Monetary policy under a fixed exchange rate regime will be:
a. more effective than fiscal policy.
b. more powerful with high capital mobility than with low capital mobility.
c. likely to cause large and persistent deficits.
d. constrained and relatively ineffective.
Answer:
The covered interest differential is _____ the sum of the forward premium on a
currency and the interest rate differential.
a. approximately equal to
b. more than
c. exactly equal to
d. less than
Answer:
Export demand shocks is likely to be least disruptive to a country with:
a. a floating exchange-rate system.
b. a fixed exchange-rate system with sterilization.
c. a fixed exchange-rate system without sterilization.
d. a deficit in the current account.
Answer:
Which of the following groups are positively affected by foreign direct investment
outflows?
a. The home country’s labor unions
b. Tax payers in the home country
c. The home country’s government
d. The owners of the multinationals
Answer:
China has 20% of the world’s population but only 10% of the world’s farmable land.
Which of the following will be predicted by the Heckscher-Ohlin theory, if China
begins to trade with other countries?
a. China will export land-intensive goods like wheat and import labor-intensive goods
like clothing.
b. China will shift resources into the production of agricultural goods and away from
manufactured goods.
c. China will shift resources from the production of agricultural goods to the production
of labor-intensive goods.
d. China will export capital-intensive goods like automobiles and import labor-intensive
goods like clothing.
Answer:
Which of the following crises involved the use of ‘tesobonos’?
a. The 1982 debt crisis
b. The Asian currency crisis in 1997
c. The 2007 global financial crisis
d. The Mexican crisis in 1994
Answer:
International financial freedom:
a. maximizes world product.
b. hurts poor countries.
c. hurts wealthy countries.
d. helps all citizens in both poor and wealthy countries.
Answer:
Which of the following features is common to both perfect competition and
monopolistic competition?
a. An individual firm faces a horizontal demand curve.
b. New firms are free to enter the market in the long-run.
c. Each firm produces a perfectly homogeneous product.
d. The firms earn positive economic profit in the long run.
Answer:
A small country with a marginal propensity to save of 0.30 and a marginal propensity to
import of 0.20 experiences an increase in exogenous spending of $3 million.
a. According to the spending multiplier, by how much will domestic product and
income change?
Answer:
Consider a situation where there is well-behaved international lending between two
countries: Atlantica and Pacifica. Assume that Pacifica is wealthier than Atlantica.
Illustrate this situation using a graph that relies upon the marginal-product of capital
curves to show the possible investments in each country according to the returns the
investments produce. Use the graph to explain the gains to each country from
international lending.
Answer:
Which of the following statements is true?
a. The WTO allows a country to impose a trade restriction on imports of a good because
it was produced using methods that violate the importing country’s environmental
standards.
b. The WTO allows a country to impose an import restriction on a good for health
reasons as long as the country also restricts the domestic production and consumption
of the good.
c. The WTO is the final arbiter of whether goods pose a health or safety risk.
d. The WTO allows countries to pursue environmental protection using policies that
may affect international trade and hence is unable to address the problem of disguised
protectionism.
Answer:
A small country is considering imposing a tariff on imported wine at the rate of $5 per
bottle. Economists have estimated the following based on this tariff amount:
World price of wine (free trade): $20 per bottle
Domestic production (free trade): 500,000 bottles
Domestic production (after tariff): 600,000 bottles
Domestic consumption (free trade): 750,000 bottles
Domestic consumption (after tariff): 650,000 bottles
The imposition of the tariff on wine will cause the surplus of the domestic producers to
_____ by _____.
a. rise; $1 million
b. rise; $500,000
c. fall; $2.5 million
d. rise; $2.75 million
Answer:
As the world moves toward freer trade, the composition of production shifts so that
more environmentally ‘dirty’ products are produced in _____ and more environmentally
‘clean’ products are produced in _____.
a. industrialized countries; developing countries
b. developing countries; industrialized countries
c. both industrialized and developing countries; only industrialized countries
d. developing countries; neither industrialized nor developing countries
Answer:
An economic failure of an embargo is said to have occurred if:
a. the embargo inflicts little damage on the target country but possibly a greater damage
on the imposing country.
b. the target country suffers a greater welfare loss than does the imposing country.
c. the price of the good exported by the imposing country to the target country rises
substantially in the target country when the embargo is imposed.
d. the prices of the embargoed goods do not decline in the imposing country.
Answer:
Which of the following correctly identifies an impact of the opening of trade for an
industry with external economies?
a. Consumers of the product in the exporting country lose consumer surplus.
b. Producers of the product in the importing countries lose producer surplus.
c. Consumers of the product in the importing country lose consumer surplus.
d. Producers of the product in the exporting country lose producer surplus.
Answer:
Assume a two-country, two-good, and two inputs model. Let the two countries in this
model be the United States and the Rest of the World and the two goods being produced
by each of the countries be steel and wheat. The two factors of production used in
producing the goods in each country are capital and land. If the United States is
capital-abundant and steel production is capital-intensive, the Heckscher-Ohlin model
would predict that the Rest of the World would:
a. export steel and import wheat.
b. export wheat and import steel.
c. import both the goods from the United States.
d. export both the goods to the United States.
Answer:
If a country with a relatively high inflation rate maintains a pegged exchange rate
against the currency of a relatively low inflation country:
a. its currency will depreciate.
b. its exports will become more competitive in international market.
c. its currency will sell at a discount.
d. its exports will become less competitive in the international market.
Answer:
A nation is called a creditor if:
a. it provided financial assets to other countries.
b. its net stock of foreign assets is positive.
c. its current account is in surplus during a time period.
d. its current account is in deficit during a time period.
Answer:
For each of the cases given below, indicate what the numerical change means, and state
whether the euro has appreciated or depreciated.
a. The spot exchange rate changes from 450 euros per Mexican peso to 440 euros per
Mexican peso.
b. The spot exchange rate changes from 0.011 Mexican pesos per euro to 0.006
Mexican pesos per euro.
c. The spot exchange rate changes from 1.48 euros per British pound to 1.51 euros per
British pound.
d. The spot exchange rate changes from 0.73 British pounds per euro to 0.75 British
pounds per euro.
Answer:
Which of the following allows the president of the United States to negotiate to
eliminate unfair trade practices put in place by foreign governments?
a. Tariff-quota requirements
b. The General Agreement on Tariffs and Trade
c. Section 301 of the Trade Act of 1974
d. The United Nations
Answer:
The figure given below shows the U.S. market for imported wine. For simplicity, we
consider export supply curves to be flat. Chilean wine is available for $480 per barrel
and French wine is available for $420 per barrel.
Suppose the United States has a tariff of $80 per barrel on imported wine. Then, the
U.S. joins a free trade area with Chile. How much will the U.S. government tariff
revenue change (as a result of joining the free trade area)?
a. Increase by $50 million
b. Decrease by $250 million
c. Increase by $600 million
d. Decrease by $800 million
Answer:
The figure given below represents the U.S. market for steel imports from Korea. The
Korean government provides an export subsidy of $25 per ton, and Korean firms use
the subsidy to reduce their export price to the United States to $375 per ton.
Suppose the United States now imposes a countervailing duty on its steel imports from
Korea to offset the impact of the subsidy provided by the Korean government on its
steel exports. Calculate the change in the national welfare of the U.S. due to the
imposition of this duty.
a. ‘“$375 million
b. +$3.375 billion
c. +$3.75 billion
d. ‘“$4.125 billion
Answer: