1) in view of the theory of optimum currency areas, a country would be a good
candidate for membership in such an area if it had a __________ degree of factor
mobility with other potential member countries of the currency area and if the country
were a relatively __________ economy.
a. low; closed
b. low; open
c. high; closed
d. high; open
2) if, at constant relative prices in a two-commodity and two-factor world, growth in a
countrys labor force causes an expansion in output of the labor-intensive good and a
contraction in output of the capital-intensive good, this situation is an example of the
a. stolper-samuelson theorem
b. rybczynski theorem
c. heckscher-ohlin theorem
d. leontief paradox
3) (this question draws appendix a material.)
in the case of nonhomogeneous goods, the imposition of an import tariff
a. produces a transfer from consumers to producers in the domestic market
b. taxes the domestic product as well as the import product
c. has no impact on the price of the domestic substitute
d. results in deadweight losses in both the domestic market and the import market
4) in the ad/as framework, when the economy is in long-run equilibrium,
a. inflation is occurring
b. the entire labor force is employed
c. actual prices are equal to expected prices
d. actual levels of income and employment are less than the natural levels of income
and employment
5) in a situation of flexible exchange rates, an exogenous increase in foreign interest
rates will cause __________ of the domestic currency and, most likely, a __________
in the domestic interest rate.
a. a depreciation; a rise
b. an appreciation; a rise
c. a depreciation; a fall
d. an appreciation; a fall
6) in the analysis of growth and trade, if a country’s national income growth leads to an
absolute increase in imports but to a slower relative growth in imports than in national
income, this growth pattern is called __________ growth.
a. antitrade biased
b. protrade biased
c. ultra-antitrade biased
d. neutral
7) the following diagram pertains to good x for country a, where da is the demand for x
by a’s consumers, sa is the supply curve of x from as home producers, sb is the
horizontal supply curve of x to country a from country b, sc is the horizontal supply
curve of x to country a from country c, and sb and sc are the horizontal supply curves
from b and c, respectively, with a tariff in place. with the tariffs in place for both
countries b and c, imports of good x into country a are represented by distance
__________.
a. oq6
b. q1q6
c. q2q5
d. q3q4
8) the diagram below shows the demand curve (d) facing a foreign monopoly
supplier of a good to home country i, the associated marginal revenue curve
(mr), and the foreign monopolists marginal cost curve (mc), which equals the
average cost curve (ac). if country i places a tariff of the amount t on the
import of the foreign firms product, the mc curve shifts vertically upward by the
amount of the tariff to (mc + t), which is also (ac + t). given this situation,
which one of the following statements is true?
a. the price of the product when there is no tariff is p2
b. the imposition of the tariff must lead to a net decrease in welfare in country i
c. the imposition of the tariff leads to a net increase in welfare in country i if
area c1c2fg exceeds area p1p2ab
d. the imposition of the tariff leads to a net decrease in welfare in country i if
area p1p2ab exceeds area c1c2hj
9) the is/lm/bp analysis suggests that an external real sector shock, such as a rise in
national income abroad will cause, under fixed exchange rates, a __________ shift in a
home countrys bp curve (assuming that short-term financial capital is not perfectly
mobile), a __________ in the home countrys balance of payments, and __________ in
the home countrys national income.
a. rightward; surplus; an increase
b. rightward; deficit; a decrease
c. rightward; surplus; a decrease
d. leftward; deficit; a decrease
10) if a country’s px/py in autarky is less than the px/py on the world market, then, as the
country moves from autarky to trade, the relative price of good y will __________ for
home consumers. thus, consumers with a strong relative preference for good
__________ would tend to oppose the movement to trade.
a. increase; y
b. increase; x
c. decrease; y
d. decrease; x
11) the following diagram pertains to good x for country a, where da is the demand for x
by a’s consumers, sa is the supply curve of x from a’s home producers, sb is the
horizontal supply curve of x to country a from country b, sc is the horizontal supply
curve of x to country a from country c, and sb and sc are the horizontal supply curves
from b and c, respectively, with a tariff in place.
in the diagram above, suppose that country a, from this initial situation where its tariff
is applied to both countries b and c, now forms a customs union with country c. with the
formation of this customs union, the amount of imports of good x into country a would
be represented by the distance __________.
a. oq6
b. q1q6
c. q2q5
d. q3q4
12) if a u.k. citizen removes funds from a london bank and places them in his/her bank
account in the united states, this deposit into the united states is recorded as a
__________ item in the u.s. balance-of-payments accounts. if, in a different transaction,
a u.k. firm sells a good to a u.s. citizen, this u.k. export (u.s. import) of the good is
__________ item in the u.s. balance-of-payments accounts.
a. debit; also recorded as a debit
b. debit; recorded as a credit
c. credit; recorded as a debit
d. credit; also recorded as a credit
13) you are given the following classical-type table indicating the number of days of
labor input needed to make one unit of output of each of the five commodities in each
of the two countries. assume that the wage rate in england is £20 per day, that the wage
rate in portugal is 40 euros per day, and that the fixed exchange rate is £1 = 3 euros.
matter which good is considered and which country is doing the exporting. with this
addition of transportation costs, england will export good(s) __________ and will
import good(s) __________.
a. a; b, c, d, and e
b. a and d; b, c, and e
c. a; b, c, and e
d. a; b and c
14) global derivative instruments do not include which one of the following?
a. interest rate futures
b. stock market index futures
c. currency options
d. checking accounts in commercial banks
15) suppose that, for a country, its money supply (ms) is at the moment equal to its
demand for money (md). now suppose that the countrys central bank pumps new money
into the economy. the result of this central bank action, other things equal, is that there
will be __________ under flexible exchange rates and a consequent __________ of the
countrys currency.
a. an incipient balance-of-payments surplus for the country; appreciation
b. an incipient balance-of-payments surplus for the country; depreciation
c. an incipient balance-of-payments deficit for the country; appreciation
d. an incipient balance-of-payments deficit for the country; depreciation