A country’s balance of payments records:
a. the prices that a country pays for its imports and the prices that the country receives
for its imports.
b. the flows of value between that country’s residents and residents of the rest of the
world during a period of time.
c. capital gains and losses on a country’s international assets.
d. the value of a country’s holdings of foreign assets, minus the value of foreign
holdings of the country’s assets.
Answer:
If international capital flows are not very responsive to interest rates, the initial impact
of expansionary fiscal policy will:
a. result in a significant deterioration in the financial account.
b. result in a deficit in the overall balance of payments.
c. be totally ineffective.
d. lead to a current account surplus.
Answer:
Under a floating exchange rate system, everything remaining constant, an increase in
European exports to Japan is most likely to result in:
a. a decrease in the demand for euro in the foreign exchange market.
b. a decrease in the supply of euro in the foreign exchange market.
c. an appreciation of the Japanese yen vis–vis the euro.
d. an appreciation of the euro vis–vis the Japanese yen.
Answer:
The figure given below illustrates the impact of an export subsidy as imposed by a large
country. No imports are permitted.
The cost to the government of the indicated subsidy is shown by area(s):
a. c
b. (c + h)
c. (b + c + d)
d. (b + c + d + f + g + h + i + j)
Answer:
Suppose the domestic supply (QS) and demand (QD)for MP3 players in the United
States are given by the following set of equations:
QS = ‘“25 + 10P
QD = 875 ‘“ 5P
In the absence of international trade in MP3 players, what will be the price of MP3
players in the United States?
a. $60
b. $65
c. $90
d. $70
Answer:
The Chinese government’s intervention in the foreign exchange market by buying U.S.
dollars and selling yuan had the effect of
a. weakening the U.S dollar to increase the U.S. trade deficit with China.
b. strengthening the U.S dollar to increase the U.S. trade deficit with China.
c. strengthening the yuan to increase the U.S. trade deficit with China.
d. weakening the yuan to decrease the U.S. trade deficit with China.
Answer:
If a country starts with a deficit in its official settlements balance, intervention to defend
a fixed exchange rate will cause:
a. the money supply to expand and the economy to grow.
b. both the money supply and the economy to contract.
c. the money supply to grow and the economy to contract.
d. the money supply to contract and the economy to grow.
Answer:
Which of the following is true of intra-industry trade?
a. Intra-industry trade is mostly based on the differences stressed in the
Heckscher-Ohlin trade theory.
b. Intra-industry trade is usually discouraged by the government.
c. Intra-industry trade is said to occur when the United States exports Ford automobiles
and imports Honda automobiles.
d. Intra-industry trade is said to occur when the United States exports Ford automobiles
and imports petroleum.
Answer:
Official reserve assets are:
a. the gold holdings in the nation’s central bank.
b. money like assets that are held by governments and that are recognized by
governments as fully acceptable for payments between them.
c. government T-bills and T-bonds.
d. government holdings of SDR’s.
Answer:
If international capital flows are highly responsive to interest rates, expansionary fiscal
policy will:
a. lead to financial account surpluses.
b. lead to financial account deficits.
c. be totally ineffective.
d. lead to current account surpluses.
Answer:
The central feature of the Bretton Woods system was:
a. the use of a floating exchange rate regime.
b. official encouragement for one-way speculative gambles.
c. the use of capital controls.
d. the use of an adjustable pegged exchange rate regime.
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
United States joins a trade bloc with Chile. Calculate the loss suffered by the U.S.
arising from the shift of trade from low-cost exporters to higher-cost bloc-partner
exporter.
a. $50 million
b. $250 million
c. $600 million
d. $800 million
Answer:
The Hong Kong dollar is pegged to the U.S. dollar at a rate of 7.8 Hong Kong dollars to
1 U.S. dollar. Suppose the central bank of Hong Kong changes the exchange value to
7.3 Hong Kong dollars to 1 U.S. dollar. Which of the following is most likely to be true
in this context?
a. The Hong Kong dollar has been revalued by 0.5 percent.
b. The Hong Kong dollar has been devalued by 0.5 percent.
c. The Hong Kong dollar has been revalued by 6.4 percent.
d. The Hong Kong dollar has been devalued by 6.2 percent.
Answer:
Under a gold standard, a major discovery of a new gold deposit would:
a. decrease the volume of world trade.
b. increase the inflation rate.
c. decrease output growth.
d. increase private demand for gold.
Answer:
The United States is relatively capital-abundant because:
a. a. capital costs more in the United States than in the rest of the world.
b. b. the United States has more capital than the rest of the world.
c. the United States produces and exports primary products to the rest of the world and
imports manufactured goods.
d. the ratio of capital to other inputs is greater in the United States than that in the rest
of the world.
Answer:
The interest rate is 4% in the U.K. and 3% in the U.S. for 90 days. The current spot rate
is $2.00/ and the forward rate is $1.96/. If a U.S. based investor expects the spot rate to
remain at $2.00/ in 90 days, the expected uncovered interest rate differential would
have to be _____ in favor of the _____ investment.
a. 2%; dollar
b. 2%; pound
c. 1%; dollar
d. 1%; pound
Answer:
Developing countries tend to have comparative advantages in:
a. only capital-intensive goods.
b. only skilled-labor-intensive goods.
c. land-intensive and unskilled-labor-intensive goods.
d. both skilled-labor and capital-intensive goods.
Answer:
Consider a two-country two-good model where labor is the only factor of production.
Each country faces an increasing-cost production-possibility curve. In this model the
amounts of both goods that are produced in a country in no-trade situation are
determined by:
a. the relative prices of the goods.
b. the factor endowments in the economy.
c. technology differences between the industries.
d. the aggregate demand in the economy.
Answer:
Which of the following is a drawback of a floating exchange-rate system?
a. Inflation is fully transmitted from one country having a higher rate of inflation to
another one having a relatively lower rate.
b. Monetary policy is ineffective in raising aggregate demand since it cannot be directed
toward achieving internal balance.
c. Overshooting of exchange rates may cause excessive resource shifts into and out of
trade oriented industries.
d. Adverse foreign trade shocks are especially damaging since any intervention by the
central bank adds to the recession.
Answer: