In a two-country two-commodity model, if a country has higher labor productivity in
producing both the goods, it must produce and export both the goods to the other
country.
Answer:
The production effect of a tariff measures the welfare gain of domestic producers who
can sell their product at a higher price as a result of the tariff.
Answer:
Compared to a tariff, a quota gives the government a better control over the quantity of
imports.
Answer:
Straight-line production-possibility curves indicate that the opportunity cost of
producing additional units of each good is constant.
Answer:
Unlike a tariff, a quota does not cause either a production effect or a consumption
effect.
Answer:
A significant gain from trade in an oligopolistic market results from the increase in the
number of product varieties that trade brings.
Answer:
For a country already engaged in trade, biased growth will essentially lead to an
increased willingness to trade.
Answer:
Changing property rights as a way to correct externalities is always preferred to the use
of government taxes and subsidies.
Answer:
If country A is relatively abundant in labor and country B is relatively abundant in
capital, the Heckscher-Ohlin theory predicts that country A will export relatively
labor-intensive goods and country B will export relatively capital-intensive goods.
Answer:
Firms that are engaging in persistent dumping need to be able to prevent resale between
the foreign and domestic markets.
Answer:
Which of the following is NOT true of nontariff barriers to imports?
a. Nontariff barriers can limit imports with greater certainty than tariffs.
b. Unlike tariffs, the nontariff barriers do not increase the price of the imported goods in
the domestic markets.
c. Some nontariff barriers create uncertainty about the conditions under which imports
will be permitted.
d. Like tariffs, nontariff barriers also result in a net welfare loss in a small country.
Answer:
When the average cost of a typical firm declines as the output of the industry within a
geographic area increases it is referred to as:
a. internal scale economies.
b. external scale economies.
c. internal scale diseconomies.
d. constant returns to scale.
Answer:
Which of the following exchange rate policies was undertaken by the Chinese
government in 1994?
a. The Chinese yuan was revalued against the U.S. dollar.
b. A free floating exchange rate regime was adopted.
c. The Chinese yuan was revalued against the euro.
d. The Chinese yuan was pegged to the U.S. dollar.
Answer:
Assume a two-country two-good two-input model where the following relationships
hold:
(K/L)U.S. > (K/L)ROW
(K/L)automobiles > (K/L)shoes
Where (K/L)U.S. is the capital-labor ratio in the United States, (K/L)ROW is the
capital-labor ratio in the Rest of the World, (K/L)automobiles indicates the capital-labor
ratio in the production of automobiles, and (K/L)shoes indicates the capital-labor ratio in
the production of shoes. Assume further that technology and tastes are the same in the
United States and the Rest of the World. The relationships shown here indicate that,
with no trade, in the United States:
a. the relative labor endowment is higher than in the Rest of the World.
b. the price of automobiles relative to shoes is lower than in the Rest of the World.
c. the price of shoes relative to automobiles is lower than in the Rest of the World.
d. the relative capital endowment is the same as in the Rest of the World.
Answer:
The _____ measures the sum of the current account balance plus the nonofficial
financial account balance.
a. official fiscal balance
b. nonofficial capital balance
c. official settlements balance
d. unofficial settlements balance
Answer:
Which of the following statements is true about production-possibility curves?
a. Constant cost production-possibility curves are straight lines and usually lead to
complete specialization under free trade.
b. Under free trade, bowed-out production-possibility curves are associated with partial
specialization, because the opportunity cost of producing each good is constant along
the curve.
c. Increasing cost production-possibility curves provide us with information about the
preferences of the consumers.
d. Constant cost production-possibility curves are convex to the origin.
Answer:
A small country imports T-shirts. With free trade at a world price of $10, domestic
production is 10 million T-shirts and domestic consumption is 42 million T-shirts. The
country’s government now decides to impose a quota to limit T-shirt imports to 20
million per year. With the import quota in place, the domestic price rises to $12 per
T-shirt and domestic production rises to 15 million T-shirts per year. If the government
auctions the quota licenses, calculate the revenue collected by the government.
a. $40 million
b. $70 million
c. $200 million
d. $240 million
Answer:
Tariffs are more likely to be imposed when:
a. the lobbying efforts of the consumer advocacy groups are much stronger than those
of the producers.
b. the average gain per proponent far exceeds the average cost per opponent.
c. the number of people who are hurt by protectionist measures exceeds the number of
people who gain from protectionist measures.
d. import-competing producers are unorganized.
Answer:
Which of the following refers to a two-way trade in which a country both exports and
imports the same or very similar products?
a. Net trade
b. Inter-industry trade
c. Intra-industry trade
d. Internal trade
Answer:
_____ are money-like assets that are held by governments and that are recognized by
governments as fully acceptable for payments between them.
a. Official international reserve assets
b. Unofficial international assets
c. Official domestic assets
d. Unofficial reserve assets
Answer:
Which of the following subsidies is prohibited under WTO rules?
a. Subsidies to research and development
b. Subsidies to assist disadvantaged regions within the exporting country
c. Subsidies to assist firms in meeting environmental regulations
d. Subsidies to encourage firms in a developed country to export more
Answer:
The locomotive theory posits that growth in one or more large countries:
a. will retard the growth of smaller countries dependent on exports.
b. will lead smaller countries to open their economies.
c. can put pressure on their domestic import-competing firms.
d. can raise growth in other smaller countries that trade with these larger countries.
Answer:
For central bank liquidity swaps, which of the following is NOT true?
a. Central bank liquidity swaps were intended to provide dollar funding to non-U.S.
financial institutions during the global financial and economic crisis.
b. In a central bank liquidity swap, the Fed provides dollars to a foreign central bank.
c. Central-bank liquidity swaps failed to effectively address the dollar problems in
foreign banking systems during the global financial and economic crisis, so the swap
programs were ended in February 2010.
d. Non-U.S. central banks used the dollars they received through central bank liquidity
swaps to lend to financial institutions in their countries.
Answer:
The following input-requirements data are for country A, a capital-abundant country
where they produce nothing but bread and wine using only capital and labor as inputs.
According to H-O theory, country A has a comparative advantage in the production of:
a. both bread and wine.
b. neither bread nor wine.
c. wine.
d. bread.
Answer:
Borrowers in wealthy countries that have few domestic investment opportunities would
gain if:
a. all restrictions on capital flows between nations were removed.
b. capital flows between nations are prohibited.
c. factor-price-equalization takes place.
d. governments allowed free markets to determine interest rates.
Answer:
Which of the following is currently a main function of the International Monetary Fund
(IMF)?
a. To loan reserves to countries that are attempting to finance temporary payments
deficits
b. To loan money to developing countries to allow them to carry out programs that will
improve the standard of living
c. To house the world’s gold supply
d. To set bilateral exchange rate values
Answer:
Which of the following transactions is recorded in the financial account?
a. Ford Motor Company of the United States provides part of the financing for a new
automobile factory in China.
b. A Chinese businessman imports Ford automobiles from the United States.
c. A U.S. tourist spends money on a trip to China.
d. The New York Yankees are paid $10 million by the Chinese to play an exhibition
game in Beijing, China.
Answer:
Suppose the domestic supply (QS
U.S.) and demand (QD
U.S)for bicycles in the United
States are given by the following set of equations:
QS
U.S. = 2P
QD
U.S. = 200 ‘“ 2P.
Demand (QD) and supply (QS) in the Rest of the World are given by the equations:
QS = P
QD =160 ‘“ P.
Quantities are measured in thousands and price in U.S. dollars.
In the absence of international trade, _____ thousand bicycles will be sold in the Rest of
the World at a per unit price of _____.
a. 80; $80
b. 100; $100
c. 50; $100
d. 100; $50
Answer:
The _____ effect suggests that speculations can sometimes be destabilizing as the
actions of the international investors move the exchange rate away from the long-run
equilibrium value consistent with fundamental economic influences.
a. bandwagon
b. overshooting
c. exchange rate
d. arbitrage
Answer:
The table given below shows the number of labor hours required to produce 1 umbrella
and 1 bushel of corn in the U.K. and the Rest of the World. Calculate the opportunity
cost of producing an umbrella in the Rest of the World.
a. 1/8 of a bushel of corn
b. 1/3 of a bushel of corn
c. 3 bushels of corn
d. 8 bushels of corn
Answer:
According to the assignment rule, which of the following policy mixes is appropriate
for a country with high unemployment, a balance of payments surplus, and fixed
exchange rates?
a. Expansionary fiscal policy and expansionary monetary policy
b. Expansionary fiscal policy and contractionary monetary policy
c. Contractionary fiscal policy and expansionary monetary policy
d. Contractionary fiscal policy and contractionary monetary policy
Answer:
Under a floating exchange rate regime:
a. only fiscal policy must be used to reconcile the goals of internal and external balance.
b. the changes in the exchange rate will take care of external balance leaving
macroeconomic policy to take care of internal balance.
c. deficits and surpluses in the official settlements balance will be the primary concern
of policy makers.
d. monetary policy must be used to manage the exchange rate.
Answer:
Faced with increasing outflows of gold in the late 1960’s and early 1970s, the United
States:
a. used contractionary fiscal policies to rid the nation of deficits.
b. decreased the dollar price of gold.
c. suspended the convertibility of dollars into gold.
d. encouraged other countries to increase their domestic interest rates.
Answer:
The figure given below shows the market for shoes in the U.S. The domestic price line
with tariff lies above the international price line. Dd and Sd are the domestic demand
and supply curves of shoes respectively.
Following the imposition of tariff, the domestic producer surplus _____ by the area
_____.
a. increases; a
b. decreases; a
c. increases; (a + b)
d. decreases; (a + b)
Answer: