Which of the following indicates the difference between the volume of exports and
imports of a product?
a. Net trade
b. Intra-industry trade
c. Total trade
d. Terms of trade
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.
After the opening of free trade with the Rest of the World, if the world price of the
bicycles settles at $60, the U.S. will:
a. export 40,000 bicycles.
b. export 60,000 bicycles.
c. import 60,000 bicycles.
d. import 40,000 bicycles.
Answer:
The sum of all of the debit items in the balance of payments:
a. equals the overall balance.
b. equals the sum of all credit items.
c. equals ‘˜compensating’ transactions.
d. equals the errors and omissions.
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 the United States has a tariff of $80 per barrel on imported wine. Then, the
U.S. joins a free trade area with Chile. At what price per barrel will the imported wines
be purchased by the U.S. consumers?
a. $420
b. $480
c. $500
d. $560
Answer:
Which of the following statements is true?
a. Monetary policy is a powerful economic tool for a country with fixed exchange rates
and high capital mobility.
b. Under floating exchange rates, external capital-flow shocks can have effects on
internal balance by altering the exchange rate and the country’s international
competitiveness.
c. Fiscal policy for a country with floating exchange rates is more powerful with a high
degree of capital mobility than with a low degree of capital mobility.
d. An expansionary monetary policy tends to increase the exchange rate value of the
domestic currency in the short run.
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.
Based on this information, which of the following statements is true?
a. The inputs are used in the same proportion in the production of both the goods.
b. Bread is a relatively capital-intensive good.
c. Wine is a relatively capital-intensive good.
d. In the absence of trade, the wage rate is lower than the rental rate of capital in this
country.
Answer:
The figure given below shows a shift in the production-possibility curve of a country
from AB to AC. Here, S1 and C1 are the initial production and consumption points
respectively. S2 and C2, on the other hand, are the final production and consumption
points respectively. Which of the following is illustrated by this figure?
a. The mechanism of reversal in trade pattern
b. The validity of the product cycle hypothesis
c. The immiserizing growth effect in a large country
d. The benefits of trade in a small country
Answer:
Most long term external debt of developing countries is:
a. private debt owed by individual citizens.
b. rescheduled debt.
c. debt overhang.
d. sovereign debt.
Answer:
Which of the following is NOT a firm specific advantage of an MNE?
a. Patented technology
b. Marketing capabilities
c. Superior management technique
d. Native understanding of local customs
Answer:
Immiserizing growth is most likely to occur when:
a. the import payments of a country decline relative to its export earnings
b. the increase in population exceeds the increase in national income of a country.
c. the benefits of economic growth are not shared equally by all the residents of the
country.
d. economic growth leads to a deterioration of a country’s terms of trade.
Answer:
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 how many skateboards will be sold
in the United States?
a. 138
b. 258
c. 210
d. 930
Answer:
Assume the standard trade model with two countries (Alpha and Beta), two goods (food
and drink), and two factors of production (land and labor). Further assume that Alpha is
relatively labor-abundant and drink is relatively labor-intensive. Which of the following
is most likely to happen in the long run following the opening of free trade between the
countries?
a. The workers in Alpha will be better off but the land owners will be worse off.
b. The workers in Beta will be better off while the land owners will be worse off.
c. The workers and land owners in the food industry in Beta will be better off while the
workers and landowners in the drink industry will be worse off.
d. The workers and land owners in the food industry in Alpha will be better off while
the workers and landowners in the drink industry will be worse off.
Answer:
Labor productivity refers to:
a. the number of units of output that a worker can produce in one hour.
b. the total number of units of a good that all workers in a firm produce in one day.
c. the number of hours it takes a worker to produce one unit of output.
d. the total numbers of hours it takes all the workers in a firm to produce a given
amount of the output in one day.
Answer:
When external scale economies exist in an industry, new trade opportunities will cause:
a. the consumers in both the exporting and the importing countries to gain.
b. the consumers in the exporting country to gain but the consumers in the importing
country to lose.
c. the consumers in both the importing and exporting countries to lose.
d. the consumers in the importing country to gain but the consumers in the exporting
country to lose.
Answer:
A reason why agricultural cartels are not as effective as OPEC is that non-member
countries can:
a. increase their supply of crops but not their oil supply.
b. decrease their supply of crops but not their oil supply.
c. increase their oil supply but not their supply of crops.
d. decrease their oil supply but not their supply of crops.
Answer:
Consider covered investments between the United States and Japan. If Japanese interest
rates decrease, interest arbitrage operations will most likely result in a(n):
a. increase in the spot exchange price of the yen.
b. increase in the forward exchange price of the dollar.
c. sale of dollars in the forward market.
d. purchase of yen in the spot market.
Answer:
Which of the following is most likely to be allowed under WTO rules?
a. The United States decides to ban the consumption and production of cheese made
from unpasteurized milk in order to guarantee that the food people eat is safe.
b. The United States decides to ban the importation of foreign made cigarettes in order
to reduce lung cancer in the United States, without putting any restriction on the sale of
local cigarettes.
c. Great Britain outlaws non-British cars in an effort to reduce emissions in England,
Scotland, and Wales.
d. Japan bans the importation of American rice because it is thought that American rice
may not be as nutritious as Japanese rice.
Answer:
The rapid accumulation of capital and worker skills in the United States in the 1800’s:
a. resulted in an increase in the export of natural resources by the country.
b. made the United States more dependent on imported minerals.
c. made the United States more self-sufficient and led to a reduction in its trade volume.
d. resulted in rapid deindustrialization in the country.
Answer:
Overshooting occurs when exchange rates:
a. become volatile suddenly.
b. continually diverge away from the long-run equilibrium.
c. adjust faster in the long-run than they do in the short-run.
d. adjust faster in the short-run than they do in the long-run.
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, the Rest of the World produces _____ bales of cotton and _____
bushels of wheat.
a. a. 10; 8
b. b. 4; 16
c. c. 12; 8
d. d. 8; 10
Answer:
Which of the following provides a good explanation of why multinational firms exist?
a. Location factors that favor exporting over foreign production
b. The need to shift financial capital between countries
c. Internalization advantages that favor direct investment over contracting with
independent foreign firms
d. Firms lack inherent knowledge of foreign laws, procedures, and practices.
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. If the U.S. and France engage in
free trade with each other, the international price of cheese will lie between _____ and
_____.
a. 0.5 gallons of wine per pound;1 gallon of wine per pound
b. 2 gallons of wine per pound; 4 gallons of wine per pound
c. 0.25 gallons of wine per pound; 2 gallons of wine per pound
d. 1 gallon of wine per pound; 4 gallons of wine per pound
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 the United States has a tariff of $80 per barrel on imported wine. Then, the
U.S. joins a free trade area with Chile. How many barrels of wine will the United States
import after joining the free trade area?
a. 15 million barrels
b. 22 million barrels
c. 10 million barrels
d. zero barrels
Answer:
Country A produces shoes at a lower cost than the country B. As a result, most of the
shoes purchased in the country B are made in country A. Explain how trading with
country A results in a net gain for country B?
Answer: