Small open economies are probably more vulnerable to contagion than large and
relatively closed economies.
Answer:
Relatively high costs of converting natural gas to LNG will increase the price of natural
gas in the U.S. and reduce consumption of natural gas in the U.S.
Answer:
It has been observed that trade within MERCOSUR trade has increased most rapidly in
protected capital-intensive products like automobiles, machinery and electronic goods
in which the member countries enjoy global comparative advantage.
Answer:
‘Dollarization’ can be classified as a form of a fixed exchange rate.
Answer:
An export subsidy imposed in a large exporting country will cause the country’s
international terms of trade to improve.
Answer:
Countries that export a diversified selection of export products do not seem to be at
much risk of experiencing immiserizing growth.
Answer:
The difference between the Heckscher-Ohlin theory of trade and the Ricardian model is
that the former assumes that an economy produces only two goods.
Answer:
The revenue earned by the government in allocating quota licenses through
resource-using application procedures is approximately equal to the revenue that it
would earn from a tariff that resulted in the same import quantity.
Answer:
The relative prices of the products that use natural resources intensively will decrease
over time with the decrease in the availability of the natural resources.
Answer:
A monetary shock to an economy with a fixed exchange rate regime will have a smaller
impact on the domestic economy than will a comparable domestic spending shock.
Answer:
The current account balance is equal to the difference between domestic product and
national expenditure.
Answer:
According to the Stolper-Samuelson theorem, workers gain from opening of free trade
only in the long-run, and not in the short-run, because wages are sticky in the short run.
Answer:
Economic growth with an increased willingness to engage in international trade will
always improve the economic well-being of a large country.
Answer:
The Maastricht Treaty adopted by the EU countries set a process for establishing a
monetary union and a single union wide currency.
Answer:
A decrease in income will lead to an increase in the demand for an inferior good.
Answer:
Which of the following factors is most likely to lead to a decline in a country’s exports?
a. An decrease in corporate taxes
b. A decline in the nominal interest rate
c. A decline in the input prices
d. An appreciation of the domestic currency vis–vis foreign currencies
Answer:
Which of the following NTBs may generate revenue for the government?
a. Government procurement
b. Voluntary export restraint
c. Import quota
d. Domestic content requirement
Answer:
Which of the following can be concluded from the relationships given below?
(U.K. capital stock) < (Rest of the World’s capital stock)
(U.K. labor supply) > (Rest of the World’s labor supply)
a. a. The U.K is relatively labor-abundant compared to the Rest of the World.
b. b. The U.K. is relatively capital-abundant compared to the Rest of the World.
c. c. The rest of the world would export labor-intensive goods.
d. d. The rest of the world would export both the commodities.
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
Calculate the change in consumer surplus when the United States engages in free trade
and imports skateboards from the rest of the world at a per unit price of $75.
a. +$2,850
b. ‘“$2,850
c. ‘“$6,300
d. +$3,375
Answer:
A decrease in German residents’ willingness to invest in dollar-denominated assets will
shift the demand curve for:
a. Euros to the right.
b. Euros to the left.
c. Dollars to the right.
d. Dollars to the left.
Answer:
The figure given below shows the production-possibility curves of Canada (AB) and
the Rest of the World (CD). The pre-trade price ratio in Canada and the Rest of the
World are given by the lines P1 and P3 respectively. The international price ratio faced
by the countries is represented by the line P2. I1 and I2 are the pre-trade and post-trade
social indifference curves for both Canada and the Rest of the World respectively. After
engaging in free trade, Canada consumes _____ bales of cotton and _____ bushels of
wheat.
a. a. 12; 11
b. b. 20; 11
c. c. 3; 20
d. d. 16; 6
Answer:
Which of the following is true of a common market?
a. The member countries export similar products to the non-member countries.
b. The member countries do not import any good from the non-member countries.
c. The member countries have identical monetary and fiscal policies.
d. There is free movement of capital and labor among the member countries.
Answer:
The table given below shows the number of umbrellas and bushels of corn produced in
the United Kingdom and the Rest of the World per labor hour. The Rest of the World
has an absolute advantage in the production of _____.
a. both the goods
b. neither corn nor umbrella
c. only umbrella
d. only corn
Answer:
Assume that a capital-abundant country trades only two goods with the rest of the
world, medical equipment and corn. Medical equipment is relatively capital-intensive.
According to the Rybczynski theorem, the relative price of the goods remaining
unchanged, an increase in the country’s endowment of capital will cause the output of
medical equipment to _____ and the output of corn to _____.
a. rise; fall
b. fall; rise
c. rise; remain the same
d. remain the same; fall
Answer:
When a foreign resident increases her holdings of a U.S. financial asset, the :
a. current account of the U.S. balance of payments will be credited.
b. current account of the U.S. balance of payments will be debited.
c. financial account of the U.S. balance of payments will be credited.
d. financial account of the U.S. balance of payments will be debited.
Answer:
Which of the following is a controversial proposal for reducing the frequency of
financial crises?
a. Countries should pursue sound macroeconomic policies.
b. Countries should improve the quality and timeliness of the data they report on their
international reserves and debt.
c. Developing countries should increase the use of controls or impediments to capital
inflows.
d. Countries should strive for better supervision and regulation of their banks.
Answer:
Which of the following activities does the International Monetary Fund engage in?
a. Creation of special drawing rights
b. Regulation of large international banks
c. Provision of financial services to large international banks
d. Promotion of international trade by lowering tariffs and nontariff barriers
Answer:
Suppose in 1992, the average price level in Pacifica was 100, and that in Atlantica was
also 100. In the foreign exchange market 1 Pacifica pound was exchanged for 1
Atlantica mark. In 2012, the price level in Pacifica had risen to 280 and the price level
in Atlantica had risen to 360.
a. According to the relative PPP theory, what should the pound-mark exchange rate be
in 2012?
b. If the actual pound per mark exchange rate is 0.5 pound/mark in 2012, is the mark
overvalued or undervalued relative to its PPP value?
Answer:
Which of the following refers to transfer pricing by an MNE?
a. The act of buying a good at a low price and selling it at a high price
b. The process of setting a high price for a good in a market with relatively inelastic
demand and setting a low price in a market with relatively elastic demand
c. Lowering the product prices to undercut the competitors and gain a greater market
share
d. Setting prices by the company for things that move between the units of the company
Answer:
For which of the following goods does the income elasticity of demand most clearly
exceed unity?
a. Public goods like roads and bridges
b. Lifesaving drugs
c. Food grains
d. Luxury automobiles
Answer:
By restricting foreign lending, a country with sufficient market power can:
a. increase world production.
b. lower world interest rates.
c. bid up the rate that domestic lenders get after taxes.
d. bid up the rate that foreign borrowers have to pay.
Answer:
Which of the following statements is true?
a. If new firms are struggling to obtain funds from underdeveloped financial markets,
the most efficient policy solution would be to offer a production subsidy to these firms.
b. If the government’s goal is to induce early production even when the new firms are
not cost-competitive by world standards, a barrier to the import of a substitute of the
product produced by these firms would be an ideal policy.
c. If young firms are struggling to retain their trained workers, then government should
offer a subsidy to offset the costs of training workers.
d. If the domestic firms do not supply anything at the world price, the government
should lower the import barriers to boost domestic production.
Answer:
The figure given below represents the domestic market for wheat in a small country.
Imports of wheat are prohibited.
The net loss in national well-being as a result of the subsidy is:
a. $200 million.
b. $300 million.
c. $500 million.
d. $2.2 billion.
Answer:
When Wassily Leontief tested the predictions of the Heckscher-Ohlin theory, he found
that in 1947 the United States was exporting relatively labor-intensive goods and
importing relatively capital-intensive goods. His findings:
a. contradicted the Heckscher-Ohlin theory, because the United States was relatively
capital-abundant.
b. contradicted the Heckscher-Ohlin theory, because the United States was relatively
labor-abundant.
c. were never supported by other studies and has thus been labeled a paradox.
d. were consistent with the predictions of the Heckscher-Ohlin theory.
Answer:
Which of the following is true of a quota:
a. Imposition of a quota causes domestic prices to fall below world prices.
b. Imposition of a quota by a country causes the world price of the good imported by
this country to rise.
c. A quota is a quantitative restriction on imports.
d. A quota is always more efficient than a tariff.
Answer:
Which of the following is NOT linked together by uncovered interest parity?
a. The domestic interest rate
b. The foreign interest rate
c. The current spot exchange rate
d. The current forward exchange rate
Answer:
If a country exports the good that it can produce at a low opportunity cost and imports
those goods that it would otherwise produce at a high opportunity cost, we say that such
trade is based on:
a. the theory of absolute advantage.
b. the arbitrage pricing theory.
c. theory of factor endowments.
d. the theory of comparative advantage.
Answer:
With a voluntary export restraint (VER), the economic rent created for the
quantitatively limited on trade is collected by:
a. the government of the importing county.
b. the consumers in the importing country.
c. the producers in the importing country.
d. the exporting firms in the foreign countries
Answer:
The net loss from trade diversion for a country is likely to be smaller if:
a. the county’s import demand is more elastic.
b. the country’s tariff rate on the product is higher.
c. the good can be produced at relatively lower cost in the bloc-partners than in the
outside world.
d. the bloc partner’s export price is closer to the tariff-inclusive price for imports from
countries outside the bloc.
Answer:
Capital outflow from a country during a financial crisis will:
a. put pressure on local financial institutions.
b. result in an appreciation of the domestic currency.
c. lower domestic interest rates.
d. lower foreign stock prices.
Answer: