Economics of Globalization Practice Exam
Course Introduction
Economics of Globalization explores the increasing interdependence of national economies through trade, investment, technology, and labor mobility. The course examines the drivers and consequences of globalization, its impact on economic growth, inequality, and labor markets, and the roles of international organizations and policy frameworks. Students will analyze globalizations benefits and challenges, including the implications for developing and developed countries, environmental concerns, and debates on global economic governance. Through theoretical models and empirical evidence, the course equips students to critically assess the complexities and dynamics of the global economy.
Recommended Textbook
International Economics 14th Edition by Robert Carbaugh
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17 Chapters
1874 Verified Questions
1874 Flashcards
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Page 2
Chapter 1: The International Economy and Globalization
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48 Verified Questions
48 Flashcards
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Sample Questions
Q1) The United States exports a larger percentage of its gross domestic product than Japan, Germany, and Canada.
A)True
B)False
Answer: False
Q2) International trade in goods and services is sometimes used as a substitute for all of the following \(\underline {\text { except }}\):
A) International movements of capital
B) International movements of labor
C) Domestic production of the same goods and services
D) Domestic production of different goods and services
Answer: D
Q3) Technological improvements are similar to international trade since they both:
A) Provide benefits for all producers and consumers
B) Increase the nation's aggregate income
C) Reduce unemployment for all domestic workers
D) Ensure that industries can operate at less than full capacity
Answer: B
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3
Chapter 2: Foundations of Modern Trade Theory:
Comparative Advantage
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Sample Questions
Q1) "The equilibrium relative commodity price at which trade takes place is determined by the conditions of demand and supply for each commodity in both nations. Other things being equal, the nation with the more intense demand for the other nation's exported good will gain less from trade than the nation with the less intense demand." This statement was first proposed by:
A) Alfred Marshall with offer curve analysis
B) John Stuart Mill with the theory of reciprocal demand
C) Adam Smith with the theory of absolute advantage
D) David Ricardo with the theory of comparative advantage
Answer: B
Q2) Refer to Figure 2.1. If the relative cost of aluminum were to rise, then the production possibilities schedule would:
A) Become steeper
B) Become flatter
C) Shift inward in a parallel manner
D) Shift outward in a parallel manner
Answer: B
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4
Chapter 3: Sources of Comparative Advantage
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Sample Questions
Q1) Expanding trade or technological improvements
A) Increases the demand for skilled workers in the U.S.
B) Decreases the demand for unskilled workers in the U.S.
C) Increases the demand for unskilled workers in the U.S.
D) Both a and
Answer: D
Q2) According to the factor-endowment theory, a nation will import that good for which a large amount of the relatively abundant resource is used.
A)True
B)False
Answer: False
Q3) According to Staffan Linder, the factor endowment theory is useful in explaining trade patterns in manufactured goods, but not primary products.
A)True
B)False
Answer: False
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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) Graphically, consumer surplus is represented by the area above the demand curve and below the product's market price.
A)True
B)False
Q3) A tariff on steel imports tends to improve the competitiveness of domestic automobile companies.
A)True
B)False
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6
Chapter 5: Nontariff Trade Barriers
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Sample Questions
Q1) Consider Figure 5.4. Assume the Venezuelan government grants its manufacturers a production subsidy of $4 per calculator. After the subsidy is granted, Venezuelan imports total:
A) 8 calculators
B) 12 calculators
C) 16 calculators
D) 20 calculators
Q2) To the extent that domestic importing companies organize as a monopoly buyer, and foreign exporting companies behave as competitive sellers, the importing companies capture the revenue effect of a quota.
A)True
B)False
Q3) Tariffs and quotas on imports tend to involve larger sacrifices in national welfare than would occur under domestic subsidies. This is because, \(\underline { \text { unlike } }\)domestic subsidies, import tariffs and quotas:
A) Permit less efficient home production
B) Distort choices for domestic consumers
C) Result in higher tax rates for domestic residents
D) Redistribute revenue from domestic producers to consumers
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Chapter 6: Trade Regulations and Industrial Policies
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Sample Questions
Q1) Consider the Japanese market for jetliners as depicted in Figure 6.5. Suppose lone producer of jetliners in the world is Boeing and Boeing faces a constant marginal cost of $20 million per jetliner but now a European manufacturer, Airbus, begins production. Airbus faces the same marginal cost as Boeing but the European government provides Airbus with a subsidy of $8 million per jetliner produced. As a result of the competition, Boeing leaves the Japanese market leaving Airbus as a monopoly. How many jetlines will airbus produce and what price will they sell them for?
A) 23, $30 million
B) 32, $26 million
C) 23, $26 million
D) 32, $30 million
Q2) Consider Figure 6.3. Of the quota-induced change in Iraqi consumer surplus, $____ is not transferred to other sectors of Iraq's economy and represents deadweight loss.
A) $5000
B) $10,000
C) $15,000
D) $20,000
Q3) 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) Consider Figure 7.1. Suppose the demand for tin decreases from D<sub>0</sub> to D<sub>2</sub>. Under a system of export quotas, the tin producers could maintain the target price by:
A) Increasing the quantity of tin supplied by 15 pounds
B) Increasing the quantity of tin supplied by 30 pounds
C) Decreasing the quantity of tin supplied by 15 pounds
D) Decreasing the quantity of tin supplied by 30 pounds
Q2) The majority of developing-nation exports are primary products such as agricultural goods and raw materials; of the manufactured goods exported by developing nations, most are labor-intensive goods.
A)True
B)False
Q3) Not only do changes in demand induce relatively wide fluctuations in price when supply is inelastic, but changes in supply induce relatively wide fluctuations in price when demand is inelastic.
A)True
B)False
Q4) What are some major trade problems faced by developing nations?
Q5) Are economic downturns helpful to cartels?
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Chapter 8: Regional Trading Arrangements
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Sample Questions
Q1) By removing discriminatory government procurement laws within the European Union, member nations hoped to benefit from all of the following \(\underline { \text { except } }\)
A) EU governments could purchase from the cheapest foreign suppliers
B) Increased competition occurs as domestic firms compete with foreign firms previously shut out of the domestic market
C) Industries are restructured which permits surviving firms to achieve economies of scale
D) Agricultural prices fall as more farmers are allowed to produce their commodities
Q2) World welfare under a customs union
A) Increases due to a trade creation effect
B) Decreases due to a trade diversion effect
C) Depends on the relative strength of the trade creation effect and the trade diversion effect
D) All of the above
Q3) Explain the theory of optimum currency areas.
Q4) What factors influence the extent of trade creation and trade diversion?
Q5) Concerning transition economies, what do the advocates of shock therapy propose?
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Chapter 9: International Factor Movements and Multinational
Enterprises
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Sample Questions
Q1) 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
Q2) Both economic theory and empirical studies support the notion that foreign direct investment is conducted in anticipation of future profits.
A)True
B)False
Q3) During the 1980s and 1990s, Japanese auto firms established manufacturing facilities in the United States known as "transplants."
A)True
B)False
Q4) Conglomerate integration would occur if General Motors Inc. of the United States acquired a controlling interest in a British chemical company.
A)True
B)False
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Chapter 10: The Balance of Payments
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Sample Questions
Q1) In the past two decades, the U.S. services balance has generally registered surplus.
A)True
B)False
Q2) When all of the debit or credit items in the balance of payments are combined:
A) Merchandise imports equal merchandise exports
B) Capital imports equal capital exports
C) Services exports equal services imports
D) The total surplus or deficit equals zero
Q3) Rapid growth of production and employment is commonly associated with large or growing trade surpluses and current account surpluses.
A)True
B)False
Q4) Which of the following is classified as a \(\underline { \text { credit } }\)in the U.S. balance of payments?
A) U.S. exports
B) U.S. gifts to other countries
C) A flow of gold out of the U.S.
D) Foreign loans made by U.S. companies
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Chapter 11: Foreign Exchange
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Sample Questions
Q1) Refer to Table 11.4. On Wednesday, the 30-day forward franc was selling at a:
A) 1 percent premium per annum against the dollar
B) 2 percent premium per annum against the dollar
C) 1 percent discount per annum against the dollar
D) 2 percent discount per annum against the dollar
Q2) Refer to Figure 11.1. Suppose the exchange rate is $.70 per franc. At this exchange rate there is an ____ of francs which leads to a ____ in the dollar price of the franc, a (an) ____ in the quantity of francs supplied, and a (an) ____ in the quantity of francs demanded.
A) Excess demand, rise, increase, decrease
B) Excess demand, rise, decrease, increase
C) Excess supply, fall, decrease, increase
D) Excess supply, fall, increase, decrease
Q3) Refer to Table 11.4. On Wednesday, the 90-day forward franc was selling at a:
A) 0.8 percent premium per annum against the dollar
B) 1.6 percent premium per annum against the dollar
C) 0.8 percent discount per annum against the dollar
D) 1.6 percent discount per annum against the dollar
Q4) Where are foreign currency options traded?
Q5) What foreign exchange transactions do banks typically engage in?
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Chapter 12: Exchange-Rate Determination
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Sample Questions
Q1) Consider Figure 12.3. The market is initially governed by demand curve D<sub>0</sub> and supply curve S<sub>0</sub>. Suppose the US government raises tariffs 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>
Q2) What is the asset market approach to exchange rate determination?
Q3) Exchange rate determination in the short run is underlied by which of the following assumptions:
A) Tariffs and quotas affect trade patterns only in the short run
B) Prices of goods and services affect trade patterns only in the short run
C) Expected returns on financial assets affect investment flows in the short run
D) Preferences for goods and services affect trade flows only in the short run
Q4) In a free market, what determines exchange rates in the long run and the short run?
Q5) What is exchange rate overshooting?
Q6) What is the purchasing power parity approach to exchange rate determination?
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Chapter 13: Mechanisms of International Adjustment
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Sample Questions
Q1) Suppose the United States levies an interest equalization tax, which taxes Americans on dividend and interest income from foreign securities. Such a tax would be intended to:
A) Encourage financial movements from the United States to overseas
B) Discourage financial movements from the United States to overseas
C) Discourage financial movements from overseas to the United States
D) None of the above
Q2) The price-adjustment mechanism's relevance to the real world has been questioned on the grounds that national output is generally not at the full-employment level and that the velocity of money is not always constant.
A)True
B)False
Q3) The monetary approach to balance-of-payments adjustments suggests that all payments deficits are the result of:
A) Too high interest rates in the home country
B) Too low interest rates in the home country
C) Excess money supply over money demand in the home country
D) Excess money demand over money supply in the home country
Q4) What is the foreign repercussion effect?
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Chapter 14: Exchange-Rate Adjustments and the Balance of Payments
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Sample Questions
Q1) How do movements in exchange rates affect domestic costs, in the presence of foreign sourcing?
Q2) Suppose the U.S. price elasticity of demand for imports equals 0.4 and the foreign demand elasticity for the U.S. exports equals 0.2. According to the Marshall-Lerner condition, a depreciation of the dollar's exchange value will improve the U.S. balance of trade.
A)True
B)False
Q3) When producing jetliners, suppose that Boeing employs labor and materials whose costs are denominated in dollars and marks respectively. If the dollar's exchange value depreciates 20 percent against the mark, the mark-denominated cost of a Boeing jetliner falls by an amount less than 20 percent.
A)True
B)False
Q4) If a currency's exchange rate is undervalued, a government would likely initiate actions to devalue the currency.
A)True
B)False
Q5) What is a pass-through relationship?
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Chapter 15: Exchange-Rate Systems and Currency Crises
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Sample Questions
Q1) Under a floating exchange-rate system, which of the following best leads to a \(\underline { \text { depreciation } }\) in the value of the Canadian dollar?
A) A decrease in the Canadian money supply
B) A fall in the Canadian interest rate
C) An increase in national income overseas
D) Rising inflation overseas
Q2) To defend a pegged exchange rate that \(\underline { \text { overvalues } }\)its currency, a country could:
A) Discourage commodity exports
B) Encourage commodity imports
C) Purchase its own currency in international markets
D) Sell its own currency in international markets
Q3) Given a two-country world, assume Canada and Sweden \(\underline { \text { devalue } }\) their currencies by 20 percent. This would result in:
A) An appreciation in the Canadian currency
B) An appreciation in the Swedish currency
C) An appreciation in both currencies
D) An appreciation in neither currency
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Chapter 16: Macroeconomic Policy in an Open Economy
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Sample Questions
Q1) Was the Plaza Agreement of 1985 a success?
Q2) The goals of the Plaza Agreement of 1985 were to combat protectionism in the U.S. Congress, promote world economic expansion by stimulating demand in Germany and Japan, and to ease the burden of the U.S. debt service.
A)True
B)False
Q3) A nation experiences\(\underline { \text { internal } }\)balance if it achieves:
A) Full employment
B) Price stability
C) Full employment and price stability
D) Unemployment and price instability
Q4) Expenditure-switching policies alter the level of total spending (aggregate demand) for goods and services produced domestically and those imported.
A)True
B)False
Q5) Expenditure-switching policies include fiscal policy and monetary policy.
A)True
B)False
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Chapter 17: International Banking: Reserves, Debt, and Risk
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Sample Questions
Q1) To reduce their exposure to developing country debt, lending commercial banks have practiced all of the following \(\underline { \text { except: } }\):
A) Making outright loan sales to other commercial banks
B) Reducing their capital base as a cushion against losses
C) Dealing in debt-for-debt swaps with foreign governments
D) Dealing in debt/equity swaps with foreign governments
Q2) The exchange of borrowing country debt for an ownership position in the borrowing country is known as:
A) Debt forgiveness
B) Debt-for-debt swap
C) Debt reduction
D) Debt/equity swap
Q3) Which of the following assets makes use of the basket valuation technique?
A) Swap agreements
B) Oil facility
C) Buffer stock facility
D) Special drawing rights
Q4) Describe the eurocurrency market.
Q5) Why do countries hold international reserves?
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