Applied International Economics Exam Practice Tests
Course Introduction
Applied International Economics explores the practical aspects of economic interactions among countries, focusing on trade, investment, and policy analysis. The course examines real-world issues such as international trade theories, exchange rates, balance of payments, globalization, and the impact of government policies on cross-border economic activities. Through case studies, data analysis, and current events, students learn how to apply economic models to understand international markets, evaluate policy decisions, and address challenges facing todays global economy. The course prepares students to interpret and analyze economic phenomena in an interconnected world, equipping them with tools relevant for careers in government, business, and international organizations.
Recommended Textbook
International Economics 15th Edition by Robert Carbaugh
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Page 2
Chapter 1: The International Economy and Globalization
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Sample Questions
Q1) Important trading partners of the United States include Canada,Mexico,Japan,and China.
A)True
B)False
Answer: True
Q2) Open economies have more:
A) competition
B) firm turnover
C) new firms entering the market
D) all of these
Answer: D
Q3) What are the challenges of the international trading system?
Answer: Among the challenges that the international trading system faces are dealing with fair labor standards and concerns about the environment.
Q4) With globalization and import competition,U.S.prices have generally:
A) increased
B) decreased
C) remained stable
D) all of these at various times
Answer: B
Page 3
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Chapter 2: Foundations of Modern Trade Theory: Comparative Advantage
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Sample Questions
Q1) When a nation requires fewer resources than another nation to produce a product,the nation is said to have a:
A) Absolute advantage in the production of the product
B) Comparative advantage in the production of the product
C) Lower marginal rate of transformation for the product
D) Lower opportunity cost of producing the product
Answer: A
Q2) Referring to Figure 2.1,the relative cost of steel in terms of aluminum is:
A) 4.0 tons
B) 2.0 tons
C) 0.5 tons
D) 0.25 tons
Answer: C
Q3) With increasing opportunity costs,a nation totally specializes in the production of the commodity of its comparative advantage; with constant opportunity costs,a nation partially specializes in the production of the commodity of its comparative advantage.
A)True
B)False
Answer: False
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Chapter 3: Sources of Comparative Advantage
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Sample Questions
Q1) The Leontief Paradox was the first major challenge to the product-life-cycle theory of trade.
A)True
B)False
Answer: False
Q2) The Heckscher-Ohlin theory explains comparative advantage as the result of differences in countries':
A) Economies of large-scale production
B) Relative abundance of various resources
C) Relative costs of labor
D) Research and development
Answer: B
Q3) How does Staffan Linder explain world trade patterns?
Answer: Linder offers two explanations of world trade patterns.Trade in primary products conforms well to the factor-endowment theory.However,trade in manufactured goods is best explained by overlapping demand structures among nations.For manufactured goods,the basis for trade is stronger when the structure of demand in two nations is more similar,due to similar per-capita incomes.
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Chapter 4: Tariffs
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Sample Questions
Q1) If we consider the interests of both consumers and producers,then a policy of tariff reduction in the U.S.auto industry is:
A) In the interest of the United States as a whole,but not in the interest of auto-producing states
B) In the interest of the United States as a whole,and in the interest of auto-producing states
C) Not in the interest of the United States as a whole,nor in the interest of auto-producing states
D) Not in the interest of the United States as a whole,but is in the interest of auto-producing states
Q2) A beggar-thy-neighbor policy is the imposition of:
A) Free trade to increase domestic productivity
B) Trade barriers to increase domestic demand and employment
C) Import tariffs to curb domestic inflation
D) Revenue tariffs to make products cheaper for domestic consumers
Q3) With a specific tariff,the degree of protection afforded domestic producers varies directly with changes in import prices.
A)True
B)False
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Page 6
Chapter 5: Nontariff Trade Barriers
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Sample Questions
Q1) Predatory dumping would occur if Toyota Inc.of Japan sells autos to U.S.consumers at lower prices than to Japanese consumers in order to put Chrysler Inc.out of business.
A)True
B)False
Q2) An import quota tends to reduce the overall welfare of the importing nation by an amount equal to the protective effect,consumption effect,and the portion of the revenue effect that is captured by the domestic government.
A)True
B)False
Q3) Consider Figure 5.5.The Japanese export quota's revenue effect totals $1200. A)True
B)False
Q4) Sporadic (distress)dumping would occur if domestic orange producers dispose of an excess quantity of oranges,resulting from an abnormally large harvest,by selling them at lower prices abroad than at home.
A)True
B)False
Q5) Describe some of the differences between tariffs and quotas?
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Chapter 6: Trade Regulations and Industrial Policies
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Sample Questions
Q1) Under the trade adjustment assistance program,a domestic firm or worker can file for governmental assistance only if it demonstrates that it suffered economic hardship due to imports of foreign-subsidized goods.
A)True
B)False
Q2) The Uruguay Round of Multilateral Trade Negotiations accomplished all of the following except:
A) Placed primary emphasis on nontariff trade barriers
B) Is estimated to yield modest gains in world output and employment
C) Achieved cuts in tariffs but not in nontariff trade barriers
D) Abolished all barriers to trade in agricultural products
Q3) For the United States,which organization makes loans to foreign buyers of U.S.manufactured goods?
A) Export-Import Bank
B) Domestic International Sales Corporation
C) Organization for Economic Cooperation and Development
D) Commodity Credit Corporation
Q4) What is the basis for trade adjustment assistance?
Q5) Has industrial policy contributed significantly to Japan's economic growth?
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Chapter 7: Trade Policies for the Developing Nations
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Sample Questions
Q1) Which device has the International Tin Agreement utilized as a way of stabilizing tin prices?
A) Multilateral contracts
B) Export subsidies
C) Buffer stocks
D) Export tariffs
Q2) Consider Figure 7.2.Suppose the supply of tin decreases from S<sub>0</sub> to S<sub>2</sub>.Under a buffer stock system,the buffer-stock manager could maintain the target price by:
A) Purchasing 15 pounds of tin
B) Purchasing 30 pounds of tin
C) Selling 15 pounds of tin
D) Selling 30 pounds of tin
Q3) One factor that has prevented the formation of cartels for producers of commodities is that:
A) The demand for commodities tends to be price inelastic
B) Substitute products exist for many commodities
C) Commodity produces have been able to dominate world markets
D) Production of most commodities is capital intensive
Q4) Are economic downturns helpful to cartels?
Page 9
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Chapter 8: Regional Trading Arrangements
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Sample Questions
Q1) Consider Figure 8.2.If Portugal had formed a customs union with Germany,Portugal's welfare would have decreased by $500.
A)True
B)False
Q2) If Chile and Mexico form a free-trade agreement,the welfare of the two countries will necessarily increase.
A)True
B)False
Q3) Consider Figure 8.1.Suppose Greece had formed a customs union with Germany,rather than France.The value of the trade diversion effect would be:
A) Zero
B) $5
C) $10
D) $15
Q4) As of 1992,the European Union had achieved the monetary union stage of economic integration.
A)True
B)False
Q5) Explain the theory of optimum currency areas.
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Chapter 9: International Factor Movements and Multinational Enterprises
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Sample Questions
Q1) Exxon Oil Co.would undertake forward vertical integration if its retailing division acquired oil wells in the Middle East.
A)True
B)False
Q2) Consider Figure 9.3.Policies that permit Honduran workers to freely migrate to Mexico would likely be resisted by:
A) Mexican capital owners
B) Native Mexican workers
C) Mexican capital owners and native Mexican workers
D) Neither Mexican capital owners nor native Mexican workers
Q3) If the size of the Canadian market is large enough to permit efficient production in Canada,a U.S.firm would profit by establishing a Canadian manufacturing subsidiary or licensing rights to a Canadian firm to manufacture and sell its product in Canada.
A)True
B)False
Q4) What are the typical ways in which multinational enterprises have diversified their operations?
Q5) What are the disadvantages of forming joint ventures?
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Chapter 10: The Balance of Payments
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Sample Questions
Q1) Debt (-)items in the balance of payments correspond to anything that:
A) Involves receipts from foreigners
B) Involves payments to foreigners
C) Increases the domestic money supply
D) Decreases the demand for foreign exchange
Q2) All of the following are credit items in the balance of payments,except:
A) Investment inflows
B) Merchandise exports
C) Payments for American services to foreigners
D) Private gifts to foreign residents
Q3) In a country's balance of payments,which of the following transactions are debits?
A) Domestic bank balances owned by foreigners are decreased
B) Foreign bank balances owned by domestic residents are decreased
C) Assets owned by domestic residents are sold to nonresidents
D) Securities are sold by domestic residents to nonresidents
Q4) Current-account transactions include direct foreign investment,purchases of foreign government securities,and commercial bank loans made abroad.
A)True
B)False
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Chapter 11: Foreign Exchange
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Sample Questions
Q1) Refer to Figure 11.1.At the equilibrium exchange rate of ____ per franc,____ francs will be purchased at a total dollar cost of ____.
A) $.50,5 million,$2.5 million
B) $.50,5 million,$1.5 million
C) $.70,3 million,$2.1 million
D) $.70,7 million,$4.9 million
Q2) Suppose the exchange rate between the Japanese yen and the U.S.dollar is 100 yen per dollar.A Japanese stereo with a price of 60,000 yen will cost:
A) $60
B) $600
C) $6000
D) None of the above
Q3) Refer to Figure 11.3.If the supply curve is represented by S<sub>0</sub>,the equilibrium exchange rate is
A) $1.20
B) $1.00
C) $0.80
D) $0.60
Q4) Where are foreign currency options traded?
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Chapter 12: Exchange-Rate Determination
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Sample Questions
Q1) The purchasing- power-parity theory predicts that if the U.S.inflation rate exceeds the Japanese inflation rate by 4 percent,the dollar's exchange value will appreciate by 4 percent against the yen.
A)True
B)False
Q2) Consider Figure 12.3.The market is initially governed by demand curve D<sub>0</sub> and supply curve S<sub>0</sub>.Suppose US consumers develop stronger preferences for UK made goods,which supply and demand curves depict the new situation?
A) S<sub>1</sub> and D<sub>2</sub>
B) S<sub>2</sub> and D<sub>1</sub>
C) S<sub>0</sub> and D<sub>2</sub>
D) S<sub>0</sub> and D<sub>1</sub>
Q3) High real interest rates in the United States tend to:
A) Decrease the demand for dollars,causing the dollar to depreciate
B) Decrease the demand for dollars,causing the dollar to appreciate
C) Increase the demand for dollars,causing the dollar to depreciate
D) Increase the demand for dollars,causing the dollar to appreciate
Q4) What is the purchasing power parity approach to exchange rate determination?
Q5) What is the asset market approach to exchange rate determination?
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Chapter 13: Mechanisms of International Adjustment
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Sample Questions
Q1) In explaining balance-of-payments adjustments,the classical economists
A) Focused on interest rates exclusively
B) Remained aware of the role of interest rates
C) Only focused their attention on short-term interest rates
D) Paid exclusive attention to long-tem interest rates
Q2) Starting from a position where the nation's money demand equals the money supply,and its balance of payments is in equilibrium,economic theory suggests that the nation's balance of payments would move into a deficit position if there occurred in the nation a:
A) Decrease in the money supply
B) Increase in the money demand
C) Decrease in the money demand
D) None of the above
Q3) Under the classical gold standard,a trade surplus nation would realize gold inflows,an increase in its money supply,rising interest rates,and net investment inflows.
A)True
B)False
Q4) Compared to classical economists,how did Keynesian economics change the discussion of trade adjustment?
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Chapter 14: Exchange-Rate Adjustments and the Balance of Payments
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Sample Questions
Q1) According to the Marshall-Lerner approach,a currency depreciation will best lead to an improvement on the home country's trade balance when the:
A) Home demand for imports is inelastic--foreign export demand is inelastic
B) Home demand for imports is inelastic--foreign export demand is elastic
C) Home demand for imports is elastic--foreign export demand is inelastic
D) Home demand for imports is elastic--foreign export demand is elastic
Q2) The purpose of currency revaluation is to cause an appreciation in a currency's exchange value.
A)True
B)False
Q3) Partial currency pass-through implies that if the dollar's exchange value appreciates by 10 percent,imports would become,say,6 percent more expensive to Americans while U.S.exports would become,say,8 percent cheaper to foreigners.
A)True
B)False
Q4) How do movements in exchange rates affect domestic costs,in the presence of foreign sourcing?
Q5) What is a pass-through relationship?
Page 16
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Chapter 15: Exchange-Rate Systems and Currency Crises
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Sample Questions
Q1) Suppose that Japan maintains a pegged exchange rate that overvalues the yen.This would likely result in:
A) Japanese exports becoming cheaper in world markets
B) Imports becoming expensive in the Japanese market
C) Unemployment for Japanese workers
D) Full employment for Japanese workers
Q2) Most nations currently allow their currencies' exchange values to be determined solely by the forces of supply and demand in a free market.
A)True
B)False
Q3) Unlike floating exchange rates,fixed exchange rates are not characterized by par values and central bank intervention in the foreign exchange market.
A)True
B)False
Q4) Most developing countries have chosen to allow their currencies to float independently in the foreign exchange market.
A)True
B)False
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Chapter 16: Macroeconomic Policy in an Open Economy
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Sample Questions
Q1) Given an open economy with high capital mobility and floating exchange rates,suppose an expansionary fiscal policy is implemented to combat recession.The initial and secondary effects of the policy
A) cause aggregate demand to increase,thus strengthening the policy's expansionary effect on real output
B) cause aggregate demand to decrease,thus eliminating the policy's expansionary effect on real output
C) have conflicting effects on aggregate demand,thus weakening the policy's expansionary effect on real output
D) have conflicting effects on aggregate demand,thus strengthening the policy's expansionary effect on real output
Q2) Assume a system of floating exchange rates.In response to relatively high domestic interest rates,suppose that foreign investors place their funds in domestic capital markets.The result would be
A) a depreciation of the domestic currency and a rise in net exports
B) a depreciation of the domestic currency and a fall in net exports
C) an appreciation of the domestic currency and a rise in net exports
D) an appreciation of the domestic currency and a fall in net exports
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18
Chapter 17: International Banking: Reserves, Debt, and Risk
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Sample Questions
Q1) Debt reduction
A) Refers to any voluntary scheme that lessens the burden on the debtor nation
B) May be accomplished through debt rescheduling
C) May be achieved through debt/equity swaps
D) All of the above
Q2) Why do countries hold international reserves?
Q3) By the 1990s,the British pound had replaced the U.S.dollar as the world's key currency.
A)True
B)False
Q4) International trade and investment are most frequently financed by the U.S.dollar and the:
A) Japanese yen
B) British pound
C) Australian dollar
D) Swiss franc
Q5) A debt buyback is a debt-reduction technique in which a government of a debtor nation buys loans from commercial banks at a discount.
A)True
B)False
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