World Trade Organization rules allow a government to take actions to control
environmental damage caused by its own firms’ production.
Answer:
According to the Heckscher-Ohlin theory, if the proportion of labor to capital in a
country is greater than the proportion of labor to capital in the rest of the world, we can
conclude that the country is labor abundant and will have a comparative advantage in
the production of goods that use labor intensively.
Answer:
Analysis of the labor market shows that a receiving country loses economic well-being
from migration.
Answer:
Antidumping duties increase overall economic well-being in a country by protecting the
domestic import-competing firms.
Answer:
NAFTA established processes that have substantially reduced transborder pollution
along the Mexico-U.S. border.
Answer:
Most of the countries that would be customers for natural gas exported from the U.S.
are countries that have free trade agreements with the U.S.
Answer:
In 2007-2011 China was the largest recipient of direct investment flows in the world.
Answer:
Industrialized countries are often alleged to discriminate against exports of
manufactures from developing countries.
Answer:
The euro was introduced in the foreign exchange market on January 1, 1990.
Answer:
If the world price is higher than the no-trade domestic price, then domestic producers
gain and domestic consumers lose as a result of free trade.
Answer:
Under a fixed exchange rate system, the revaluation of the local currency against the
dollar would result in an improvement in the country’s trade balance with the United
States.
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
Calculate the government revenue from the tariff.
a. $250,000
b. $1.25 million
c. $3.5 million
d. $500,000
Answer:
Which of the following resulted in a surge in international lending to developing
countries in the mid-1970s to early 1980s?
a. Oil-exporting countries had a low short-run propensity to save out of their extra
income.
b. The real interest rates in the industrial countries were significantly high.
c. The governments of the developing countries encouraged foreign direct investment
(FDI) and foreign institutional investments (FII).
d. Lending to developing countries gained momentum through ‘herding’ behavior.
Answer:
The figure given below shows the U.S. market for imported wine. For simplicity, we
consider export supply curves to be flat. Chilean wine is available for $480 per barrel
and French wine is available for $420 per barrel.
Suppose that the United States imposes a tariff of $80 per barrel on imported wine.
How many barrels of wine will the United States import and who will they import
from?
a. 15 million barrels from Chile
b. 22 million barrels from France
c. 10 million barrels from France
d. 10 million barrels from Chile
Answer:
The figure given below shows the production possibility curves for Canada (AB) and
the Rest of the World (CD). The opportunity cost of producing one liter of maple syrup
in Canada and in the Rest of the World are _____ bushels and _____ bushels of corn
respectively.
a. 9/7; 2
b. 7/9; 2
c. 9/7; 1/2
d. 7/9; 1/2
Answer:
Exchange rate overshooting suggests that an unexpected increase in the domestic
money supply by 10 percent will cause the short-run exchange rate value of the
domestic currency to:
a. depreciate by more than 10 percent.
b. depreciate by less than 10 percent.
c. appreciate by more than 10 percent.
d. appreciate by less than 10 percent.
Answer:
In a _____ contract you can effectively lock in the price at which you buy or sell a
foreign currency at a set date in the future.
a. securities spot
b. covered arbitrage
c. currency futures
d. spot foreign exchange
Answer:
The figure below shows the foreign exchange market. D is the demand curve for
pounds. S(Spring-summer) and S(Autumn-winter) are the supply curves of pounds
during the spring-summer and autumn-winter seasons, respectively. Over the full year,
what is the social gain if the British government maintains a fixed exchange rate at
$1.90 per pound?
a. 3 billion pounds.
b. 3 billion dollars.
c. 6 billion dollars.
d. 20 billion pounds.
Answer:
Assume you are an American importer who must pay 500,000 euros at the end of 90
days when you receive 1,000 cases of French wine at your warehouse in New York. If
you do not hedge this transaction, you face exchange-rate risk. The best way to remove
the risk of loss due to currency fluctuations is to:
a. buy 500,000 euros in the forward exchange market for delivery in 60 days.
b. buy 500,000 euros now, hold them for 60 days, and then sell them at the spot
exchange rate that exists 60 days from now.
c. sell 500,000 euros in the forward exchange market for delivery after 60 days.
d. sell 500,000 euros now in the spot market.
Answer:
In the case of a small country, the effects of a quota and a tariff are (almost) identical if:
a. the government allocates licenses for free to importers using a rule or process that
involves (almost) no resource cost.
b. the government auctions off import licenses to the highest bidder.
c. the government allocates licenses to importers through application and selection
procedures that require the use of substantial resources.
d. the government allocates import licenses directly to the public using a free lottery
system.
Answer:
Formation of trade blocs can be considered beneficial because it:
a. encourages purchases from higher-cost producers.
b. causes international friction when certain countries are let in the bloc and others are
left out.
c. diverts world trade from low-cost producers to high-cost producers by encouraging
too much trade within blocs.
d. encourages increased total trade by each member country.
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. This information indicates that the United
States:
a. is a relatively capital-scarce country.
b. has a scarcity of land.
c. is a relatively land abundant country.
d. is a relatively capital-abundant country.
Answer:
If a cartel is functioning at full effectiveness, then as a cartel’s marginal cost of
production increases, the cartel’s profit maximizing price:
a. decreases.
b. also increases.
c. remains constant.
d. initially decreases and then increases.
Answer:
_____ refers to purchasing shares in a foreign enterprise largely owned and controlled
by the investor.
a. Official capital flows
b. Direct investment
c. Short-term lending
d. Portfolio investment
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.
After migration of the workers, the workers in North earn _____ per hour and South
workers earn _____ per hour.
a. $6.75; $4.25
b. $8.00; $4.25
c. $6.75; $3.00
d. $8.00; $3.00
Answer:
Floating exchange rates ensure:
a. full employment in the trading countries.
b. domestic price stability.
c. equilibrium in the overall balance of payments.
d. a surplus in the trade balance.
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.
The net gain to the migrants is represented by the area:
a. (a + b).
b. (e + f).
c. (d + e).
d. (a + f).
Answer: