Applied International Economics
Final Test Solutions
Course Introduction
Applied International Economics explores the theories and practical aspects of economic interactions between countries, focusing on trade, investment, and policy frameworks that shape global markets. Students will analyze real-world data and case studies to understand the impact of international economic policies, exchange rates, trade agreements, and globalization on national economies. The course emphasizes the application of economic models and analytical tools to current international issues, preparing students to make informed decisions in a globally interconnected business environment.
Recommended Textbook
International Economics 14th Edition by Robert Carbaugh
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17 Chapters
1874 Verified Questions
1874 Flashcards
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Chapter 1: The International Economy and Globalization
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48 Verified Questions
48 Flashcards
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Sample Questions
Q1) Relative to countries with low ratios of exports to gross domestic product, countries having high export to gross domestic product ratios are ____ vulnerable to changes in the world market.
A) Less
B) More
C) Equally
D) Any of the above
Answer: B
Q2) A primary reason why nations conduct international trade is because:
A) Some nations prefer to produce one thing while others produce other things
B) Resources are not equally distributed among all trading nations
C) Trade enhances opportunities to accumulate profits
D) Interest rates are not identical in all trading nations
Answer: B
Q3) If a nation has an open economy, it means that the nation allows private ownership of capital.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Foundations of Modern Trade Theory:
Comparative Advantage
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170 Verified Questions
170 Flashcards
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Sample Questions
Q1) Under free trade, Sweden enjoys all of the gains from trade with Holland if Sweden:
A) Trades at Holland's rate of transformation
B) Trades at Sweden's rate of transformation
C) Specializes completely in the production of its export good
D) Specializes partially in the production of its export good
Answer: A
Q2) Ricardo's theory of comparative advantage does not take into account demand conditions when determining relative commodity prices.
A)True
B)False
Answer: True
Q3) John Stuart Mill's theory of reciprocal demand best applies when trading partners:
A) Are of equal size and importance in the market
B) Produce under increasing cost conditions
C) Partially specialize in the production of commodities
D) Have similar taste and preference levels
Answer: A
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Page 4
Chapter 3: Sources of Comparative Advantage
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109 Flashcards
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Sample Questions
Q1) A larger variety of products results from international trade especially if:
A) International trade affords producers monopoly power
B) National governments levy import tariffs and quotas
C) Producing goods entails increasing costs
D) Economies of scale exist for producers
Answer: D
Q2) According to the product-life-cycle theory, the first stage of a product's trade cycle is when it is introduced to the home market.
A)True
B)False
Answer: True
Q3) Recent studies of U.S. resource endowments indicate that the United States is most abundant in unskilled labor, followed by semi-skilled labor and skilled labor.
A)True
B)False
Answer: False
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Chapter 4: Tariffs
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124 Flashcards
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Sample Questions
Q1) For the United States, a foreign trade zone (FTZ) is
A) A site within the United States
B) A site outside the United States
C) Always located in poorer developing countries
D) Is used to discourage trade
Q2) A $100 specific tariff provides home producers \(\underline { \text { more } }\) protection from foreign competition when:
A) The home market buys cheaper products rather than expensive products
B) It is applied to a commodity with many grade variations
C) The home demand for a good is elastic with respect to price changes
D) It is levied on manufactured goods rather than primary products
Q3) The imposition of tariffs on imports results in deadweight welfare losses for the home economy. These losses consist of the:
A) Protective effect plus consumption effect
B) Redistribution effect plus revenue effect
C) Revenue effect plus protective effect
D) Consumption effect plus redistribution effect
Q4) Can import duties have unintended side effects?
Q5) How can tariffs be justified?
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Chapter 5: Nontariff Trade Barriers
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133 Flashcards
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Sample Questions
Q1) Compared to an import quota, an equivalent tariff may provide a \(\underline { \text { less } }\) certain amount of protection for home producers since:
A) A tariff has no deadweight loss in terms of production and consumption
B) Foreign firms may absorb the tariff by offering exports at lower prices
C) Tariffs are effective only if home demand is perfectly elastic
D) Quotas do not result in increases in the price of the imported good
Q2) Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the US demands at $8 per bottle. IF the US imposes a quota of 15 bottles of wine, how much wine will US consumers demand, how much wine will US producers produce and how much wine will be imported?
A) 30 bottles, 20 bottles, 10 bottles
B) 40 bottles, 25 bottles, 15 bottles
C) 30 bottles, 30 bottles, 0 bottles
D) 30 bottles, 15 bottles, 15 bottles
Q3) 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
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Chapter 6: Trade Regulations and Industrial Policies
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129 Verified Questions
129 Flashcards
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Sample Questions
Q1) During the past four decades:
A) Nontariff barriers (NTBs) and tariffs have increased in importance
B) NTBs and tariffs have decreased in importance
C) NTBs have increased and tariffs have decreased in importance
D) NTBs have decreased and tariffs have increased in importance
Q2) The main focus of the Uruguay Round of multilateral trade negotiations was on tariff barriers rather than nontariff trade barriers.
A)True
B)False
Q3) Consider the Japanese market for jetliners as depicted in Figure 6.4. Suppose lone producer of jetliners in the world is Boeing and Boeing faces a constant marginal cost of $20 million per jetliner. How much consumer surplus will the Japanese airlines who purchase the jetliners earn from their transactions with Boeing?
A) 0
B) $115 million
C) $230 million
D) $250 million
Q4) What is the essential idea behind strategic trade policy?
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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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) Consider Figure 7.3. Under a profit-maximizing cartel, producers realize:
A) Profits totaling $280
B) Profits totaling $360
C) Losses totaling $140
D) Losses totaling $180
Q2) Concerning the price elasticities of supply and demand for commodities, empirical estimates suggest that most commodities have:
A) Inelastic supply schedules and inelastic demand schedules
B) Inelastic supply schedules and elastic demand schedules
C) Elastic supply schedules and inelastic demand schedules
D) Elastic supply schedules and elastic demand schedules
Q3) Under the Generalized System of Preferences program, the major industrial countries agree to temporarily reduce tariffs on designated imports from other industrial countries.
A)True
B)False
Q4) What are some of the growth strategies that have been employed by the developing nations? How successful are these strategies?
Q5) What are some major trade problems faced by developing nations?
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Chapter 8: Regional Trading Arrangements
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130 Flashcards
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Sample Questions
Q1) In the United States, which group was most likely to be hurt by the North American Free Trade Agreement?
A) Unskilled labor
B) Skilled labor
C) Owners of capital equipment
D) Owners of financial capital
Q2) Referring to Figure 8.1, suppose Greece forms a customs union with France. Greece will import:
A) 3 calculators at a per-unit price of $30
B) 3 calculators at a per-unit price of $40
C) 6 calculators at a per-unit price of $30
D) 6 calculators at a per-unit price of $40
Q3) A \(\underline {\text { static }}\) welfare effect resulting from the formation of the European Union would be:
A) Economies of scale
B) Trade diversion
C) Investment incentives
D) Increased competition
Q4) Concerning transition economies, what do the advocates of shock therapy propose?
Q5) What factors influence the extent of trade creation and trade diversion?
Page 10
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Chapter 9: International Factor Movements and Multinational Enterprises
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96 Flashcards
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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) The theory of multinational enterprise is totally inconsistent with the principle of comparative advantage.
A)True
B)False
Q3) During the 1970s, American oil companies acquired nonenergy companies (e.g., copper, auto components) in response to anticipated decreases in investment opportunities in oil. This type of diversification is referred to as:
A) Horizontal integration
B) Conglomerate integration
C) Forward vertical integration
D) Backward vertical integration
Q4) What are Mexican maquiladoras?
Q5) Are there any differences between the theory of multinational enterprises and conventional trade theory?
Q6) 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) If an American receives dividends from the shares of stock she or he owns in Toyota, Inc., a Japanese firm, the transaction would be recorded on the U.S. balance of payments as a:
A) Capital account debit
B) Capital account credit
C) Current account debit
D) Current account credit
Q2) If the current account of the balance of payments registers a deficit, the capital account registers a surplus, and vice versa.
A)True
B)False
Q3) 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
Q4) In the past two decades, the U.S. services balance has generally registered surplus.
A)True
B)False
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Chapter 11: Foreign Exchange
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Sample Questions
Q1) Refer to Table 11.2. At the exchange rate of $1.40 per pound, there is an ____ for pounds. This imbalance causes ____ in the price of the pound, which leads to ____ in the quantity of pounds supplied and ____ in the quantity of pounds demanded.
A) Excess supply, a decrease, an increase, a decrease
B) Excess supply, an increase, a decrease, an increase
C) Excess demand, an increase, an increase, a decrease
D) Excess demand, an increase, a decrease, an increase
Q2) Refer to Figure 11.2. A shift in the demand for francs from D<sub>0</sub> to D<sub>1</sub> or a shift in the supply of francs from S<sub>0</sub> to S<sub>2,</sub> would result in a (an):
A) Depreciation in the dollar against the franc
B) Appreciation in the dollar against the franc
C) Unchanged dollar/franc exchange rate
D) None of the above
Q3) In the forward market, the exchange rate is agreed on at the time of the currency contract, but payment is not made until the future delivery of the currency actually takes place.
A)True
B)False
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Page 13
Chapter 12: Exchange-Rate Determination
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133 Flashcards
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Sample Questions
Q1) Refer to Figure 12.2. If the Federal Reserve adopts a restrictive monetary policy that leads to relatively high interest rates in the United States, the demand for francs would decrease, the supply of francs would increase, and the dollar's exchange value would appreciate.
A)True
B)False
Q2) The quantity of Canadian dollars supplied to the foreign exchange market would increase if, other things remaining equal:
A) Preferences for imports rise in Canada
B) Labor productivity increases in Canada
C) Prices of goods and services decrease in Canada
D) Import tariffs rise in Canada
Q3) Long-run determinants of exchange rate include labor productivity levels, inflation rates, consumer preferences for goods and services, and trade barriers.
A)True
B)False
Q4) What is the purchasing power parity approach to exchange rate determination?
Q5) What is the asset market approach to exchange rate determination?
Q6) What is exchange rate overshooting?
Page 14
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Chapter 13: Mechanisms of International Adjustment
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Sample Questions
Q1) The gold standard's "rules of the game" required central bankers in a surplus country to initiate contractionary monetary policies which lead to higher interest rates and net investment inflows.
A)True
B)False
Q2) For the income adjustment mechanism to reverse a trade deficit, economic policymakers must be willing to permit domestic income to increase which leads to rising imports.
A)True
B)False
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) Prices, interest rates, and income are the automatic adjustment variables that help restore current-account equilibrium under a system of fixed exchange rates.
A)True
B)False
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Chapter 14: Exchange-Rate Adjustments and the Balance of Payments
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) The ____ effect suggests that following a currency depreciation a country's trade balance worsens for a period before it improves.
A) Marshall-Lerner
B) J-curve
C) Absorption
D) Pass-through
Q2) In Figure 14.1, D represents the US demand curve for Toyotas and MC<sub>0</sub> represents the marginal cost of producing Toyotas. Assume that Toyota behaves like a monopolist in the US market. A shift in the marginal cost curve from MC<sub>0</sub> to MC<sub>1</sub> leads to
A) a complete pass-through ot the depreciation of the dollar
B) a complete pass-through of the appreciation of the dollar
C) a partial pass-through of the depreciation of the dollar
D) a partial pass-through of the appreciation of the dollar
Q3) Suppose the dollar appreciates 10 percent against the Swiss franc. According to the J-curve effect, the U.S. balance of trade will initially worsen, but then improve as time passes.
A)True
B)False
Page 16
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Chapter 15: Exchange-Rate Systems and Currency Crises
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Sample Questions
Q1) Most developing countries have chosen to allow their currencies to float independently in the foreign exchange market.
A)True
B)False
Q2) Since 1974, the major industrial countries have operated under a system of fixed exchange rates based on the gold standard.
A)True
B)False
Q3) Under managed floating exchange rates, a central bank would initiate:
A) Contractionary monetary policy to offset a depreciation of its currency
B) Contractionary monetary policy to offset an appreciation of its currency
C) Expansionary monetary policy to offset a depreciation of its currency
D) None of the above
Q4) The purpose of an exchange stabilization fund is to ensure that the market exchange rate does not deviate beyond unacceptable levels from the official exchange rate.
A)True
B)False
Q5) What is an SDR?
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Chapter 16: Macroeconomic Policy in an Open Economy
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Sample Questions
Q1) Expenditure-switching policies alter the level of total spending (aggregate demand) for goods and services produced domestically and those imported.
A)True
B)False
Q2) Suppose a central bank prevents a depreciation of its currency by intervening in the foreign exchange market and buying its currency with foreign currency. This causes the
A) domestic money supply to decrease and a decline in aggregate demand
B) domestic money supply to increase and a decline in aggregate demand
C) domestic money supply to decrease and a rise in aggregate demand
D) domestic money supply to increase and a fall in aggregate demand
Q3) An \(\underline { \text { expenditure-increasing } }\) policy would consist of an increase in:
A) Import tariffs
B) Import quotas
C) Governmental taxes
D) The money supply
Q4) What is international economic policy coordination?
Q5) What policy instrument should be used when demand-pull inflation exists?
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Chapter 17: International Banking: Reserves, Debt, and Risk
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Sample Questions
Q1) 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
Q2) When exchange rates are fixed by central bankers, the need for international reserves disappears.
A)True
B)False
Q3) All of the following are major goals of the International Monetary Fund except:
A) Promoting international cooperation among member countries
B) Fostering a multilateral system of international payments
C) Making long-term development and reconstruction loans
D) Promoting exchange-rate stability and the elimination of exchange restrictions
Q4) The Federal Reserve's swap network represents:
A) Efforts to stabilize only the value of the dollar
B) Efforts to stabilize only the value of foreign currencies
C) Long-term borrowing among countries
D) Short-term borrowing among countries
Q5) Why do countries hold international reserves?
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