Adam Smith’s theory of absolute advantage is based on the labor theory of value.
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Since the 1980s, the United States has been the dominant net lender in the world.
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From 2004 to 2014, global foreign exchange trading more than doubled.
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In a currency swap two parties agree to exchange flows of different bonds during a
specified time period.
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Under monopolistic competition, new firms are barred from entering the industry in the
long run.
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FDI outflows have a positive impact on workers in the home country.
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While China’s exports are consistent with the predictions of the Heckscher-Ohlin
theory, her imports are not.
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The VER is not only a politically attractive way of offering protection to an
import-competing industry, but is also economically much less inefficient than other
trade barriers.
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The production-possibility curve illustrates the consumption preferences of a country’s
population, and explains why all people prefer to be employed rather than unemployed.
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Today, no country fixes its currency to gold.
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The net value of the flow of goods, services, income, and gifts is the current account
balance.
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The greater part of the money assets traded in foreign exchange markets is demand
deposits in banks.
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When a few countries join a trade bloc, it not only expands the market for their firms
but also creates a larger market for the countries outside the bloc.
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Expectations are destabilizing if they are based on the belief that exchange rates
eventually return to the values consistent with basic economic conditions.
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Given the combination of PPP with quantity theory equations, which of the following
statements is true?
a. Everything else remaining unchanged, the price of the foreign currency (e) would be
reduced by an increase in the relative size of the money supply in the domestic
economy.
b. Everything else remaining unchanged, the price of the foreign currency (e) would be
raised by an increase in the relative size of foreign production.
c. As long as the money supplies in the two countries are the same, the exchange rate
will be equal to one
d. The exchange rate would remain unaffected as long as the relative growth in
productivity between the two nations remains constant, even if the relative money
supply varies between the two economies.
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Which of the following is said to occur when a firm with market power uses price
discrimination between markets to increase its total profit?
a. Persistent dumping
b. Cyclical dumping
c. Predatory dumping
d. Seasonal dumping
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Which of the following correctly identifies the impact of the formation of NAFTA on
Mexico?
a. Mexico’s import of financial services and high-tech equipment from the U.S. has
declined.
b. After Mexico joined NAFTA, the average wage rates for the unskilled workers have
declined.
c. Mexican exports of fruits and vegetables to the United States declined substantially.
d. NAFTA allows Mexico to better exploit its comparative advantage based on
low-skilled workers in such products as apparels, food crops, etc.
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The IS curve has a:
a. positive slope because a higher interest rate leads to an increase in foreign investment
and thus raises the level of aggregate income.
b. negative slope because a higher interest rate leads to a decrease in government
spending which reduces domestic output level.
c. negative slope because a higher interest rate leads to a decrease in aggregate demand
that results in lowering of domestic production level.
d. positive slope because a higher interest rate leads to an increase in aggregate savings
and thus an increase in domestic real investment.
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The large net international lender since 1980 has been:
a. the United States.
b. the United Kingdom.
c. Russia.
d. Japan.
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A political failure of a trade embargo is most likely to occur if:
a. the target country is a dictatorship and the dictatorship is jeopardized by retreating
from the policy that provoked the embargo.
b. the target country is a colony of the imposing country and the embargo adversely
affects the imposing country.
c. the country that imposes the embargo has an unstable government.
d. the imposing country is a relatively smaller country than the target country in terms
of trade volume.
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Suppose the domestic supply (QS) and demand (QD) for skateboards in the United
States are given by the following set of equations:
QS = ‘“60 + 3P
QD = 390 ‘“ 2P
In the absence of international trade in skateboards, what will be the equilibrium price
of skateboards in the United States?
a. $66
b. $90
c. $45
d. $150
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Which of the following exists when one person’s activity results in direct costs or
benefits to someone who is not part of the marketplace decision to undertake the
activity?
a. Externality
b. Specificity rule
c. Property rights
d. Marginal cost
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Which of the following is said to occur when a firm lowers its price in order to sell off
excess inventories of a product?
a. Persistent dumping
b. Cyclical dumping
c. Predatory dumping
d. Seasonal dumping
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The exchange rate set for an immediate trade is often referred to as a:
a. managed exchange rate.
b. pegged exchange rate.
c. forward exchange rate.
d. spot exchange rate.
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The figure below shows an IS-LM-FE model for an economy with fixed exchange
rates. Initially the economy is at point A, a triple intersection. Here, the FE curve is
steeper than the LM curve.
If monetary authorities are unable to sterilize, output will end up:
a. at Y1.
b. to the left of Y1.
c. To the right of Y1.
d. at Y0.
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‘High-income countries have a price level which is much higher than the low-income
countries.’ Which of the following is most likely to explain this price differential?
a. With the development process of a nation, its productivity in making traded goods
rises much faster than that in making non-traded goods.
b. Traded goods are much more sensitive to the income levels than are non-traded
goods and services.
c. Prices of non-traded goods and services are relatively stable across high and
low-income nations.
d. Labor involved in production of non-traded goods and services in high-income
nations receive lower wages than the labor producing traded goods.
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If the imposition of tariff on a commodity alters the relative prices of the imposing
country’s exports to its imports, it is referred to as the:
a. total price effect of the tariff.
b. production effect of the tariff.
c. consumption effect of the tariff.
d. terms-of-trade effect of the tariff.
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Which of the following increases the speed at which a cartel’s power erodes?
a. The cartel agreement is more stringent in imposing penalties on the members who
cheat
b. The share of the cartel in the world market increases
c. The price elasticity of competing supplies decreases
d. The product’s price elasticity of demand increases
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If country A has a higher ratio of labor to land than country B, it can be inferred that:
a. country A can produce labor-intensive goods at lower costs than country B.
b. b. country A is a relatively labor-scarce country.
c. c. country B can produce labor-intensive goods at lower costs than country A.
d. d. country B is a relatively labor-abundant country.
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A _____ gives the holder the right but not the obligation to sell a foreign currency at
some time in the future at a price set today.
a. forward exchange contract
b. currency Swap
c. put option
d. call option
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Under a floating exchange rate regime, an expansion in the money supply will:
a. induce financial capital to leave the country.
b. attract financial capital into the country.
c. have no effect on financial account balance.
d. cause a surplus in the official settlement balance.
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In the foreign exchange market, what could be a possible consequence of an increase in
the purchase of stocks of Toyota, a Japanese automobile firm, by the U.S. residents?
a. Demand for dollar will increase
b. Yen will depreciate
c. Dollar will depreciate
d. Supply curve for dollar will shift to the left
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If the balance of payments accounts of a country shows a current account deficit, it
means that:
a. it is acting as a net lender to the rest of the world.
b. its foreign assets are growing slower than its foreign liabilities.
c. its foreign assets are growing faster than its foreign liabilities.
d. its exports are higher than its imports.
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