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1) two important assumptions contained in david humes price specie-flow adjustment
mechanism are that
a. countries are at full employment and the demands for traded goods are inelastic
b. countries are at full employment and the price level of a country moves in inverse
proportion to movements in the countrys money supply
c. a country with a balance-of-payments deficit will experience a gold outflow and
countries are at a level of employment that is below full employment
d. the demands for traded goods are elastic and countries are at full employment
2) in a production-possibilities/indifference curve diagram depicting the movement of a
country from a situation of a uniform tariff against all trading partners to a situation of a
customs union with one trading partner,
a. the country must necessarily move to a higher indifference curve after the formation
of the customs union
b. the country must necessarily move to a lower indifference curve after the formation
of the customs union
c. home production of the countrys export good will increase and home production of
the countrys import good will also increase after the formation of the customs union
d. home production of the countrys export good will increase and home production of
the countrys import good will decrease after the formation of the customs union
3) if, in a demand curve/supply curve graph with the quantity of u.s. exports plotted on
the horizontal axis and the price of u.s. exports in dollars plotted on the vertical axis,
suppose that, from an initial equilibrium position, there is now a depreciation of the u.s.
dollar relative to other currencies. (assume that the supply curve is horizontal.) other
things equal, this depreciation of the dollar would cause the __________.
a. demand curve to shift to the left (or vertically downward)
b. demand curve to shift to the right (or vertically upward)
c. supply curve to shift vertically downward
d. supply curve to shift vertically upward
4) suppose that a 5% depreciation of the u.s. dollar raises the dollar price of a u.s.
import good by 5%. this situation would be characterized as a situation of __________
pass-through (or exchange-rate pass-through), and u.s. consumers of the imported good
would spend a larger dollar amount on the imported good than they did before the
depreciation of the dollar if their demand for the good is __________.
a. complete; inelastic
b. complete; elastic
c. incomplete or partial; inelastic
d. incomplete or partial; elastic
5) the following diagram shows the demand and marginal revenue curves facing a
foreign monopoly supplier of a good to the home country, as well as the firms
horizontal marginal cost curve when there is no tariff by the home country (mc) and the
marginal cost curve when a specific tariff is imposed by the home country (mc + t).
(assume that average cost (ac) equals marginal cost). in this situation, the amount of
former foreign monopoly profit that has been transferred as revenue to the home
countrys government because of the imposition of the tariff is __________.
a. $52
b. $104
c. $120
d. $390
6) in the mercantilist view of international trade (in a two-country world),
a. both countries could gain from trade at the same time, but the distribution of the
gains depended upon the terms of trade
b. both countries could gain from trade at the same time, and the terms of trade were of
no consequence for the distribution of the gains
c. neither country could ever gain from trade
d. one countrys gain from trade was associated with a loss for the other country
7) other things equal, a larger share of a tariff is more likely to be paid by the foreign
exporting country b rather than the domestic importing country a if
a. the supply curve of bs producers is very inelastic
b. the supply curve of as producers is very inelastic
c. the demand curve of bs consumers is very elastic
d. the demand curve of as consumers is very inelastic
8) in the aggregate demand/aggregate supply framework
a. neither expansionary fiscal nor expansionary monetary policy has a permanent
impact on the natural level of income and employment
b. only monetary policy has a long-run impact on income and unemployment under
flexible exchange rates
c. only fiscal policy has a long-run impact on income and employment under flexible
exchange rates
d. only monetary policy has a short-run impact on income and employment under fixed
exchange rates
9) in a two-country world, the terms-of-trade impact of a tariff will definitely improve
the welfare of the tariff-imposing country (assuming no retaliation) if the
tariff-imposing country
a. is a small country
b. already has a tariff rate that is greater than the optimum tariff rate
c. is situated in the elastic portion of its trading partners offer curve
d. is situated in the inelastic portion of its trading partners offer curve
10) given the following diagram that shows the relationship between the price of good x
relative to the price of good y (px/py) and the wage rate relative to the return to capital
or rental rate on capital (w/r), and also indicates relative factor prices in country a
[(w/r)a], relative factor prices in country b [(w/r)b], relative autarky goods prices in
country a [(px/py)a], relative autarky goods prices in country b [(px/py)b], and (w/r)*
[where the (px/py) associated with (w/r)* is the highest (px/py) on the graph]:
at (w/r) values less than (w/r)*, __________ is the relatively labor-intensive good and,
at (w/r) values greater than (w/r)*, __________ the relatively labor-intensive good.
a. good x; good y is
b. good x; good x also is
c. good y; good y also is
d. good y; good x is
11) in the monetary approach to the exchange rate, which one of the following will
cause a depreciation of a's currency relative to b's currency?
a. an increase in the amount of money demanded at each income level in country b
b. an increase in the money supply in country b
c. a fall in real income in country b
d. a decrease in the money supply in country a
12) suppose that a firm is maximizing profit in its home market at output q1 and price
p1 in the following graph:
if the firm now has the opportunity to sell overseas at given world price p2 and the firm
can practice dumping, which one of the following will not happen?
a. total output of the firm will become greater than q1.
b. home market price will rise above p1.
c. the firm will increase its profits by engaging in dumping.
d. the firm will maintain its home market price at p1 and will sell abroad at price p2.
13) if expansionary aggregate demand-oriented macroeconomic policy is to be used to
move the economy towards simultaneous external and internal balance, in which one of
the ollowing situations would the policy indeed move the economy towards the
attainment of both goals?
a. deficit in the current account; unacceptably high unemployment
b. deficit in the current account; unacceptably rapid inflation
c. surplus in the current account; unacceptably high unemployment
d. surplus in the current account; unacceptably high inflation
14) other things equal, with imported intermediate goods, an increase in foreign prices
will lead to a __________ shift in a home countrys short-run aggregate supply curve
and __________ shift in the home countrys aggregate demand curve.
a. leftward; also to a leftward
b. leftward; to a rightward
c. rightward; to a leftward
d. rightward; also to a rightward
15) one hundred basis points in terms of dollars is equal to __________.
a. $0.0001
b. $0.01
c. $0.10
d. $1.00
16) david humes price-specie-flow mechanism
a. reinforced the mercantilist notion that a country could maintain a permanent
favorable balance of trade where exports exceeded imports
b. works more effectively if demands for traded goods are price-elastic rather than
price-inelastic
c. assumed that the countries involved have substantial unemployment
d. works equally effectively whether demands for traded goods are price-elastic or
price-inelastic
17) the general policy rule that states that the appropriate policies for alleviating a
problem are those policies aimed directly at the source of the problem is called
a. the specificity principle
b. the beggar-my-neighbor rule
c. the opportunity cost principle
d. the law of diminishing returns
18) the united states now gives china permanent most-favored-nation (mfn) treatment
[or normal trade relations (ntr)]. this means that the tariff schedules applicable to u.s.
imports from china
a. have lower tariff rates than the rates applicable to other countries to which the united
states grants permanent mfn treatment
b. have the same tariff rates as the rates applicable to other countries to which the united
states grants permanent mfn treatment
c. have lower tariff rates than the rates applicable to any other country sending goods to
the united states
d. have tariff rates of zero percent
19) in the diagram below, under flexible exchange rates, this country has an incipient
balance-of-payments (official reserve transactions) __________; as a consequence, the
bp curve will shift __________.
a. surplus; upward and to the left
b. surplus; downward and to the right
c. deficit; upward and to the left
d. deficit; downward and to the right
