Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
NAFTA refers to a 1994 agreement that eliminated most tariffs among which countries?
1)
A)
the United States, the United Kingdom and Mexico
B)
Canada, the United Kingdom and Mexico
C)
the United States, Canada and Mexico
D)
the United States, Mexico and Cuba
2)
Trade between countries that is without restrictions is called
2)
A)
unencumbered trade.
B)
unobstructed commerce.
C)
free trade.
D)
unabated trade.
C
3)
You’re traveling in Ireland and are thinking about buying a new digital camera. You’ve decided
you’d be willing to pay $125 for a new camera, but cameras in Ireland are all priced in euros. If the
exchange rate is 0.85 euros per dollar, what’s the highest price in euros you’d be willing to pay for a
camera?
3)
A)
105 euros
B)
147 euros
C)
110.15 euros
D)
106.25 euros
D
4)
In the real world we don’t observe countries completely specializing in the production of goods for
which they have a comparative advantage. One reasons for this is
4)
A)
production of most goods involves increasing opportunity costs.
B)
tastes for many traded goods are similar in many countries because of globalization.
C)
some countries have more resources than other countries.
D)
comparative advantage works better in theory than in practice.
A
C
5)
A situation in which a country does not trade with other countries is called
5)
A)
autonomy.
B)
autarky.
C)
self–actualization.
D)
independence.
6)
Currency traders expect the dollar to appreciate. What impact will this have on equilibrium in the
foreign exchange market?
6)
A)
The dollar will appreciate, and the equilibrium quantity of dollars will decrease.
B)
The dollar will depreciate, and the equilibrium quantity of dollars exchanged will decrease.
C)
The dollar will appreciate, and the change in the equilibrium quantity of dollars exchanged
cannot be determined.
D)
The dollar will appreciate, and the equilibrium quantity of dollars will increase.
7)
If the exchange rate changes from $2.00= 1GBP to $2.01=1GBP then
7)
A)
the British pound has depreciated.
B)
the dollar has depreciated.
C)
the dollar has appreciated.
D)
the British pound has stayed constant in value.
8)
Which of the following statements is true?
8)
A)
Most of the leading exporting countries are large, high–income countries.
B)
Exports benefit trading countries because exports create jobs. Imports do not benefit trading
countries because they result in a loss of jobs.
C)
Each year China exports about 50 percent of its wheat crop and 40 percent of its rice crop.
D)
All sectors of the U.S. economy are affected equally by international trade.
Figure 18–1
Figure 18–1 shows the U.S. demand and supply for leather footwear.
9)
Refer to Figure 18–1. Suppose the government allows imports of leather footwear into the U.S.
What happens to the market price and what is the quantity of imports?
9)
A)
The price equals $24 and imports equal Q2 units.
B)
The price equals $24 and imports equals Q2– Q0 units.
C)
The price falls to $24 and imports equal Q1– Q0 units.
D)
The price falls to $24 and imports equal Q2– Q1 units.
10)
Countries that engage in trade will tend to specialize in the production of goods and services in
which they have ________ and will ________ these goods and services.
10)
A)
an absolute advantage; export
B)
a comparative advantage; import
C)
an absolute advantage; import
D)
a comparative advantage; export
11)
Which of the following describes the national security argument for protectionism?
11)
A)
Nearly all industries can make some claim to strategic importance so such trade restrictions
can get out of hand.
B)
Some goods should be insulated from foreign competition to ensure an adequate supply of
these goods in the event of an international conflict.
C)
Increases in economic surplus outweigh the decreases in consumer surplus that result from
protectionism.
D)
Private companies (for example, Coca–Cola) should not be forced to reveal their trade secrets
to foreign companies.
Figure 18-6
12)
Refer to Figure 18–6. The appreciation of the euro is represented as a movement from ________.
12)
A)
A to B
B)
A to C
C)
D to C
D)
D to A
E)
B to C
13)
A Federal Reserve publication proclaimed that “Trade is a win–win situation for all countries that
participate.” This statement is
13)
A)
true because it refers to countries; individuals may be losers as a result of international trade.
B)
false since it ignores the workers who lose their jobs as result of international trade.
C)
true because all consumers and workers benefit from international trade.
D)
false since not all countries participate in international trade.
14)
Prior to the 1998 World Cup, France banned the use of all soccer balls made by child workers.
Several economists criticized the ban. Which of the following is an argument these economists
used to justify the use of child labor in some countries?
14)
A)
Some of the alternatives to stitching soccer balls include begging and prostitution.
B)
Child workers were given gloves to protect their hands while they stitched soccer balls.
C)
Soccer balls are easy to carry and workers were given soccer balls to play with.
D)
Child workers were allowed to attend school during the periods they worked.
15)
Domestically produced goods and services sold to other countries are referred to as
15)
A)
exports.
B)
capital outflow.
C)
transfer payments.
D)
imports.
16)
Which of the following statements is true?
16)
A)
Japan is more dependent on foreign trade than is the United States.
B)
France is the leading exporting country, accounting for 10 percent of total world exports.
C)
Because the cost of labor used on farms is so high, the United States exports very little of its
wheat, rice and corn crops.
D)
Imports and exports account for over one–half of the GDP of Belgium.
17)
Goods and services bought domestically but produced in other countries are referred to as
17)
A)
imports.
B)
exports.
C)
transfer payments.
D)
foreign consumption.
18)
Many economists criticize protectionism because it causes losses to consumers and eliminates jobs
in domestic industries that use protected products. Why, then, do some people support
protectionism?
18)
A)
Supporters of protectionism in high–income countries believe that wages will fall as a result
of competition with firms from developing countries.
B)
Supporters of protectionism believe free trade will cause their countries to lose their
comparative advantage.
C)
Supporters of protectionism believe that free trade will lead to inflation.
D)
The criticisms of economists are based on theory. In fact, protectionism increases consumer
and producer surplus as well as employment.
19)
All but one of the following statements is used to justify protectionism. Which statement is not
used to justify protectionism?
19)
A)
Free trade reduces employment by driving domestic firms out of business.
B)
Trade restrictions are necessary to protect new firms until they can gain experience and
become more productive.
C)
A country should not rely on other countries for goods that are critical to its national defense.
D)
Free trade leads to higher prices for imported goods.
20)
If the dollar appreciates against the Mexican peso
20)
A)
Mexican imports to the U.S. become more expensive.
B)
U.S. exports to Mexico become more expensive.
C)
The value of Mexican imports to the U.S. does not change.
D)
U.S. exports to Mexico become less expensive.
21)
A tax imposed by a government on imports of a good into a country is called a
21)
A)
sales tax.
B)
tariff.
C)
value added tax.
D)
quota.
22)
Currency traders expect the value of the dollar to fall. What effect will this have on the demand
and supply of dollars in the foreign exchange market?
22)
A)
Demand for dollars will decrease, and supply of dollars will increase.
B)
Demand for dollars will decrease, and supply of dollars will decrease.
C)
Demand for dollars will increase, and supply of dollars will increase.
D)
Demand for dollars will increase, and supply of dollars will decrease.
Figure 18–1
Figure 18–1 shows the U.S. demand and supply for leather footwear.
23)
Refer to Figure 18–1. Under autarky, the equilibrium price is ________, the consumer surplus is
________ and the producer surplus is ________.
23)
A)
$30; consumer surplus = area R + S + V; producer surplus = area T + W+ X
B)
$30; consumer surplus = area R; producer surplus = area S + V
C)
$24; consumer surplus = area R + S; producer surplus = area V
D)
$30; consumer surplus = area R; producer surplus = area S + T + V + W + X
24)
How does an increase in a country’s exchange rate affect its balance of trade?
24)
A)
An increase in the exchange rate reduces imports, raises exports, and reduces the balance of
trade.
B)
An increase in the exchange rate reduces imports, raises exports, and increases the balance of
trade.
C)
An increase in the exchange rate raises imports, reduces exports, and increases the balance of
trade.
D)
An increase in the exchange rate raises imports, reduces exports, and reduces the balance of
trade.
25)
Absolute advantage is
25)
A)
the ability to produce more of a good or service than competitors that have more resources.
B)
the ability to produce higher quality goods compared to one’s competitors.
C)
the ability to produce a good or service at a higher opportunity cost than one‘s competitors.
D)
the ability to produce more of a good or service than competitors when using the same
amount of resources.
D
26)
Boeing’s 747 jumbo jets experienced declining sales in the 1990s. Since then the 747 has
experienced a resurgence in popularity. Which of the following is one reason for the comeback of
the 747?
26)
A)
the 747 is less expensive than comparable jets offered by Airbus, Boeing’s main competitor
B)
the 747 is able to travel at greater speeds than other jets
C)
the 747 has a larger cargo capacity than other planes
D)
the 747 has better safety records than competing planes
C
27)
When exchange rates are not determined in the market but are instead set by a country’s central
bank, we say that the country’s exchange rate is
27)
A)
a nominal exchange rate.
B)
a real exchange rate.
C)
flexible.
D)
fixed.
D
D
28)
Protectionism
28)
A)
refers to the use of copyright and trademark laws to protect inventors and artists from losing
the rights to their creative efforts.
B)
is the use of trade barriers to protect domestic firms from foreign competition.
C)
refers to reductions in tariffs and other barriers that protect consumers from paying high
prices.
D)
is the use of cheap labor to protect firms from paying high wages.
D)
29)
Your roommate Hansen argues that American producers cannot compete with foreign producers
because wages are lower in foreign countries than in the U.S. Hansen
29)
A)
is advancing the anti–dumping argument for protectionism.
B)
is correct in arguing that the high wages of U.S. workers make it impossible to compete with
workers in low–wage countries. .
C)
is right in asserting the need to protect high wages if the U.S. wishes to maintain its high
standard of living.
D)
is incorrect. Free trade raises living standards by increasing economic efficiency.
D)
30)
In 2007 South Korea and the United States signed a bilateral trade agreement that lowered tariffs
imposed by both countries’ governments. An article in the New York Times declared that
“Consumers in both countries are the deal’s big winners.” But the article also noted that news of the
agreement resulted in protests from many South Koreans. Why did Korean citizens protest an
agreement that would benefit their economy?
30)
A)
The protests were the result of false news reports in South Korea that the agreement would
result in higher prices of beef. The protests ended after the press correctly reported that beef
prices would be lowered.
B)
Political opponents of the South Korean government organized the protests. These opponents
protested all of the government’s policies because 2007 was an election year in South Korea.
C)
Many South Koreans used the trade agreement as an excuse to protest United States policy
toward North Korea.
D)
Although the trade agreement will benefit the entire South Korean economy, certain groups
will suffer losses. These groups protested the agreement.
D)
31)
In the 1930s the United States charged an average tariff rate
31)
A)
that exceeded 50 percent.
B)
was less than 2 percent.
C)
that cut its exports to other countries by 50 percent.
D)
that was less than its average tariff rate in 2007.
32)
Ethanol is made from corn or sugar and can be used as a substitute for gasoline as a fuel in
automobiles. Brazil makes ethanol from sugar at about one–half the cost of ethanol produced in
the Unites States from corn. Which of the following statements is true?
32)
A)
For political reasons, Brazil has refused to export ethanol to the U.S.
B)
Brazil exports ethanol to the U.S. but has placed a limit on the amount it exports.
C)
The U.S. government imposed a tariff on imports of ethanol, effectively pricing Brazilian
ethanol out of the market.
D)
The U.S. imports ethanol from Brazil and thereby reduces its dependence on imports of
petroleum from the Middle East.
33)
If there is currently a surplus of dollars, which of the following would you expect to see in the
foreign exchange market?
33)
A)
There will be a decrease in the supply of dollars.
B)
The dollar will depreciate.
C)
The dollar will appreciate.
D)
There will be a decrease in the demand for dollars.
Figure 18–2
Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 18–2 shows the impact of this tariff.
34)
Refer to Figure 18–2. The tariff causes domestic consumption of rice
34)
A)
to fall by 27 million pounds.
B)
to rise by 16 million pounds.
C)
to fall by 11 million pounds.
D)
to rise by 6 million pounds.
35)
Which of the following is not an example of a trade restriction?
35)
A)
tariffs
B)
quotas and voluntary export restraints
C)
consumer preferences for goods produced domestically
D)
legislation requiring that cars sold in a country have a 50 percent domestic content
Figure 18-6
36)
Refer to Figure 18–6. Europe suffers a recession. Assuming all else remains constant, this would be
represented as a movement from ________.
36)
A)
C to D
B)
A to D
C)
A to B
D)
B to C
E)
D to A
Figure 18–3
Since 1953 the U.S. has imposed a quota to limit the imports of peanuts. Figure 18–3 illustrates the impact of the quota.
37)
Refer to Figure 18–3. Without the quota, the domestic price of peanuts equals the world price
which is $2.00 per pound. What is the quantity of peanuts supplied by domestic producers in the
absence of a quota?
37)
A)
10 million pounds
B)
28 million pounds
C)
40 million pounds
D)
30 million pounds
38)
Whenever a buyer and a seller agree to trade both must believe they will be made better off
38)
A)
only if the buyer and seller live in countries with market economies.
B)
unless the buyer and seller live in a different countries. International trade may make the
buyer or seller worse off.
C)
whether the buyer and seller live in the same city or different countries.
D)
unless one party is richer than the other.
39)
Over the past several decades there has been a rapid growth in international trade. This growth
has been due to all except one of the following factors. Which factor has not contributed to the
growth of international trade?
39)
A)
favorable changes in government policies
B)
the spread of reliable communications
C)
a change in the tariffs charged on many goods
D)
a reduction in shipping costs
40)
In 1995 the General Agreement on Tariffs and Trade (GATT), which was established in 1948, was
replaced by the World Trade Organization (WTO). Why did members of the GATT push for the
establishment of the WTO?
40)
A)
By 1995 tariffs had been eliminated. The WTO was created to reduce non–tariff trade
barriers.
B)
The charter of the GATT had run out and a new organization was needed to promote
international trade.
C)
The GATT agreement covered only trade in goods. The WTO was created to cover trade in
goods, services and intellectual property.
D)
The creation of the European Union (EU) made the GATT obsolete. The WTO was formed to
regulate trade between the EU and other nations.
Table 18–1
Berries Fish
Rob 20 80
Bill 30 60
Rob Crusoe and Bill Friday spent their week–long vacation on a desert island where they had to find and make their own
food. Rob and Bill spent one day each fishing and picking berries. Table 18–1 lists the pounds of output Rob and Bill
produced.
41)
Refer to Table 18–1. Select the statement that accurately interprets the data in the table.
41)
A)
Bill has a comparative advantage in picking berries.
B)
Bill has a comparative advantage in catching fish.
C)
Rob has a comparative advantage in catching fish and picking berries.
D)
Rob has a comparative advantage in picking berries.
42)
If the ________ cost of production for two goods is different between two countries then mutually
beneficial trade is possible.
42)
A)
implicit
B)
explicit
C)
marginal
D)
opportunity
Figure 18–2
Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 18–2 shows the impact of this tariff.
43)
Refer to Figure 18–2. The loss in domestic consumer surplus as a result of the tariff is equal to the
area
43)
A)
B + D + E + F.
B)
C + D + E + F.
C)
D + E + F.
D)
B.
44)
If Canada has a comparative advantage relative to Mexico in the production of timber then
44)
A)
the average cost of production for timber is lower in Canada than in Mexico.
B)
the explicit cost of production for timber is lower in Canada than in Mexico.
C)
the opportunity cost of production for timber is lower in Canada than in Mexico.
D)
the implicit costs of production for timber are lower in Canada than in Mexico.
Figure 18–2
Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 18–2 shows the impact of this tariff.
45)
Refer to Figure 18–2. As a result of the tariff, domestic producers increase their quantity supplied
by
45)
A)
31 million pounds or rice.
B)
15 million pounds of rice.
C)
6 million pounds of rice.
D)
22 million pounds of rice.
46)
An agreement negotiated by two countries that places a numerical limit on the quantity of a good
that can be imported by one country from another country is called
46)
A)
a voluntary export restraint.
B)
a non–tariff trade barrier.
C)
an export quota.
D)
an import quota.
47)
The United States has developed a comparative advantage in digital computers, airliners and many
prescription drugs. The source of its comparative advantage in these products is
47)
A)
a strong central government.
B)
technology.
C)
abundant supplies of natural resources.
D)
a favorable climate.
48)
How will an interest rate decrease in the United States affect equilibrium in the foreign exchange
market?
48)
A)
The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded
will increase.
B)
The equilibrium exchange rate cannot be determined, and the equilibrium quantity of dollars
traded will increase.
C)
The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded
cannot be determined.
D)
The equilibrium exchange rate will decrease, and the equilibrium quantity of dollars traded
cannot be determined.
49)
When Roxanne, a U.S. citizen, purchases a designer dress from Barneys of New York that was
made in Milan the purchase is
49)
A)
a U.S. import and an Italian export.
B)
neither an export nor an import for either country.
C)
both a U.S. and an Italian import.
D)
a U.S. export and an Italian import.
50)
In order to avoid the imposition of other types of trade barriers, foreign producers will sometimes
agree to limit their exports to a country. What are these types of agreements called?
50)
A)
implicit quotas
B)
sanctions
C)
voluntary export restraints
D)
involuntary export restraints
51)
In the 1970s and 1980s the United States lost its comparative advantage in consumer electronics
goods to Japan. What factor was most responsible for the development of Japan’s comparative
advantage in consumer electronics goods?
51)
A)
Japanese firms excelled in process technology.
B)
Japanese firms benefited from external economies.
C)
Japan has abundant supplies of natural resources needed to produce electronics goods.
D)
Japan has abundant supplies of labor.
Figure 18-6
52)
Refer to Figure 18–6. The depreciation of the dollar is represented as a movement from ________.
52)
A)
B to A
B)
A to B
C)
A to C
D)
B to C
E)
D to C
Figure 18–3
Since 1953 the U.S. has imposed a quota to limit the imports of peanuts. Figure 18–3 illustrates the impact of the quota.
53)
Refer to Figure 18–3. What is the area that represents the deadweight loss as a result of the quota?
53)
A)
G + H + I + J
B)
G + H
C)
E + M
D)
E + I + J + M
54)
Workers in industries protected by tariffs and quotas are likely to support these trade restrictions
because
54)
A)
they believe the restrictions will protect their jobs.
B)
they don’t understand that the restrictions will threaten their jobs.
C)
politicians lobby to convince workers the restrictions will make them better off.
D)
they do not want to offend their employers who want them.
55)
China has developed a comparative advantage in the production of children‘s toys. The source of
this comparative advantage is
55)
A)
a large supply of unskilled workers and relatively little capital.
B)
a large supply of natural resources.
C)
investment in capital used to produce toys.
D)
superior process technology.
56)
Which of the following statements is true?
56)
A)
All individuals in both countries are made better off as a result of international trade.
B)
Within each country, some individuals are made better off as a result of international trade,
but one of the countries will be worse off overall.
C)
Each country as a whole is made better off as a result of international trade, but individuals
within each country may be made worse off.
D)
Although some individuals are made better off as a result of international trade, both
countries may be made worse off overall.
57)
The selling of a product for a price below its cost of production is called
57)
A)
dumping.
B)
fair competition.
C)
operating at a loss.
D)
unfair competition.
58)
One reason for the success that firms have in getting the government to erect barriers to foreign
competition is that jobs lost to foreign competition are easy to identify but jobs created by foreign
trade are often hard to identify. Which of the following is a second reason?
58)
A)
The costs that tariffs and quotas impose on consumers are large in total but relatively small
per person.
B)
The benefits from free trade are less than the costs.
C)
People who benefit from foreign trade tend not to vote in elections; people who are harmed
by foreign trade are much more likely to vote.
D)
Firms that benefit from trade barriers have more money than firms that are harmed to lobby
government officials to support the barriers.
59)
Which of the following is the best example of a tariff?
59)
A)
a $150 fee imposed on all imported residential air conditioners
B)
a limit on the quantity of residential air conditioners that can be imported from a foreign
country
C)
a subsidy from the U.S. government to domestic manufacturers of residential air conditioners
to enable them to compete more effectively with foreign producers
D)
a tax placed on all residential air conditioners sold in the domestic market to help offset the
impact of emissions on the environment