In Heckscher-Ohlin theory, differences in _____ across countries are considered to be
the basis for comparative advantage.
a. consumer tastes and preferences
b. factor endowments
c. production technologies
d. economic freedom
Answer:
The table given below shows the number of labor hours required to produce 1 umbrella
and 1 bushel of corn in the U.K. and the Rest of the World. The United Kingdom has an
absolute advantage in the production of _____.
a. neither corn nor umbrella
b. both corn and umbrella
c. only corn
d. only umbrella
Answer:
Which of the following states that any trade concession given to any foreign country
must be given to all other countries having the same status?
a. The principle of retaliation
b. The structural adjustment program
c. The most favored nation principle
d. The purchasing power parity theory
Answer:
If a strong, persistent trend in the exchange rate appears to be inconsistent with any
form of economic fundamentals, it is called:
a. exchange rate parity.
b. a speculative bubble.
c. overshooting.
d. uncovered speculation.
Answer:
After the North American Free Trade Agreement (NAFTA) was signed, trade
restrictions between Canada, the United States, and Mexico were eased and
cross-border trade increased. What predictions would the Heckscher-Ohlin model make
concerning the changes in labor-intensive industries such as textiles in both Mexico and
the United States and in capital-intensive industries such as steel in both Mexico and
the United States, as a result of NAFTA?
Answer:
Which of the following is likely to have the most effect on a country’s demand for
imports?
a. Foreign income
b. Prices of domestic products relative to the prices of foreign products
c. The volume of the country’s exports
d. The change in the country’s official settlements balance
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.
Calculate the tariff revenue of the U.S. government.
a. $400,000
b. $40 million
c. $28 million
d. $76 million
Answer:
The figure given below shows a situation where the producers of good X are forming an
international cartel. Here, MR = Marginal Revenue, MC = Marginal Cost, and P =
Price. The cartel use monopoly pricing for its output.
If the producers of good X form a cartel and use monopoly pricing, the price per unit
would be _____ and the industry profits (before subtracting any fixed costs) would be
_____.
a. $500; $10 billion
b. $600; $90 billion
c. $1,000; $60 billion
d. $1,000; $40 billion
Answer:
Which of the following is NOT true of the Uruguay Round of the multilateral trade
negotiations?
a. The Uruguay Round initiated the process of liberalizing trade in services.
b. The Uruguay Round agreements began the process of liberalizing trade in
agricultural products.
c. The Uruguay Round included agreement requiring member countries to provide
minimum levels of ownership protection for intellectual property.
d. The Uruguay Round narrowed down the set of NTB codes as set up by the Kennedy
Round and the Tokyo Round.
Answer:
Import tariffs and non-tariff barriers suggest that:
a. FDI is a substitute for exporting.
b. exporting is preferable to FDI.
c. exporting is preferable to licensing local firms in the foreign markets.
d. such measures restrict the ability of MNEs’ to expand their operations.
Answer:
Which of the following mandates that an import distributor must buy a certain
percentage of the product locally?
a. An import quota
b. A mixing requirement
c. A voluntary export restraint
d. A domestic content requirement
Answer:
The figure given below represents the effects in the labor markets due to migration.
Here the world has been divided into a high-income ‘North’ (left panel) and a
low-income ‘South’ (right panel). Dn and Sn are the labor demand and the labor supply
curves in North. Ds and (Sr + Smig) are the labor demand and pre-migration labor
supply curves in South. Sr is the post-migration labor supply curve in South. The value
c is the cost of migrating.
After the migration, the native employees in North:
a. lose welfare given by area ‘˜a’.
b. gain welfare given by area (a+b).
c. lose welfare given by area (a+b).
d. lose welfare given by area (e + f).
Answer:
The nationally optimal tariff is the tariff for which:
a. the production effect is equal to the consumption effect of the tariff.
b. the government collects the highest tariff revenue.
c. the difference between the government tariff revenue and the sum of consumption
and production effect is the highest.
d. the difference between the part of the tariff paid by the exporters and the welfare loss
associated with the consumption and production effects is the highest.
Answer:
With floating exchange rates, expansionary fiscal policy is more effective in increasing
output when the:
a. FE curve is flatter than the LM curve.
b. FE curve is steeper than the LM curve.
c. FE curve is horizontal and the LM curve is vertical.
d. FE curve coincides with the LM curve.
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 that includes speculating?
a. Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated
financial instruments, and sign a forward exchange contract to sell 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:
Which of the following is NOT a function of the interbank part of the foreign exchange
market?
a. Provides a bank with a continuous stream of information on conditions in the foreign
exchange market
b. Provides a bank the means to readjust its own position quickly and at low cost when
it separately conducts a large trade with a customer
c. Permits a bank to take on a position in a foreign currency quickly if the bank and its
traders want to speculate on exchange-rate movements in the near future
d. Provides clearing services for organizations that prefer to use different currencies
Answer:
The Stolper-Samuelson theorem predicts that free trade between the United States, a
capital-abundant country, and Mexico, a labor-abundant country, would ultimately
result in:
a. higher wages in both countries.
b. lower wages in both countries.
c. higher wages in Mexico and lower wages in the United States.
d. lower wages in Mexico and higher wages in the United States.
Answer:
Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S.
dollar. However, the present situation in the foreign exchange market is conducive for
the British pound to depreciate with respect to the U.S. dollar. Which of the following
interventions will stem the pressures for depreciation of the pound?
a. The government of Britain should sell pounds and buy dollars.
b. The government of Britain should do nothing as a fixed rate will not change.
c. The government of Britain should buy pounds and sell dollars.
d. The government of Britain should increase the country’s money supply.
Answer:
Which one of the following is NOT a way for a country to defend its fixed exchange
rate?
a. Promote real appreciation of the country’s currency
b. Intervene in the foreign exchange market
c. Alter domestic interest rates
d. Impose some form of exchange control
Answer:
Which of the following is most unlikely to lead to a reversal of a country’s trade
pattern?
a. Growth in the country’s endowment of the input that is initially scarce
b. A proportionate increase in output in all the sectors of the economy
c. International diffusion of technology
d. Shifting tastes of the country’s consumers
Answer:
Which of the following financial instruments provides a buyer the right (but not the
obligation) to purchase or sell a fixed amount of currency at a prearranged price, within
a few days to a few years?
a. Letter of credit
b. Currency option
c. Currency swap
d. Forward contract
Answer:
Real domestic investment spending is:
a. positively related to the marginal propensity to consume.
b. negatively related to the level of interest rates in the economy.
c. positively related to government spending.
d. negatively related to the exchange rate.
Answer:
Which of the following is most effective under a fixed exchange-rate regime?
a. Monetary policy if there is a high capital mobility
b. Fiscal policy if there is a low capital mobility
c. Fiscal policy if there is a high capital mobility
d. Monetary policy if there is a low capital mobility
Answer:
Which of the following terms is used to describe an exchange rate regime in which the
rate is fixed to a currency or basket of currencies?
a. Exchange controls
b. Pegged exchange rate
c. Managed float
d. Fully convertible
Answer: