While international trade will benefit both the importing and exporting country in a
two-country world, the gains from trade in the exporting country must be greater than
the gains from trade in the importing country.
Answer:
Free trade can be expected to cause a decrease in the real incomes of the owners of the
factor used intensively in the import-competing industry.
Answer:
Assume that corn and cloth are each produced using both land and labor in a country.
Corn is relatively land-intensive. If the country experiences an increase in its
endowment of labor, product prices remaining unchanged, the Rybczynski theorem will
predict that the production of corn will decline.
Answer:
Suppose the U.S. government is about to ban the importation of Nicaraguan steel. The
reason cited is that the production of steel contributes to substantial environmental
pollution. At the same time, the U.S. government offers subsidies to domestic steel
producers. Under such a situation WTO rules permit the U.S. government to implement
the ban on the import of Nicaraguan steel
Answer:
The fight over export policy usually focuses on artificial export limits rather than
artificial promotion of exports.
Answer:
A firm is said to operate with constant returns to scale if its input cost increases by four
times when its output is doubled.
Answer:
Any change in the volume of export or import by a small country will have no effect on
its terms of trade.
Answer:
The factor-price equalization theorem implies that laborers will end up earning the same
wage rate in all countries only if the laborers are allowed to migrate between countries.
Answer:
An increase in demand for a good will lead to a larger increase in price if the supply is
relatively elastic.
Answer:
A nation is a borrower if its current account is in deficit at a point in time.
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. Which of the following can be inferred from this figure?
a. Canada has a comparative advantage in the production of wheat.
b. Canada has a comparative advantage in the production of cotton.
c. Canada has an absolute disadvantage in the production of both the goods.
d. Canada has absolute advantage in the production of both the goods.
Answer:
The figure given below depicts the IS-LM-FE model with floating exchange rates.
The shift of the FE curve from FE0 to FE1 was caused by:
a. a contractionary monetary policy.
b. official intervention in the foreign exchange market.
c. an improvement in current account position.
d. an appreciation of the country’s currency.
Answer:
_____ is considered to be the least mobile factor internationally.
a. Labor
b. Capital
c. Entrepreneurship
d. Land
Answer:
Which of the following is NOT a fiscal policy?
a. Increasing tariffs to reduce imports
b. Offering subsidies to export firms
c. Increasing the money supply to expand aggregate demand
d. Lowering personal tax rates to influence labor supply
Answer:
In IS-LM-FE analysis, expansionary monetary policy:
a. leads to lower interest rates.
b. leads to higher interest rates.
c. lowers levels of GDP.
d. shifts the LM curve to the left.
Answer:
A nation is considered to be a(n) _____ in the international market, if its current
account is in deficit.
a. importer
b. exporter
c. borrower
d. lender
Answer:
Which of the following statements is true concerning the global flow of FDI since
1990?
a. The proportion of global FDI that flowed into developing countries increased.
b. Mexico has received more FDI inflows than has the United States.
c. The proportion of global FDI that flowed into the United States increased.
d. FDI flows into the European Union fell.
Answer:
Suppose that the constant marginal cost of producing an automobile is $11,000 in
Canada, $8,000 in the United States, and $12,000 in Japan.
a. Under free trade, would Canada produce its own cars or import them? If it imports,
which country will it import from?
b. If the Canadian government imposes a 100% tariff on all auto imports, would it
produce its own automobiles or import them? If it imports, which country will it import
from?
c. Canada has a tariff of 100% on imported autos. Then Canada decides to join a
customs union with the United States (with a uniform external tariff of 100%). After the
customs union is formed, what will the domestic price of automobiles be in Canada?
d. If Canada decides to join this customs union with the United States, will there be
trade creation, trade diversion, or both? Explain.
Answer:
Which of the following statements about dumping is true?
a. Consumers and import-competing producers in the importing country are both hurt
by dumping.
b. Logically, an import country should never allow seasonal and introductory-price
dumping.
c. Dumping helps to improve the importing country’s terms of trade.
d. Predatory dumping occurs quite frequently in modern markets.
Answer:
Which of the following is true of an economic union?
a. Free movement of resources, but restricted movement of goods among the member
countries
b. The members have a common set of tariffs among themselves but the external tariff
rates are determined independently
c. Free movement of goods, but restricted movement of resources across the member
countries
d. Harmonization of all economic policies in the member countries
Answer:
Dollarization is a method to:
a. increase the country’s seigniorage profit.
b. allow flexibility in the country’s exchange-rate.
c. remove exchange-rate risk.
d. sterilize interventions by the central bank.
Answer:
The currency depreciations and the recessions during the Asian crisis did lead to
improvement in the Asian countries’ current account balances, largely through:
a. increases in exports.
b. decreases in capital outflows.
c. decreases in imports.
d. increases in the rate of inflation in these countries.
Answer:
Under a floating exchange rate regime, in the very short run (before the exchange rate
adjusts), expansionary fiscal policy will lead to:
a. improvement in both current account and financial account.
b. improvement in current account but deterioration in financial account.
c. deterioration in current account but improvement in financial account.
d. deterioration in both current account and financial account.
Answer:
The strongest argument in favor of fixed exchange-rates is:
a. the country’s ability to use independent monetary policy to pursue internal balance.
b. that floating exchange rates are often very volatile, disrupting international trade.
c. the ease of defending fixed exchange rates during speculative attacks.
d. that a fixed exchange rate allows unrestricted flow of financial capital from and into
a country.
Answer:
A(n) _____ in the money supply in a country _____ the domestic interest rates.
a. expansion; increases
b. expansion; decreases
c. contraction; decreases
d. contraction; has no impact on
Answer:
The Heckscher-Ohlin theory predicts that the opening of trade between a land-abundant
country and a labor-abundant country should result in:
a. higher rents and wages in both countries.
b. lower rents and wages in both countries.
c. higher rents in the labor-abundant country and higher wages in the land-abundant
country.
d. higher wages in the labor-abundant country and higher rents in the land-abundant
country.
Answer: