Political risk is the possibility that the government of the host country will alter its
policies in ways that harm the multinational enterprise.
Answer:
Contractionary monetary policy will shift the LM curve to the right.
Answer:
The net national gain from trade can be measured by the change in consumer and
producer surplus that results from trade.
Answer:
For a country suffering from ‘liquidity trap’, its government is unable to use standard
monetary policy to boost borrowing and spending to move the economy toward its
potential real product.
Answer:
Sending countries that do not receive much in the way of remittances probably gain
well-being, but those receive substantial remittances probably lose well-being.
Answer:
An ad valorem tariff is formulated as a money amount per unit of import that is due
when the good reaches the importing country.
Answer:
The government policy dictating that all foreign exchange proceeds must be turned over
to the country’s monetary authority is referred to as capital controls.
Answer:
An indifference curve shows the various consumption bundles that result in the same
level of well-being for an individual.
Answer:
In the United States, the tests used to evaluate injury from dumping not only consider
the loss of well-being of the import-competing producers from dumping but also
emphasize the benefits to consumers of the low-priced imports.
Answer:
It is generally the case that imposing a countervailing duty in response to a foreign
export subsidy provides less well-being for a country than had the country not imposed
the countervailing duty.
Answer:
French imports of goods and services will create a demand for foreign currency and a
supply of euros.
Answer:
The figure given below shows the market for computers in the U.S. The domestic price
line inclusive of the tariff lies above the international price line. Dd and Sd are the
domestic demand and supply curves of computers respectively.
The consumption effect of the tariff on computers is worth
a. $2 million.
b. $4 million.
c. $76 million.
d. $78 million.
Answer:
The figure given below shows the market for computers in the U.S. The domestic price
line inclusive of the tariff lies above the international price line. Dd and Sd are the
domestic demand and supply curves of computers respectively.
The imposition of a tariff on computers caused economic well-being in the U.S. to
_____ by _____.
a. fall; $3 million
b. fall; $6 million
c. rise; $34 million
d. fall; $34 million
Answer:
A country experiencing a current account surplus:
a. needs to borrow internationally.
b. is able to lend internationally.
c. must also have had a surplus in its overall payments balance.
d. spends more than it earns on its merchandise and service trade, international income
payments and receipts and international transfers.
Answer:
If the covered interest differential is zero, then:
a. covered international investments will be profitable once we add in the interest
earned on the foreign bonds.
b. covered interest rate parity has not yet been reached.
c. the overall covered return on a foreign-currency investment equals the return on a
comparable domestic-currency investment.
d. a currency is at a forward premium by as much as its interest rate is higher than the
interest rate in the other country.
Answer:
Which of the following was NOT a reason why the signing and enforcement of the
Montreal Protocol was relatively easy?
a. The scientific evidence about the threat that CFCs posed to the ozone was clear.
b. The production of substitutes for the CFCs appeared to be technologically unfeasible.
c. Production of CFCs was concentrated primarily in a few large publicity-conscious
firms in the EU and the U.S.
d. The U.S. and the EU were most likely to be affected by ozone depletion because they
are closer to the poles than other countries, and they were also the largest producers.
Answer:
Suppose a capital-abundant country experiences a significant increase in its capital
stock. This change in endowments is most likely to lead to:
a. an improvement in the country’s terms of trade.
b. a decreased willingness to trade.
c. an increase in the price of the capital-intensive goods relative to the labor-intensive
goods.
d. an increased willingness to trade.
Answer:
Which of the following is true of a system of fixed exchange-rates adopted by many
countries?
a. For each of these countries, monetary policy can be a powerful policy tool in
managing aggregate demand.
b. The countries will have large differences in their inflation rates.
c. The goals and policies can differ substantially across the countries.
d. The relative stability can promote higher levels of international trade.
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.
After the opening of free trade between the U.S. and the Rest of the World:
a. neither the U.S. nor the Rest of the World gain from trade.
b. both countries gain from trade, but the U.S. gains more than the Rest of the World.
c. both countries gain from trade, but the Rest of the World gains more than the U.S.
d. the net change in total surplus in the U.S. is zero but the Rest of the World gains.
Answer:
Which of the following is an inherent disadvantage to being a multinational enterprise?
a. An MNE does not initially have the native understanding of local laws, customs,
procedures, practices, and relationships.
b. An MNE does not have the same assets as those held by its local competitors in the
host market.
c. An MNE does not enjoy comparative advantages in the same goods as those of its
local competitors in the host market.
d. An MNE’s profits are doubly taxed by two governments.
Answer:
The figure given below shows the U.S. market for imported wine. For simplicity, we
consider export supply curves to be flat. Chilean wine is available for $480 per barrel
and French wine is available for $420 per barrel.
Suppose the United States has a tariff of $80 per barrel on imported wine. Then, the
U.S. joins a free trade area with Chile. Calculate the gain arising from an increase in net
volume of trade after the U.S. joins the free trade area.
a. $50 million
b. $350 million
c. $550 million
d. $800 billion
Answer:
A deficit in the current account:
a. is accompanied by an equal amount of surplus in the financial account or in official
international reserves.
b. tends to cause a deficit in the financial account.
c. does not affect the financial account or official international reserves.
d. is the result of increasing exports and decreasing imports.
Answer:
The figure given below shows the market for MP3 players in a small country. Dd and Sd
are the domestic demand and domestic supply curves of the MP3 players before the
imposition of the quota. (Sd + QQ) is the total available domestic supply curve after the
quota has been imposed. The quota on MP3 players will cause domestic consumers to:
0
a. lose $25 million.
b. gain $25 million.
c. lose $170 million.
d. lose $195 million.
Answer:
What is the effect on trade deficits of a country’s saving rate?
a. A low savings rate means that consumers are buying more, and more buying leads to
an increase in a country’s trade deficit.
b. A low savings rate means that people are spending more than they earn and that
results in increased financial difficulties for consumers, higher interest rate, and fewer
international sales, resulting in a decrease in a country’s trade deficit.
c. A high savings rate means that there is more money available for investment which
results in greater production and increased international sales which lead to lower trade
deficits.
d. A country’s savings rate has no effect on the country’s trade deficit.
Answer:
A country that is saving more than it is investing domestically:
a. has a current account surplus.
b. has a financial account deficit.
c. has a trade balance.
d. has a trade disequilibrium.
Answer:
For an investor who starts with dollars and wants to end up with dollars in the future,
which of the following choices is an example of an uncovered international investment?
a. Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated
financial instruments, and sign a forward exchange contract to buy the foreign currency
b. Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated
financial instruments, and sign a forward exchange contract to buy dollars
c. Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated
financial instruments, and then buy dollars at the future spot rate
d. Buy a dollar-denominated financial asset
Answer:
Under the floating exchange rate system, a fall in the market price of a currency is
called:
a. devaluation.
b. depreciation.
c. appreciation.
d. revaluation.
Answer:
Explain the differences between the two-country two-good model with constant costs of
production and the model with increasing costs of production. Adequately describe the
production possibilities curves for each country in each case. Describe free-trade
production and the degree of specialization in each country under both cost situations.
Answer:
Explain how the Russian crisis of 1998 began. What precipitated the crisis?
Answer:
Why does Dow Chemical object to exports of natural gas from the U.S., and what does
economic analysis suggest about that objection?
Answer:
Explain how the Asian crisis of 1997 began and ended. What precipitated the crisis?
What brought about an end to the crisis?
Answer:
The volume of imports is positively related to real national production and income.
What are two reasons for this relationship?
Answer:
The United States could begin building a new type of flat panel 3-dimensional
television (FP3D). However, Japanese firms have been producing such televisions for a
couple of years and are already low-cost, high-quality producers. Should the United
States impose temporary protection in the form of a tariff on this product to protect the
domestic industry until it is mature enough to compete with the Japanese producers?
Why or why not?
Answer: