Which of the following is true of mercantilism?
a. Mercantilists believed that free trade is always beneficial for the trading nations.
b. Mercantilists believed that under free trade each of the trading countries benefit
equally.
c. Mercantilists believed that a nation does not benefit directly from its exports.
d. Mercantilism believed that national well-being was based on national holdings of
gold and silver.
Answer:
When Adam Smith presented his theory of absolute advantage, he assumed that all
‘value’ in an economy was determined by and measured in terms of the _____ used in
the production of the various goods.
a. area of land
b. labor hours
c. amount of physical capital
d. amount of money
Answer:
The _____ exchange rate incorporates both the market exchange rate and the product
price levels for two countries.
a. nominal bilateral
b. real bilateral
c. nominal effective
d. real effective
Answer:
International trade shocks:
a. have no impact on the countries under fixed exchange rate regimes.
b. are of equal concern to large industrialized countries and to developing countries that
rely on exporting a few primary commodities.
c. include changes in a country’s total exports that result from changes in foreign
consumer tastes.
d. are magnified by the use of tariffs and non-tariff barriers.
Answer:
Suppose country A, a labor-abundant country, produces only wheat and cloth. The
following equations illustrate the prices and costs of wheat and cloth in the country,
where the numbers indicate the amounts of labor and land needed to produce a unit of
wheat and cloth. ‘˜w’ is the wage rate and ‘˜r’ is the rental rate of land.
Price of wheat = 1w + 2r
Price of cloth = 2w + 1r
Suppose country A engages in free trade and the price of cloth increases to $4 per unit.
However, the price of wheat remains unchanged. Under such a situation, the
Stolper-Samuelson theorem will predict that:
a. the real income of the landowners will increase but that of the laborers will remain
unchanged.
b. the purchasing power of the laborers will increase but that of the landowners will
decline.
c. the real income of both the landowners and the laborers will decline.
d. the purchasing power of both the landowners and the laborers will increase.
Answer:
If natural gas produced in the U.S. was exported to countries in Asia and Europe, what
factor would likely increase the price of that natural gas in the importing countries?
a. The U.S. would impose export charges on each unit of natural gas exported and those
charges would be passed along to the importing countries.
b. Exporters in the U.S. would arbitrarily inflate the costs of production so that the
importing countries would pay higher prices.
c. Importing countries would impose tariffs on the imported natural gas and those tariffs
be passed along by exporting companies to importing countries.
d. Natural gas from the U.S. would have to be liquefied and transported in specially-
designed ships to Asia and Europe, so transportation costs would increase the price of
the imported natural gas in Asia and Europe.
Answer:
The demand for money is:
a. positively related to nominal GDP and to the level of interest rates available on other
financial assets.
b. negatively related to nominal GDP and to the level of interest rates available on other
financial assets.
c. positively related to nominal GDP and negatively related to the level of interest rates
available on other financial assets.
d. negatively related to nominal GDP and positively related to the level of interest rates
available on other financial assets.
Answer:
The difference between a country’s purchases of foreign assets minus foreign purchases
of the country’s assets during a period of time is:
a. net official reserves.
b. net domestic investment.
c. net foreign investment.
d. net foreign surplus.
Answer:
Which of the following statements about a trade bloc is accurate?
a. The gains from a trade bloc are shared equally by each member.
b. Increased competition within a trade bloc can result in higher commodity prices in
the domestic markets of the member countries.
c. A trade bloc may lower firms’ costs by allowing them to exploit economies of scale.
d. A trade bloc can increase the opportunities for domestic business investments but
usually repels foreign direct investments into the member countries.
Answer:
Studies comparing growth rates of countries practicing ISI with growth rates of
countries using policies that emphasize expansion of exports have found:
a. little difference in growth rates between the two groups of countries.
b. higher growth rates in those countries using policies that emphasize export
expansion.
c. higher growth rates in those countries practicing ISI.
d. no evidence that either type of policy has been successful.
Answer:
Perfect capital mobility implies:
a. a vertical FE curve.
b. high domestic interest rates relative to foreign interest rates.
c. an FE curve that is horizontal.
d. an FE curve that is steeper than the LM curve.
Answer:
The global financial and economic crisis that began to develop in 2007:
a. arose in industrial countries.
b. arose in developing countries.
c. was worse than the Great Depression of the 1930’s.
d. was the result of a prolonged period of declining wolrd production.
Answer:
During 2001-2004 the European Union had a large trade surplus with China.
Answer:
Technology-based comparative advantage:
a. can help explain how the United States went from being a net exporter of steel to
being a net importer of steel.
b. is totally contradictory to the Heckscher-Ohlin theory of comparative advantage.
c. always results in immiserizing growth.
d. emphasizes that poorer and less industrialized nations cannot compete in world
markets with richer and more industrialized nations.
Answer:
The table given below shows the export and import values of automobiles,
pharmaceuticals, and clothing in country A and country B.
In country B, the product with the highest intra-industry trade (IIT) share is _____ and
the product with the lowest IIT share is _____.
a. automobiles; pharmaceuticals
b. pharmaceuticals; automobiles
c. clothing; automobiles
d. clothing; pharmaceuticals
Answer: