Assume the standard trade model with two countries (Alpha and Beta), two goods (food
and drink), and two factors of production (land and labor). Further assume that Alpha is
relatively labor-abundant and drink is relatively labor-intensive. If the countries engage
in free trade, Beta will:
a. import both food and drink.
b. import drink and export food.
c. export both food and drink.
d. export drink and import food.
Answer:
Which of the following economists proposed an international trade model that explains
international trade patterns using factor proportions?
a. Paul Krugman and Elhanan Helpman
b. David Ricardo
c. Eli Heckscher and Bertil Ohlin
d. John Maynard Keynes
Answer:
Suppose the domestic supply (QS) and demand (QD)for MP3 players in the United
States are given by the following set of equations:
QS = ‘“25 + 10P
QD = 875 ‘“ 5P
In the absence of international trade in MP3 players, how many MP3 players will be
sold in the United States?
a. 825
b. 575
c. 608
d. 925
Answer:
_____ occurs when a country abolishes its own currency and uses the currency of some
other country.
a. Demonetization
b. Dollarization
c. Revaluation
d. Seigniorage profit
Answer:
Under a fixed exchange rate system, a fall in the market price (the exchange rate value)
of a currency is called a(n) _____ of that currency.
a. revaluation
b. devaluation
c. appreciation
d. depreciation
Answer:
A statement of the stocks of a country’s foreign assets and foreign liabilities at a point in
time represents the country’s:
a. government budget surplus or deficit
b. balance of payments
c. financial account balance
d. international investment position.
Answer:
The table given below shows the export and import values of automobiles,
pharmaceuticals, and clothing in country A and country B.
In country A, the product with the highest intra-industry trade (IIT) share is _____ and
the product with the lowest IIT share is _____.
a. automobiles; pharmaceuticals
b. pharmaceuticals; clothing
c. clothing; automobiles
d. clothing; pharmaceuticals
Answer:
What is the percent reduction in import quantity in a country due to the tariffs imposed
by the government, if the country’s import tariffs are all 10 percent. The total imports
affected by the tariffs are 40 percent of the GDP and the net national loss from the
tariffs as a percentage of GDP is 0.6 percent.
a. 50 percent
b. 40 percent
c. 30 percent
d. 20 percent
Answer:
Which of the following arguments for protection is derived from the fact that funding of
public goods in some countries is difficult given little or no means to collect income or
sales taxes?
a. The developing government argument
b. The infant industry argument
c. The dying industry argument.
d. The national defense argument.
Answer:
An increase in the domestic price level 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 surplus in the balance of payments.
Answer:
The quantity theory of the demand for money states that a country’s money demand is
proportional to:
a. the domestic interest rate.
b. the level of domestic consumption.
c. the exchange rate.
d. the money value of gross domestic product.
Answer:
Assume the standard trade model with two countries (Alpha and Beta), two goods (food
and drink), and two factors of production (land and labor). Further assume that Alpha is
relatively labor-abundant and drink is relatively labor-intensive. According to the
Heckscher-Ohlin theory, Alpha has a comparative advantage in the production of:
a. drink.
b. food.
c. both goods.
d. neither good.
Answer:
From the early 1980s through today, the largest net borrower in the world has been:
a. the United States.
b. the United Arab Emirates.
c. China.
d. Japan.
Answer:
_____ are in place when a country’s government places restrictions on the conversion of
the domestic currency into foreign currency or vice versa.
a. Exchange controls
b. Capital controls
c. Official interventions
d. Adjustable pegs
Answer:
If the expected future spot exchange rate value of the foreign currency decreases, with
the interest rate differential unchanged, the current spot exchange rate value of the
domestic currency:
a. increases.
b. decreases.
c. remains unchanged.
d. overshoots.
Answer:
_____ fixed the exchange rates of Germany, France, Italy, the Netherlands, Belgium,
Denmark, Ireland, and Luxembourg beginning in 1979.
a. The International Monetary Fund
b. The Exchange Rate Mechanism
c. The European Central Bank
d. A currency board
Answer:
For an international capital flow shock in which foreign investors lose confidence in a
country:
a. the country’s real domestic product is affected if the country has a fixed exchange
rate but is not affected if the country has a floating exchange rate.
b. the country’s real GDP decreases regardless of whether the country has a fixed or
floating exchange rate, but the country’s real GDP declines less if the country has a
floating exchange rate.
c. the country’s real domestic product is affected if the country has a floating exchange
rate but not affected if the country has a fixed exchange rate.
d. the country’s real GDP tends to decline if the country has fixed exchange rate, but the
country’s real GDP tends to increase if the country has a floating exchange rate.
Answer:
When external scale economies exist in an industry, which of the following groups is
most likely to be left worse off after the opening of free trade?
a. Consumers in the importing country
b. Producers in the importing country
c. Consumers in the exporting country
d. Producers in the exporting country
Answer:
Suppose country A and country B are the only two countries in the world. Country A
imports good X from country B and exports good Y. In the absence of any
transportation cost, at the world price of good X:
a. country B’s export supply curve is perfectly inelastic.
b. both country A’s import demand curve and country B’s export supply curve are
positively sloped.
c. country A’s import demand curve will be perfectly inelastic.
d. country A’s import demand curve will intersect country B’s export supply curve.
Answer:
Country A is relatively land-abundant and wheat is relatively land-intensive. Given the
assumptions of the Heckscher-Ohlin model, the opening of trade in this country will
cause the domestic price of wheat to:
a. fall.
b. rise.
c. remain unaffected.
d. at first rise but then fall back to its original level.
Answer:
The Heckscher-Ohlin theory predicts that trade between similar industrialized countries
should:
a. be much greater than trade between developed and developing countries.
b. be rather limited in volume.
c. consist mainly of highly sophisticated manufactured goods.
d. be bidirectional with one country exporting products to the other countries and
simultaneously importing very similar products from them.
Answer:
The lower the price elasticity of foreign supply of a country’s imports:
a. the lower will be the prohibitive tariff imposed by this country.
b. the lower will be tariff revenue of the government of the imposing country.
c. the higher will be the optimum tariff imposed by this country.
d. the higher will be the fluctuation in the availability of the imported goods in this
country.
Answer: