The figure given below shows the market for shoes in the U.S. The domestic price line
with tariff lies above the international price line. Dd and Sd are the domestic demand
and supply curves of shoes respectively.
The tariff revenue of the U.S. government is shown by area _____.
a. a
b. (a + b)
c. c
d. (b + c + d)
Answer:
A parallel or black market often arises as a result of which of the following?
a. Floating exchange rate regimes
b. Official intervention
c. Exchange controls
d. High domestic interest rates
Answer:
Which country had no antidumping cases until the early 1990s, but became a top
initiator of antidumping cases for the time period 2005-2009?
a. Canada
b. India
c. China
d. United States
Answer:
In 2009, Greece’s fiscal deficit was 16 percent of its GDP, and its debts were 130
percent of its GDP. What did Greece do in response to this situation?
a. Greece had to borrow money from the Federal Reserve System in the U.S.
b. Greece had to issue new bonds to raise money to pay its debts relying on the credit of
the EU rather than on its own credit.
c. Greece decided that it could not afford to borrow money to pay its debts because the
interest rate it would have to pay was so much more than other EU countries were
paying.
d. Greece decided that it had to increase its GDP and adopted a series of measures that
required the expenditure of the equivalent of billions of U.S. dollars to improve its
production efficiency.
Answer:
The figure given below shows the production-possibility curves of Canada (AB) and
the Rest of the World (CD). The pre-trade price ratio in Canada and the Rest of the
World are given by the lines P1 and P3 respectively. The international price ratio faced
by the countries is represented by the line P2. I1 and I2 are the pre-trade and post-trade
social indifference curves for both Canada and the Rest of the World respectively. In the
absence of trade, Canada consumes _____ bales of cotton and _____ bushels of wheat.
a. 20; 3
b. 16; 6
c. 20; 6
d. 12; 11
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.
As a result of migration, the employers in North:
a. lose $131.25 million.
b. gain $31.25 million.
c. gain $162.5 million.
d. lose $100 million.
Answer:
In a country that produces only wine and guns, which of the following is least likely to
lead to biased growth?
a. The amount of usable land has increased substantially.
b. The relaxation of migration laws has led to a huge influx of unskilled workers.
c. The technology used to produce guns improves while the technology used to produce
wine does not change.
d. The relative price of guns in the international market changes.
Answer:
Suppose the average price of a Big Mac in the United States is $3.50 while in Japan the
average price is 400 yen. If the market exchange rate is that 1 dollar is exchanged for
100 yen, the purchasing power parity model of exchange rate determination suggests
that:
a. the yen is overvalued.
b. the yen value is about correct.
c. the price of a Big Mac in Japan will rise.
d. the dollar will depreciate against the yen.
Answer:
The financial account in the U.S. balance of payments includes:
a. everything that is included in the current account.
b. payments of pensions to U.S. citizens who now live in foreign countries.
c. profits that Nissan of America sends back to Japan.
d. new U.S. investments in foreign countries.
Answer:
Cooperation between oligopolistic firms is difficult because:
a. firms gain more through competition.
b. firms rarely have mutual interests.
c. each firm has an incentive to ‘cheat’ on the agreements made.
d. each firm has a monopoly power on its own product.
Answer:
Which of the following groups are negatively affected by foreign direct investment
flows?
a. The host country’s workers
b. The home country’s workers
c. The host country’s government
d. The suppliers of inputs to the affiliates of foreign multinationals
Answer:
Which of the following can be a possible effect on a borrowing nation if the real interest
rate on the loans rises?
a. The fixed costs of nonrepayment can increase
b. There will be a higher incentive to default
c. a default imposes a smaller penalty on the borrower
d. A default imposes a bigger penalty on the borrower
Answer:
Which of the following is true for forward foreign exchange contracts?
a. Common dates for future exchange are 50, 100, and 150 days forward.
b. The actual currency exchange occurs after one week from the stated time period.
c. They are used mostly to offset net asset positions held in the foreign currencies.
d. They can be used for both speculation and hedging.
Answer:
If the spot price of the euro is $1.10 per euro and the 30-day forward rate is $1.00 per
euro, and you believe that the spot rate in 30 days will be $1.05 per euro, then you can
try to maximize speculative gains by:
a. buying euros in the current spot market and selling euros in 30 days at the future spot
rate.
b. signing a forward foreign exchange contract to sell euros in 30 days.
c. signing a forward foreign exchange contract to sell dollars in 30 days.
d. buying dollars in the spot market and selling the dollars in 30 days at the future spot
rate.
Answer:
The greater the marginal propensity to import:
a. the smaller the spending multiplier.
b. the greater the level of investment.
c. the greater is the net export.
d. the smaller is the level of consumption.
Answer:
At free-trade prices, a tennis racquet in country A, a small country, sells for $100 and
contains $40 worth of aluminum inputs and $30 worth of plastic. In country A, the
nominal tariff rates are 40% on tennis racquets, 20% on aluminum, and 10% on plastic.
Based on this information, what is the effective rate of protection for the racquet
industry in country A?
a. 40%
b. 63â…“%
c. 10%
d. 96â…”%
Answer:
According to the developing government argument, tariffs imposed by a developing
country:
a. may benefit the country because they represent an efficient mechanism for collecting
revenue, but will harm the world.
b. can benefit the country by creating net social gains.
c. will be as inefficient as tariffs imposed by developed countries.
d. are likely to represent only a very small fraction of government revenues because the
volume of imports in developing countries is relatively small.
Answer:
_____ was established in 1998, and in 1999 it assumed the responsibility for monetary
policy in the euro area.
a. The IMF
b. The European Union
c. The European Central Bank
d. The European Currency Board
Answer:
Which of these statements about cartel pricing power is true?
a. The more inelastic the market-demand for the cartel’s product, the lower will be the
price that the cartel members can charge to maximize profits.
b. The higher the piling up of unsold inventories, the higher will be the price set by the
cartel members.
c. The larger the share of world production controlled by the cartel, the higher will be
the price set by the members.
d. The greater the elasticity of supply of the non-cartel members, the higher will be the
price set by the cartel members.
Answer:
The theory of comparative advantage was proposed by:
a. Adam Smith.
b. Karl Marx.
c. David Ricardo.
d. Eli Heckscher.
Answer:
The international investment position of a country shows:
a. its stocks of international assets during a time period.
b. its stocks of international liabilities during a time period.
c. its stocks of international assets and liabilities at a point in time.
d. whether its current account is in deficit or surplus at a point in time.
Answer:
A computer programmer working in India relocates to the United States. This is an
example of
a. international outsourcing.
b. factor mobility.
c. cross-border trade.
d. factor intensity reversal.
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.
A declining market share of the cartel would lead to a:
a. rightward shift of the cartel marginal cost curve and a rise in cartel output.
b. rightward shift of the cartel demand curve and a fall in output.
c. leftward shift of the cartel marginal cost curve and a rise in output.
d. leftward shift of the cartel demand curve and a fall in cartel output.
Answer: