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The table given below shows the number of labor hours required to produce 1 umbrella
and 1 bushel of corn in the U.K. and the Rest of the World. Which of the following
statements is true?
a. The United Kingdom has a comparative advantage in the production of corn.
b. The United Kingdom has an absolute advantage in the production of umbrellas.
c. The United Kingdom has a comparative advantage in the production of umbrellas.
d. The United Kingdom has a comparative advantage in the production of both the
goods.
Answer:
The primary objective of the European Central Bank is to
a. bailout EU countries in financial trouble.
b. assure full employment.
c. maintain price stability.
d. protect EU countries from unfair trade practices.
Answer:
_____ is buying a country's currency spot and selling that country's currency forward,
to make a net profit from the combination of the difference in interest rates between
countries and the forward premium on the country's currency.
a. Covered interest arbitrage
b. Uncovered interest arbitrage
c. Covered interest parity
d. Uncovered interest parity
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. A small country experiencing a balanced growth
b. A large country experiencing a balanced growth
c. A small country experiencing growth biased toward cloth production
d. A large country experiencing growth biased toward wheat production.
Answer:
Under perfect capital mobility and fixed exchange rates, expansionary _____ is a futile
attempt because the _____.
a. fiscal policy; LM curve effectively is vertical.
b. monetary policy; LM curve effectively is the same as the FE curve.
c. fiscal policy; interest rate does not change.
d. monetary policy; IS curve will shift to the left.
Answer:
Argentina's government established a currency board to:
a. signal its commitment to stop the country's hyperinflation.
b. boost its export demand.
c. minimize the impact of large international capital flows.
d. coordinate internal growth policies.
Answer:
The figure given below shows the market for moped imports in the country. DM and SX
are the domestic demand for imports and export supply curves respectively.
As a result of the quota being imposed on moped imports by this country, the world as a
whole will:
a. lose $7 million.
b. gain $10 million.
c. lose $17 million.
d. gain $31.5 million.
Answer:
Which of the following is true of consumer surplus?
a. It is graphically represented as the area under the equilibrium price and above the
supply curve of a good.
b. It is the net gain in economic well-being associated with producing and selling the
equilibrium quantity of a good.
c. It is used to measure the impact of a change in price on the economic well-being of
the producers.
d. It is the difference between the value that one places on a good and the price paid for
the good.
Answer:
One measure that would compensate the sending country for its public investments in
emigrants could be a(n):
a. tax on sending-country product exports.
b. subsidy to sending-country product imports.
c. brain-drain tax.
d. tax on sending-country affiliates of foreign MNEs.
Answer:
The law of one price works well for _____ traded commodities.
a. all
b. rarely
c. heavily
d. domestically
Answer:
_____ is a market structure in which a large number of firms compete vigorously with
each other in producing and selling different varieties of a basic product.
a. Perfect competition
b. Monopoly
c. Oligopoly
d. Monopolistic competition
Answer:
One of the benefits of the European Monetary Union is that the governments of the
member nations:
a. are free to erect trade barriers according to their needs.
b. will be forced to maintain a balanced budget.
c. can eliminate all exchange-rate concerns by participating in EMU.
d. are able to deal with their domestic imbalances independently.
Answer:
Suppose country A, a labor-abundant country, produces only wheat and cloth. The
following equations illustrate the prices and costs of wheat and cloth in the country,
where the numbers indicate the amounts of labor and land needed to produce a unit of
wheat and cloth. '˜w' is the wage rate and '˜r' is the rental rate of land.
Price of wheat = 1w + 2r
Price of cloth = 2w + 1r
If the initial prices of wheat and cloth are $3 per unit, the labor cost per unit of wheat
output is_____ and the rental cost per unit of wheat output is _____.
a. $2; $3
b. $1; $2
c. $3; $2
d. $2; $1
Answer:
Which of the following refers to the extra cost of shifting to more expensive home
production following the imposition of a tariff?
a. Production effect
b. Revenue effect
c. Deadweight loss
d. Producer surplus
Answer:
In international trade jargon, constant cost production-possibility curves are associated
with _____ specialization while increasing cost production-possibility curves are
associated with _____ specialization.
a. no; partial
b. complete; no
c. complete; partial
d. partial; complete
Answer:
The J curve shows that:
a. devaluation is more likely to improve the trade balance in the short-run than in the
long-run.
b. devaluation is more likely to improve the trade balance after a longer span of time
has elapsed.
c. devaluation is likely to be unstable.
d. devaluation is unlikely to improve the trade balance in either the short-run or the
long-run.
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
intervenes in the foreign exchange market, then it can be inferred that:
a. Britain is financing a surplus in its overall balance of payments.
b. the British money supply will rise.
c. Britain is financing a deficit in its overall balance of payments.
d. Britain is gaining official international reserves.
Answer:
The figure given below represents the U.S. market for steel imports from Korea. The
Korean government provides an export subsidy of $25 per ton, and Korean firms use
the subsidy to reduce their export price to the United States to $375 per ton.
Suppose the United States imposes a countervailing duty on the imports of steel at the
rate of $25 per ton. What is the amount of revenue collected by the U.S. government on
account of this countervailing duty?
a. $750 million
b. $3.75 billion
c. $4.125 billion
d. $375 million
Answer:
