Global Economics Study Guide Questions
Course Introduction
Global Economics explores the interconnectedness of economies worldwide, examining how trade, finance, investment, and policy decisions impact nations at both macro and micro levels. The course delves into topics such as international trade theories, currency exchange mechanisms, the influence of global organizations, and economic development in different regions. Students will analyze case studies highlighting real-world economic challenges, assess how globalization shapes markets, and evaluate the effects of international economic agreements. By fostering an understanding of key concepts and current trends, the course prepares students to critically assess global economic issues and participate in informed discussions about the global marketplace.
Recommended Textbook
International Economics 7th Edition by James Gerber
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Page 2
Chapter 1: The United States in a Global Economy
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Q1) Which of the following kinds of agreements between two or more countries would be an example of a deep integration measure?
A)An agreement to reduce tariffs and quotas
B)An agreement to unify customs forms in order to speed up cross-border traffic
C)An agreement to impose the same limits on cartels and monopolies
D)An agreement to reduce exports
Answer: C
Q2) Capital flows between countries are smaller than in past decades in absolute terms.
A)True
B)False
Answer: False
Q3) Labor mobility was
A)less in 1900 than in 2010.
B)unimportant to global integration until the 1960s.
C)greater in 1900 than in 2010.
D)never controversial.
Answer: C
Q4) Why are high domestic savings rates important?
Answer: High savings rates are correlated with high domestic investment.
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Chapter 2: International Economic Institutions Since World
War II
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Q1) Which of the following is an example of an institution whose primary concern is global stability?
A)NAFTA (North American Free Trade Agreement)
B)OPEC (Oil Producing and Exporting Countries)
C)IMF (International Monetary Fund)
D)Asian Development Bank
Answer: C
Q2) China's alternative to the IMF is called
A)AIIB.
B)ASEAN.
C)MERCOSUR.
D)TIIP.
Answer: A
Q3) A country experiencing a debt or currency crisis would contact the World Bank. A)True
B)False
Answer: False
Q4) Which multilateral institution serves as the lender of last resort?
Answer: The IMF
Page 4
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Chapter 3: Comparative Advantage and the Gains From Trade
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Q1) Adam Smith created the theory of comparative advantage.
A)True
B)False
Answer: False
Q2) In our simple trade model,having a comparative advantage in a product implies that a country will specialize completely in the product
A)with the highest opportunity cost.
B)with the lowest opportunity cost.
C)where total output is lower per worker-hour.
D)where total output is greater per worker-hour.
Answer: B
Q3) Which economist introduced the simple trade model and the concept of trade based on comparative advantage?
Answer: David Ricardo
Q4) Comparative advantage can change over time.
A)True
B)False
Answer: True
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Chapter 4: Comparative Advantage and Factor
Endowments
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Q1) Using the specific factors model,assume that strawberry production requires the specific factor of land,tractor production requires the specific factor of capital,and labor is variable.If the United States is capital abundant compared to Mexico,and Mexico is land abundant compared to the United States,then in the short run with trade we would expect
A)the income of U.S. land owners to increase.
B)the income of U.S. workers to increase.
C)the income of Mexican workers to increase.
D)the income of Mexican land owners to increase.
Q2) The L in OLI theory stands for loyalty,and this factor makes it more difficult for firms to substitute foreign operations for domestic as they fear a loss of sales due to negative publicity.
A)True
B)False
Q3) The United States has the largest percentage of foreigners in its overall population of any nation.
A)True
B)False
Q4) What does research thus far suggest about job loss and offshoring?
Page 6
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Chapter 5: Beyond Comparative Advantage
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Q1) Describe how Mexico's manufacturing has changed location and type over time.
Q2) If the United States and Canada trade hydro-powered electricity for Hollywood films,what type of trade does this represent?
Q3) Carefully explain why there are gains from intraindustry trade.
Q4) Sound macroeconomic policies are less important than industrial policies in promoting growth.
A)True
B)False
Q5) Economies of scale are an important determinant of comparative advantage-based trade.
A)True
B)False
Q6) If countries have similar factor endowments and productivities,what type of trade are they most likely to have?
Q7) Trading French wine for California wine is an example of intraindustry trade.
A)True
B)False
Q8) Explain why industrial policies are controversial.
Q9) Intraindustry trade is characterized by what two features?
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Chapter 6: The Theory of Tariffs and Quotas
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Q1) When did intellectual property rights become part of trade agreements?
Q2) Use a graph to demonstrate why quotas are likely to cause increased deadweight losses over time.
Q3) Nontariff measures are generally much more difficult to eliminate than tariffs and quotas because they are embedded more deeply in national economic policies.
A)True
B)False
Q4) In a small country,the net national cost of tariff protection is equal to the reduction in consumer surplus minus
A)the increase in government revenue and the increase in producer surplus.
B)the increase in government revenue.
C)the increase in producer surplus.
D)the efficiency loss and the consumption side loss.
Q5) Which of the following would be a deadweight loss from a tariff?
A)The shift of consumer surplus to government
B)The increase in producer surplus
C)The decrease in consumer surplus
D)The decrease in consumer surplus due to a drop in consumption
Q6) What do developing countries want regarding agriculture in the Doha Round?
Page 8
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Chapter 7: Commercial Policy
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Q1) Dumping occurs when a firm
A) sells too much of a good in a foreign country.
B) sells in a foreign country at prices that are below fair value.
C) sells in its home market at prices that are below the average price charged by its competitors.
D) sells in a foreign market at prices that are below the prices charged by firms based in the foreign market.
Q2) Under Special 301, what is the U.S. government required to do?
Q3) If a large percentage of economic activity in developing countries is unrecorded, then the countries are likely to rely on which of the following taxes to provide government revenue?
A) Sales taxes
B) Property taxes
C) Income taxes
D) Tariffs
Q4) Describe traditional knowledge and how it relates to current trade issues about intellectual property rights protection.
Q5) Carefully explain why agricultural subsidies are viewed as harmful.
Q6) Why is it difficult to determine whether a country is dumping? Explain fully.
Page 9
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Chapter 8: International Trade and Labor and Environmental Standards
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Q1) "Certified shade-grown,organic coffee" is an example of requiring home standards in a foreign market instead of trade barriers.
A)True
B)False
Q2) Which of the following is NOT a true statement about the WTO and the protection of endangered species?
A)The environmental movement has been critical of the WTO.
B)Under WTO rules, countries have a right to impose import barriers to protect endangered species.
C)The WTO did not allow the U.S. to protect sea turtles.
D)GATT rules prohibit discrimination based on the production process used.
Q3) The WTO explicitly stated that in making its sea turtle decision,it was NOT saying that sovereign nations could not adopt effective measures to protect endangered species.Clearly,it said,sovereign nations can and should develop effective measures,including trade measures,to protect endangered species.
A)True
B)False
Q4) Which region has the largest number of children working?
Q5) In what industrial sector are children most likely to be working?
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Chapter 9: Trade and the Balance of Payments
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Q1) Based on Table 9.1,if the information in the table is typical of current and financial account values over a long period,then it would be reasonable to infer that A)the net international investment position is negative. B)the net international investment position is positive. C)national savings are less than domestic investment. D)government accounts are in deficit.
Q2) Based on Table 9.3,if values in the table are amended to reflect a net increase in U.S.foreign direct investment of 100,then the new balance for the capital account balance becomes
A)-75. B)-25. C)+25. D)+75.
Q3) Based on Table 9.1,the balance on the current account is A)+100. B)+200. C)-100. D)-200.
Q4) What does a current account deficit do that is positive for a nation?
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Chapter 10: Exchange Rates and Exchange Rate Systems
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Q1) Would each of the following groups be happy or unhappy if the Mexican peso appreciates against the U.S.dollar? Answer the question for each of the following:
(a) The U.S.pension funds holding Mexican government bonds
(b) U.S.tourists planning a trip to Mexico
(c) Mexican exporting manufacturers
(d) A Mexican firm trying to buy properties overseas
Q2) Which of the following defines a hard peg?
A)An exchange rate determined by the market
B)An exchange rate that fluctuates within a set band
C)An exchange rate that is not allowed to vary
D)An exchange rate that is backed by gold
Q3) Which of the following defines a soft peg?
A)An exchange rate determined by the market
B)An exchange rate that fluctuates within a set band
C)An exchange rate that is not allowed to vary
D)An exchange rate that is backed by gold
Q4) If inflation is higher in the home market,what is expected to happen to the real value of the home currency as time passes?
Q5) Which type of exchange rate system minimizes external shocks to an economy?
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Chapter 11: An Introduction to Open Economy
Macroeconomics
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Q1) The recent trend internationally has been for the executive and legislative branches of elected governments to get more control over monetary policy,as has been the case in countries such as the United States.
A)True
B)False
Q2) Fiscal policy is
A)the selling of government bonds by the Treasury.
B)the deliberate manipulation of the money supply designed to affect the interest rate. C)the deliberate manipulation of taxation and spending designed to affect the economy.
D)the selling of foreign exchange reserves designed to change the exchange rate.
Q3) Contractionary fiscal policy can lead to a depreciation of the nation's currency.
A)True
B)False
Q4) How does expansionary monetary policy affect a nation's exchange rate?
Q5) Explain how exchange rate policies affected economies during the Great Depression.
Page 13
Q6) If interest rates rise,what will happen to the nation's exchange rate?
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Chapter 12: International Financial Crises
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Q1) Tax systems in developing countries tend to be efficient and reliable.
A)True
B)False
Q2) A lender of last resort
A)makes loans when no one else will.
B)makes loans without regard for risk.
C)is a firm that is forced to make loans for its own survival.
D)makes loans to all who require them.
Q3) Which of the following is a true statement about crises caused by volatile capital flows?
A)Volatile capital flows rarely cause contagion effects.
B)Technological advances have increased the volatility of capital flows.
C)Exchange rates appreciate when there are capital outflows.
D)Budget deficits decrease when there are capital outflows.
Q4) Before the 1970s,IMF conditionality focused primarily on correcting the immediate source of the problem.
A)True
B)False
Q5) Explain the pros and cons of a crawling peg.
Q6) How did the global supply of savings impact the formation of the housing bubble?
Page 14
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Chapter 13: The United States in the World Economy
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Q1) Explain the key principles of the labor and environmental side agreements to the NAFTA.
Q2) Purchasing power parity (PPP)measurements of income are a way to make international comparisons by correcting for national differences in A)unemployment.
B)inflation.
C)prices of goods and services.
D)economic growth.
Q3) Why are trade agreements between the U.S.and Mexico more controversial than trade agreements between the U.S.and Canada?
Q4) Which of the following is a preferential agreement?
A)the Trans-Pacific Partnership (TPP)
B)the Transatlantic Trade and Investment Partnership (TTIP)
C)the Caribbean Basin Initiative (CBI)
D)the Asia-Pacific Economic Cooperation (APEC)
Q5) Explain what a purchasing power parity adjustment is and why it is necessary.Should it always be used?
Q6) Explain the importance of free trade agreements to the U.S.and how they benefit the U.S.economy.
Page 15
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Chapter 14: The European Union: Many Markets Into One
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Q1) Which of the following is NOT one of the major problems with expanding the EU?
A)Expansion has become a more difficult task because of the unwillingness of the eastern and central European countries to change.
B)The programs that target EU expenditures could be stretched thin by the addition of countries with much lower incomes.
C)The EU may be faced with an unstable eastern border with huge worker migratory flows if the transition economies fail.
D)Most central and eastern European countries have large agricultural sectors and extending subsidies to these countries would entail an enormous flow of funds given the Common Agricultural Policy.
Q2) Explain why the European exchange rate mechanism (ERM)ran into problems in the 1990s.
Q3) The European Union is the oldest,largest,and most ambitious integration agreement in the world today.
A)True
B)False
Q4) Members of which European Union institution are popularly elected?
Q5) How did the Single European Act create economic gains in the EU?
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Chapter 15: Trade and Policy Reform in Latin America
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Q1) Growth in Latin America in the 1970s was largely fueled by
A)monetary expansion.
B)government spending.
C)export growth.
D)capital inflows.
Q2) Overvalued exchange rates benefit consumers in the short run.
A)True
B)False
Q3) Briefly describe economic growth in Latin America from 1900 to the 1980s.
Q4) The 1980s were a Lost Decade for Latin America.
A)True
B)False
Q5) Private capital flows in the form of both direct and portfolio investment began to return to Latin America after 1989,effectively marking the end of the Lost Decade.
A)True
B)False
Q6) What are the three initial conditions that trigger economic populism?
Q7) What benefits did an overvalued currency offer a domestic economy in the ISI period? Which sectors were typically harmed by overvalued currencies?
Page 17
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Chapter 16: Export-Oriented Growth in East Asia
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Q1) Which of the following is NOT a mechanism the high-growth Asian economies used to share wealth across all layers of society?
A)Significant investments in rural infrastructure
B)Free public education
C)Tax policies that strongly redistributed income from rich to poor
D)Land reform
Q2) Which factors account for most of the growth in the high growth Asian economies?
Q3) In general,the relationship between democracy and economic growth as demonstrated by the high-growth Asian economies is that
A)democratic nations grow faster than undemocratic nations.
B)democratic nations grow slower than undemocratic nations.
C)there does not seem to be a relationship between democracy and economic growth.
D)democracies are much more variable in their rates of growth than undemocratic nations.
Q4) Compare macroeconomic policies in the high-growth Asian economies with policies in the rest of the world.
Q5) Could the high-income Asian economies be characterized as open economies? Explain.
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Chapter 17: China and India in the World Economy
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Q1) China's initial economic reforms were in which sector?
A)Manufacturing
B)Infrastructure
C)Agriculture
D)Mining
Q2) Which of the following is NOT a true statement?
A)It is unclear whether any of the decline in U.S. manufacturing employment can be attributed to Chinese growth.
B)China's growth has been beneficial to many countries.
C)China does not import many goods.
D)China had large trade surpluses.
Q3) China has a trade deficit in services,while India has a trade surplus in services.
A)True
B)False
Q4) Describe China's reform path,including the forces that started China's reform efforts and how they continued through the 1980s and early 1990s.
Q5) Can U.S.manufacturing job losses be attributed to the growth of manufacturing in China?
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