A country’s nonofficial financial account balance equals its net foreign investment.
Answer:
The Bretton Woods conference led to the creation of the International Monetary Fund
(IMF).
Answer:
The assignment rule says that, with fixed exchange rates, fiscal policy should be used to
stabilize the balance of payments and monetary policy should be used to stabilize the
domestic economy.
Answer:
For a cartel behaving like a pure monopoly, equating marginal revenue to marginal cost
maximizes profit over and above the perfectly competitive profit.
Answer:
While the U. S. government investigates few claims of dumping, nearly all of the
claims are upheld by the International Trade Commission.
Answer:
One advantage of joining a monetary union is that a member country does not have to
run an independent monetary policy.
Answer:
A country cannot set its own policies toward the international movement of productive
resources.
Answer:
Contractionary fiscal policy with floating exchange rates and very low capital mobility
leads to currency depreciation.
Answer:
Argentina’s experience since 1990 suggests that adopting a currency board imposes
strict discipline on the country’s fiscal policies.
Answer:
If country X has a higher labor productivity than the rest of the world in the production
of a good, then country X has a comparative advantage in the production of the good.
Answer:
The success of the gold standard in the period before World War I is attributed partly to
the high degree of tranquility in global markets.
Answer:
Empirical studies suggest that, during normal times in the past two decades, covered
interest rate parity applies almost perfectly to Eurocurrency markets for major
currencies.
Answer:
When the Japanese imposed a VER on automobile exports in the 1980s, the
environmental conditions in the U.S. improved.
Answer:
The special drawing right (SDR) is a basket of three currencies: the British pound, the
U.S. dollar, and the Japanese yen.
Answer:
Arbitrage ensures that the spot price of the currency will equal the forward price of the
currency.
Answer:
The profits and losses on a futures contract accrue to you daily, as the contract is
‘marked to market’ daily.
Answer:
Import-substituting industrialization policy moves a country toward national
self-sufficiency.
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. If the British government
uses sterilized intervention in the foreign exchange market, then:
a. Britain is gaining official international reserves.
b. Britain will be running a surplus.
c. the British monetary authorities will be selling British government bonds.
d. the British monetary authorities will be buying British government bonds.
Answer:
If the domestic interest rate decreases, with the foreign interest rate and the expected
future spot rate remaining unchanged, the value of the domestic currency vis–vis the
foreign currency is expected to:
a. increase.
b. decrease.
c. remain unchanged.
d. converge to its PPP value.
Answer:
Under a floating exchange rate regime, following an expansion in the money supply,
monetary authorities will:
a. buy foreign currency in the foreign exchange market.
b. buy domestic currency in the foreign exchange market.
c. not intervene in the foreign exchange market.
d. be forced to reverse the monetary expansion.
Answer:
If the expected uncovered interest differential is _____, then the expected overall return
favors uncovered investing in the foreign-denominated currency.
a. positive
b. negative
c. zero
d. unchanged
Answer:
Which of the following statements is accurate?
a. Fiscal policy is not effective with fixed exchange rates in an environment of highly
responsive international capital flows.
b. Fiscal policy is highly effective with fixed exchange rates and unresponsive
international capital flows.
c. Fixed exchange rates greatly constrain a country’s ability to pursue an independent
monetary policy.
d. Contractionary monetary policy is effective under a fixed exchange rate regime.
Answer:
Suppose the domestic supply (QS
U.S.) and demand (QD
U.S)for bicycles in the United
States are given by the following set of equations:
QS
U.S. = 2P
QD
U.S. = 200 ‘“ 2P.
Demand (QD) and supply (QS) in the Rest of the World are given by the equations:
QS = P
QD =160 ‘“ P.
Quantities are measured in thousands and price in U.S. dollars.
In the absence of international trade, _____ thousand bicycles will be sold in the United
States at a per unit price of _____.
a. 50; $50
b. 100; $100
c. 150; $50
d. 100; $50
Answer:
Suppose country A collectively enjoys monopsony power in good X. If country A
imposes a tariff on the imports of good X, the world price of good X will:
a. fall.
b. rise.
c. remain unaffected.
d. become equal to the tariff-inclusive price in country A.
Answer:
The figure given below shows the post-trade production and consumption points in
country Y. AB is the production-possibility curve of country Y. I1 is the community
indifference curve of country Y. Here country Y’s production-possibility curve indicates
that it faces _____ marginal costs of production.
a. constant
b. increasing
c. decreasing
d. fluctuating
Answer:
Assume a two-country two-good two-input model where the following relationships
hold:
(K/L)U.S. > (K/L)ROW
(K/L)automobiles > (K/L)shoes
Where (K/L)U.S. is the capital-labor ratio in the United States, (K/L)ROW is the
capital-labor ratio in the Rest of the World, (K/L)automobiles indicates the capital-labor
ratio in the production of automobiles, and (K/L)shoes indicates the capital-labor ratio in
the production of shoes. Assume further that technology and tastes are the same in the
United States and the Rest of the World. According to the Heckscher-Ohlin model, free
trade between the
United States and the Rest of the World would result in:
a. an improvement in economic well-being in the United States but deterioration of
economic well-being in the Rest of the World.
b. no change in economic well-being in the United States but an improvement in
economic well-being in the Rest of the World.
c. an improvement in economic well-being in both the United States and the Rest of the
World.
d. deterioration of economic well-being in the United States but an improvement in
economic well-being in the Rest of the World.
Answer:
Suppose a labor-abundant country, exporting a labor-intensive good, experiences a
significant increase in its capital stock. This change in endowments can:
a. lead to an immiserizing growth.
b. lead to an increase in the export of labor-intensive goods by the country.
c. lead to a reversal of the country’s trade pattern.
d. lead to reduced growth rates.
Answer:
A small country is considering imposing a tariff on imported wine at the rate of $5 per
bottle. Economists have estimated the following based on this tariff amount:
World price of wine (free trade): $20 per bottle
Domestic production (free trade): 500,000 bottles
Domestic production (after tariff): 600,000 bottles
Domestic consumption (free trade): 750,000 bottles
Domestic consumption (after tariff): 650,000 bottles
Before the tariff is imposed, the country imports _____ bottles of wine, but following
the imposition of the tariff, the country will import _____ bottles of wine.
a. 100,000; 100,000
b. 250,000; 50,000
c. 150,000; 50,000
d. 750,000; 650,000
Answer:
China’s economic growth and emergence as a major exporter was assisted by:
a. opening the country to FDI.
b. restricting inflows of FDI.
c. the use of inward-oriented policies.
d. exploiting a comparative advantage in primary products.
Answer:
The figure given below illustrates the impact of an export subsidy as imposed by a large
country. No imports are permitted.
What is the net impact on the consumer surplus of the export subsidy provided by the
domestic government?
a. The consumer surplus increases by area ‘˜a’.
b. The consumer surplus falls by area (a + b).
c. The consumer surplus falls by area (a + b + e + f + g).
d. The consumer surplus increases by area (a + b + c).
Answer:
Dow Chemical objected to the export of natural gas from the U.S. to foreign countries.
What does the economic analysis of the export of natural gas from the U.S. suggest the
effect of those exports will be for Dow Chemical?
a. The export of natural gas from the U.S. will decrease the supply of natural gas
available to Dow Chemical and other users of large amounts of natural gas and increase
the price of natural gas in the U.S.
b. Dow Chemical does not directly use natural gas, but does use electricity that can be
generated by natural gas, so the effect on Dow Chemical will depends on alternative
means of producing electricity.
c. The transportation costs of exporting natural gas from the U.S. to Asia and Europe
will keep the price of natural gas in the U.S. relatively low, so Dow Chemical will
benefit from that low price.
d. The export of natural gas from the U.S. will eventually deplete U.S. supplies of
natural gas so Dow Chemical will have to find other sources of energy.
Answer:
Which of the following establishes international cooperation to prevent international
trade from endangering the survival of species?
a. The Uruguay Round
b. The CITES
c. The Montreal Protocol
d. The Kyoto Protocol
Answer:
Which of the following will NOT cause the IS curve to shift to the left?
a. A contractionary fiscal policy
b. An exogenous decrease in exports
c. An exogenous decrease in imports
d. An exogenous decrease in household consumption
Answer:
_____ purchasing power parity states that the difference between changes over time in
product-price levels in two countries will be offset by the change in the exchange rate
over this time.
a. Full
b. Partial
c. Relative
d. Absolute
Answer:
Which of the following is true for a multinational enterprise (MNE)?
a. Its affiliates usually get nearly all of their total financing from the direct investment
flows.
b. It usually transfers its liabilities to its foreign subsidiaries.
c. Its domestic tax burden is mostly borne by its foreign affiliates.
d. It usually provides intangible assets to its affiliates for their usage.
Answer:
Under free trade, a large country produces 1 million leather bags per year and imports
another 2 million bags per year at the world price of $60 per bag. Assume that the
country imposes a specific tariff of $5 per bag. As a result, the per-unit price of leather
bags decreases to $58 in the international market and the import of leather bags drops to
1.6 million. The domestic production, on the other hand, increases to 1.1 million.
Following the imposition of the tariff, the domestic consumers pay a price of _____ for
each bag.
a. $60
b. $70
c. $63
d. $65
Answer:
_____ parity is the condition where the expected uncovered differential equals zero.
a. Covered interest
b. Uncovered interest
c. Covered arbitrage
d. Uncovered arbitrage
Answer:
The 1997 Asian crisis first struck in:
a. Thailand.
b. Hong Kong.
c. Singapore.
d. South Korea.
Answer:
International capital-flow shocks to an economy with fixed exchange rates necessitates:
a. an offsetting fiscal policy.
b. devaluation or revaluation of the domestic currency.
c. international borrowing by the domestic government.
d. intervention in the foreign exchange market by the domestic monetary authorities.
Answer:
At the end of 2011, most of the United States’ foreign direct investment was in:
a. the other NAFTA countries.
b. the developing countries in Asia.
c. the European Union countries.
d. the Latin American countries.
Answer:
What is the measure of responsiveness of quantity demanded of a product to a change
in its price? Why is it a negative number for a typical good? With the help of suitable
diagrams, explain the difference between elastic and inelastic demand.
Answer:
Why would winter clothing be produced in countries whose residents have very little
demand for such clothing?
Answer:
Both external and internal factors affect the operation of an MNE. External factors are
outside the immediate control of the firm while internal factors are within the control of
the firm. Give examples for both and discuss how they would affect the operations of
the multinational enterprise.
Answer:
Explain how the debt crisis of 1982 began and ended. What precipitated the crisis?
What brought about an end to the crisis?
Answer:
Why does exchange rate overshooting occur?
Answer: