Global Economics Exam Practice Tests
Course Introduction
Global Economics explores the principles and dynamics that shape economic interactions and policies on an international scale. The course examines topics such as international trade, financial markets, exchange rates, economic development, global institutions, and the interconnectedness of national economies. Students will analyze how economic policies and events in one country can have far-reaching effects globally, and they will develop an understanding of the challenges and opportunities facing nations in an increasingly globalized economy. By integrating theoretical concepts with contemporary case studies, the course equips students to critically assess global economic issues and trends.
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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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) Barriers to trade
A)include government policies such as tariffs and quotas.
B)have been falling with technological improvements in transportation and communication.
C)have risen since World War II as many countries have imposed higher tariffs.
D)Two of the above are true.
Answer: D
Q2) As of 2007,the United States is the world's largest importer.
A)True
B)False
Answer: True
Q3) Which of the following statements is false?
A)Between 1980 and 2006, the index of openness has risen for most countries.
B)Since 1950, international trade has been growing faster than the growth of world output.
C)A country cannot be a leading world exporter without a high index of openness.
D)Two of the above are true.
Answer: C
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3
Chapter 2: Tools of Analysis for International Trade Models
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Sample Questions
Q1) Refer to the figure above.If the relative price of T were to increase,then the price line would
A)shift out in a parallel fashion.
B)shift in a parallel fashion.
C)become steeper.
D)become flatter.
Answer: D
Q2) In autarky equilibrium,
A)production equals consumption.
B)exports equal imports.
C)there is no international trade.
D)All of the above.
Answer: D
Q3) An indifference curve represents the collection of goods and services that an individual has no desire to consume.
A)True
B)False
Answer: False
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Chapter 3: The Classical Model of International Trade
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Sample Questions
Q1) Mercantilism
A)is the philosophy of free international trade.
B)was a system of export promotion and barriers to imports practiced by governments, especially in the 17th and 18th centuries.
C)was praised by Adam Smith in <u>The Wealth of Nations</u>.
D)Both A and C.
Answer: B
Q2) A country must have comparative advantage in a good in order to have absolute advantage in that good.
A)True
B)False
Answer: False
Q3) Refer to the table above.Country A has absolute advantage in A)Good X.
B)Good Y.
C)Neither X nor Y.
D)Both X and Y.
Answer: A
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Chapter 4: The Heckscher-Ohlin Model
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Sample Questions
Q1) According to the HO model,countries with different factor endowments but similar technologies and preferences will have a strong basis for trade with each other.
A)True
B)False
Q2) The HO model predicts that once trade begins factor prices will equalize between countries.This result occurs because of the assumption of A)identical technology sets available to each country.
B)constant opportunity costs.
C)one factor of production.
D)free international mobility of factors.
Q3) According the Stolper-Samuelson theorem,the scarce factor in any given country should oppose international trade by that country.
A)True
B)False
Q4) According to the factor price equalization theorem,free international trade will result in wages equating rents worldwide.
A)True
B)False
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6
Chapter 5: Tests of Trade Models: the Leontief Paradox and Its Aftermath
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Sample Questions
Q1) Does the presence in the real world of intraindustry trade prove or disprove the classical or Heckscher-Ohlin models? Explain.
Q2) Describe some of the problems in testing the Heckscher-Ohlin theory.
Q3) An input-output table details the sales of each industry to all other industries in an economy.
A)True
B)False
Q4) Compare and contrast the predictions of the Heckscher-Ohlin and classical models about likely trading partners of various countries with the predictions of the Linder hypothesis.
Q5) Linder's hypothesis provides an explanation for
A)increasing returns to scale.
B)imperfect competition.
C)intraindustry trade.
D)All of the above.
Q6) Leontief reconciled his results by arguing that
A)American labor is more efficient than foreign.
B)American capital is more efficient than foreign.
Page 7
C)Foreign capital is more efficient than American.
D)Foreign labor is more efficient than American.
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Page 8
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) The deadweight costs of an export tariff have similar interpretations to those of an import tariff.
A)True
B)False
Q3) Which of the following countries imposes significant tariffs on its agricultural exports?
A)Argentina
B)The U.S.
C)Canada
D)France.
Q4) An increase in the tariff on semiconductors lowers the effective rate of protection of computer producers.
A)True
B)False
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Chapter 7: Nontariff Barriers and Arguments for Protection
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Sample Questions
Q1) ________ are profits that accrue to whomever has the right to import the quota restricted good.
A)Quota licenses
B)Quota rents
C)Quota prices
D)None of the above.
Q2) The welfare effects of a quota depend,to considerable extent,upon
A)who has the quota license.
B)the size of the quota.
C)elasticities of domestic demand and supply.
D)all of the above.
Q3) Refer to the figure above.If this were a voluntary restraint agreement,the welfare costs to the importing country would be
A)$14,000.
B)$18,000.
C)$38,000.
D)$60,000.
Q4) Most tariffs around the world are collected on an ad valorem basis.
A)True
B)False
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Chapter 8: Commercial Policy: History and Practice
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Sample Questions
Q1) ________ is defined in U.S.law as selling a product in a foreign country at a price that is less than fair value.
A)Subsidizing
B)Countervailing
C)Exporting
D)Dumping
Q2) The effect of antidumping laws is to
A)put a floor on foreign prices.
B)lower consumer surplus in the importing country.
C)encourage domestic firms to allege dumping even when it might not be true.
D)All of the above.
Q3) One of the outcomes of the Uruguay Round is the formation of the World Trade Organization now sets new trade rules and has more power than the old GATT to enforce the rules it sets.
A)True
B)False
Q4) Predatory dumping by foreign firms is a very common phenomenon in U.S.markets.
A)True
B)False
Q5) Write an essay on the role of the WTO in today's international economy.
Page 11
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Chapter 9: Preferential Trade Agreements
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Sample Questions
Q1) 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
Q2) In leading the opposition to the adoption of NAFTA,H.Ross Perot argued that NAFTA would lead to
A)a loss of U.S. competitiveness with Canada.
B)a loss of U.S. manufacturing jobs to Mexico.
C)a loss of U.S. willingness to negotiate the Uruguay Round.
D)All of the above.
Q3) If a customs union leads to a large amount of trade diversion relative to trade creation,it may be beneficial to world welfare.
A)True
B)False
Q4) Russia is a member of the European Union.
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) As a candidate for president of the United States,Barak Obama was an ardent supporter of outsourcing.
A)True
B)False
Q2) Rich country to poor country migration is relatively uncommon.
A)True
B)False
Q3) Sale of U.S.government bonds to foreigners is an example of direct foreign investment in the United States.
A)True
B)False
Q4) Recently,many developing countries throughout the world have begun to institute policies that seek to
A)liberalize international trade by lowering trade barriers.
B)reduce dependence on international trade by raising trade barriers.
C)reduce dependence on international trade by instituting laws that call for buying only domestically made goods.
D)Two of the above.
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Chapter 11: The Balance of Payments
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Sample Questions
Q1) If a country has a large deficit in its current account
A)it has a large surplus in its financial account.
B)it exports more than it imports.
C)it is a net creditor to the rest of the world.
D)None of the above are necessarily true.
Q2) The U.S.Balance of Payments is constructed by
A)the U.S. Department of Labor.
B)the U.S. Department of Agriculture.
C)the U.S. Department of Commerce.
D)the Council of Economic Advisers to the President.
Q3) Direct investment and security purchases are included in
A)current account items.
B)capital account items.
C)basic balance account items.
D)unilateral transfers.
Q4) It is possible for every nation to have BOP surpluses.
A)True
B)False
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) The reduction or covering of a foreign exchange risk is called A)hedging.
B)speculation.
C)intervention.
D)arbitrage.
Q2) Both a parallel market and a black market are free markets permitted to coexist with the official market.
A)True
B)False
Q3) The most common type of transaction in the foreign exchange market is a A)forward transaction.
B)spot transaction.
C)swap transaction.
D)None of the above.
Q4) In the foreign exchange market,a broker reveals the names of the banks making bids or offers to the trading banks before the trade has been agreed upon.
A)True
B)False
Q5) Why is it true that exchange rates tend to be equal worldwide? Briefly explain.
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Chapter 13: International Monetary Systems
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Sample Questions
Q1) The SDR (Special Drawing Rights)is issued by the A)IMF.
B)Federal Reserve Bank.
C)European Monetary System.
D)World Bank.
Q2) What is seigniorage? What are the factors that determine whether a currency should emerge as the dominant reserve currency?
Q3) Under a gold standard system,central banks can follow an independent monetary policy.
A)True
B)False
Q4) Seigniorage is defined as the difference between the exchange value of a money and its cost of production.
A)True
B)False
Q5) Which of the following currencies has been replaced by the euro?
A)The French franc
B)The Swiss franc
C)The British pound
D)The Swedish krona
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Chapter 14: Exchange Rates in the Short Run
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Sample Questions
Q1) If real interest rates are equal in two countries,then the nominal interest differential on their currencies will equal
A)the expected inflation differential.
B)the risk premium.
C)the forward premium or discount.
D)Both A and C.
Q2) How has the globalization of financial markets affected the way in which countries conduct their economic policies?
Q3) We can expect very small deviations from interest rate parity in
A)the domestic markets.
B)the Eurocurrency market.
C)the goods market.
D)All of the above.
Q4) Money is more mobile geographically now than in the past.
A)True
B)False
Q5) Interest rate parity holds well in the Eurocurrency market.
A)True
B)False
Q6) Derive the interest parity condition and interpret it.
Page 17
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Chapter 15: Exchange Rates in the Long Run
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Sample Questions
Q1) In the long run,________ dominate exchange rate movements.
A)short-run inflation differentials
B)long-run inflation differentials
C)short-run relative price changes
D)All of the above
Q2) In economics,what does CPI stand for?
A)Continuous Price Inflation.
B)Central Price Information.
C)Consumer Price Index.
D)Collateral Price Inflation.
Q3) Which of the following is incorrect?
A)Exchange rates in the short run are much more variable than inflation differentials.
B)Deviations from PPP are much more apparent for monthly data than annual.
C)PPP holds best in the long run.
D)None of the above.
Q4) Briefly explain the difference between absolute and relative PPP.
Q5) PPP is a theory of real exchange rate determination.
A)True
B)False
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Chapter 16: Theories of the Current Account Balance
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Sample Questions
Q1) An increase in real income with constant prices and domestic credit leads to the same effects under both fixed and purely flexible exchange rates.
A)True
B)False
Q2) The ________ is a theory of the balance of trade that emphasizes how domestic spending on domestic goods changes relative to domestic output.
A)absorption approach
B)monetary approach
C)pass-through analysis
D)elasticities approach
Q3) The notion that,following a devaluation,the BOT falls for a while before increasing is called a ________ effect.
A)relative price
B)elasticity
C)J-curve
D)pass-through
Q4) Recent evidence regarding the exchange-rate pass-through effect in the U.S.reflects a declining trend.How can this be explained?
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Chapter 17: Open Economy Macroeconomics
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Sample Questions
Q1) At higher income levels the interest rate must be lower to achieve money market equilibrium.
A)True
B)False
Q2) During the global financial crisis of 2008-2009,it appeared that overt global policy coordination was not practiced,but countries were all following similar policies,such as decreasing interest rates.
A)True
B)False
Q3) Which of the following statements about the financial crisis that began in 2008 is true?
A)It was a great illustration of how interdependent national economies are.
B)Most economists agree that it originated in China.
C)It only lasted 3 weeks.
D)It only affected housing markets.
Q4) Analyze the following statement "the global financial crisis of 2008-2009 was a great illustration of how interdependent national economies are."
Q5) Illustrate with a graph the effects of fiscal policy when exchange rates are fixed.
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Chapter 18: International Banking, debt and Risk
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Sample Questions
Q1) In recent years,"country risk analysis" has become an important part of international business. What do we mean by "country risk"? Briefly explain the factors that are involved in a country risk analysis.
Q2) Which of the following countries received a loan from the IMF in November 2008?
A)Japan
B)China
C)Hungary
D)Mexico
Q3) Eurobank spreads exceed U.S.spreads.
A)True
B)False
Q4) 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.
Q5) Country risk analysis involves a consideration of only economic factors.
A)True
B)False
Q6) What are Eurobanks and how are they different from domestic banks?
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