Free trade may lead to more pollution because:
a. with free trade the size of the economy increases resulting in higher production and
consumption.
b. competition among nations invariably leads to less restrictive pollution standards.
c. the countries may not specialize in the production of the goods in which they have
comparative advantage.
d. domestic products are produced using cleaner production techniques than imported
products.
Answer:
The figure given below shows the domestic demand (Dd) and supply (Sd) curves of
mopeds in a country before an import quota is imposed by the government. After the
imposition of quota, the total available supply curve becomes Sd + QQ.
If the government auctions the quota licenses, how much will it collect as revenue?
a. $31.5 million
b. $45 million
c. $76.5 million
d. $72 million
Answer:
Under a floating exchange rate regime with a low degree of capital mobility, an
expansionary fiscal policy will most likely create pressure on:
a. monetary authorities to revalue the domestic currency.
b. the domestic currency to depreciate.
c. the domestic currency to appreciate.
d. monetary authorities to devalue the domestic currency.
Answer:
How can an MNE overcome its inherent disadvantages?
a. By borrowing funds from the host country rather than transferring funds from the
parent firm
b. By producing more than two products in which it has comparative advantage
c. By expanding its operation in more than two host countries
d. By owning one or more assets that are not owned by its local competitors in the host
country
Answer:
With floating exchange rates, the effects of international trade shocks on internal
balance are _____ by the effects of the resulting change in the _____.
a. not mitigated; LM curve.
b. not mitigated; exchange rate.
c. mitigated; LM curve.
d. mitigated; exchange rate.
Answer:
How did the ECB’s Security Market Program acquire Greek, Irish and Portuguese
government bonds in 2010-2011?
a. By buying those bonds from those governments
b. By buying securities backed by those government bonds and foreclosing on the
bonds when the securities were not paid
c. By buying the bonds on the secondary markets
d. By loaning money to private companies which bought the bonds and then used the
government bonds to repay the loans
Answer:
Assume you are an American importer who must pay 500,000 Euros at the end of 90
days when you receive 1,000 cases of French wine at your warehouse in New York.
Suppose that you have not covered this transaction in the forward market. In which of
the following cases will you suffer the largest loss?
a. The euro spot exchange rate value vis–vis the dollar does not change
b. The euro (spot) initially appreciates by 2 percent, and then depreciates by 1 percent
c. The euro (spot) initially depreciates by 3 percent, and then appreciates by 2 percent
d. The euro (spot) initially appreciates by 3 percent, and then depreciates by 2.9 percent
Answer:
A domestic monopoly producing a close substitute of an imported product would prefer
to be protected by a quota than a tariff that results in the same amount of imports
because:
a. the deadweight loss will be smaller with a quota.
b. after the imposition of the tariff the price of the imported good declines in the
domestic market.
c. unlike a tariff, a quota does not generate revenue for the government.
d. a quota allows the firm to charge a higher price.
Answer:
Persistent dumping can occur if a profit maximizing firm faces a _____ demand in the
home market and sells its good in a _____ international market.
a. relatively elastic; less competitive
b. relatively inelastic; less competitive
c. relatively inelastic; highly competitive
d. relatively elastic; highly competitive
Answer:
A devaluation of the exchange rate will:
a. shift the IS curve to the right.
b. shift the LM curve to the right.
c. shift the FE curve to the left.
d. lead to a financial account surplus.
Answer:
A small country is considering imposing a tariff on imported wine at the rate of $5 per
bottle. Economists have estimated the following based on this tariff amount:
World price of wine (free trade): $20 per bottle
Domestic production (free trade): 500,000 bottles
Domestic production (after tariff): 600,000 bottles
Domestic consumption (free trade): 750,000 bottles
Domestic consumption (after tariff): 650,000 bottles
The consumption effect of the tariff on wine is worth
a. $250,000.
b. $500,000.
c. $3.5 million.
d. $2.75 million.
Answer:
External scale economies are more likely to arise in an industry:
a. in which a single firm caters to the total market demand.
b. in which a few dominant firms compete aggressively with each other in terms of
product prices.
c. in which firms readily share technology improvements.
d. which is solely export oriented.
Answer:
Start from an initial triple intersection of the IS, LM, and FE curves. Before anything
else adjusts, a shift to an expansionary monetary policy results in a(n):
a. overall balance of payments surplus.
b. overall balance of payments deficit.
c. increase in domestic interest rates.
d. decrease in domestic output.
Answer:
Suppose good X is a substitute of good Y. Everything else remaining unchanged, an
increase in price of good Y will lead to:
a. an increase in demand for good Y.
b. a decrease in demand for good X.
c. an increase in demand for good X.
d. a decrease in price of good X.
Answer:
A firm that owns and controls operations in more than one country is a(n):
a. franchise.
b. MNE.
c. monopolist.
d. affiliate.
Answer:
The figure given below shows the domestic demand (Dd) and supply (Sd) curves of
mopeds in a country before an import quota is imposed by the government. After the
imposition of quota, the total available supply curve becomes Sd + QQ.
If the government auctions the quota licenses, the importing nation will:
a. lose $10 million.
b. lose $29.75 million.
c. gain $31.5 million.
d. gain $21.5 million.
Answer:
If Social Marginal Benefit (SMB) > Price (P) = Buyer’s Private Marginal Benefit (MB)
= Seller’s Private Marginal Cost (MC) = Social Marginal Cost (SMC), it implies that:
a. too much is supplied.
b. not enough of a good is being demanded.
c. the socially optimal amount is supplied.
d. the buyers are not maximizing utility.
Answer:
Suppose under a gold standard the price of gold in the United States is $450 per ounce
and the price of gold in the United Kingdom is 200 per ounce. The exchange rate is
thus:
a. 2.25 per dollar.
b. $0.45 per pound.
c. $2.25 per pound.
d. 0.54 per dollar.
Answer:
Which of the following is a characteristic of a currency board?
a. A currency board focuses on maintaining a floating exchange-rate.
b. A currency board issues domestic currency liabilities only in exchange for foreign
currency assets.
c. A currency board frequently carries out sterilized intervention in order to maintain the
fixed rate.
d. A currency board insulates the country from adverse foreign shocks by prescribing
effective fiscal and regulatory policies.
Answer:
Most foreign direct investment is in:
a. the agricultural sector.
b. the manufacturing sector.
c. the mining and extraction sector.
d. the service sector.
Answer:
The figure given below depicts the IS-LM-FE model with floating exchange rates.
The shift of the IS curve from IS1 to IS2 was caused by:
a. a contractionary monetary policy.
b. official intervention in the foreign exchange market.
c. an improvement in current account position.
d. a worsening of international price competitiveness.
Answer:
Which of the following identifies an important reason why empirical studies find that
joining the EC in 1973 may have imposed a substantial net cost on Britain?
a. Trade creation for British manufactured goods
b. Removal of trade barriers on imports from Australia and New Zealand
c. Trade diversion on agricultural products
d. Withdrawal of subsidies received by the British farmers
Answer: