Applied International Economics
Exam Questions
Course Introduction
Applied International Economics examines the principles and real-world applications of international trade and finance. The course explores key concepts such as comparative advantage, trade policy, exchange rates, balance of payments, and the effects of globalization on economies. Students analyze empirical case studies, current international economic issues, and the impact of government interventions on trade flows and global markets. By integrating theoretical frameworks with practical scenarios, the course equips students with the analytical tools needed to evaluate and address complex issues in the international economic environment.
Recommended Textbook
International Finance Theory and Policy 10th Edition by Paul R. Krugman
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12 Chapters
706 Verified Questions
706 Flashcards
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) The international debt crisis of early 1982 was precipitated when ________ could not pay its international debts.
A) Russia
B) Mexico
C) Brazil
D) Malaysia
E) China
Answer: B
Q2) Since 1994,trade rules have been enforced by A) the WTO.
B) the G10.
C) the GATT.
D) The U.S. Congress.
E) the European Union.
Answer: A
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Chapter 2: National Income Accounting and the Balance of Payments
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Sample Questions
Q1) You travel to Paris and pay for a $100 dinner with your credit card.How is this accounted for in the balance of payments?
A) current account, French service import
B) current account, U.S. good export
C) financial account, U.S. asset export
D) financial account, U.S. asset import
E) financial account, French asset export
Answer: C
Q2) The United States began to report its gross domestic product (GDP)only since A) 1900.
B) 1921.
C) 1931.
D) 1941.
E) 1991.
Answer: E
Q3) "The Balance of payments is always balances." Discuss.
A)True
B)False
Answer: True
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Chapter 3: Labor Productivity and Comparative Advantage:
The Ricardian Model
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Sample Questions
Q1) If one country's wage level is very high relative to the other's (the relative wage exceeding the relative productivity ratios),then if they both use the same currency
A) neither country has a comparative advantage.
B) only the low wage country has a comparative advantage.
C) only the high wage country has a comparative advantage.
D) consumers will still find trade worth while from their perspective.
E) it is possible that both will enjoy the conventional gains from trade.
Answer: E
Q2) If the United States' production possibility frontier was flatter to the widget axis,whereas Germany's was flatter to the butter axis,we know that
A) the United States has no comparative advantage
B) Germany has a comparative advantage in butter.
C) the U.S. has a comparative advantage in butter.
D) Germany has comparative advantages in both products.
E) the U.S. has a comparative disadvantage in widgets.
Answer: B
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Chapter 4: Specific Factors and Income Distribution
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Sample Questions
Q1) In the specific factors model,the effects of trade on welfare are ________ for mobile factors,________ for fixed factors used to produce the exported good,and ________ for fixed factors used to produce the imported good.
A) ambiguous; positive; negative
B) ambiguous; negative; positive
C) positive; ambiguous; ambiguous
D) negative; ambiguous; ambiguous
E) positive; positive; positive
Q2) U)S.imports of sugar are limited by an import quota that,according to a study updated in 2013,imposed a total cost on American consumers close to $________,or an average cost of ________ per year for every man,woman,and child in the country.
A) $3 billion; $10
B) $105 million; $3
C) $2 billion; $110
D) $3 billion; $2,000
E) $370 million; $2,000
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Chapter 5: Resources and Trade: The Heckscher-Ohlin Model
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Sample Questions
Q1) Use the diagram above to identify the pre-trade situation for Australia and Sri-Lanka.Where on the K/L axis will you find each of the two countries? Which of the two countries has a higher relative wage,w/r? Which product is the labor intensive,and which is the land intensive one? Show where the relative price of cloth to food will be found once trade opens between these two countries.Show where the relative wages of each will appear.
Q2) Starting from an autarky (no-trade)situation with Heckscher-Ohlin model,if Country
H is relatively labor abundant,then once trade begins
A) wages should rise and rents should fall in H.
B) wages and rents should rise in H.
C) wages and rents should fall in H.
D) wages should fall and rents should rise in H.
E) rent will be unchanged but wages will rise in H.
Q3) "No country is abundant in everything." Discuss.
Q4) Why are prices of factors of production NOT equalized?
Q5) Refer to above figure.Would you expect to find that the real wages become equalized in both countries? Explain the reason for any differences you note.
Page 7
Q6) "A good cannot be both land- and labor-intensive." Discuss.
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Chapter 6: The Standard Trade Model
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Sample Questions
Q1) International borrowing and lending may be interpreted as one form of A) intertemporal trade.
B) intermediate trade.
C) trade in services.
D) unrequited international transfers.
E) aid to offset trade advantages.
Q2) Refer to above figure.Now,suppose that the relative price of A is actually not higher than Albania's autarkic level of 1,but quite the opposite (e.g.,PA/PB = 0.5).Would Albania still be able to gain from trade? If so,where would be its production point? Given the information in this question,where is Albania's comparative advantage?
Q3) What is intertemporal comparative advantage?
Q4) If the ratio of price of cloth (PC)divided by the price of food (PF)increases in the international marketplace,then
A) world relative quantity of cloth supplied will increase.
B) world relative quantity of cloth supplied and demanded will increase.
C) world relative quantity of cloth supplied and demanded will decrease.
D) world relative quantity of cloth demanded will decrease.
E) world relative quantity of food will increase.
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Page 8
Chapter 7: External Economies of Scale and the
International Location of Production
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Sample Questions
Q1) If a firm's output doubles when all inputs are doubled,production is said to occur under conditions of
A) increasing returns to scale.
B) imperfect competition.
C) intra-industry equilibrium.
D) constant returns to scale
E) decreasing returns to scale.
Q2) If a firm's output less than doubles when all inputs are doubled,production is said to occur under conditions of
A) increasing returns to scale.
B) imperfect competition.
C) intra-industry equilibrium.
D) constant returns to scale
E) decreasing returns to scale.
Q3) Why are increasing returns to scale and fixed costs important in models of international trade and imperfect competition?
Q4) What is meant by an "industrial district" and what are the three main sources of the economic advantages derived from locating in such a district?
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Chapter 8: Firms in the Global Economy: Export
Decisions,Outsourcing,and Multinational Enterprises
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Sample Questions
Q1) Consider the following two cases.In the first,a U.S.firm purchases 18% of a foreign firm.In the second,a U.S.firm builds a new production facility in a foreign country.Both are ________,with the first referred to as ________ and the second as ________.
A) foreign direct investment (FDI) outflows; greenfield; brownfield
B) foreign direct investment (FDI) inflows; greenfield; brownfield
C) foreign direct investment (FDI) outflows; brownfield; greenfield
D) foreign direct investment (FDI) inflows; brownfield; greenfield
E) foreign direct investment (FDI); inflows; outflows
Q2) In the model of monopolistic competition,trade costs between countries will cause domestic and foreign markets to have ________ prices,________ quantities sold,and ________ profit levels.
A) different; different; different
B) identical; different; different
C) different; different; identical
D) identical; different; identical
E) identical; identical; different
Q3) An imperfectly competitive firm has the following demand curve: Q = 100 - 2P.What is marginal revenue equal to when P = 40?
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Chapter 9: The Instruments of Trade Policy
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Sample Questions
Q1) The most vocal political pressure for tariffs is generally made by
A) consumers lobbying for export tariffs.
B) consumers lobbying for import tariffs.
C) consumers lobbying for lower import tariffs.
D) producers lobbying for export tariffs.
E) producers lobbying for import tariffs.
Q2) When a government allows raw materials and other intermediate products to enter a country duty free,this generally results in a(an)
A) effective tariff rate less than the nominal tariff rate.
B) nominal tariff rate less than the effective tariff rate.
C) rise in both nominal and effective tariff rates.
D) fall in both nominal and effective tariff rates.
E) rise in only the effective tariff rate.
Q3) Refer to above figure.The loss of Consumer Surplus due to the tariff equals ________.
Q4) Refer to above figure.With a specific tariff of $3 per unit,what is the quantity of Widgets imported?
Q5) Refer to above figure.The lowest specific tariff which would be considered prohibitive is ________.
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Chapter 10: The Political Economy of Trade Policy
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Sample Questions
Q1) The optimum tariff is
A) the best tariff a country can obtain via a WTO negotiated round of compromises.
B) the tariff, which maximizes the terms of trade gains.
C) the tariff, which maximizes the difference between terms of trade gains and terms of trade loses.
D) not practical for a small country due to the likelihood of retaliation.
E) not practical for a large country due to the likelihood of retaliation.
Q2) In recent cases,the U.S.placed quotas or protectionist tariffs on imported steel and imported microchips.In both cases the damage to "downstream" industries was obvious to all and relatively easy to quantify and demonstrate.Assuming that the U.S.lawmakers are not plain dumb,why did they enact these protectionist policies?
Q3) Assume that a country has a domestic demand curve defined as Qd = 100 - 2P and a domestic supply curve defined as Qs = -20 + 3P.What is the country's import demand curve (Qm)?
Q4) Refer to above figure.Assume that Boeing is the first to enter the Hungarian market.Without a government subsidy what price would they demand,and what would be their total profits?
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Chapter 11: Trade Policy in Developing Countries
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Sample Questions
Q1) Refer to above figure.Why would workers not shift from agriculture to manufacturing in the initial situation where wages are higher in the latter?
Q2) Historically those few developing countries which have succeeded in significantly raising their per-capita income levels
A) did not accomplish this with import-substituting industrialization.
B) did accomplish this with import-substituting industrialization.
C) tended to provide heavy protection to domestic industrial sectors.
D) favored industrial to agricultural or service sectors.
E) did so to the detriment of their nearest neighbors.
Q3) The disappointment with import-substitution policies is in part because
A) of the rapid and continuous growth record of South American countries.
B) many countries pursuing this strategy experienced stagnation in their growth.
C) this policy is inconsistent with sophisticated economic growth models.
D) this policy tended to create world-class industrial competitors.
E) of the financial investment lost by the U.S.
Q4) Refer to above figure.If manufacturing labor were to increase to OmL2,how much value would the economy as a whole gain?
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Page 13
Chapter 12: Controversies in Trade Policy
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Sample Questions
Q1) In the second half of the 1990s a rapidly growing movement focused on the harm caused by international trade to
A) land owners in poor countries.
B) capital owners in rich industrialized countries.
C) land owners in rich industrialized countries.
D) production workers in both rich and poor countries.
E) terms of trade in developing countries.
Q2) Refer to the above table.Suppose the U.S.government (but not Europe)offers a $10 million subsidy?
Q3) The proposal that trade agreements should include a system which monitors worker conditions and make the results available to consumers in the rich importing country
A) is consistent with the Invisible Hand paradigm.
B) is consistent with the market failure approach.
C) is consistent with the Ricardian theory of comparative advantage.
D) is consistent with the scale economies approach to trade theory.
E) is consistent with the principles laid out by the WTO.
Q4) Describe the environmental Kuznets curve.
Q5) Refer to the above table.Suppose both governments offer their respective company a $10 million subsidy.
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