By mid-2014, the U.S. government had approved multiple LNG export facilities so
natural gas exports from the U.S. have increased significantly.
Answer:
Tariffs and quotas are one-size-fits-all measures that work as tools to internalize
external effects.
Answer:
The net economic gains from free trade are usually negative.
Answer:
Within a country, a tariff causes a redistribution of well-being only between the
domestic producers and the government.
Answer:
Studies using the gravity model have found that countries that have a common currency
trade more with each other.
Answer:
Imposition of trade barriers by one country can cause other countries to retaliate, and
may lead to a trade war in which all countries raise high import barriers.
Answer:
Exchange rates are much more volatile in the long-run than in the short-run.
Answer:
In an oligopoly market, firms vigorously compete with each other by selling different
varieties of the same product.
Answer:
When factors of production move to better-paying sectors of the economy following the
opening of trade in the country, wages and rents will be bid back to their pre-trade
levels.
Answer:
If the target country of an embargo has a very inelastic demand for imports, the
embargo is more likely to be successful in an economic sense.
Answer:
The Heckscher-Ohlin theory explains comparative advantage enjoyed by countries in
the production of certain goods in terms of underlying differences in consumer tastes
and preferences.
Answer:
Evidence shows that the Chinese Yuan was substantially overvalued against the U.S.
dollar in mid-2005.
Answer:
As the financial crisis of 2007 began, the key issue was limited access to funding for
banks and other financial institutions.
Answer:
If a 1% increase in an individual’s income leads to a 0.5% increase in the demand for a
good, the good is considered to be a normal good.
Answer:
Expansionary fiscal policy leads to higher domestic interest rates.
Answer:
International crowding out is the tendency of expansionary fiscal policy to appreciate
the country’s currency and worsen the current account.
Answer:
As a result of the Uruguay Round, production of _____ goods increased in Asian
developing countries and polluting emissions in these countries _____ as a result.
a. capital and skill-intensive; decreased
b. capital and skill-intensive; increased
c. unskilled-labor-intensive; decreased
d. unskilled-labor-intensive; increased
Answer:
In the absence of national monetary policy and national exchange rates in the European
Monetary Union,
a. that Union cannot survive.
b. that Union will have to expel members who do not agree to austerity measures.
c. there are still steps that the Union can take to survive.
d. That Union will have to be bailed out by the European Central Bank.
Answer:
Which of the following statements reflects a situation in which there are external costs?
a. Suzanne invites her neighbors to a party on her birthday.
b. Suzanne paints her house and landscapes her yard. Her newly beautified house and
yard help her neighbors to sell their house for more than the asking price.
c. Suzanne pays for a professional fireworks show for her family. Her neighbors also
enjoy the show.
d. Suzanne dumps her household garbage around the corner of the street.
Answer:
The figure below shows an IS-LM-FE model for an economy with fixed exchange
rates. Initially the economy was at point A, a triple intersection. Here, the FE curve is
flatter than the LM curve.
At point B, the economy is experiencing:
a. a decreasing money supply.
b. a surplus in the overall balance of payments.
c. an overall balance of payments that is in equilibrium.
d. a high rate of unemployment.
Answer:
The specificity rule states that:
a. The government should have a uniform policy in place to address the specific
distortions in the economy.
b. it is more efficient to use a policy tool that is closer to the distortion that is caused by
an externality.
c. property rights must be changed in order to correct for an externality.
d. a government tax is the best remedial measure for an externality.
Answer:
Country X imports rice from the world market. Which of the following policy
instruments, if adopted by its government, may result in a switch from rice being
imported to being exported?
a. Agricultural price ceiling that includes the government selling any excess production
to foreign buyers
b. Division of land holdings
c. Taxing import of agricultural inputs
d. Agricultural price support that includes the government selling any excess production
to foreign buyers
Answer:
Suppose country A, a labor-abundant country, produces only wheat and cloth. The
following equations illustrate the prices and costs of wheat and cloth in the country,
where the numbers indicate the amounts of labor and land needed to produce a unit of
wheat and cloth. ‘˜w’ is the wage rate and ‘˜r’ is the rental rate of land.
Price of wheat = 1w + 2r
Price of cloth = 2w + 1r
If the initial prices of wheat and cloth are $3 per unit, the labor cost per unit of cloth
output is _____ and the rental cost per unit of cloth output is _____.
a. $3; $1
b. $1; $2
c. $2; $1
d. $1; $3
Answer:
Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S.
dollar. However, the present situation in the foreign exchange market is conducive for
the British pound to depreciate with respect to the U.S. dollar. The British government
can only intervene in the foreign exchange market for a limited period of time because:
a. the British government will eventually run out of pounds.
b. the British inflation rate will eventually rise so much that the government will give
up their defense of the pegged rate.
c. the British government will end up with too many dollars in their central bank.
d. the British government will run out of official international reserves.
Answer:
Suppose the amount of exports of textile machinery from Italy to the rest of the world
equals 60 billion tons. The amount of imports of textile machinery into Italy from the
rest of the world is 40 billion tons. Therefore, the intra-industry trade share for
machinery is:
a. 0.2.
b. 0.8.
c. 1.5.
d. 0.67.
Answer:
There is more empirical evidence in the literature to suggest that:
a. the absolute version of purchasing power parity holds in the short run.
b. the relative version of purchasing power parity holds in the short run.
c. the absolute version of purchasing power parity holds in the long run.
d. the relative version of purchasing power parity holds in the long run.
Answer:
Which of the following was an observable effect of NAFTA?
a. NAFTA led to a substantial decrease in the volume of trade among the three member
countries.
b. Low-cost firms in Canadian manufacturing industries were replaced by the high-cost
firms.
c. Imports of clothing and textiles into the member countries were diverted away from
low-cost suppliers in Asia.
d. There was massive shift of jobs toward Mexico.
Answer:
Which of the following statements about dollarization is accurate?
a. A country that chooses to dollarize will enhance its control over its monetary policy.
b. Dollarization decreases exchange-rate risks by removing the risks of speculative
attacks on its currency.
c. A country that dollarizes gains interest income on what had been the country’s
holdings of international reserve assets.
d. Dollarization enables a country to adopt a measure countering adverse foreign shocks
without disrupting the country’s economy.
Answer:
In a ‘second-best’ world:
a. tariffs are economically optimal.
b. private actions are dictated by government agencies.
c. social marginal cost of a transaction equals social marginal benefit.
d. private actions do not lead to the best possible outcomes for society.
Answer:
Which of the following is a plausible effect of a rescue package provided to a country?
a. It can stimulate the outflow of capital from the country.
b. The rescue package can limit any contagion effects.
c. It immediately restarts new private foreign lending to the country.
d. It can help avoid the problem of moral hazard.
Answer:
Which of the following statements about trade and domestic pollution is accurate?
a. Free trade is likely to cause producers to reduce their levels of pollution due to
international competition.
b. It is possible for free trade to hurt a country if polluters are forced to internalize the
external costs associated with their production.
c. In the presence of free trade, the costs of pollution can be transferred almost
completely by the exporting country to the importing country.
d. If polluters are not forced to internalize the external costs associated with their
production, free trade could result in the country exporting the wrong products.
Answer:
Which of the following is NOT among the features that are phased in gradually during
the integration of new members in the European Union?
a. The subsidies that the farmers of the new members receive started at only one-fourth
of the standard levels for the common agricultural policy.
b. The new members were not full members of the common market for labor.
c. The citizens of the new members were not generally free to work in most other EU
countries until seven years after the country joined the EU.
d. The new members were allowed to impose a nominal tariff on the imports from the
other members to stabilize themselves for the first seven years.
Answer:
The _____ approach to exchange rates emphasizes the role of portfolio repositioning by
international financial investors.
a. elasticity
b. asset market
c. monetary
d. balance of payments
Answer:
Which of the following is true of the specificity rule?
a. The specificity rule suggests that tariffs should be imposed only on specific products.
b. According to the specificity rule, government policy should target as closely as
possible the source of the distortion that separates private and social benefits (or costs).
c. The specificity rule posits that tariff imposed on a good favors only the interests of a
specific group within a country.
d. According to the specificity rule, only specific industries should be allowed to
participate in government lobbying.
Answer: