text of the TPP agreement is available at: https://ustr.gov/tpp/#text. We will use that text to dig deeper into the agreement a. Consider the provisions

11 International Agreements: Trade, Labor, and the Environment Notes to Instructor Chapter Summary This chapter shows that without international agreements, countries have a strong incentive to choose policies that could result in the prisoner’s dilemma. Namely, a country would impose tariffs to benefit its own welfare. When all countries act in the same manner, world welfare decreases

loan demand. An increase in volatility of output leads to an increase in the lending rate and an ambiguous effect on the amount borrowed. APPLICATION The Costs of Default This application considers empirical measures of the costs of default from a recent Bank of England study and other research.

22 Topics in International Macroeconomics Notes to Instructor Chapter Summary This chapter covers extensions to the models presented in earlier chapters. There are four topics covered: purchasing power parity (PPP), especially the issue of why price levels are higher in richer countries; uncovered interest parity (UIP), and the implications

1 (12) The Global Macroeconomy 1. Discovering Data In this problem you will use data from the Bureau of Economic Analysis (BEA) to investigate the dependence of the United States on foreign markets over time. Go to the BEA website at www.bea.gov and under the “National” tab open the interactive table for “GDP and

12 The Global Macroeconomy Notes to the Instructor Chapter Summary This chapter provides students with a broad overview of international macroeconomics. The chapter uses several key concepts to introduce the subject to students without formal modeling. At the end of each topic, there are two sections that review the

Country Currency (1) Per $ (2) Per £ (3) Per € (4) Per $ (5) Per £ (6) Per € (currency) Symbol Canada C$ 1.063 1.59 1.302 1.161 1.913 1.629 (dollar) Denmark DKr 6.081 9.098 7.449 5.309 8.743 7.447 (krone) Euro (euro) € 0.816 1.221 - 0.713 1.174 -

because some foreign exchange transactions are relatively rare, making it more difficult to exchange currency directly. When a third currency is used in these types of transactions, it is known as a vehicle currency. As of April 2007, the most common vehicle currency was the U.S. dollar, which was

2 (13) Introduction to Exchange Rates and the Foreign Exchange Market 1. Discovering Data Not all pegs are created equal! In this question you will explore trends in exchange rates. Go to the St. Louis Federal Reserve's Economic Data (FRED) website at https://research.stlouisfed.org/fred2/and download the daily United States exchange

13 Introduction to Exchange Rates and the Foreign Exchange Market Notes to the Instructor Chapter Summary This chapter introduces students to exchange rates, to the foreign exchange (forex) market, to the way foreign currency is exchanged in private and government transactions, and to arbitrage conditions in the forex market.

14 Exchange Rates I: The Monetary Approach in the Long Run Notes to Instructor Chapter Summary This chapter develops the long-run model of exchange rate determination that will be used in later chapters. Beginning with the theory of purchasing power parity, exchange rates are linked to prices and inflation

3 (14) Exchange Rates I: The Monetary Approach in the Long Run 1. Discovering Data: In recent years China has been routinely accused of currency manipulation. Use The Economist’s Big Mac Index to investigate these claims. Go to http://www.economist.com/content/big-mac-index to access the full dataset. Answers will depend on the

If the government adopts a fixed exchange rate regime, or sets the percentage change in the exchange rate equal to a constant, this will keep the inflation rate constant. The drawback of this approach is that the home country’s inflation rate changes each time the foreign country’s inflation rate changes. Therefore, if the

↑YF → ↓PF → ↑EH/F (home currency depreciates, foreign currency appreciates) Money Growth, Inflation, and Depreciation When developing the theory of PPP, we examined both absolute and relative PPP. Because economists are often more interested in studying the behavior of inflation rather than the level of prices, it is convenient to express the fundamental equations in rates of change rather

15 Exchange Rates II: The Asset Approach in the Short Run Notes to Instructor Chapter Summary This chapter combines the asset approach, based on the uncovered interest parity (UIP) condition from Chapter 13, with the monetary approach from Chapter 14 to develop a comprehensive model of exchange rate determination.

4 (15) Exchange Rates II: The Asset Approach in the Short Run Discovering Data In this question we will be testing an assumption of our model of exchange rate determination. In particular, you will be showing that the PPP assumption often fails in the short run, emphasizing the importance of the unifying approach discussed

1979. (The M1 growth rate was annualized, then smoothed, using a 3-month moving average.) Between June and August of 1978, the M1 growth rate fell from almost 12% to about 6%. The Fed funds rate rose from 7.60% to 8.04%, and continued rising until December when it settled at

Short-Run Policy Analysis We begin by studying temporary shocks. These shocks do not affect long-run prices or expected exchange rates. A Temporary Shock to the Home Money Supply Figure 15-8 illustrates the effects of a temporary increase in the home money supply. The reverse would apply to a temporary

those available from the exchange of assets: GNE + CA + FA + KA = GNDI This simplifies to the BOP identity: CA + KA + FA = 0 How the Balance of Payments Accounts Work: A Microeconomic View The balance of payments must balance. The sum of the

16 National and International Accounts: Income, Wealth, and the Balance of Payments Notes to Instructor Chapter Summary This chapter begins by discussing an integrated view of national income and product (NIP) accounts with balance of payments (BOP) accounts. The chapter then presents NIP accounts in detail. For advanced students,

5 (16) National and International Accounts: Income, Wealth, and the Balance of Payments 1. Discovering Data In this question you will study the official macroeconomic statistics reported in your country. These can be found by searching the web for “National Accounts” and your country’s name. In the United States, these can be found at http://www.bea.gov

FA = - (CA+KA) Using the data given in the question: FA = - -($1,000 + $75) FA = -$1,075 million Because FA<0, foreign purchases of Rijkdom's assets < Rijkdomians' purchases of foreign assets. Rijkdom is a net importer of assets. It is accumulating assets. b. Calculate the official

17 Balance of Payments I: The Gains from Financial Globalization Notes to Instructor Chapter Summary This chapter connects the balance of payments to long-run economic growth and highlights the benefits of international finance for consumption smoothing, investment, and risk sharing. The key lessons from this chapter are as follows:

own each other's labor, so labor income is the same as in the home portfolio case. From panel (b), we observe that the countries are able to reduce the variation in income through owning a portion of the other country's capital stock. Note that the total level of output

6 (17) Balance of Payments I: The Gains from Financial Globalization 1. Discovering Data Go to the BEA website (bea.gov). Find the latest annual balance of payments data for the United States. Answers will depend on the year of the data and the date retrieved. The following answer is based on 2016 data that

100 output is equal to 100 thereafter, PV(Q) = 79 + = 2079. 0.05 3. Calculate consumption each period based on the assumption that the country wants to maintain the same level of consumption each period. Step 2 shows us that PV(Q) = 2079 = PV(C). Therefore, we know

assumption in this question) i. What about in later years? State the levels of CA, TB, NFIA, and FA in year 1 and thereafter. Answer: In subsequent years, the values are as follows: TB = Q − C − I = 301.6 − 300.77 − 0 = 0.83 NFIA = −0.83 (= r* × ΔK

demand through two channels: investment demand and external demand (trade balance). A decrease in the interest rate leads to a depreciation in the home currency and a real depreciation (because of sticky prices), increasing the trade balance. Factors That Shift the IS Curve The following exogenous factors lead to

7 (18) Balance of Payments II: Output, Exchange Rates, and Macroeconomic Policies in the Short Run 1. Discovering Data In this chapter we discussed the weak link between the real exchange rate and the trade balance. We looked at a time series diagram showing these two variables for the United States in Figure 18-4,

model’s predictions. In this case, the increase in output led to an increase in imports that offset any potential gains in the trade balance associated with the depreciation in the dollar. 2. This question uses a numerical example to understand the connections between the goods, money, and foreign exchange (FX) markets. Use the information

18 Balance of Payments II: Output, Exchange Rates, and Macroeconomic Policies in the Short Run Notes to Instructor Chapter Summary This chapter develops a standard short-run macroeconomic model for the open economy. It begins with an overview of the components of demand and their determinants, then derives a goods

group of countries are often asymmetric, and it may be difficult for one country to allow output to deviate from the desired level to help out another country. In the end, these asymmetric shocks should average out, but this requires a long-term commitment. For example, in the ERM, countries

8 (19) Fixed Versus Floating: International Monetary Experience 1. Discovering Data Visit the International Monetary Fund’s website (http://www.imf.org) and locate the latest classification of exchange rate regimes in all countries around the world. How many countries are fixing and how many are floating? Answer: Answers will vary depending on the year selected. The following information comes

Answer: The increase in government spending leads to a rightward shift in the IS curve. This leads to an increase in home country's interest rate and an implied appreciation in the home currency, shifting IS* to the left. In a fixed exchange rate regime, the home country's central bank

19 Fixed Versus Floating: International Monetary Experience Notes to Instructor Chapter Summary This chapter examines the choice of fixed versus floating exchange rate regimes in more detail. We consider the potential benefits of a fixed exchange rate regime, such as efficiency gains from reduced transactions costs, fiscal discipline, and

2 Trade and Technology: The Ricardian Model Notes to Instructor Chapter Summary The first chapters of this textbook address the question of why countries trade with one another. We will find that the reasons for trade include differences in technology, resources, cost of offshoring, and proximity to trading partners. This chapter addresses the first item above,

2 Trade and Technology: The Ricardian Model 1. In this problem you will use the World Development Indicators (WDI) database from the World Bank to compute the comparative advantage of two countries in the major sectors of gross domestic product (GDP): agriculture, industry (which includes manufacturing, mining, construction, electricity, and gas), and services. Go to

Harmonized System Product Description Codes (HS Codes) 920300 Keyboard pipe organs; harmoniums and similar keyboard instruments with free metal reeds 180100 Cocoa beans (whole or broken) IN-CLASS PROBLEMS 1. What determines the pattern of international trade between two countries in the Ricardian model? Answer: The pattern of trade is determined by comparative advantage. The country with a comparative advantage in the

Similar to the home country, trade in the foreign country is also balanced. By specializing in the production of cloth, Foreign produces 100 yards, 60 of which it keeps for consumption and the other 40 it exports to Home in exchange for 60 bushels of wheat. Note that the amount of cloth

Time 4 onward: Price level continues to grow at the rate of the money supply, and real money demand remains unchanged at 4,608 billions. See the previous table. e. Illustrate the behavior of the following variables between t = 1 and

9 (20) Exchange Rate Crises: How Pegs Work and How They Break 1. Discovering Data From Figure 2-4(13-4) in Chapter 2(13), identify three countries with fixed exchange rates. Now use the Internet to search for and visit the websites of each of these countries’ central banks and download the latest balance sheet information. For

Answer: Emerging markets and developing countries are more likely to adopt fixed exchange rate regimes. There are several reasons for this, including denomination of debt in a foreign currency and desire to minimize risk premia and exchange rate risk to attract foreign capital. e. Which groups are more likely to suffer from twin or

20 Exchange Rate Crises: How Pegs Work and How They Break Notes to Instructor Chapter Summary This chapter develops a new central bank balance sheet model to examine exchange rate crises. The chapter begins with an overview of what an exchange rate crisis is and the costs associated with

need to allow for a more detailed bank balance sheet. Here, we will distinguish between different types of foreign and domestic assets and liabilities. A More General Balance Sheet The items on the general central bank balance sheet follow. We still assume that central bank capital equals zero.

3 Gains and Losses from Trade in the Specific-Factors Model Notes to Instructor Chapter Summary Chapter 3 develops a more robust model that includes all the factors of production. As in the Ricardian model of Chapter 2, we ask the same questions: Does a country benefit from trade and, if so, how are the gains

3 Gains and Losses from Trade in the Specific-Factors Model 1. In the chapter, we learned that workers displaced by import competition are eligible for compensation through the Trade Adjustment Assistance program. Firms are also eligible for support through Trade Adjustment Assistance for Firms, a federal program that provides financial assistance to manufacturers affected

∆𝑃𝑃𝑀𝑀 ∆𝑊𝑊 ∆𝑅𝑅𝑀𝑀 ( 𝑃𝑃𝑀𝑀 )𝑃𝑃𝑀𝑀 · 𝑄𝑄𝑀𝑀 − 𝑊𝑊 · 𝑊𝑊 · 𝐿𝐿𝑀𝑀 = 𝑅𝑅𝑀𝑀 𝑅𝑅𝑀𝑀 𝐾𝐾 Substituting the information above gives ∆𝑅𝑅𝑀𝑀 ((10%) · 100) − ((5%) · 60) = = 17.5% 𝑅𝑅𝑀𝑀 40 We see that the percentage increase in the rental on capital, 17.5%, is far greater than the percentage increase in the relative price of manufacturing, 10%. We use

The preceding equations relating the changes in product prices to changes in factor prices are called the “magnification effect,” because changes in prices of goods have magnified effects on the earning of factors of production. APPLICATION Opinions Toward Free Trade Workers’ attitudes toward limitations on free trade depend on whether we are in the short run

4 Trade and Resources: The Heckscher–Ohlin Model Notes to Instructor Chapter Summary This chapter presents the Heckscher–Ohlin model with two factors (capital and labor), two goods (computers and shoes), and two countries (Home and Foreign). A test of the model is discussed with Leontief ’s paradox. Additionally this chapter, like the last, discusses the affect of

4 Trade and Resources: The Heckscher-Ohlin Model 1. In this problem you will learn how to download data for U.S. export and imports for highly disaggregated products. Supposes that you are hired by a company that wants to start exporting the product it already sells in the United States.

5 Movement of Labor and Capital Between Countries 1. Under Headlines: Brussels Resumes Policy Push to Share out Refugees across EU, there is a map showing persons seeking asylum in the European Union, as of May 2015. In this question, you will be asked to update these figures to reflect the most recent

point B in Figure 5-8, where the unchanged relative price of computers is just tangent to the outermost PPF. Note that this new PPF is biased in the direction of shoes because of the increase in the endowments devoted to the shoe industry. This long-run result of factor movement on output is given

5 Movement of Labor and Capital Between Countries Notes to Instructor Chapter Summary The objective of this chapter is to consider the effect on earnings from the factors of production and output from movement of all the factors of production across industries and countries. Two models are used to explain the effect on earnings and output.

World Gains from Migration The sum of triangles ABC and A*BC representing Home and Foreign gains, respectively, gives the larger triangle A*AB, which denotes the increase in the world gross domestic product (GDP) due to immigration. For example, when the first migrant leaves Foreign for Home, the GDP in the former country falls

6 Increasing Returns to Scale and Monopolistic Competition 1. a. Of two products, rice and paintings, which product do you expect to have a higher index of intra-industry trade? Why? Answer: We would expect that paintings would have a higher index of industry trade, because they are differentiated goods, unlike rice. b. Access the U.S. TradeStates

rose over 20% relative to the level in 1994. In both sectors, real wages increased by 2003 to the levels reached in 1994. As an alternative to examining real wages, we could instead study the real monthly income, which would more accurately reflect the earnings of higher-income individuals who receive salaries. Panel (b) of

6 Increasing Returns to Scale and Imperfect Competition Notes to Instructor Chapter Summary In the Ricardian and modified specific-factors model as well as in the Heckscher–Ohlin model, we assumed perfectly competitive markets, where there are many firms, each producing a homogeneous product, and where no firm is able to influence the market price. In this chapter,

7 Offshoring of Goods and Services Notes to Instructor Chapter Summary Up to this point, we have focused on the trade of final goods and services—consumer goods. But, a significant amount of trade involves intermediate goods and services or inputs that are used to build end products for sale to consumers. None of the models covered

7 Offshoring of Goods and Services 1. What type of occupation would you like to pursue after graduation? To see what is available, to the Bureau of Labor Statistics website at: https://www.bls.gov/ooh/. a. Find four occupations that you think fit the four categories shown in the horizontal axis of Figure 7-11: nonroutine manual jobs;

4 Conclusion In this chapter, we focused on a different type of trade than in previous chapters. Here, we looked at the intermediate products used in production— not trade in final goods and services. The Ricardian and Heckscher‒Ohlin models do not apply to intermediate production goods and services. Instead, we had to focus on

jobs—the mid-level wage jobs. This means that low- and mid-level wage categories were impacted with lower employment in the 1980s, while in the 1990s, the mid-level wage workers were more heavily impacted. This reflects a trend toward greater loss for midlevel wage workers. Again, from 2007 to 2014—which included the Great Recession—we find

8 Import Tariffs and Quotas Under Perfect Competition Notes to Instructor Chapter Summary This chapter examines the impact of import tariffs and quotas on the welfare of the importing country, exporting country, and world. The welfare implications are different, depending on whether the importing country is small or large. A country is defined as small

8 Import Tariffs and Quotas Under Perfect Competition 1. At the opening of this chapter, we referred to the events of May 1995, when the United States considered putting tariffs on imports of luxury cars from Japan. Specifically, on May 16, 1995, U.S. Trade Representative Mickey Kantor announced that the United States would impose

States and occurs in addition to the deadweight loss of area 𝑏𝑏 + 𝑑𝑑. Note that the deadweight loss for the steel tariff was $186 million per year, substantially less than the loss from the discriminatory tariff. This informs us that discriminatory tariffs that are applied unequally to specific nations are particularly more

Growth in Exports from China Figure 8-12 compares the changes in clothing and textiles exports with the United States following the elimination of the MFA. Panel (a) shows that in 2005, China’s textile and apparel exports to the United States increased by more than 40% relative to the previous year, whereas those from

an exporter is dumping potatoes in the economy. Given the following scenarios, rank each from best to worst in terms of the importing country’s welfare. Explain. i. Free trade ii, Foreign dumping iii. Foreign dumping with an antidumping duty iv. Coordination between the foreign and domestic producers after the antidumping petition is withdrawn Answer: ii > iii

effective price of computing power fell rapidly in the United States between 1982 and 1988. Brazil, however, did not achieve the same low prices as the United States during the same period. More specifically, by 1992, Brazil was able to achieve the effective prices of computers that the United States had already established

We will now argue that this strategy may be profitable for the Foreign firm in spite of the lower export prices compared to local prices and in spite of an export price below the firm’s average costs. We will show how this may occur with a numerical example. Numerical Example of Dumping To understand

9 Import Tariffs and Quotas Under Imperfect Competition Notes to Instructor Chapter Summary This chapter is much like the previous Chapter 8, except now we will drop the assumption of perfectly competitive markets and examine once again the impact of import tariffs and quotas but under imperfect competition (i.e., either by assuming a home monopoly or

9 Import Tariffs and Quotas Under Imperfect Competition 1. Figures A, B, and C are taken from a paper by Chad Bown: “The Pattern of Antidumping and Other Types of Contingent Protection” (World Bank, PREM Notes No. 144, October 21, 2009), and updated from Chad Brown, 2012, “Global Antidumping Database,” available at www.brandeis.edu/~cbown/global_ad/. a.

1. International macroeconomics studies: A) decisions of individual households in other countries. B) decisions by governments in other countries. C) the interrelationship of large-scale economic issues across countries. D) the interrelationship of politics and economics within a country. 2. International macroeconomics focuses on: A) isolated nations. B) economy-wide variables such as interest rates, income, prices, and wealth. C)

1. What country was the world's largest exporter of goods in 2014? A) China B) Germany C) the United States D) Japan 2. Which of the following is an example of trade of goods, otherwise known as trade flow? A) Robert Feenstra purchases $100 million of British treasury bonds. B) Robert Feenstra purchases a yogurt factory in

1. Which of the following was a major disagreement during the Doha Round? A) tariffs on agricultural imports in developing countries B) agricultural subsidies C) production subsidies to agriculture in land-poor developing countries D) tariffs on agricultural imports in developed countries 2. The term used to describe a tax on exports is an: A) export tariff. B)

1. The common currency area in Europe is called the: A) common market. B) Eurozone. C) euromark. D) European Union. 2. The Eurozone is an example of a: A) common market. B) currency area. C) free-trade area. D) customs union. 3. A currency union is: A) a trade agreement between countries. B) a customs union between countries. C) when countries abandon their domestic

1. The WTO is a _____, involving many countries, with an agreement to lower tariffs between all members. A) bilateral trade organization B) trilateral trade organization C) multilateral trade organization D) quasipolitical organization 2. What is COP21? A) an agreement negotiated in Copenhagen that resulted in developed countries immediately eliminating agricultural export subsidies B) an agreement negotiated in Paris

1. When measuring real purchasing power parity (PPP) between China and the United States, prices of goods measured in dollars at the exchange rate in both nations resulted in: A) higher prices for goods in China compared with the United States. B) lower prices for goods in China compared with the United States. C) prices

1. Exchange rates affect: I. international trade flows II. international investment flows III. corporate earnings A) I B) II and III C) I and II D) I, II, and III 2. The price of a foreign currency expressed in terms of the home currency is called the: A) exchange rate. B) rate of depreciation. C) dollar–yen ratio. D) opportunity cost. 3. Normally, exchange

1. Which of the following is NOT a reason why countries trade goods with one another? A) differences in technology used in different countries B) differences in countries' total amount of resources C) the proximity of countries to one another D) differences in countries' languages and cultures 2. David Ricardo's model explains trade based on: A)

1. Bolivia's government attempted to solve some of its problems with inequality of outcomes due to foreign investment in its natural gas resources by: A) taxing international firms. B) insisting that the firms pay higher wages to workers in the industry. C) shutting down the firms in the wake of protests. D) nationalizing the natural

1. The relative purchasing power of a currency is: A) the exchange rate expressed in ounces of gold. B) the value of one currency in terms of the goods and services a unit will purchase compared with an equivalent amount of another currency. C) the official value of one nation's currency compared with the

Page 1 1. When currencies are viewed as assets, the price of a currency is its: A) interest rate. B) exchange rate. C) inflation rate. D) growth rate. 2. Explaining exchange rate behavior in the long run assumes that changes in price levels and real interest rates

1. Which of the following statements is true? A) The Heckscher–Ohlin model offers a reasonable explanation of the pattern of trade and the gains from trade. B) The Heckscher–Ohlin trade model does not offer an explanation of the pattern of trade. C) The Heckscher–Ohlin trade model does not offer an explanation of the gains from trade. D)

1. The Mariel boat lift of Cuban immigrants into Miami caused the: A) population of unskilled workers in Miami to decline. B) population of skilled workers in Miami to decline. C) supply of unskilled labor to increase, but it did not decrease the wages of other unskilled workers in Miami. D) wages of all workers

1. Tracking and measuring international flows of goods and assets are based on principles of: A) economics. B) statistics. C) historical precedents. D) accounting. 2. Summaries of international flows of goods and assets are recorded in a nation's: A) national income and product accounts. B) balances with the IMF. C) balance of payments accounts. D) balance on international indebtedness. 3. Gross

1. In theory, financially open economies can: A) manipulate their trade accounts to avoid imbalances. B) avoid all economic shocks or downturns. C) lower the unemployment rate but cannot control inflation. D) use access to the international financial markets to keep investment and consumption stable. 2. When a disaster destroys a family's home, the family can

1. The ____________ model best explains intra-industry trade. A) Ricardian B) Heckscher–Ohlin C) monopolistic competition D) specific-factors 2. To analyze intra-industry trade, we change our assumptions about our trade models to allow: A) price-conscious consumers. B) short-run unemployment. C) differentiated products. D) perfect competition. 3. Products that are very similar and very close substitutes, but that may be of different quality or

1. The provision of a service or input component part that is assembled into a final good at another location is known as: A) barter. B) component trade. C) intermediate trade. D) offshoring. 2. Intel produces microchips in China and Costa Rica using subsidiaries that it owns. Mattel, in contrast, contracts with firms in several different countries

Page 1 1. A short-run open-economy model with demand shocks can analyze the effect on _____ if output prices and factor prices are sticky. A) inflation B) real economic activity (real GDP and unemployment) C) long-run variables D) expectations 2. A Keynesian model is one in which

1. How large a tariff did Donald Trump, the Republican candidate in the 2016 presidential campaign, indicate that he would levy on Chinese exports to the United States? A) 10% B) 25% C) 45% D) 75% 2. In 1995, the United States considered levying a tariff on luxury cars imported from Japan. How did Japan react to

1. Traditionally, nations pegged their currencies to _______, and so trade was accomplished with _______ exchange rates. A) the pound sterling; floating B) gold; fixed C) the U.S. dollar; floating D) silver; fixed 2. To maintain a functioning gold standard: A) nations are obliged to exchange any amount of issued paper money for gold. B) paper money is

1. Although fixed exchange rates are desirable for many reasons, nations that adopt fixed exchange rates find that: A) fixed exchange rates are difficult to abandon once they become established. B) flexible exchange rates actually offer a nation more stability. C) the rate is often only successful for a few years before the peg

1. A foreign discriminating monopolist is engaging in: A) infant industry protection. B) dumping its product. C) giving preferential treatment to domestic consumers. D) charging higher prices to foreign consumers. 2. The tariff imposed to punish a foreign discriminating monopolist is called: A) an antidumping duty. B) a subsidy. C) punitive damages. D) a fine. 3. Which country has received