In the absence of trade, a country produces at a point where its production-possibility
curve is tangent to the highest possible community indifference curve.
Answer:
If markets are perfectly competitive, the free-trade price of a good in an importing
country is expected to be lower than the pre-trade price of the good in that country.
Answer:
Trade among parent and affiliates engaged in different stages of production shows that
foreign direct investment and trade can sometimes be complements.
Answer:
The gains from joining a trade bloc are tied to trade diversion and the losses are tied to
trade creation.
Answer:
Increasing-cost production-possibility curves are bowed out from the origin.
Answer:
When free trade begins, producers in the importing nation gain while producers in the
exporting nation are worse off.
Answer:
The asset market approach seeks to explain exchange rates by focusing on demands and
supplies of national moneys.
Answer:
Adding foreign financial assets to investment portfolios raises the riskiness of the entire
portfolio of investments.
Answer:
If the production of a good creates a negative externality, exports can be damaging to a
nation.
Answer:
If country A is relatively land-abundant and country B is relatively labor-abundant, the
Heckscher-Ohlin theory predicts that country A will export textiles (a relatively
labor-intensive good) and country B will export corn (a relatively land-intensive good).
Answer:
Factor-price equalization theory predicts that post trade the input prices within a
country will equalize.
Answer:
With its rapid growth of production and imports, China can be considered as another
locomotive economy.
Answer:
If it is desirable to enhance the incomes of factors used intensively in the
import-competing industry, then a tariff would actually lower national welfare.
Answer:
If substantial internal scale economies exist, production of a commodity tends to be
concentrated in a few large facilities in a few countries.
Answer:
If markets are competitive, policies that restrict imports are usually harmful to the
importing country while policies that encourage exports are usually beneficial to the
exporting country.
Answer:
Engel’s law is consistent with the proposition that the income elasticity for primary
products is less than unity.
Answer:
Prior to mid-1980s, almost all loans extended by IMF were repaid on time.
Answer:
A trade bloc allows member countries to import from other member countries freely,
but imposes trade barriers against imports from countries outside the bloc.
Answer:
Increases in global temperatures are likely to result in larger economic losses for the
countries in Eastern Europe than for the countries in Asia and Africa that are close to
the equator.
Answer:
Which of the following has overseen the global rules of government policy toward
international trade since 1995?
a. The World Trade Organization
b. The General Agreement on Tariffs and Trade
c. The International Monetary Fund
d. The World Bank
Answer:
Which of the following features does a customs union have?
a. Free trade among those members which have similar economic policies
b. Common set of external tariffs
c. Free movement of factors of production
d. Harmonization of all economic policies
Answer:
Which of the following is a possible benefit of international macroeconomic policy
coordination?
a. International macroeconomic policy coordination gives countries the political cover
to abolish import tariffs and export taxes.
b. International macroeconomic policy coordination gives countries the opportunity to
consider spillover effects on other countries that arise from interdependence.
c. International macroeconomic policy coordination builds a forum where developing
countries can come up with a common political agenda.
d. International macroeconomic policy coordination helps stronger countries to impose
their prescribed economic policies on weaker countries.
Answer:
The following input-requirements data are for country A, a capital-abundant country
where they produce nothing but bread and wine using only capital and labor as inputs.
In the long run, which of the following can most reasonably be inferred after this
country engages in free trade?
a. The wage rates will decline but the returns to capital will increase.
b. The returns to capital will decline but the wage rates will increase.
c. The wage rates will decline in the wine industry and will increase in the bread
industry.
d. The returns to capital will fall in the wine industry and will rise in the bread industry.
Answer:
Which of the following is NOT associated with debt restructuring?
a. Capital controls
b. Debt rescheduling
c. Debt reduction
d. Collective action clauses
Answer:
The following input-requirements data are for country A, a capital-abundant country
where they produce nothing but bread and wine using only capital and labor as inputs.
Following the opening of trade, Country A would probably:
a. export both bread and wine.
b. export wine and import bread.
c. import both the goods.
d. export bread and import wine.
Answer:
The proportionate difference between the current forward exchange rate value of a
currency and its current spot value is the _____ premium.
a. investment
b. frequent exchanger
c. forward
d. currency-option
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. After Canada engages in free trade, it will:
a. produce at point S1 and consume at point C1.
b. produce and consume at point C0.
c. produce at point S1 and consume at point C0.
d. produce and consume at point C1.
Answer:
The pre-1914 gold standard imposed pressure to adjust mostly on countries that
experienced:
a. seasonal fluctuations in export sales.
b. persistent increases in the countries’ holdings of official international reserves.
c. official settlements balance deficits.
d. trade surpluses.
Answer:
The FE curve has a:
a. negative slope because an increase in domestic interest rates leads to capital inflows
causing a surplus in the official settlements balance. A decrease in output levels is thus
needed to reduce that surplus.
b. positive slope because a decrease in domestic interest rates leads to capital outflows
causing a surplus in the official settlements balance. An increase in output levels is thus
needed to reduce that surplus.
c. positive slope because an increase in domestic interest rates leads to capital inflows
causing a surplus in the financial account balance. An increase in output levels is thus
needed to reduce that surplus.
d. negative slope because an increase in domestic interest rates leads to capital outflows
causing a deficit in the financial account balance. An increase in output levels is thus
needed to reduce that deficit.
Answer:
A firm maximizes profits by charging a lower price to foreign buyers if:
a. it has a greater monopoly power in the foreign market than it has in its home market.
b. the foreign demand for its good is more elastic than the domestic demand.
c. the buyers in the home country have access to cheaper imports from the rest of the
world.
d. the size of the foreign market is much larger than the home market.
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
According to this information, which of the following statements is true?
a. Labor is used relatively intensively in the production of cloth.
b. The inputs are used in the same proportion in producing both the commodities.
c. The land to labor ratio in the production of cloth is higher than that in the production
of wheat.
d. The opportunity cost of producing cloth is higher than the opportunity cost of
producing wheat in country A.
Answer:
Which of the following indicates taking an action to reverse the effect of official
intervention on the domestic money supply?
a. Adjusting the country’s interest rates
b. Implementing capital controls
c. Sterilization
d. Playing by the ‘rules of the game’
Answer:
If the use of fossil fuels is harming our nation, according to the specificity rule, the
optimal policy to use to mitigate this harm is to:
a. subsidize research and development on alternate fuel sources.
b. levy taxes on the extraction of coal and petroleum.
c. tax the consumption of fossil fuels.
d. impose tariffs on the importation of fossil fuels.
Answer:
As a result of the North America Free Trade Agreement (NAFTA), the United States
and Canada have shifted to free trade with Mexico. It is assumed that Mexico has an
abundance of unskilled labor while the United States and Canada have an abundance of
skilled labor. According to the Stolper-Samuelson theorem, how this shift will affect the
real wage of unskilled labor in Mexico and the real wage of unskilled labor in the
United States and Canada? Also explain the impact on the real wage of skilled labor in
Mexico and skilled labor in the United States and Canada.
Answer:
There are limits to the ability of monetary authorities to use sterilized intervention in
the case of a surplus because:
a. the central bank may be unwilling to increase its holdings of foreign currency.
b. the pressure from foreign countries to allow the domestic currency to depreciate will
lead to large losses.
c. the central bank’s ability to constantly obtain foreign currency for the sterilized
intervention is constrained.
d. the export level is fixed and it cannot be allowed to drop.
Answer:
Since 1980, developing countries have turned increasingly toward emphasizing:
a. exports of less-skilled-labor-intensive primary goods.
b. imports of less-skilled-labor-intensive agriculture goods.
c. exports of less-skilled-labor-intensive manufactured goods.
d. imports of less-skilled-labor-intensive manufactured goods.
Answer:
Suppose a large country experiences economic growth which results in a reduced
willingness to trade. The country’s terms of trade will _____ because the fall in demand
for imports will cause the price of its exports to _____ relative to the price that it has to
pay for its imports.
a. worsen; fall
b. improve; rise
c. improve; fall
d. worsen; rise
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 world market for good A were perfectly competitive, the price per unit would be
_____ and the industry profits (before subtracting any fixed costs) would be _____.
a. $600; $90.0 billion
b. $600; $22.5 billion
c. $1,000; $50.0 billion
d. $500; $10.0 billion
Answer:
During the 20th century and into the 21st, the U.S. net international investment position
has:
a. been consistently positive.
b. been consistently negative.
c. gone from negative to positive and back to negative.
d. gone from positive to negative and back to positive.
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 an absolute
advantage in the production of _____.
a. neither wine nor cheese
b. only wine
c. both wine and cheese
d. only cheese
Answer:
The world prices of the primary products are less likely to decline if:
a. the government of the countries that export primary products subsidize the
production of these primary products.
b. the production of the primary commodities is increased by a greater proportion than
the increase in their demand.
c. the exporters of the primary products form international cartels.
d. the major importers of the primary products impose high tariff barriers on their
imports.
Answer:
After 2006, why did the cost of new natural gas wells in the U.S. and Canada increase?
a. The amount of natural gas being imported into the U.S. and Canada was increasing.
b. The lowest cost sources of natural gas using standard production technologies had
been exhausted.
c. Government regulations on new natural gas production increased the cost of
production.
d. Natural gas production in other parts of the world decreased thereby increasing
world-wide demand for natural gas.
Answer: