Most or all of the mark-up revenue from a quota will be captured by the government if
the government auctions off import licenses.
Answer:
New technology developed by a multinational corporation in one of its research
facilities in a leading developed country can be transferred within the corporation to the
affiliates in other developed countries, but not to the affiliates in developing countries.
Answer:
A fixed exchange-rate system in which most countries participate imposes price
discipline on the countries.
Answer:
The amount of price inflation that the economy experiences eventually depends on the
size of the spending multiplier.
Answer:
Economists believe that money demand determines the price level in the long run.
Answer:
Both the Heckscher-Ohlin theory and comparative advantage based on technological
differences assume that the techniques of production in various countries do not change
over time.
Answer:
If the domestic interest rate increases, while the foreign interest rate and the expected
spot exchange rate remain constant, the return comparison shifts in favor of investments
in bonds denominated in the foreign currency.
Answer:
With respect to exchange rates, the 1997 Asian currency crisis caused the Thai,
Malaysian, Indonesian, and Korean governments to give up their pegged or heavily
managed exchange rates and move to floating exchange rates.
Answer:
After the formation of the NAFTA, Mexico became a more attractive country for
business investments of foreign firms.
Answer:
The changes in China’s FDI policy since 2006 are likely to shift manufacturing FDI
away from unskilled-labor-intensive production like toys.
Answer:
The WTO ruled that the U.S. regulations on the fuel economy of cars sold by each
manufacturer:
a. were permissible under Article XX.
b. was a permissible reaction to similar regulations imposed by the Japanese
government on the automobiles imported from the United States.
c. violated the WTO rules because the imported automobiles were treated differently
from domestic autos.
d. was not an issue under their purview.
Answer:
_____ attempts to establish a fixed exchange-rate that is long-lived by focusing on
maintaining the fixed exchange-rate and holds only foreign-currency assets.
a. A central bank
b. A monetary union
c. The IMF
d. A currency board
Answer:
Assume that the FE curve is flatter than the LM curve. A negative internal shock shifts
the IS curve leftward. Under zero sterilization, which one of the following will happen
next?
a. Because of the incipient balance of payments deficit, the LM curve will shift leftward
b. Because of the incipient balance of payments surplus, the LM curve will shift
rightward
c. Because of the incipient balance of payments deficit, the IS curve will shift leftward
d. Because of the incipient balance of payments surplus, the IS curve will shift
rightward
Answer:
The figure given below illustrates the market for British pounds. D and S are the
demand and supply curves of the British pounds respectively.
If the exchange rate is pegged at $2.50 per pound::
a. the pound will be overvalued.
b. the pound will be undervalued.
c. the British goods will become cheap in U.S. markets.
d. the demand for the American goods will fall in British markets.
Answer:
Give a brief account of each of the following international agreements with respect to
the environment. What externalities do they cover? Have each of these agreements been
successful?
a. CITES
b. Montreal Protocol
c. Kyoto Protocol
Answer:
The figure below shows an IS-LM-FE model for an economy with fixed exchange
rates. Initially the economy is at point A, a triple intersection. Here, the FE curve is
steeper than the LM curve.
At point B, the economy is experiencing:
a. a deficit in the overall balance of payments.
b. a surplus in the overall balance of payments.
c. an overall balance of payments that is in equilibrium.
d. an expanding money supply.
Answer:
Since 2000 developing countries received large net capital inflows in the form of:
a. foreign direct investments.
b. short-term lending.
c. official loans from foreign governments and the IMF.
d. debt service.
Answer:
If the price of British pounds in terms of the U.S. dollars is $1.80 per pound, then the
price of U.S. dollars in terms of British pounds is:
a. 1.80 per dollar.
b. 0.555 per dollar.
c. 0.90 per dollar.
d. 3.60 per dollar.
Answer:
Suppose the domestic supply (QS) and demand (QD) for skateboards in the United
States are given by the following set of equations:
QS = ‘“60 + 3P
QD = 390 ‘“ 2P
If the United States can imports skateboards from the rest of the world at a per unit
price of $75, how many skateboards will be produced in the United States?
a. 165
b. 240
c. 285
d. 215
Answer:
In the short-run, following the opening of trade:
a. inputs move across sectors, but input returns remain constant.
b. factor payments in the import-competing sectors will decline.
c. the supply of resources to the export-oriented sectors will decline.
d. workers in all the sectors will receive lower wages due to cheap imports.
Answer:
_____ wrote the Wealth of Nations
a. David Ricardo
b. Paul Samuelson
c. Adam Smith
d. Karl Marx
Answer:
In oligopoly pricing, firms are caught in a situation called prisoner’s dilemma when
they:
a. cooperate to maximize profits.
b. cooperate to minimize prices.
c. compete aggressively and earn high profits.
d. compete aggressively and earn low profits.
Answer:
In international trade jargon, an economy is said to be a large country if:
a. it is a price-taker in the world market.
b. a majority of its production is consumed domestically.
c. a decline in its exports raises the world price of those goods.
d. a decline in its imports does not affect its terms of trade.
Answer:
Which of the following statements is NOT correct?
a. Tariffs are likely to decrease world economic well-being.
b. Tariffs can increase, decrease, or leave unchanged the economic well-being if
imposed by a large country.
c. Tariffs always decrease economic domestic well-being if imposed by a small country.
d. Tariffs hurt producers and help consumers in the country imposing the tariff.
Answer:
If movement of labor across countries is costless and painless, it can be expected that:
a. all the countries in the world will operate at the full employment level.
b. the wage rates in the countries will equalize over time.
c. the rate of unemployment will fall to zero in all the countries.
d. the GDP of the countries will equalize over time.
Answer:
The unskilled wage rate in a country may decline if
a. the corporate taxes are lowered by the government.
b. there’s increased immigration of low-skilled workers.
c. the aggregate demand for goods and services increases in the country.
d. the demand for unskilled workers increases.
Answer:
Other things remaining unchanged, if American exports to Japan increase and American
imports from Japan decrease, then under a floating exchange rate system, we would
expect::
a. the U.S. dollar to appreciate
b. the yen value of a U.S. dollar to be higher in Tokyo than in New York.
c. the demand for Japanese yen to increase in the foreign exchange market.
d. the supply curve of Japanese yen to shift inward.
Answer:
Which of the following does NOT occur when a country with floating exchange rates
increases the money supply?
a. Interest rates fall causing capital outflows in the short run.
b. Interest rates initially increases causing real spending, production, and income to fall.
c. The current account will initially tend to worsen as a result of the decrease in interest
rates.
d. Aggregate demand will increase which will lead to an increase in the price level.
Answer:
In the figure given below AB is the production-possibility curve of Canada. In the
absence of trade, the price ratio is 1 bushel of wheat/bale of cotton as shown by the line
PQ. The international price ratio is 0.25 bushels of wheat/bale of cotton as shown by the
line RS. I1 and I2 are the pre-trade and the post trade community indifference curves of
Canada respectively. After Canada engages in free trade, it will export:
a. a. 40 bushels of wheat.
b. b. 20 bushels of wheat.
c. c. 30 bales of cotton.
d. d. 60 bales of cotton.
Answer:
With a(n) _____, the government allows the market to determine the exchange rate of a
currency.
a. adjustable peg
b. dirty float
c. crawling peg
d. clean float
Answer:
The current spot exchange rate is $1.14/euro. The current 90-day forward exchange rate
is $1.11/euro. How could a U.S firm, who must repay a 40 million euro loan in 90 days,
use a forward exchange contract to hedge its risk exposure?
Answer:
Suppose that the world price of automobiles is $20,000 and automobile manufacturers
in country A use $10,000 worth of imported inputs and no domestic inputs. What is the
effective rate of protection for the automobile industry in country A, if there is a tariff of
25 percent on imported automobiles and a tariff of 50 percent on imported inputs used
in this industry?
Answer:
Describe the different types of internal shocks to an economy.
Answer:
What challenges does the European Central Bank (ECB) face in making monetary
policy for the euro zone?
Answer:
The J-curve suggests a typical pattern for a country’s trade balance after an abrupt
depreciation or devaluation of the country’s currency. What are the key factors behind
this relationship? Explain.
Answer:
What elements does a solution to excessive global warming include? Explain each of
these briefly.
Answer:
Why will the Kyoto Protocol have a small impact on overall global greenhouse-gas
emissions? Cite examples from countries that struggle to meet their targets.
Answer:
What is the empirical evidence on the holding of the covered and uncovered interest
rate parity? How is the evidence different after the relaxation of capital controls in the
early 1980s?
Answer: