Global Economics
Exam Materials
Course Introduction
Global Economics explores the dynamics of economic systems and interactions across countries and regions in an increasingly interconnected world. The course covers topics such as international trade, exchange rates, globalization, economic development, and the roles of key institutions like the International Monetary Fund and World Bank. Students examine how policies, financial markets, and technological advancements influence global economic trends, considering both the opportunities and challenges that arise in international economic relations. Through case studies and real-world examples, the course equips learners with analytical tools to understand and evaluate the economic forces shaping the global landscape.
Recommended Textbook
International Economics 9th Edition by Steven Husted
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18 Chapters
836 Verified Questions
836 Flashcards
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Page 2
Chapter 1: An Introduction to International Trade
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Sample Questions
Q1) Which of the following statements about the United States was true as of 2007?
A)It was the world's largest exporter.
B)It had the world's largest deficit in its current account.
C)It had the world's largest surplus in its current account.
D)None of the above are true.
Answer: B
Q2) Japanese exports are heavily concentrated in
A)agricultural products such as rice.
B)natural resource products such as coal.
C)manufactured products including motor vehicles.
D)Both A and C.
Answer: C
Q3) Can a country have a trade deficit forever?
Answer: Countries whose imports exceed exports are said to run trade deficits.Countries cannot run trade deficits forever,just like individuals cannot borrow indefinitely.This is illustrated by the fact that the revenue earned from selling exports is the primary means for purchasing imports.Thus,in some years countries will have to export more then they import to repay for their past debts.
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Chapter 2: Tools of Analysis for International Trade Models
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Sample Questions
Q1) Indifference curves are downward sloping because A)when some of one good is taken away the consumer must be compensated with more of the other.
B)higher prices mean less quantity demanded.
C)higher indifference curves mean higher utility.
D)Both A and B.
Answer: A
Q2) If individuals have money illusion then they A)think that money is worthless.
B)ignore the effects on their income or wealth of some price changes in the economy. C)they base their production and consumption decisions on relative rather than absolute prices.
D)Both B and C.
Answer: B
Q3) Per capita real GDP levels provide one possible measure of a country's standard of living.
A)True
B)False
Answer: True
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Chapter 3: The Classical Model of International Trade
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Sample Questions
Q1) Adam Smith was an American economist that published The Wealth of Nations,one of the most important books in the history of economic thought.
A)True
B)False
Answer: False
Q2) A country in autarky does not trade.
A)True
B)False
Answer: True
Q3) Comparative advantage is determined by the relative levels of autarky prices.
A)True
B)False
Answer: True
Q4) Absolute advantage is determined by
A)actual differences in labor productivity between countries.
B)relative differences in labor productivity between countries.
C)Both A and B.
D)Neither A nor B.
Answer: A
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Chapter 4: The Heckscher-Ohlin Model
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Sample Questions
Q1) Tastes are assumed to be identical across countries to rule out differences in demand determining the direction of trade.
A)True
B)False
Q2) Refer to the figure above.This country's imports equal
A)CE units of X.
B)GH units of Y.
C)CD units of X.
D)DE units of Y.
Q3) Let Kj and Lj denote the capital and labor stocks of country j (j = A,B),then country A is said to be capital abundant relative to country B if
A)KA > KB.
B)KA/LA > KB/LB.
C)LA < LB.
D)All of the above.
Q4) In the HO model,reciprocal demand leads to an equilibrium price by inducing changes in both demand and supply.
A)True
B)False
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Chapter 5: Tests of Trade Models: the Leontief Paradox and Its Aftermath
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Sample Questions
Q1) The finding that U.S.exports tend to come from labor-intensive industries,while U.S.imports are produced using relatively capital intensive techniques is known as
A)the Leontief paradox.
B)the balance of trade enigma.
C)the Heckscher-Ohlin paradox.
D)the Krugman finding.
Q2) A possible reconciliation of the Leontief Paradox is that the United States has high tariffs on capital intensive goods and low tariffs on labor intensive goods.
A)True
B)False
Q3) Leontief's results were considered paradoxical because the United States was believed to be
A)technologically efficient relative to the rest of the world.
B)capital abundant relative to the rest of the world.
C)labor abundant relative to the rest of the world.
D)All of the above.
Q4) Is the distribution of income across different countries in the world equitable? In other words,do all countries share the world's wealth equally?
Page 7
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Chapter 6: Tariffs
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Sample Questions
Q1) Refer to the figure above.With free trade,the total quantity of imports would equal
A)10,000 units.
B)20,000 units.
C)22,000 units.
D)30,000 units.
Q2) Ad valorem tariffs are collected as
A)fixed amounts of money per unit traded.
B)a percentage of the price of the product.
C)a percentage of the quantity of imports.
D)All of the above.
Q3) A country can never raise its standard of living by imposing a tariff.
A)True
B)False
Q4) Why do governments generally prefer to impose tariffs over quotas?
Q5) Examples from the United States suggest that the cost to consumers per job saved in highly protected industries is low.
A)True
B)False
Q6) Write an essay on the gains from free international trade.
Page 8
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Chapter 7: Nontariff Barriers and Arguments for Protection
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Q1) Voluntary export restraints and quotas are essentially identical in their welfare effects.
A)True
B)False
Q2) The argument that developing countries with lax environmental standards will attract foreign manufacturers who want to escape stricter standards in their own countries is known as the pollution havens hypothesis.
A)True
B)False
Q3) Which of the following is false?
A)Tariffs and quotas are identical in their effects, if the protected industry is a monopoly.
B)Quotas tend to breed graft.
C)Welfare effects of quotas depend, in part, on who gets the quota rents.
D)Quotas tend to be administrated in an arbitrary fashion.
Q4) Describe aspects of customs valuation practices that are controversial in the world of international trade,such as how countries establish import tariffs.Also,how does the WTO protect against potentially abusive practices when determining appropriate tariffs.
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Chapter 8: Commercial Policy: History and Practice
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Sample Questions
Q1) Countervailing duty cases involve allegations of A)foreign monopoly pricing.
B)foreign export subsidies.
C)foreign barriers to U.S. exports.
D)All of the above.
Q2) Dumping can never be a profit maximizing strategy for a firm to follow.
A)True B)False
Q3) Refer to the diagram above,which represents a country's supply and demand for an internationally traded good.If PW is the world price,and a foreign country engages in dumping by selling at P1,the country's total social surplus will ________ by ________.
A)increase; abcd
B)decrease; abcd
C)increase; bcd
D)decrease; a
Q4) Current U.S.trade law allows for U.S.barriers against both fairly and unfairly traded foreign goods.
A)True B)False
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Chapter 9: Preferential Trade Agreements
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Sample Questions
Q1) Which of the following countries is<b><u> not</u></b> a member of the European Union?
A)Portugal
B)Switzerland
C)Slovakia
D)Malta
Q2) The welfare impact of a preferential trade agreement depends on the difference between the amount of new trade that takes place because of the agreement and the change in international trade patterns that arises because of it.
A)True
B)False
Q3) Membership in a customs union may be either welfare improving or welfare worsening.Illustrate and explain.
Q4) If a customs union leads to a large amount of trade creation relative to trade diversion,it may be beneficial to world welfare.
A)True
B)False
Q5) Why is NAFTA controversial? Briefly describe both sides of this controversy.
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Chapter 10: International Trade and Economic Growth
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Sample Questions
Q1) A government program that attempts to stimulate growth in the production of goods in which the country has a potential future comparative advantage is an example of a(n)________ policy.
A)primary-export-led
B) import-substitution development
C) outward-looking development
D) linkage-effect
Q2) Economic growth at constant world prices will ________ cause the output of one good to fall absolutely.
A)never
B)sometimes
C)always
Q3) ________ economic growth occurs when,after growth,exports and imports rise by the same proportion.
A)Rising
B)Neutral
C)Biased
D)Technological
Q4) What does the "brain drain" refer to and why is it a problem for developing countries?
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Chapter 11: The Balance of Payments
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Sample Questions
Q1) The payment of a dividend by a foreign company to an American stockholder represents
A)a debit in the U.S. capital account.
B)a credit in the U.S. current account.
C)a credit in the U.S. official reserve account.
D)a debit in the U.S. current account.
Q2) Explain how BOP disequilibrium is restored under (a) flexible exchange rates. (b) fixed exchange rates,after you define what a BOP disequilibrium means.
Q3) The U.S.is the world's largest creditor.
A)True
B)False
Q4) Interest earned on foreign holdings of U.S.federal,state and local government debt are recorded in the A)services account.
B)merchandise account.
C)transfers account.
D)capital account.
Q5) How are the current account and the financial account related?
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Chapter 12: The Foreign Exchange Market
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Sample Questions
Q1) If the bank is selling euros for $0.89,then what is the implied euro price of the dollar?
A)2.00
B)1.99
C)2.32
D)1.12
Q2) Why is it true that exchange rates tend to be equal worldwide? Briefly explain.
Q3) A European option differs from an American option in that it may be exercised
A)only on the spot date.
B)only on the expiration date.
C)only on the future date.
D)on any date.
Q4) The size of the spread that a dealer will quote for a foreign exchange transaction will vary depending on
A)the degree of market volatility at the time.
B)the degree of risk associated with a particular currency.
C)the size of the market for the currency being traded.
D)All of above.
Q5) Explain the similarities and differences between the forward and futures markets.
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Page 14
Chapter 13: International Monetary Systems
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Sample Questions
Q1) Given the currencies below,which was not replaced by the Euro?
A)German mark
B)Irish pound
C)British pound
D)French franc
Q2) The degree that PPP may hold in the short- or in the long-run is very much related to the choice of an exchange rate regime.
A)True
B)False
Q3) In practice,the Bretton Woods system is best described as
A)an adjustable peg.
B)a purely fixed exchange rate
C)a gold exchange standard
D)Both A and C
Q4) Countries that trade a small amount with a single foreign country tend to float their exchange rate to the foreign country's currency.
A)True
B)False
Q5) What is a currency board?
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Chapter 14: Exchange Rates in the Short Run
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Sample Questions
Q1) Interest differentials cause exchange rate changes.
A)True
B)False
Q2) Write down the Fisher equation and IRP relationship for the United States and the United Kingdom. Using these relationships,how can we determine the link between interest,inflation,and exchange rates? How can a change in U.S.policy affect this link?
Q3) Money is more mobile geographically now than in the past.
A)True
B)False
Q4) Give 3 reasons for deviations from IRP. Do these deviations indicate unexploited profit opportunities for investors?
Q5) Change in U.S.policy can lead to changes in inflationary expectations,interest rates,and exchange rates simultaneously as they all adjust to new equilibrium levels.
A)True
B)False
Q6) How has the globalization of financial markets affected the way in which countries conduct their economic policies?
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Page 16
Chapter 15: Exchange Rates in the Long Run
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Sample Questions
Q1) Evidence suggests that,following some exogenous shock,exchange rates change
A)before prices change.
B)after prices change.
C)at the same time prices change.
D)None of the above.
Q2) Suppose a year ago the exchange rate between Mexican pesos and dollars was 13.5 pesos per dollar,and that according to relative PPP the exchange rate was in equilibrium.Furthermore,assume that since then,Mexican inflation has been 12 percent while the U.S.inflation has been 3 percent.If according to relative PPP the peso is now said to be overvalued,what is a possible exchange rate consistent with this assertion?
A)13.5 pesos per dollar.
B)14.72 pesos per dollar.
C)15 pesos per dollar.
D)20 pesos per dollar.
Q3) Endogenous variables tend to be less volatile than exogenous ones.
A)True
B)False
Q4) Is PPP a theory of exchange rate determination? Explain why or why not?
Q5) Briefly explain the difference between absolute and relative PPP.
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Chapter 16: Theories of the Current Account Balance
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Sample Questions
Q1) Which of the following is not appropriate,if we live in a world of fixed exchange rates?
A)monetary approach to the exchange rate
B)elasticities approach
C)monetary approach to the BOP
D)absorption approach
Q2) Discuss the short-run and long-run views of PPP. Make sure that you explain the underlying adjustment mechanism and theoretical reasoning for each view when answering the question. Which view,do you think,is more likely to represent the real world?
Q3) According to the MABP,BOP disequilibria
A)must be transitory.
B)are essentially real phenomena.
C)must be permanent.
D)are not important.
Q4) With a flexible exchange rate,a nation can choose an inflation rate independent of the rest of the world.
A)True
B)False
Q5) What is pricing to market? Where is it most prevalent?
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Chapter 17: Open Economy Macroeconomics
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Sample Questions
Q1) The global financial crisis that began in 2008 was a great illustration of how interdependent national economies are.
A)True
B)False
Q2) A point to the left of the BP curve would represent
A)a balance of payments deficit.
B)a balance of payments surplus.
C)internal disequilibrium.
D)Both A and C.
Q3) Points to the left of the IS curve represent excess demand for goods.
A)True
B)False
Q4) The BP curve is upward sloping if assets are perfectly substitutable.
A)True
B)False
Q5) The open-economy multiplier is equal to the reciprocal of the marginal propensity to save.
A)True
B)False
Q6) What was the Plaza Agreement about?
Page 19
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Chapter 18: International Banking, debt and Risk
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Sample Questions
Q1) The IMF lends at low interest rates and without preconditions.
A)True
B)False
Q2) Which of the following countries received a loan from the IMF in November 2008?
A)Japan
B)China
C)Hungary
D)Mexico
Q3) What are Eurobanks and how are they different from domestic banks?
Q4) International Banking Facilities (or IBFs)were established in 1981.
A)True
B)False
Q5) The key interest rate in the Eurocurrency market is the
A)London interbank offer rate.
B)Eurobank spread rate.
C)Prime rate.
D)C.D. rate.
Q6) What is Islamic Banking?
Q7) What are the reasons for the <u>development and growth </u>of the Eurodollar market?
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