Fixed exchange rates are likely to be changed at some point over time.
Answer:
Firms in a given industry are affected by the tariff imposed on the product they sell, but
not by the tariffs imposed on their purchased inputs.
Answer:
In a customs union, members remove all trade barriers among themselves and adopt a
common set of external barriers.
Answer:
Evidence shows that governments usually impose the same import duties on the import
of similar goods even if the goods fall under different product categories.
Answer:
Over time, intra-industry trade has become significantly smaller as a percentage of
overall trade.
Answer:
Immiserizing growth is the situation in which the expansion of a country’s exporting
industry results in an increase in the world price of the exported good and an increase in
the economic welfare of the country.
Answer:
In the two-country two-good model, both countries can gain from trade as long as their
relative advantages and disadvantages in producing different goods are different.
Answer:
In an attempt to restrict imports in a country, imposition of a tariff is likely to be more
efficient than using voluntary export restraints.
Answer:
The current world exchange rate system is usually described as an adjustable peg
system.
Answer:
One reason why the currency-board experience of Argentina failed is because of the
weakening of the dollar against other currencies.
Answer:
At present, the majority of a nation’s official reserve transactions are done by using
foreign exchange assets instead of gold.
Answer:
The net flow of financial assets and similar claims is the private current account
balance.
Answer:
The world as a whole is better off, if the trading partners of a nation respond by raising
their trade barriers when this country raises its own trade barriers.
Answer:
The table given below shows the export and import values of automobiles,
pharmaceuticals, and clothing in country A and country B.
The weighted average of the intra-industry trade (IIT) shares in country B’s trade in
automobiles, pharmaceuticals and clothing is:
a. 0.895.
b. 2.000.
c. 0.417.
d. 0.833.
Answer:
An example of the specificity rule in action is:
a. restricting imports in order to reduce environmental pollution.
b. taxing the consumption of a product whose production creates a great deal of
pollution.
c. taxing the production of a product whose production creates a great deal of pollution.
d. imposing price floors on ‘clean’ products as a way to increase the demand for these
products.
Answer:
Which of the following identifies a major force that can intensify an international
financial crisis?
a. A persistent negative output gap
b. Current account convertibility
c. Dispute settlement procedures at the IMF
d. Global contagion
Answer:
In September 2005, exports of goods from the U.S. decreased $3.3 billion to $73.4
billion, and imports of goods increased $3.8 billion to $144.5 billion. This increased the
deficit in:
a. the balance of payments.
b. the financial account.
c. the current account.
d. unilateral transfers.
Answer:
Suppose country Y produces only corn and clothing using only two inputs- land and
labor. Production of corn requires an intensive use of land whereas, clothing is a
labor-intensive good. If the price of corn increases by 15 percent, the price of clothing
remaining constant, the Stolper-Samuelson theorem predicts that in the long run:
a. the rental rate of land will increase by 15 percent.
b. the rental rate of land will increase by more than 15 percent.
c. the wage rate will increase by more than 15 percent.
d. the wage rate will remain unchanged.
Answer:
If a firm located in a country charges high prices on its exports and earns profits on its
export sales, then:
a. the profit earned by the firm is not considered as a part of the exporting country’s
GDP.
b. the firm emerges as a natural monopolist in the long-run.
c. the high export price enhances the exporting country’s terms of trade.
d. the majority of the gains from international trade accrue to the foreign buyers.
Answer:
In a _____ exchange rate system the government or central bankers intervene to keep
the exchange rate virtually steady.
a. fixed
b. market driven
c. managed float
d. forward
Answer:
Suppose the market for personal computers in country A is monopolistically
competitive. Country A exports as well as imports personal computers from the rest of
the world. After full adjustment to the opening of trade, a firm in this industry which
enjoys scale economies will:
a. receive a higher price for its product.
b. receive a lower price for its product.
c. enjoy a greater market share.
d. ultimately go out of business.
Answer:
The law of _____ states that a product that is easily and freely traded in a perfectly
competitive global market should cost the same everywhere once the prices at different
places are expressed in the same currency.
a. international trade
b. one price
c. diminishing returns
d. relative PPP
Answer:
One way developing countries have been able to break into the world export market is
by:
a. using ISI to force exports by limiting imports.
b. carrying out extensive research and development giving impetus to high
technological progress.
c. joining international export cartels and creating monopoly in the export market.
d. becoming locations for low-cost assembly of more technologically advanced
products.
Answer:
The exchange rate value of a foreign currency is _____ in the short run by a rise in the
expected future spot exchange rate value.
a. raised
b. lowered
c. made volatile
d. not affected
Answer:
The figure given below represents the domestic market for wheat in a small country.
Imports of wheat are prohibited.
The consumption effect of the subsidy amounts to:
a. $200 million.
b. $300 million.
c. $1 billion.
d. $2.2 billion.
Answer:
Which of the following is NOT a fundamental objective for the performance of a
country’s macroeconomy?
a. Price stability
b. Interest rates
c. Full employment of resources
d. A reasonable and sustainable balance of payments with the rest of the world
Answer:
The Rybczynski theorem suggests that development of new natural resources in a
country:
a. will result in balanced growth.
b. may cause the country to export only manufactured products.
c. will increase output in all sectors of the economy.
d. may cause the manufacturing sector of the country to shrink.
Answer:
Under a floating exchange rate system, the value of the dollar per euro exchange rate
rises when:
a. The U.S. trade deficit with the euro-area countries increases.
b. European demand for U.S. products increases.
c. The U.S. government raises personal income tax rates.
d. The inflation rate in the U.S. is much lower than the inflation rate in the euro-area.
Answer:
Which of the following events would lead to a decrease in demand for air travel?
a. A decrease in the number of people who are afraid to fly
b. A decrease in oil prices
c. A decrease in rail fares
d. An increase in income levels
Answer:
_____ occurs when a firm temporarily charges a low price in the foreign export market,
with the purpose of driving its foreign competitors out of business.
a. Persistent dumping
b. Cyclical dumping
c. Predatory dumping
d. Seasonal dumping
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. The pre-trade wage rate
relative to land rents in Alpha is _____ the relative wage rate in Beta.
a. greater than
b. less than
c. equal to
d. double
Answer:
Suppose country A had been traditionally enjoying a comparative advantage in the
production of good X. As a result most of the large firms manufacturing and exporting
good X were concentrated in country A. However, recently it has been observed that the
comparative advantage in the production of good X has shifted to country B owing
better factor availability and lower input prices. Some new firms are contemplating to
start operating in country B. Which of the following conditions probably must be
fulfilled to ascertain that these new firms will enjoy cost advantage over the established
firms in country A?
a. The number of firms to begin operation in country B must be greater than the number
of firms operating in country A.
b. The consumers in country B should have a relatively elastic demand compared to the
consumers in country A.
c. The new firms in country B should have a higher input-output ratio than the firms
operating in country A
d. The output level of the new firms in country B should be large enough to enable them
to enjoy scale economies.
Answer:
According to comparative advantage theory, the developing countries are expected to
export:
a. high-tech manufactured goods.
b. sophisticated capital equipment.
c. primary products.
d. specialized software services.
Answer:
According to the monetary approach to exchange rate determination, how would an
increase in foreign real income affect the value of domestic currency? In your
explanation, discuss both the quantity theory and PPP.
Answer:
A retailer in Mexico wants to buy $100,000 worth of Apple computers from the United
States. The Mexican retailer has pesos while the seller in the United States wants to be
paid in U.S. dollars. Explain how this transaction is completed with particular emphasis
on the foreign exchange market and banks in the United States and Mexico.
Answer:
Explain how a mutually beneficial trade is possible in a two-country two-good model
even when one of the countries has absolute advantage in the production of both the
commodities.
Answer:
What experiences have developing countries had with trade blocs?
Answer:
Compare and contrast the effects of a tariff on prices and national well-being imposed
in a small country with the effects of a tariff imposed in a large country. Illustrate your
answer with the help of suitable diagrams.
Answer:
Why has emphasizing new exports of less-skilled-labor-intensive manufactured goods
to industrialized countries been difficult for developing countries?
Answer:
Explain how the cost of a country’s tariffs is calculated as a percentage of GDP. Which
effects are captured in this process? Why is the true cost of import protection probably
larger than what can be shown in simple graphs or as calculated by the net national loss
formula?
Answer:
Consider the case of a U.S. investor holding dollars and deciding whether to invest in
Japanese treasury bills or in U.S. treasury bills. Assume that the investor wants to end
up holding dollars. What are the three methods available to this investor to turn present
dollars into future dollars? In your answer present an equation that shows the return per
dollar invested under each method. Which of these methods is the riskiest and why?
Answer:
Discuss IMF loans as important parts of international efforts to address financial crises.
Why have these loans been controversial?
Answer:
Describe weaknesses of the IS-LM-FE model.
Answer: