1) if e is the current spot rate (units of home currency per unit of foreign currency),
efwd is the current three-months forward rate, e(e) is the expected spot rate in three
months, and xa is the expected rate of depreciation of the home currency in three
months, then, in an efficient foreign exchange market,
a. e(e) = efwd
b. e = efwd
c. xa = efwd
d. e(e) = e
2) in the following classical-type table showing the output per 10-days of labor input in
each of the two commodities in each of the two countries,
a. germany has a comparative advantage in both goods
b. france has an absolute advantage in both goods
c. france has a comparative advantage in cameras
d. the pretrade price ratio in france is 1 wine = 2.5 cameras
3) given the following ricardo-type table showing the amount of labor input required to
produce one unit of output of each of the two goods in each of the two countries:
a. a post-trade price ratio (terms of trade) of 1 shirt:0.75 machine is a feasible post-trade
price ratio
b. a post-trade price ratio (terms of trade) of 1 machine:0.6 shirt is a feasible post-trade
price ratio and it would give all the gains from trade to france
c. a post-trade price ratio (terms of trade) of 1 machine:0.55 shirt is a feasible post-trade
price ratio and both countries would gain from trade at that price ratio
d. other things equal, if world demand for shirts is much greater than world demand for
machines, then the post-trade price ratio (terms of trade) will tend to settle toward or be
located at 1 shirt:0.6 machine rather than settle toward or be located at 1 shirt:0.5 machine
4) in the williamson target zone plan, the major industrialized countries would negotiate
mutually consistent __________ target exchange rates, and there would be __________
deviation permitted from these target rates.
a. nominal effective; some
b. nominal effective; no
c. real effective; some
d. real effective; no
5) given the following table showing various $/£ exchange rates and the respective
quantities of pounds demanded by u.s. buyers:
$/£ pounds demanded
$2.50/£1 £1,000
$2.00/£1 £1,500
$1.50/£1 £1,800
using the information in the table above, the arc elasticity of demand for pounds
between the $2.50/£1 exchange rate and the $2.00/£1 exchange rate is (ignoring the
negative sign) __________.
a. 0.56
b. 1.33
c. 1.80
d. 2.50
6) other things equal, an export of goods from the united states as a gift to foreigners
would lead to an improvement in the u.s. __________ and to no change in the
__________.
a. merchandise trade balance; balance on current account
b. balance on current account; merchandise trade balance
c. financial account balance; merchandise trade balance
d. merchandise trade balance; balance on goods and services
7)
in the diagram above, if restrictions on capital flows were removed and capital was
allowed to flow from the low-return country to the high-return country, then total output
in country i __________.
a. would increase by the amount of area k2eak1
b. would decrease by the amount of area k2efk1
c. would decrease by the amount of area k2egk1
d. would decrease by the amount of area efg.
8) the paradox of mercantilism reflected that fact that
a. trade surpluses were fostered by protective tariffs
b. rich countries were comprised of large numbers of poor people
c. gold inflows led to higher prices and reduced exports
d. gold could not be hoarded and provide money for the economy at the same time
9) if there is diminishing marginal productivity of labor in production (with other inputs
held constant), an outmigration of labor from low-wage country a to higher-wage
country b will lead, other things equal, to a __________ in per capita income in country
b and __________ in per capita income in country a.
a. rise; also to a rise
b. rise; to a fall
c. fall; also to a fall
d. fall; to a rise
10) if depreciation of a home currency occurs, foreign exporters to the home country
could offset some of the impact of the depreciation by __________ the price/cost ratio
on goods sent to the home country; such a change in the price/cost ratio would mean
that there was __________ pass-through of the exchange rate change to foreign export
prices.
a. decreasing; complete
b. decreasing; less-than-complete
c. increasing; complete
d. increasing; less-than-complete
11) in the table in question #19 above, when trade is taking place among the three
countries, __________ will always be exporting wheat and __________ will always be
exporting clothing.
a. the united states; england
b. england; the united states
c. england; spain
d. spain; the united states
12) 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 loss of
consumer surplus for home consumers because of the imposition of the tariff is
__________.
a. $4
b. $56
c. $121
d. $224
13) under the original bretton woods agreement,
a. countries were to permit absolutely no variation in exchange rates
b. gold was demonetized as an international reserve asset
c. the imf was primarily to engage itself in long-term development loans
d. a country joining the imf was assigned a quota to be paid in gold and the countrys
own currency
14) under the bretton woods system set up at the end of world war ii, exchange rates
were
a. absolutely fixed, i.e., no deviations from parity were permitted
b. permitted to vary 1 percent above or below parity
c. permitted to vary 21/4percent above or below parity
d. permitted to vary 10 percent above or below parity
15) in a target zone system in which the money supply is to be varied in response to
exchange rate variations as the exchange rate hits the ceiling or floor, if a countrys
exchange rate (units of home currency per unit of foreign currency) hits the ceiling, the
monetary authorities would be required to __________ the money supply; this change
in the money supply would be carried out in order to __________ the value of the home
currency.
a. increase; appreciate
b. increase; depreciate
c. decrease; appreciate
d. decrease; depreciate