1) the situation where a country both exports and imports goods in the same product
classification category is known as __________ trade, and such a trade situation for
countries in the real world is likely to be __________ associated with country per capita
income levels.
a. intra-industry; positively
b. intra-industry; negatively
c. inter-industry; positively
d. inter-industry; negatively
2) in the krugman model of trade where there are economies of scale and monopolistic
competition, which one of the following indicates the situation for the typical firm in
the long run (where p = price of output, q = quantity of output, w = the wage rate, and a
and b are constants that are > 0)?
a. (a + bq)w = p
b. p(a + b) = w
c. (a + bq)w = pq
d. (a + bq)w < pq
3) the price-specie-flow mechanism suggested that
a. a country could easily maintain a balance-of-payments surplus for a long period of
time
b. a deficit country would experience an increase in its money supply and its price level
c. a surplus country would experience an increase in its money supply and its price
level
d. a countrys internal price level has no relation to the countrys foreign trade activities
4) 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. the united kingdom has an absolute advantage in neither good
b. the united states has a comparative advantage in wheat
c. the united states has a comparative advantage in both goods
d. a post-trade price ratio (terms of trade) of 1 wheat:1.5 clothing is a feasible
equilibrium post-trade price ratio
5) suppose that a developing country receives foreign aid in the form of a shipment of
wheat. balance-of-payments accountants in that country would record the debit item in
their accounts as __________ and the credit item as __________.
a. exports of goods; unilateral transfers made
b. unilateral transfers received; imports of goods
c. imports of goods; unilateral transfers received
d. imports of goods; increase in short-term official assets in the developing countrys
banks
6) which of the following does not contribute to a basis for trade between two
countries?
a. different tastes and preferences
b. different technologies
c. different relative factor endowments
d. different absolute factor endowments, but the same relative endowments
7) in the context of david humes price-specie-flow mechanism that challenged the
feasibility of the mercantilist ideas regarding a trade surplus, which one of the
following statements is not correct?
a. there is a decrease in the money supply in the deficit country
b. there is an increase in the price level in the surplus country
c. there is an increase in real income in the surplus country
d. price changes in the surplus country cause that countrys exports to decrease
8) the wall street journal indicated, in its issue of friday, november 9, 2012, that, in late
trading on thursday, november 8, 2012, the spot u.k. pound was selling at a price of
$1.5983 per pound. at the same time, the six-months forward u.k. pound was selling at a
price of $1.5974 per pound. observation of these rates indicates that the u.k. pound was
selling at a six-months forward __________ against the dollar, and, if covered interest
parity had indeed been attained at that time, the conclusion could validly be reached
that interest rates in the united kingdom were __________ than comparable interest
rates in the united states.
a. premium; lower
b. premium; higher
c. discount; lower
d. discount; higher
9) the assumption of constant costs of production in the classical model results in a
__________ production possibilities frontier, and, in the case of a small country,
__________ specialization in production when trade takes place.
a. linear; incomplete
b. concave-to-the-origin; complete
c. convex-to-the-origin; incomplete
d. linear; complete
10) the original monetary unit in the european monetary system (ems) in which
currencies parity values were defined was the
a. european currency unit (ecu)
b. special drawing right (sdr)
c. euro
d. german mark
11) if the u.s. trade pattern is as indicated by the leontief test, this would suggest that
participation in trade rather than in autarky by the united states has __________ the real
return to u.s. capital and __________ the real wage of u.s. labor.
a. increased; also has increased
b. increased; has decreased
c. decreased; has increased
d. decreased; has decreased
12) the simple marshall-lerner condition would suggest that one of the following cases
would produce a worsening of the trade balance if the countrys currency depreciated.
which one? (the negative sign on elasticities is being ignored; also, assume that trade is
initially balanced.)
a. elasticity of demand for exports = 0.8; elasticity of demand for imports = 0.5
b. elasticity of demand for exports = 0.4; elasticity of demand for imports = 0.6
c. demand curve for exports is vertical; demand curve for imports is horizontal
d. elasticity of demand for exports = 0.8; elasticity of demand for imports = 0.1
13) an import quota specifies the __________ amount of a good that can be imported
into a country; a step to becoming more protectionist would involve __________ in the
quota.
a. maximum; a reduction
b. maximum; an enlargement
c. minimum; a reduction
d. minimum; an enlargement
14) which one of the following has not been offered as a possible reason for instability
in exports of less developed countries?
a. high degree of commodity concentration of exports
b. low export demand elasticity coupled with shifting export supply curve
c. low export supply elasticity coupled with shifting export demand curve
d. high export supply elasticity coupled with shifting export supply curve
15)
if a home country depreciates or devalues its currency by 10 percent, and if there is
complete pass-through as well as horizontal supply curves of exports and imports, then the
price of the countrys exports in terms of foreign currency will __________ and the price of
the countrys imports in terms of home currency will __________.
a. not change; rise by 10 percent
b. not change; not change
c. fall by 10 percent; rise by 10 percent
d. fall by 10 percent; not change
16) if we compile data on a countrys exports and imports of goods and services, its
unilateral transfers, and net factor income flows, the resulting net credit or net debit
account would be called that country’s
a. balance of trade
b. balance on current account.
c. financial account balance
d. official reserve transactions balance
17) the leontief paradox refers to the empirical finding obtained by wassily leontief that,
even though the united states was generally thought to be a relatively __________
country, it was found to be __________.
a. capital-abundant; exporting relatively labor-intensive goods and importing relatively
capital-intensive goods
b. labor-abundant; exporting relatively capital-intensive goods and importing relatively
labor-intensive goods
c. skilled-labor-abundant; exporting relatively unskilled-labor-intensive goods and
importing relatively skilled-labor-intensive goods
d. capital-abundant; exporting relatively skilled-labor-intensive goods and importing
relatively unskilled-labor-intensive goods
18) in theory, business cycles are __________ likely to be transmitted from one country
to another under a system of fixed exchange rates than under a system of flexible
exchange rates. it is also a generally-accepted theoretical result by economists that
monetary policy is __________ useful for dampening business cycle activity under a
system of fixed exchange rates than under a system of flexible exchange rates.
a. more; more
b. more; less
c. less; more
d. less; less
19) 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.
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 b. with this customs union
in place, imports into country a are distance __________.
a. q2q5, all of which constitute trade diversion from the non-customs union country
b. q2q5, only part of which constitute trade diversion from the non-customs union
country
c. q3q4, all of which constitute trade diversion from the non-customs union country
d. q1q6, all of which constitute trade diversion from the non-customs union country