An increase in government spending will:
a. shift the IS curve to the left.
b. shift the IS curve to the right.
c. increase the slope of the IS curve.
d. shift the LM curve to the right.
Answer:
Assume a two-country two-good two-input model where the following relationships
hold:
(K/L)U.S. > (K/L)ROW
(K/L)automobiles > (K/L)shoes
Where (K/L)U.S. is the capital-labor ratio in the United States, (K/L)ROW is the
capital-labor ratio in the Rest of the World, (K/L)automobiles indicates the capital-labor
ratio in the production of automobiles, and (K/L)shoes indicates the capital-labor ratio in
the production of shoes. Assume further that technology and tastes are the same in the
United States and the Rest of the World. The relationships shown in here indicate that
the United States has a comparative advantage in the production of _____ while the
Rest of the World has a comparative advantage in the production of _____.
a. both the goods; neither shoes nor automobiles
b. shoes; automobiles
c. automobiles; shoes
d. neither shoes nor automobiles; both of the goods
Answer:
‘China is not a typical developing nation.’ Which of the following economic features is
most likely to justify this claim?
a. China has a large trade deficit with the United States.
b. The Chinese government favors a freely floating exchange rate policy.
c. China has a high national saving rate.
d. The government of China spends a significant portion of its revenue on national
defense.
Answer:
The table given below shows the number of umbrellas and bushels of corn produced in
the United Kingdom and the Rest of the World per labor hour. The United Kingdom has
a comparative advantage in the production of _____.
a. both the goods.
b. neither umbrella nor corn
c. only umbrella
d. only corn
Answer:
If the marginal propensity to save is 0.3 and the marginal propensity to import is 0.2,
then value of the simple spending multiplier is:
a. 2.0.
b. 0.5.
c. 1.5.
d. 0.1.
Answer:
The net value of flows of goods, services, income, and unilateral transfers is described
as the:
a. capital account balance.
b. current account balance.
c. trade balance.
d. official reserve balance.
Answer:
Instead of placing a tariff on the imports of steel, a government has decided to offer
steel workers trade adjustment assistance which will allow them to pre-qualify for
unemployment benefits. Such a policy is consistent with:
a. the dying industry argument.
b. the specificity rule.
c. the infant industry argument.
d. the national pride argument.
Answer:
In which of the following cases does an import quota result in a higher welfare loss than
a tariff?
a. The domestic firms producing an import-competing product set the product’s price
equal to the marginal cost of producing it.
b. The government auctions the import licenses to the highest bidders.
c. The quota licenses are allocated through resource-using application procedures.
d. The domestic industry in the importing country is highly competitive.
Answer:
A debit item in the balance of payments is:
a. any foreign aid received by the country.
b. an item for which the country must pay.
c. any exported item.
d. an item that creates a monetary claim on a foreigner.
Answer:
The figure given below depicts the relationship between the social benefits and social
costs associated with different levels of pollution. The two curves are Social Marginal
Cost (SMC) and Social Marginal Benefit (SMB). The other terminologies are P = Price
of the commodity, MC = Marginal Cost (private), and MB = Marginal Benefit (private).
For pollution level ‘˜a’, _____, therefore the country should _____ pollution.
a. SMB > SMC; increase
b. SMC = SMC; decrease
c. SMB < SMC; increase
d. SMC < MC = P = MB; decrease
Answer:
The figure given below shows the domestic demand (Dd) and supply (Sd) curves of
mopeds in a country before an import quota is imposed by the government. After the
imposition of quota, the total available supply curve becomes Sd + QQ.
After the quota is imposed by the government, the domestic producers:
a. lose $2.5 million.
b. gain $27.5 million.
c. gain $42.5 million.
d. lose $80 million.
Answer:
Free trade may lead to less pollution because:
a. it results in increased production and consumption of goods and services.
b. competition among nations leads to stricter pollution standards.
c. higher income can lead to political pressure on governments to enact tougher
environmental protection policies.
d. imported products are produced using cleaner production techniques than domestic
products.
Answer:
The figure given below shows the national market for mopeds in a country. Dd and Sd
are the domestic demand and supply curves of mopeds respectively.
The figure given below shows the marginal external benefit curve (MEB) of the country
from the production of domestic mopeds.
If there is initially free trade, and then a $50 per unit subsidy is given to the domestic
producers of mopeds, domestic consumption of mopeds would:
a. increase by 100,000 units.
b. decrease by 200,000 units.
c. decrease by 600,000 units.
d. remain unchanged.
Answer:
The figure below shows an IS-LM-FE model for an economy with fixed exchange
rates. Initially the economy is at point A, a triple intersection. Here, the FE curve is
steeper than the LM curve.
Assume that the economy was initially at point A. Which of the following could have
moved the economy to point B?
a. Expansionary monetary policy with sterilization
b. Expansionary monetary policy without sterilization
c. Expansionary fiscal policy with sterilization
d. Contractionary fiscal policy without sterilization
Answer:
The theory which predicts that trade occurs because of differences in the availability of
inputs across countries and the differences in the proportions in which the inputs are
used in producing different products is called:
a. the Stolper-Samuelson theory.
b. the Heckscher-Ohlin theory.
c. the theory of comparative advantage.
d. the theory of absolute advantage.
Answer:
The figure given below shows the domestic demand (Dd) and supply (Sd) curves of
mopeds in a country before an import quota is imposed by the government. After the
imposition of quota, the total available supply curve becomes Sd + QQ.
After the quota is imposed, the domestic consumers:
a. gain $7.5 million.
b. lose $21.25 million.
c. lose $82.5 million.
d. gain $97.75 million.
Answer:
‘Job-seeking immigration brings net economic benefits not only to the immigrants, but
also to the receiving country overall.’ But there are winners and losers within the
receiving country. Who among the following can be considered as a winner within the
receiving country?
a. The workers who compete with the immigrants for jobs
b. The government of the receiving country
c. The consumers who buy the products that the immigrants help to produce
d. None of these options are correct.
Answer:
Which of the following statements is true?
a. A domestic monetary shock is less disruptive with floating exchange-rates.
b. If foreign capital is highly responsive to changes in interest rates, then domestic
spending shocks are less disruptive with fixed exchange-rates.
c. With floating exchange-rates the transmission of business cycles through foreign
trade and repercussion is less than with fixed exchange-rates.
d. International capital-flow shocks have domestic effects under fixed exchange-rates
but not under floating exchange-rates.
Answer:
An export subsidy can be good for a country if:
a. the subsidy allows the country’s only exporting firm to capture the entire world
market.
b. the subsidy decreases the export price so that the export quantity increases.
c. the subsidy is offset by a countervailing duty.
d. the international market for the export product is highly competitive.
Answer:
Which of the following features does a free trade area necessarily have?
a. Absence of any trade barriers among the member nations
b. Equal tariffs rates
c. Free movement of factors of production across the member nations
d. Harmonization of all economic policies
Answer:
Suppose Russia can produce automobiles relatively cheaply, but they have poor gas
mileage and create a great deal of air pollution. The U.S. government, concerned about
the quality of air, would like to see fewer Russian automobiles and more
cleaner-running American automobiles on the road.
a. What is the nature of the market failure that would justify the U.S. government taking
some action against the importation of Russian automobiles?
b. Explain why imposing a tariff is a second best policy to employ in this case and what
policy choice would be more efficient.
Answer:
_____ first presented the product cycle hypothesis.
a. Adam Smith
b. David Ricardo
c. Eli Heckscher
d. Raymond Vernon
Answer:
Which of the following is NOT a reason why we see little international policy
coordination?
a. The policy goals of different countries are often incompatible.
b. The benefits of international policy coordination are likely to be small in most
situations.
c. Governments often have difficulty in delivering on their commitments as part of any
international policy coordination.
d. The interventions by the different governments according to the policy coordination
are usually effective in the very long-run.
Answer: