Global Economic Policy
Exam Answer Key
Course Introduction
Global Economic Policy explores the frameworks, institutions, and decision-making processes that shape the international economic environment. This course examines the roles of key actors such as governments, multinational organizations, and financial institutions in addressing challenges like trade regulation, economic development, monetary policy, and global financial stability. Students will analyze contemporary issues including globalization, economic crises, policy responses to inequality, and the impact of emerging markets on the global economy, gaining a nuanced understanding of how economic policies are crafted and their far-reaching effects on nations and populations worldwide.
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 benefits of international trade accrue in the forms of lower domestic prices, development of more efficient methods and new products, and a greater range of consumption choices.
A)True
B)False
Answer: True
Q2) Increased foreign competition tends to:
A) Intensify inflationary pressures at home
B) Induce falling output per worker-hour for domestic workers
C) Place constraints on the wages of domestic workers
D) Increase profits of domestic import-competing industries
Answer: C
Q3) The United States exports a larger percentage of its gross domestic product than Japan, Germany, and Canada.
A)True
B)False
Answer: False
Q4) What is the most important factor which contributes to competitiveness?
Answer: Key to the concept of competitiveness is productivity, or output per worker hour.
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Chapter 2: Foundations of Modern Trade Theory: Comparative Advantage
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Sample Questions
Q1) Compared to Ricardian trade theory, modern trade theory provides a more general view of comparative advantage since it is based on all factors of production rather than just labor.
A)True
B)False
Answer: True
Q2) As a result of international trade, specialization in production tends to be:
A) Complete with constant costs--complete with increasing costs
B) Complete with constant costs--incomplete with increasing costs
C) Incomplete with constant costs--complete with increasing costs
D) Incomplete with constant costs--incomplete with increasing costs
Answer: B
Q3) Consider Figure 2.2. With specialization, Canada \(\underline { \text { produces } }\)
A) 16 televisions
B) 12 televisions and 8 refrigerators
C) 8 televisions and 16 refrigerators
D) 24 refrigerators
Answer: D
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Chapter 3: Sources of Comparative Advantage
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Sample Questions
Q1) Europe's jumbo-jet manufacturer, Airbus, has justified receiving governmental subsidies on the grounds that the subsidies prevent the United States from becoming a monopoly in the jumbo-jet market.
A)True
B)False Answer: True
Q2) The specific-factors theory analyzes the income distribution effects of trade in the short run when resources are immobile among industries.
A)True
B)False Answer: True
Q3) When transportation costs are added to our trade model, the low-cost exporting country produces less, consumes more, and exports less than that which occurs in the absence of transportation costs.
A)True
B)False Answer: True
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Chapter 4: Tariffs
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Sample Questions
Q1) A "large" country, that levies a tariff on imports, cannot improve the terms at which it trades with other countries.
A)True
B)False
Q2) Although tariffs on imported steel may lead to job gains for domestic steel workers, they can lead to job losses for domestic auto workers.
A)True
B)False
Q3) As long as it is assumed that a nation accounts for a negligible portion of international trade, its levying an import tariff necessarily increases its overall welfare.
A)True
B)False
Q4) Refer to Exhibit 4.2. All of the import tariff is shifted to the Canadian consumer via a higher price of motorcycles.
A)True
B)False
Q5) Can import duties have unintended side effects?
Q6) How can tariffs be justified?
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Chapter 5: Nontariff Trade Barriers
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Sample Questions
Q1) Consider Figure 5.1. Suppose instead that the Mexican government provides a subsidy of $200 per ton to its steel producers, as indicated by the supply schedule S<sub>M (with subsidy)</sub>. As a result of the subsidy, the welfare loss to Mexico due to inefficient domestic production equals:
A) $200
B) $400
C) $600
D) $800
Q2) During the 1980s, U.S. steel-using companies (Caterpillar) actively supported the U.S. government's negotiation of voluntary export agreements with foreign steel-exporting countries.
A)True
B)False
Q3) A subsidy granted to an import-competing producer imposes a deadweight loss on the domestic economy equal to the redistribution effect plus consumption effect.
A)True
B)False
Q4) What are the intent and impact of domestic content requirements?
Q5) Is a tariff-rate quota a two-tier tariff? Why?
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Chapter 6: Trade Regulations and Industrial Policies
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Sample Questions
Q1) Assume that Russia has a comparative advantage in vodka. If the United States extends Russia the benefits of the normal-trade-relations (most favored nation)principle, U.S. consumer surplus decreases in the vodka market.
A)True
B)False
Q2) In 1995 the ____ was established to administer the new global trade rules agreed in the Uruguay Round of multilateral trade negotiations.
A) World Trade Organization
B) Organization for Economic Cooperation and Development
C) General Agreement on Tariffs and Trade
D) United Nations
Q3) The Export-Import Bank provides export-credit subsidies to U.S. producers of agricultural goods.
A)True
B)False
Q4) The Commodity Credit Corporation makes available export credit financing for U.S. agricultural exports.
A)True
B)False
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Chapter 7: Trade Policies for the Developing Nations
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Sample Questions
Q1) Most of China's manufactured exports have constituted labor-intensive goods.
A)True
B)False
Q2) For the oil-importing countries, the increases in oil prices in 1973-1974 and 1979-1980 resulted in all of the following \(\underline { \text { except: } }\)
A) Balance of trade deficits
B) Price inflation
C) Constrained economic growth
D) Improving terms of trade
Q3) Which of the following could partially explain why the terms of trade of developing countries might \(\underline { \text { deteriorate } }\) over time?
A) Developing-country exports mainly consist of manufactured goods
B) Developing-country imports mainly consist of primary products
C) Commodity export prices are determined in highly competitive markets
D) Commodity export prices are solely determined by developing countries
Q4) Are economic downturns helpful to cartels?
Q5) What are some major trade problems faced by developing nations?
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Page 9
Chapter 8: Regional Trading Arrangements
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Sample Questions
Q1) Forming a free-trade agreement with the United States provided Canadian producers a danger and an opportunity. The danger was that U.S. producers might be more price competitive than Canadian producers; the opportunity was that longer production runs for Canadian producers, made possible by a free-trade agreement, would result in cost reductions due to economies of scale.
A)True
B)False
Q2) To protect its farmers from foreign competition, the European Union has utilized variable import levies and export subsidies.
A)True
B)False
Q3) Pricing of consumer goods in the former Soviet Union was typically regulated by price ceilings which led to shortages.
A)True
B)False
Q4) Explain the theory of optimum currency areas.
Q5) What is meant by economic integration?
Q6) What factors influence the extent of trade creation and trade diversion?
Q7) Concerning transition economies, what do the advocates of shock therapy propose?
Page 10
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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) Which type of multinational diversification occurs when the parent firm establishes foreign subsidiaries to produce intermediate goods going into the production of finished goods?
A) Forward vertical integration
B) Backward vertical integration
C) Forward horizontal integration
D) Backward horizontal integration
Q3) Multinational corporations sometimes locate manufacturing subsidiaries abroad to avoid tariff barriers which would place their products at a competitive disadvantage in a foreign country.
A)True
B)False
Q4) What are Mexican maquiladoras?
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) Most economists belief that in the 1980s, a massive outflow of capital caused a current account deficit for the United States.
A)True
B)False
Q2) Referring to Table 10.1, the current account balance equals:
A) $5 billion
B) $10 billion
C) $15 billion
D) $20 billion
Q3) If the U.S. faces a balance-of-payments deficit on the current account, it must run a surplus on:
A) The official settlements account
B) The capital account
C) Either the official settlements account or the capital account
D) Both the official settlements account and the capital account
Q4) Concerning the balance of payments, the goods-and-services balance is commonly referred to as the "trade balance" by the news media.
A)True
B)False
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Chapter 11: Foreign Exchange
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Sample Questions
Q1) Suppose there occurs an increase in the Canadian demand for Japanese computers. This results in:
A) An increase in the demand for yen
B) A decrease in the demand for yen
C) An increase in the supply of yen to Canada
D) A decrease in the supply of yen to Canada
Q2) Assume that you are the Chase Manhattan Bank of the United States, and you have 1 million Swiss francs in your vault that you will need to use in 30 days. Moreover, you need 500,000 British pounds for the next 30 days. You arrange to loan your francs to Barclays Bank of London for 30 days in exchange for 500,000 pounds today, and reverse the transaction at the end of 30 days. You have just arranged a:
A) Forward contract
B) Futures contract
C) Spot contract
D) Currency swap
Q3) A person needing foreign exchange immediately would purchase it on the spot market.
A)True
B)False
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Page 13
Chapter 12: Exchange-Rate Determination
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Sample Questions
Q1) For the United States, suppose the annual interest rate on government securities equals 12 percent while the annual inflation rate equals 8 percent. For Japan, suppose the annual interest rate equals 5 percent. These variables would cause investment funds to flow from:
A) The United States to Japan, causing the dollar to depreciate B) The United States to Japan, causing the dollar to appreciate C) Japan to the United States, causing the yen to depreciate D) Japan to the United States, causing the yen to appreciate
Q2) Suppose that the yen-dollar exchange rate changes from 85 yen per dollar to 80 yen per dollar. One can say that the:
A) Yen has appreciated against the dollar and the dollar has depreciated against the yen
B) Yen has depreciated against the dollar and the dollar has appreciated against the yen
C) Yen has appreciated against the dollar and the dollar has appreciated against the yen
D) Yen has depreciated against the dollar and the dollar has depreciated against the yen
Q3) What is the purchasing power parity approach to exchange rate determination?
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Page 14
Chapter 13: Mechanisms of International Adjustment
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Sample Questions
Q1) Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (SI)<sub>0</sub> intersects (X-M)<sub>0</sub>, suppose that worsening economic conditions abroad lead to an autonomous decrease in Australian exports of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a
A) Rises to $60 billion, surplus of $2.5 billion
B) Rises to $60 billion, surplus of $5 billion
C) Falls to $40 billion, deficit of $2.5 billion
D) Falls to $40 billion, deficit of $5 billion
Q2) Referring to Table 13.1, if Canada's income rises by $200 billion, saving would rise by:
A) $10 billion
B) $20 billion
C) $30 billion
D) $40 billion
Q3) Is the monetary approach to the balance-of-payments part of the traditional adjustment theories?
Q4) Referring to Figure 13.4, Canada's foreign-trade multiplier equals 2.0.
A)True B)False
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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 condition, currency depreciation would have a positive effect on a country's trade balance if the elasticity of demand for its exports plus the elasticity of demand for its imports equals:
A) 0.2
B) 0.5
C) 1.0
D) 2.0
Q2) Refer to Table 14.1. Assume that Toyota Inc. obtains all of its automobile inputs from Japanese suppliers. If the yen's exchange value appreciates from 200 yen = $1 to 100 yen = $1, the yen cost of a Toyota automobile equals:
A) 4,000,000 yen
B) 6,000,000 yen
C) 8,000,000 yen
D) 10,000,000 yen
Q3) The Marshall-Lerner condition deals with the impact of currency depreciation on:
A) Domestic income
B) Domestic absorption
C) Purchasing power of money balances
D) Relative prices
Page 16
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Chapter 15: Exchange-Rate Systems and Currency Crises
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Sample Questions
Q1) Large industrial nations with diversified economies and small trade sectors have generally pegged their currencies to one of the world's key currencies.
A)True
B)False
Q2) If Uganda revalues its shilling by 20 percent and Burundi devalues its franc by 5 percent, the shillings exchange value will appreciate by 25 percent against the franc.
A)True
B)False
Q3) Refer to Figure 15.1. Suppose the demand for francs increases from D<sub>0</sub> to D<sub>1</sub>. Under a fixed exchange rate system, the U.S. exchange stabilization fund could maintain a fixed exchange rate of $0.50 per franc by:
A) Selling francs for dollars on the foreign exchange market
B) Selling dollars for francs on the foreign exchange market
C) Decreasing U.S. exports, thus decreasing the supply of francs
D) Stimulating U.S. imports, thus increasing the demand for francs
Q4) How can currency boards and dollarization prevent currency crises?
Q5) What is an SDR?
Q6) Which nations use multiple exchange rates the most and why?
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Chapter 16: Macroeconomic Policy in an Open Economy
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Sample Questions
Q1) The appropriate expenditure-\(\underline { \text { switching } }\) policy to correct a current account surplus is:
A) Currency revaluation
B) Currency devaluation
C) Expansionary monetary policy
D) Contractionary fiscal policy
Q2) Direct controls may take the form of
A) Tariffs
B) Export subsidies
C) Export quotas
D) All of the above
Q3) Expenditure-switching policies include currency revaluation, currency devaluation, and direct controls such as tariffs, quotas, and subsidies.
A)True
B)False
Q4) What happens to the balance of payments under a fixed exchange rate system, when expansionary or contractionary monetary policy is used?
Q5) What is international economic policy coordination?
Q6) 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) Are international reserve needs different for different exchange rate regimes?
Q2) Which of the following is \(\underline { \text { not } }\) considered a "borrowed" reserve?
A) Special drawing rights
B) Oil facility
C) IMF drawings
D) Reciprocal currency arrangement
Q3) The greater a nation's propensity to apply tariffs and quotas to key sectors, the greater will be the need for international reserves.
A)True
B)False
Q4) IMF drawings, swap arrangements, buffer stock facility, and compensatory financing for exports are classified as owned reserves rather than borrowed reserves.
A)True
B)False
Q5) Gold is currently the most widely used asset in the international monetary system. A)True
B)False
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Page 19