Assume a country that produces only cloth and paddy. Cloth production requires
significant amounts of labor and capital, but relatively less land. Assume that paddy
production requires relatively less labor and capital, but relatively large amounts of
fertile arable land. If there is an increase in the country’s endowments of capital and
labor, the Rybczynski theorem would predict that:
a. the production of both paddy and cloth will increase.
b. the production of cloth will increase, but that of paddy will remain unchanged.
c. the production of cloth will increase, but that of paddy will decline.
d. the production of paddy will increase, but that of cloth will remain unchanged.
Answer:
Which of the following is NOT a way in which the safeguard policy is better than
antidumping policies?
a. Firms and governments do not need to show that foreign exporters have done
anything unfair.
b. There is pressure for import-competing firms to adjust their production in order to be
more competitive with foreign exporters.
c. The interests of consumers can be disregarded since they do not play a role in
determining whether to invoke a safeguard policy.
d. The protection provided to the import competing sector is explicitly temporary.
Answer:
Fiscal policy is most effective in influencing aggregate demand:
a. under a floating exchange-rate system with a low degree of capital mobility.
b. under a fixed exchange-rate system with sterilization.
c. under a fixed exchange-rate system without sterilization.
d. under a floating exchange-rate system with a high degree of capital mobility.
Answer:
In a monopolistically competitive market, as the number of product variants decreases,
the price of a particular firm’s product is likely to_____ because the demand for each
variety becomes more _____.
a. increase; elastic
b. decrease; elastic
c. increase; inelastic
d. decrease; inelastic
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 import
licenses are allocated based on fixed favoritism, how much will be gained by the
importers with the quota licenses?
a. $40 million
b. $70 million
c. $200 million
d. $240 million
Answer:
An increase in the U.S. imports of goods and services from the EU countries will result
in a(n) _____ euro and a(n) _____ the U.S. dollars in the foreign exchange market.
a. increase in the supply of; increase in the demand for
b. decrease in the demand for; decrease in the supply of
c. surplus of; shortage of
d. increase in the demand for; increase in the supply of
Answer:
An export subsidy imposed by a large country can be more damaging to national
welfare than an export subsidy imposed by a small country because:
a. the production effect is necessarily larger for the large country.
b. the consumption effect is necessarily larger for the large country.
c. the terms of trade worsen for the large country but not for the small country.
d. the net national gains of the large country are overshadowed by the net welfare loss
of the world.
Answer:
In the case in which foreign affiliates undertake the same kind of production as the
parent firm, the affiliate _____ some trade in that product. The affiliate also _____ trade
through better local marketing of other products produced by the multinational in other
countries.
a. displaces; expands
b. expands, displaces
c. expands; expands
d. displaces; displaces
Answer:
Interbank trading is conducted directly between _____ or through the use of _____ that
provide anonymity until the trade is complete and reduce search costs.
a. traders; brokers
b. brokers; traders
c. individual consumers; the government
d. individual consumers; brokers
Answer:
Which of the following is defined as the percentage by which the entire set of a nation’s
trade barriers raises an industry’s value added per unit of output?
a. One-dollar, one-vote metric
b. Revenue effect
c. Effective rate of protection
d. Terms-of-trade effect
Answer:
The table given below shows the number of labor hours required to produce 1 gallon of
wine and 1 pound of cheese in the U.S. and France. The United States has a
comparative advantage in the production of _____.
a. both the goods
b. only cheese
c. only wine
d. neither cheese nor wine
Answer:
As some government spending is for true public goods in sending countries, the loss of
future tax contributions is likely to be _____ the reduction in future government
spending as people migrate from the country.
a. larger than
b. smaller than
c. equal to
d. independent of
Answer:
Assume the standard trade model with two countries (Alpha and Beta), two goods (food
and drink), and two factors of production (land and labor). Further assume that Alpha is
relatively labor-abundant and drink is relatively labor-intensive. According to the
Heckscher-Ohlin theory, Beta has a comparative advantage in the production of:
a. drink.
b. food.
c. both goods.
d. neither good.
Answer:
For a country with a fixed exchange rate that is running continuous overall payments
surpluses:
a. the country’s monetary authority will eventually run out of foreign reserves.
b. the country has an overvalued currency.
c. the country is in an optimal situation.
d. the country’s monetary authority will suffer losses on its official reserve holdings if
the country’s currency is revalued.
Answer:
The figure given below shows the national market for mopeds in a country. Dd and Sd
are the domestic demand and supply curves of mopeds respectively.
If there is initially free trade, and then a $50 per unit subsidy is given to the domestic
producers of mopeds, domestic production will increase by:
a. 100,000 units.
b. 600,000 units.
c. 700,000 units.
d. 1,200,000 units.
Answer:
The figure given below depicts the IS-LM-FE model with floating exchange rates.
The domestic currency:
a. is under the pressure to appreciate.
b. is under the pressure to depreciate.
c. can remain relatively stable.
d. is at its possible highest value in the foreign exchange market vis–vis other
currencies.
Answer:
According to the assignment rule, which of the following policy mixes is appropriate
for a country with high inflation, a balance of payments surplus, and fixed exchange
rates?
a. Contractionary fiscal policy and contractionary monetary policy
b. Contractionary fiscal policy and expansionary monetary policy
c. Expansionary fiscal policy and expansionary monetary policy
d. Expansionary fiscal policy and contractionary monetary policy
Answer:
If the foreign use of Australian-mined coal is harming Australia, according to the
specificity rule, the optimal policy for the Australian government to use is to _____.
a. tax coal imports
b. tax coal exports
c. tax foreign coal producers
d. subsidize coal exports
Answer:
The goal of internal balance includes:
a. growth stability.
b. full employment of resources.
c. a reasonable and sustainable balance of payments with the rest of the world.
d. exchange rate stability.
Answer: