Under a floating exchange rate system, an increase in the international demand for
electronic appliances manufactured in Japan will result in:
a. Deflation in the Japanese economy.
b. An increase in Japan’s trade deficit with other countries.
c. An appreciation of the yen vis–vis other currencies.
d. A depletion of international reserves held by the central bank of Japan.
Answer:
The figure given below shows the post-trade production and consumption points in
country Y. AB is the production-possibility curve of country Y. I1 is the community
indifference curve of country Y. Country Y exports:
a. 50 gallons of wine.
b. 60 pounds of cheese.
c. 40 gallons of wine.
d. 20 pound of cheese.
Answer:
Which of the following is a major benefit of international lending?
a. It allows improvements in the current account balances of the borrowing nations.
b. It requires reducing restrictive trade practices in the lending and the borrowing
countries.
c. It allows countries to reduce taxes in the domestic market.
d. It allows lenders and investors to diversify their investments more broadly.
Answer:
The value of a country’s currency in terms of some other country’s currency is called
_____.
a. the stock exchange
b. the exchange rate
c. the nominal interest rate
d. dollarization
Answer:
If a British businessman sells U.S. government securities to a U.S. buyer, how will this
item be entered in the balance of payments?
a. It will appear in the trade account as an import.
b. It will appear in the trade account as an export.
c. It will appear in the financial account as an increase in foreign assets held by U.S.
residents.
d. It will appear in the financial account as a decrease in the U.S. assets held by
foreigners.
Answer:
Which of the following has been observed in the developing countries during
1990-2012?
a. The dispersion in the growth rates of the developing countries has been negligible
during 1990-2012.
b. The East Asian countries like South Korea, Singapore, and Taiwan reported negative
growth rates.
c. Countries like China and Vietnam reported positive but very low growth rates.
d. Several of the countries in Eastern Europe and Central Asia that were making a
transition from centrally planning to market-based economy reported a decline in the
per capita income.
Answer:
Which of the following is true?
a. Countries that want to have a fixed exchange-rate regime should be willing to refrain
from policy changes that lead to large international capital flows.
b. For a floating exchange-rate to work for a country, it cannot have an inflation rate
that is much above the inflation rate(s) of its primary trading partners.
c. Fixed exchange-rates encourage countries to have different goals, priorities and
policies with respect to macroeconomic variables.
d. If capital is highly mobile, fiscal policy then loses its effectiveness under a fixed
exchange rate.
Answer:
_____ determine(s) which products have been produced within a free-trade area and
which products have been produced outside the area and therefore are subject to trade
barriers.
a. Trade diversion
b. Trade creation
c. Rules of origin
d. The most favored nation principle
Answer:
Under the system of pegged exchange rates, when the domestic currency’s value presses
against the top of its official price range, officials must:
a. sell foreign currency and buy domestic currency.
b. buy foreign currency and sell domestic currency.
c. let the exchange rate change and refrain from intervention in the foreign exchange
market.
d. guide the exchange rate to reach the equilibrium rate.
Answer:
The table given below shows the units of land and labor required to produce a unit of
bread and cheese respectively in country X. If country X is land-abundant, the opening
up of free trade would result in:
a. a decline in the production of both bread and cheese in the country.
b. an increase in the production of bread but a decline in the production of cheese in the
country.
c. an increase in the production of both bread and cheese in the country but production
of bread will rise at a lesser pace than the production of cheese.
d. a decline in the production of bread but an increase in the production of cheese in the
country.
Answer:
Which of the following are accurate findings of recent studies about the effectiveness of
intervention activities?
a. Intervention is often effective for two weeks or less in reversing the direction of the
trend of the exchange rate or reducing the speed of the trend.
b. The effectiveness of the intervention usually continues past the initial two-week
period and can be observed in the trend for months to come.
c. Smaller interventions are usually more successful than larger interventions.
d. The interventions are usually more effective when exercised by individual monetary
authorities rather than by two or more authorities intervening jointly.
Answer:
Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S.
dollar. However, the present situation in the foreign exchange market is conducive for
the British pound to depreciate with respect to the U.S. dollar. If the British government
uses unsterilized intervention in the foreign exchange market, then it is expected that:
a. the British money supply will fall.
b. the British money supply will rise.
c. the British money supply will remain unchanged.
d. Britain is gaining official international reserves.
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 production effect of the tariff on wine is worth
a. $250,000.
b. $500,000.
c. $2.5 million.
d. $2.75 million.
Answer:
Restricting imports into a small country by the government:
a. protects domestic producers from foreign competition.
b. increases consumer welfare in the country.
c. increases the general welfare of the importing nation.
d. increases well-being of the global economy.
Answer:
If the forward premium of the euro is positive, the exchange market’s consensus appears
to be that over the period of a forward contract, the spot exchange rate value of the euro
will:
a. decrease.
b. increase.
c. remain constant.
d. fluctuate randomly.
Answer:
Which of the following is NOT one of the four main arguments in favor of
import-substituting industrialization?
a. The infant industry argument
b. The developing government argument
c. The argument of using cheap and convenient market information
d. The argument of using skilled labor
Answer:
Other fundamental things equal, an increase in the exchange rate value of the domestic
currency will cause the current account to:
a. fluctuate initially.
b. equal the official settlements balance.
c. move toward a long-run surplus.
d. move toward a deficit.
Answer:
Suppose the global market for personal computers is monopolistically competitive. If a
country engages in a two-way trade in personal computers, such trade is usually based
on _____.
a. external scale economies
b. comparative advantage
c. product differentiation
d. constant returns to scale
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 consumers to
_____ by _____.
a. fall; $10 million
b. fall; $250,000
c. fall; $3.5 million
d. rise; $3.5 million
Answer:
Everything else remaining unchanged, when the price of a normal good increases,
consumers:
a. purchase more of the good.
b. purchase less of the good.
c. purchase the same amount of the good.
d. do not purchase any amount of the good.
Answer:
Which of the following will cause the FE curve to shift to the left?
a. An exogenous increase in exports
b. An exogenous increase in imports
c. Exogenous changes that cause an increase in capital inflows
d. A decrease in real domestic product (Y)
Answer:
In 1992, the bilateral agreement of the U.S. with the European Union regarding the
subsidies for production of civil aircraft included that:
a. direct government support for new airplane development are limited to one-tenth of
the total development costs.
b. indirect government support is limited to four percent of a firm’s civil aircraft sales.
c. only production but no marketing subsidies could be provided to the firm.
d. subsidies could only be in the form of loans at a market rate of interest with a short
repayment period.
Answer:
The NAFTA is an example of a(n):
a. free-trade area.
b. customs union.
c. common market.
d. economic union.
Answer:
If a country with high unemployment, a balance of payments deficit, and fixed
exchange rates decides to abandon it fixed exchange rate and allow its exchange rate to
float, which among the following will be a probable effect?
a. Its currency will depreciate, increasing international competitiveness and leading to
higher aggregate demand and an improvement in the current account.
b. Its currency will appreciate, increasing international competitiveness and leading to
higher aggregate demand and an improvement in the current account.
c. Its currency will depreciate, decreasing international competitiveness and leading to
lower aggregate demand and an improvement in the current account.
d. Its currency will appreciate, decreasing international competitiveness and leading to
lower aggregate demand and a worsening of the current account.
Answer:
Concerning the covering of exchange rate risks, assuming that a depreciation of the
domestic currency is feared, one can say that there is an incentive for:
a. exporters to rush to cover their future needs.
b. importers to rush to cover their future needs.
c. both exporters and importers to rush to cover their future needs.
d. monetary authorities to rush to cover their future needs.
Answer: