Everything else remaining unchanged, the effect of domestic spending shocks on a
country with a floating exchange rate differs depending on:
a. whether sterilized intervention is used or not.
b. the mobility of capital across countries.
c. the current trade balance situation of the country.
d. the interest rate differential between the country and its trading partners.
Answer:
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. If the U.K. and the Rest of
the World begin to trade with each other, the international price of corn will lie between
_____ and _____.
a. 1/3 of an umbrella per bushel of corn; 3 umbrellas per bushel of corn
b. 3 umbrellas per bushel of corn; 8 umbrellas per bushel of corn
c. 1/8 of an umbrella per bushel of corn; 1/3 of an umbrella per bushel of corn
d. 1/8 of an umbrella per bushel of corn; 8 umbrellas per bushel of corn
Answer:
Which of the following is on a path toward full economic unity?
a. The NAFTA
b. The EU
c. The MERCOSUR
d. The CAFTA
Answer:
In the figure given below AB is the production-possibility curve of Canada. In the
absence of trade, the price ratio is 1 bushel of wheat/bale of cotton as shown by the line
PQ. The international price ratio is 0.25 bushels of wheat/bale of cotton as shown by the
line RS. I1 and I2 are the pre-trade and the post trade community indifference curves of
Canada respectively. In the absence of trade Canada will:
a. produce and consume at point S1.
b. produce and consume at point C0.
c. produce at point S1 and consume at point C0.
d. produce and consume at point C1.
Answer:
A credit item in the balance of payments is:
a. an item for which the country must be paid.
b. any loan given out by the country.
c. any imported item.
d. an item that creates a monetary claim owed to a foreigner.
Answer:
Which of the following suggests that labor markets work less efficiently in the
developing countries?
a. The laborers are paid according to their marginal product and not according to the
average product.
b. The minimum wage for the unskilled laborers in the developing countries is much
lower compared to that in the developed countries.
c. There is an excess supply of skilled labor in the developing countries.
d. The wage gaps between the expanding and the declining sectors are greater than in
the higher-income countries.
Answer:
Which of the following is true of capital controls?
a. They cannot be used to maintain a fixed exchange rate.
b. They are socially inefficient methods of maintaining a fixed exchange rate.
c. They can be optimal when a disequilibrium is fundamental.
d. They are key to the success of a fixed exchange rate regime.
Answer:
Suppose that the domestic production of computer games creates enjoyment for those
who play the games. Domestic production of computer games also results in knowledge
spillovers that positively impact many other industries. One possible policy that could
be employed to encourage increased production of computer games by domestic firms
is:
a. to impose tariffs on computer game imports.
b. to tax the production of computer games.
c. to tax the consumption of computer games.
d. to eliminate all restrictions on the importation of computer games.
Answer:
Which of the following statements is incorrect?
a. In a first-best world, import-competing firms that are struggling to stay in business
would be allowed to go out of business and workers would find jobs in other industries.
b. If we want to help workers who lose jobs when a domestic industry shrinks, the
specificity rule suggests that the government should provide subsidies to those workers
to relocate to areas where jobs are available.
c. According to the protectionists, the most efficient policy to save jobs in the
import-competing industries is to impose barriers on imports.
d. In a first-best world, if rising import competition is driving domestic producers out of
business, the government must intervene to protect the domestic firms.
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 migration cost on a per hour basis is:
a. $4.25.
b. $6.75.
c. $2.50.
d. $3.00.
Answer:
The combined size and income effects of the Uruguay Round tend to:
a. decrease nitrogen dioxide emissions in European Union and Japan.
b. increase carbon monoxide emissions in developed countries.
c. increase pollution levels in developing countries.
d. decrease sulfur dioxide and carbon monoxide emissions in developing countries.
Answer:
Which of the following is NOT one of the rules for a gold standard?
a. Each country should fix the value of its currency in terms of gold.
b. Capital controls should be used to conserve each country’s gold holdings.
c. There should be an unrestricted flow of gold between countries.
d. The central bank in each country should hold gold reserves in a direct relationship to
the currency it issues.
Answer:
An industry in which a few firms cater to the entire market is called:
a. a monopoly.
b. an oligopoly.
c. a perfect competition.
d. a monopsony.
Answer:
Which of the following is considered a capital inflow?
a. A sale of U.S. financial assets to a foreign buyer
b. A loan from a U.S. bank to a foreign borrower
c. A purchase of foreign financial assets by a U.S. buyer
d. A U.S. citizen’s repayment of a loan from a foreign bank
Answer:
The _____ approach to exchange rates emphasizes the importance of the supply and
demand for money as a key to understanding the determinants of exchange rates.
a. purchasing-power-parity
b. asset market
c. monetary
d. balance of payments
Answer:
The figure given below illustrates the market for British pounds. D and S are the
demand and supply curves of the British pounds respectively.
At an exchange rate of $2.50 per pound, there is an:
a. excess demand for 1 million pounds.
b. excess supply of 1 million pounds.
c. excess demand for 0.5 million pounds.
d. excess supply of 0.5 million pounds.
Answer:
Given the limits of international cartel power, one alternative for a developing country
to put upward pressures on the world prices of its primary product exports is to:
a. tax its primary-product exports.
b. impose tariffs on primary-product imports.
c. subsidize its primary product exports.
d. subsidize its manufacturing imports.
Answer:
Which of the following is an impact of tariffs on the country imposing them?
a. The domestic producers of import-competing products are forced to charge a lower
price for their products to retain market share.
b. The supply of the domestic import-competing products declines.
c. The domestic consumers pay a higher price for the imported products.
d. The demand for the imported goods by the domestic consumers increases.
Answer:
With free trade, if country X is relatively labor abundant and relatively land scarce and
country Y is relatively labor scarce and relatively land abundant, the factor-price
equalization theorem predicts that:
a. rents will rise in country X and fall in country Y until they equalize.
b. wages will rise in country X and fall in country Y until they equalize.
c. rents will fall in country Y but will remain unchanged in country X.
d. wages will increase in country Y but will remain unchanged in country X.
Answer:
Assume that country X produces two goods’“sugar and shoes’”and that the country’s
production possibility curve is ‘bowed-out.’ As the country produces more sugar the
opportunity cost of sugar in terms of shoes foregone will:
a. increase.
b. decrease.
c. initially increase and then decrease.
d. remain unchanged.
Answer:
Other fundamental things equal, a decrease in the exchange rate value of domestic
currency will cause the current account to:
a. fluctuate initially.
b. equal the official settlements balance.
c. move toward a surplus.
d. move toward a long-run deficit.
Answer:
Which of the following is the formula for the intra-industry trade (IIT) share in a
product’s total trade?
a. 1 ‘“ |X ï€ M|
b. 1 ï€ (X + M)
c. 1 ‘“ [ |X ï€ M| / (X + M)]
d. 1 ‘“ [ |X + M| / (X ï€ M)]
Answer:
If a country with a fixed exchange rate faces a fundamental disequilibrium because it
has a large, ongoing surplus in it official settlements balance, which of the following
policies can it employ to try to achieve external balance?
a. Impose import barriers
b. Raise interest rates
c. Allow the exchange rate to float
d. Obtain a loan from the IMF
Answer: