Applied International Economics Review
Questions
Course Introduction
Applied International Economics explores the practical aspects of economic interactions between countries, focusing on the flow of goods, services, and capital across borders. The course examines key topics such as trade theory and policy, exchange rates, balance of payments, and the impact of globalization on domestic economies. Students will analyze real-world case studies and data to understand international economic relations, the effects of tariffs and trade agreements, and issues related to international financial markets. Emphasis is placed on using economic models and empirical tools to evaluate contemporary global economic issues and inform policy decisions.
Recommended Textbook
Introduction to International Economics 3rd Edition by Dominick Salvatore
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16 Chapters
861 Verified Questions
861 Flashcards
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Page 2
Chapter 1: Introduction to the Global Economy
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Sample Questions
Q1) The loose organization that blames globalization for many human and environmental problems throughout the world is:
A)The World Trade Organization
B)The World Bank
C)the protectionist movement
D)the anti-globalization movement
Answer: D
Q2) Which of the following Geneva based international organization sets the rules of trade between nations,implements new trade agreements and settles trade disputes between member countries
A)World Trade Organization (WTO)
B)World Bank (IBDR)
C)International Monetary Fund (IMF)
D)United Nations (UN)
Answer: A
Q3) Roughly one-sixth of the world's population lives on less than $1 a day
A)True
B)False
Answer: True
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Page 3
Chapter 2: Comparative Advantage
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56 Verified Questions
56 Flashcards
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Sample Questions
Q1) In the presence of trade,a nation's consumption frontier is the same as the production possibilities frontier.
A)True
B)False
Answer: False
Q2) _____________ explains how mutually beneficial trade can take place even when one nation is less efficient than another nation in the production of all commodities.
A)Mercantilism
B)The law of comparative advantage
C)The labor theory of value
D)The law of absolute advantage
Answer: B
Q3) According to the law of comparative advantage,the less efficient of the two trading countries should specialize in and export the commodity in which it manages to have an absolute advantage.
A)True
B)False
Answer: False
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Page 4
Chapter 3: The Standard Trade Model
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Sample Questions
Q1) In a two-nation world,if Nation A's export prices increase relative to their import prices,which of the following will occur?
A)Terms of trade improve for both nations
B)Terms of trade worsen for Nation A and improve for their trade partner
C)Terms of trade improve for Nation A and worsen for their trade partner
D)Terms of trade worsen for both nations
Answer: C
Q2) Points on lower community indifference curves are possible,but would not maximize_____________.
A)the cost of production
B)the nation's welfare
C)the nation's exports
D)the nation's MRS
Answer: B
Q3) The community indifference curve represents the tastes or demand preferences in a nation or region.
A)True
B)False
Answer: True
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Page 5
Chapter 4: The Heckscher-Ohlin and Other Trade Theories
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Sample Questions
Q1) In the real world,why doesn't factor-price completely equalize
A)because in real world,there are no trade restrictions
B)technology takes time to defuse and factor productivity remains different across countries.
C)although labor is completely mobile it assumes the value in the country to which it moved and thus has no effect on the overall factor price of that country.
D)due to differences in exchange rates
Q2) Transportation costs include:
A)freight charges.
B)warehousing costs.
C)costs associated with loading and unloading shipments.
D)All of the above.
Q3) Which of the following does not help in explaining the inadequacies of the Heckscher-Ohlin model in explaining basis for international trade ?
A)Economies of scale
B)Product differentiation
C)Technological differences and the existence of product cycles
D)Leontief's Paradox
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Chapter 5: Trade Restrictions: Tariffs
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57 Flashcards
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Sample Questions
Q1) A small nation is not large enough to affect the world price of the commodity it is importing
A)True
B)False
Q2) The difference between what consumers would be willing to pay for each unit of commodity and what they actually pay for that unit is called ____________.
A)producer surplus
B)consumer surplus
C)reservation price
D)import tariff
Q3) In question 54 can you find out the deadweight loss to the society,the loss to the consumers and the gain of the producers and also the amount of the tariff revenue generated from the tariff.
Q4) The loss of surplus associated with the expansion of domestic production resulting from the tariff is attributed to the:
A)production effect of a tariff
B)terms of trade effect of a tariff
C)revenue effect of a tariff
D)consumption effect of a tariff
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Chapter 6: Nontariff Trade Barriers and the Political
Economy of Protectionism
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Sample Questions
Q1) Most of the benefits from international trade and openness (globalization)now seem to flow primarily to some of the most dynamic emerging market economies.
A)True
B)False
Q2) The Uruguay Round provided that GATT would be replaced by the:
A)Bureau of Economic Analysis
B)The World Bank
C)The World Trade Organization
D)the US Export/Import Bank
Q3) An import quota is a physical restriction on the quantity of goods that may be imported during a specified time period.
A)True
B)False
Q4) Briefly discuss the four major rounds of international trade negotiations held under the direction of the General Agreement on Tariffs and Trade.Include discussion of the primary outcomes of each round.
Q5) Non-tariff barriers are also known as "new protectionism".
A)True
B)False
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Chapter 7: Economic Integration
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Sample Questions
Q1) ______________ resulting from the formation of a customs union tend(s)to be five to six times larger than ______________,thus providing incentive for the United Kingdom to join the EU in 1973.
A)Static gains; dynamic gains
B)Trade creation; trade diversion
C)Dynamic gains; welfare gains
D)Dynamic gains; static gains
Q2) Trade deflection is a problem for customs unions.
A)True
B)False
Q3) ______________ occur(s)when lower-cost imports from outside the union are replaced by higher-cost imports from another union member.
A)Trade creation
B)Trade diversion
C)Economies of scale
D)Increasing opportunity costs
Q4) Armenia,Estonia,and Georgia are not Newly Independent States (NIS).
A)True
B)False
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Chapter 8: Growth and Development With International Trade
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Sample Questions
Q1) During the 1950s,1960s,and 1970s,developing countries relied upon industrialization for faster technological progress.
A)True
B)False
Q2) Which economist found that export instability was somewhat larger for developing nations than for developed nations during the postwar period?
A)Hans Singer
B)Alasdair MacBean
C)Alfred Marshall
D)Kenneth Arrow
Q3) The new international Economic Order called for the renegotiation of the international debt of developing countries and the reduction in interest payments.
A)True
B)False
Q4) In the 1980s,high performance Asian economies (HPAEs)were also known as newly industrialized economies (NIEs).
A)True
B)False
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Chapter 9: International Resource Movements and Multinational Corporations
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55 Verified Questions
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Sample Questions
Q1) By using the Portfolio Theory in the context of Risk Diversification,provide an explanation for two-way international portfolio investment.
Q2) The United States is the main supplier of foreign direct investments to what countries?
A)Ghana and Morocco
B)Former communist countries in Eastern Europe
C)Latin America,Bangladesh,Pakistan,the Philippines,and Saudi Arabia
D)Taiwan and Japan
Q3) It has been found that firms with a strong international orientation tend to
A)be less profitable than those that are wholly domestic.
B)be more profitable than those that are wholly domestic.
C)have greater variability in profits than purely domestic firms.
D)earn only accounting profit,not economic profit.
Q4) ________________ are the primary risks associated with activity in the bond market.
A)Bankruptcy and the variability of exchange rates
B)Bankruptcy and the variability in their market value
C)Variability in their market value and the risk of bank failure
D)Bankruptcy and the risk of bank failure
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Q5) What are the basic reasons for a multinational corporations (MNCs)existence?
Chapter 10: Balance of Payments
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Sample Questions
Q1) ____________ are balance of payments transactions involving payments to foreigners.
A)Debit transactions
B)Credit transactions
C)Accommodating transactions
D)Autonomous transactions
Q2) A nation's international investment position is also called its:
A)Balance of international capital flow
B)Balance of international indebtedness
C)International capital accumulation standing
D)Current account balance
Q3) ____________ is an example of a debit transaction in the balance of payments.
A)Exports of goods and services
B)Unilateral transfers to foreigners
C)Capital inflows
D)Receipt of a vase as a gift from a foreign country
Q4) Credit transactions involve the receipt of payments from foreigners.
A)True
B)False
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Chapter 11: The Foreign Exchange Market and Exchange Rates
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Sample Questions
Q1) The act of purchasing currency in one market at a lower price for immediate resale in another market at a higher price in order to make a profit is called:
A)arbitrage
B)hedging
C)speculation
D)interest arbitrage
Q2) Exchange rates are not free to fluctuate in response to market forces.
A)True
B)False
Q3) As arbitrage is being conducted,the exchange rate between the two countries tends to equalize in the two monetary centers.
A)True
B)False
Q4) Which city is home to the largest foreign exchange market in the world?
A)New York
B)London
C)Frankfurt
D)Tokyo
Page 13
Q5) Please explain what is meant by Covered Interest Arbitrage.
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Chapter 12: Exchange Rate Determination
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Sample Questions
Q1) From which of the following does a nation's demand for foreign exchange arise?
A)From the inflow of foreign investments
B)From the sale of the foreign currency by the speculators when they expect the foreign currency to depreciate
C)From speculators when they expect the foreign currency to appreciate
D)Both a & c
Q2) During which time period was the there was a sharp overvaluation of the US dollar?
A)1994-1998
B)1991-1993
C)2000-2002
D)2003-present
Q3) Absolute purchasing-power parity theory postulates that the percentage change in the exchange rate is equal to the difference in the percentage change in the price level in the two countries.
A)True
B)False
Q4) Discuss the difference between the absolute purchasing-power parity theory and the relative purchasing-power parity theory.
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Chapter 13: Automatic Adjustments With Flexible and Fixed Exchange Rates
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Sample Questions
Q1) Business cycles tend to impact nations other than the nation in which they are occurring because of ________________.
A)foreign repercussions
B)absorption
C)the income elasticity of imports
D)the foreign multiplier
Q2) When US demand for imports is price elastic,a(n)___________ in price leads to a ___________ proportionate increase in the quantity demanded so that expenditures on the imports increase.
A)increase; smaller
B)increase; larger
C)decrease; smaller
D)decrease; larger
Q3) For the US,the currency pass-through is about _______ percent
A)10
B)100
C)30
D)40
Q4) What is the Marshall-Lerner Condition and how is it used?
Q5) Please explain the J-Curve effect in exchange rate determination.
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Chapter 14: Adjustment Policies
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Sample Questions
Q1) To achieve external balance under a fixed exchange rate system,what policies should be used?
A)Monetary policies
B)Expenditure-switching policies
C)Fiscal policies
D)A combination of each of the above
Q2) In terms of their effect,how are the direct controls like tariffs and export subsidies different from say currency devaluation or depreciation?
Q3) What actions should be taken under the internal-external imbalance of recession and surplus?
A)Expansionary fiscal policy to correct for recession,and expansionary monetary policy to correct for surplus
B)Expansionary fiscal policy to correct for surplus,and contractionary monetary policy to correct for recession
C)Contractionary fiscal policy to correct for recession,and expansionary monetary policy to correct for surplus
D)Contractionary fiscal policy to correct for excess surplus,and contractionary monetary policy to correct for recession
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16
Chapter 15: Flexible Versus Fixed Exchange Rates,european
Monetary Systems,and Macroeconomic Policy
Coordination
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Sample Questions
Q1) Which of the following is one of the conditions that was set under the Maastricht Treaty and must be met before a nation could join the European Monetary Union?
A)an inflation rate not exceeding 10 percent of the three member nations with highest inflation rate
B)a budget surplus not exceeding 3 percent of GDP
C)overall government debt not exceeding 60 percent of GDP
D)the average exchange rate not increasing by more than 5% of the EMS for the 5 years before joining the union
Q2) An optimum currency area has all of the following except:
A)zero cost of official interventions in foreign exchange markets
B)No cost of hedging
C)zero cost of exchanging one currency for another to pay for imports of goods and tourist services
D)a common currency for all countries
Q3) A monetary union in Europe would mean that member nations would relinquish their sovereign power over their money supply and monetary policy.
A)True
B)False
Page 17
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Chapter 16: The International Monetary System: Past, present, and Future
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Sample Questions
Q1) After 1958,which of the following was a measure undertaken by the United States to correct the rapidly growing balance-of-payments deficits?
A)The U.S.discouraged exports
B)There was a decrease in US military expenditure abroad
C)Capital was allowed to flow freely
D)There was an increase in US government expenditure abroad
Q2) After the transition period ended,the Bretton Woods system required that the member countries implement all of the following except
A)Remove all restrictions on the convertibility of their currencies into dollar
B)Do not impose additional trade restrictions
C)Do not have restrictions on international liquid financial flows
D)Existing trade restrictions were to be removed gradually
Q3) The repayment period for borrowing from the IMF is approximately how long?
A)1-3 years
B)indefinitely
C)3-5 years
D)10-20 years
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Page 18