Global Economics
Test Preparation
Course Introduction
Global Economics explores the interconnectedness of national economies within the international system, focusing on the flow of goods, services, capital, and labor across borders. The course examines key concepts such as comparative advantage, trade policy, international financial systems, economic development, and the impact of globalization. Students analyze the role of international organizations, such as the World Trade Organization and International Monetary Fund, and assess the effects of economic integration, crises, and policy decisions on both developed and developing nations. Through real-world case studies and theoretical frameworks, the course aims to equip students with a comprehensive understanding of global economic dynamics and the challenges shaping the world economy.
Recommended Textbook
International Economics 6th Edition by James Gerber
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Page 2
Chapter 1: The United States in a Global Economy
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Sample Questions
Q1) Transactions costs in international financial markets are higher today than they were in the past.
A)True
B)False
Answer: False
Q2) An important factor that increased international capital flows in the latter part of the 1800s was
A)the creation of the International Monetary Fund.
B)the creation of numerous regional trade agreements.
C)the rapid rate of East Asian economic growth.
D)technological innovations.
E)the creation of the World Bank.
Answer: D
Q3) Countries such as the United States that have large populations tend to have
A)higher trade-to-GDP ratios.
B)lower trade-to-GDP ratios.
C)relatively greater capital outflows.
D)relatively smaller capital outflows.
E)None of the above.
Answer: B
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Chapter 2: International Economic Institutions Since World War
Ii
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Sample Questions
Q1) The World Bank formed the World Trade Organization when it became clear that to alleviate poverty in developing nations,agricultural trade barriers were going to have to be reduced.
A)True
B)False
Answer: False
Q2) One of the strongest motivations for holding the Bretton Woods Conference was to design new international institutions that would
A)contain communism.
B)help countries avoid the mistakes of the 1920s and 1930s.
C)provide a collective defense security for Western Europe and North America.
D)ensure that world prices were not rising too rapidly.
E)create a single currency in Western Europe.
Answer: B
Q3) What result of the Uruguay Round was the most significant for global trade?
Answer: The creation of the WTO
Q4) How is the IMF funded?
Answer: It collects fees called quotas from it members.
Q5) Which round of GATT led to the formation of the WTO?
Answer: The Uruguay Round
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Chapter 3: Comparative Advantage and the Gains From Trade
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Sample Questions
Q1) Certain kinds of tropical fruits are impossible to grow outdoors in the United States.Suppose,however,that in order to create jobs in Wyoming,the U.S.government offered extensive subsidies to firms to produce bananas.With the subsidies,firms could build greenhouses and offer the fruit at world prices.
A)The United States now has a comparative advantage in bananas.
B)The United States has a comparative advantage,but is not competitive.
C)The United States is competitive,but does not have a comparative advantage.
D)The United States has a comparative advantage and is competitive.
E)None of the above.
Answer: C
Q2) The gains from trade rely on overall productivity (absolute advantage).
A)True
B)False
Answer: False
Q3) A nation must have an absolute advantage in order to have a comparative advantage in producing a good or service.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Comparative Advantage and Factor
Endowments
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Sample Questions
Q1) The O in OLI theory stands for ownership,and the asset owned can be tangible or intangible.
A)True
B)False
Q2) In the Heckscher-Ohlin model,what assumption is made about opportunity costs?
Q3) Suppose that Brazil is capital abundant and Chile is natural resource abundant.If timber is natural resource intensive and computers are capital intensive,then according to the Stolper-Samuelson Theorem,the incomes of the owners of ________ are likely to rise in Brazil after trade with Chile begins.
A)capital
B)labor
C)natural resources
D)It is impossible to determine which will be favored.
Q4) After trade opens,the short run impact on the income of the specific factor that is relatively scarce will be
A)a decrease in its income.
B)an increase in its income.
C)no change in its income.
D)indeterminate,income effects are not possible to know.
Page 6
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Chapter 5: Beyond Comparative Advantage
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Sample Questions
Q1) Which of the following is TRUE about monopolistic competition?
A)One firm serves as the entire industry.
B)A small number of firms serve the entire market.
C)It is competition among many firms producing similar but differentiated products.
D)The pattern of production and trade is difficult to predict.
E)It enjoys no economies of scale.
Q2) Trading French wine for California wine is an example of intraindustry trade.
A)True
B)False
Q3) If the United States and Mexico trade Budweiser for Modelo beer,what type of trade does this represent?
Q4) Which type of industry is likely to see more intraindustry trade?
Q5) Describe the two sources of economies of scale and how these economies of scale lead to intraindustry trade.
Q6) Intraindustry trade can lead to lower prices and job creation in both the exporting and the importing nation.
A)True B)False
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Chapter 6: The Theory of Tariffs and Quotas
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Sample Questions
Q1) Give an example of an industry that would seek intellectual property rights protection because its product incorporates innovation and research.
Q2) A real cost of tariffs and quotas that is difficult to measure is that they
A)encourage rent seeking.
B)shift income from consumers to producers.
C)limit the quantity of imports.
D)reduce wages.
E)cause deflation.
Q3) In the case of a small country,producer surplus
A)increases more with a tariff than with an equivalent quota.
B)increases more with a quota than with an equivalent tariff.
C)is not changed by tariffs or quotas.
D)increases the same with tariffs and equivalent quotas.
E)increases more with quotas.
Q4) Quotas usually lead to larger deadweight losses than tariffs.
A)True
B)False
Q5) Since the mid-1980s tariff rates in most nations have risen.
A)True
B)False
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Chapter 7: Commercial Policy
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Sample Questions
Q1) 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
Q2) Tariffs are highest in which sector internationally?
A)Agriculture
B)Energy
C)Technology
D)Automobiles
Q3) One reason why consumers are unlikely to be too upset about tariffs is because A)most consumers benefit from protection.
B)tariffs are an inexpensive way to create jobs.
C)consumer losses are not real losses.
D)the costs are so spread out that no one pays a big share of the total.
E)the gains of producers are larger.
Q4) How did the Uruguay Round of GATT impact agriculture?
Q5) Critique the infant industry or the labor argument for protection.
Page 9
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Chapter 8: International Trade and Labor and Environmental Standards
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Sample Questions
Q1) Discriminatory trade practices are allowed among sister WTO member countries,especially when it comes to
A)the use of child labor in agricultural and textile/apparel products.
B)national security and special benefits given to other members of a free trade area.
C)the protection of agriculture and textile/apparel from open trade.
D)Both A and B are correct.
E)Both B and C are correct.
Q2) Low standards reduce production costs and change a nation's comparative advantage.
A)True
B)False
Q3) When countries try to ban child labor,
A)most children start to attend school.
B)family poverty decreases.
C)child labor often goes underground,with children working in the informal economy,family enterprises and remote areas.
D)GDP increases.
Q4) Which region has the highest proportion of its children working?
Q5) Which region has the most children (total number)working?
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Chapter 9: Trade and the Balance of Payments
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Sample Questions
Q1) Total debt is more important in figuring out the ability of a country to service its debt than are debt to GDP and debt to export ratios.
A)True
B)False
Q2) Which of the following is FALSE?
A)In 2002,the United States imported more goods and services from foreign suppliers than it exported to foreign purchasers.
B)Services are almost one-third of total exports and are a growing part of U.S.and world trade.
C)The U.S.trade balance in services is in deficit.
D)With the exception of the Gulf War period in 1991,the U.S.current account has been in deficit since the 1980s.
Q3) In most of the financial crises of the last decade,there were large and sudden financial outflows as both home and foreign investors tried to avoid the expected crises.
A)True
B)False
Q4) What does a current account deficit do that is positive for a nation?
Q5) How do recent current account deficits compare to GNP and to past ratios?
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Chapter 10: Exchange Rates and Exchange Rate Systems
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Sample Questions
Q1) Which of the following is true?
A)If an exchange rate is allowed to vary across a fixed basket of currencies,it is called a hard peg.
B)If an exchange rate is not allowed to vary against the target currency,it is called a soft peg.
C)If an exchange is only allowed to fluctuate within a set band,it is considered to be a flexible exchange rate system.
D)A soft peg is when a currency's exchange rate is only allowed to fluctuate within a set band.
E)Any exchange rate policy other than completely flexible exchange rate systems is extremely uncommon today for currencies.
Q2) When Jeneva went to Costa Rica in July 2008,a U.S.dollar was worth 550 colones.If today a U.S.dollar is worth 650 colones,it means that the U.S.dollar has depreciated against the colone.
A)True
B)False
Q3) Currently the NAFTA nations do not meet the conditions for an optimal currency area.What are the two main reasons why?
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Chapter 11: An Introduction to Open Economy
Macroeconomics
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Sample Questions
Q1) Contractionary fiscal policy attempts to shift aggregate demand to the right. A)True
B)False
Q2) If a currency rapidly depreciates,what are the possible negative results to the economy of using contractionary monetary policy to address the depreciation?
Q3) For any given increase in spending that is not directly caused by an increase in income,the impact on equilibrium GDP is greater than the initial spending increase. A)True
B)False
Q4) Describe the policies a nation would follow to correct a current account deficit.What are the primary purposes of each type of policy?
Q5) How is an exchange rate depreciation likely to affect imports and exports in the short run and over a longer period of time?
Q6) Expansionary monetary policy involves an increase in the money supply and a fall in interest rates,leading to a positive expansion in income. A)True
B)False
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Chapter 12: International Financial Crises
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Sample Questions
Q1) Exchange rate crises are only associated with fixed exchange rate systems.
A)True
B)False
Q2) Small devaluations are usually sufficient to stem capital flight.
A)True
B)False
Q3) What agreement has been reached to reduce the moral hazard problem and what does it require?
Q4) Which of the following does not occur in resolving a debt crisis?
A)Debts are restructured
B)Repayment periods are shortened
C)Interest rates are reduced
D)Some partial debt forgiveness
Q5) Unlike a banking crisis,an exchange rate crisis rarely results in a deep recession.
A)True
B)False
Q6) How were macroeconomic balances different in the period from 2000 to 2007 from past financial crises?
Q7) What are the costs of capital mobility?
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Chapter 13: The United States in the World Economy
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Sample Questions
Q1) Why is the U.S.putting less emphasis on multilateral and more emphasis on bilateral trade agreements?
Q2) One area of labor issues that the labor side agreement to NAFTA does not open to foreign consultation or investigation is
A)the use of child labor.
B)worker exposure to unsafe conditions.
C)minimum wages.
D)worker's rights to organize.
E)worker exposure to toxic hazards.
Q3) What is the significant feature of a preferential arrangement?
Q4) Free trade agreements between the United States and Canada started with the auto industry in the year 1965.
A)True
B)False
Q5) What type of economic policy did Mexico follow from the end of World War II until the 1980s? Describe the three-stage strategy that supporters of this policy emphasized.What was the outcome of these policies for Mexico's manufacturing sector?
Q6) What is the United States primary trade promotion initiative with Africa?
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Chapter
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Sample Questions
Q1) As Europe explored monetary union,evidence to date suggests that increased variability in exchange rates
A)reduces foreign trade and investment.
B)increases foreign trade and investment.
C)does not seem to have an impact on foreign trade and investment.
D)hurts foreign investment but not trade.
E)hurts foreign trade but not investment.
Q2) There is no possibility of further widening of the European Union.
A)True
B)False
Q3) The Single European Act was expected to create economic benefits by reducing the costs and risks of currency market transactions.
A)True
B)False
Q4) The fact that 10 additional nations joined the European Union in May 2004 is an example of deepening.
A)True
B)False
Q5) What three sources of revenue finance the EU budget?
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Chapter 15: Trade and Policy Reform in Latin America
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Sample Questions
Q1) What benefits did an overvalued currency offer a domestic economy in the ISI period? Which sectors were typically harmed by overvalued currencies?
Q2) The Lost Decade refers to the years between approximately A)1975 and 1985.
B)1980 and 1990.
C)1987 and 1997.
D)1972 and 1980.
E)1960 and 1970.
Q3) Latin America has more trade agreements than any other region,and it has some of the oldest as well.
A)True
B)False
Q4) Which four nations account for most of the population and economic activity in Latin America?
Q5) What is called for with heterodox stabilization policies?
Q6) A heterodox model would not call for freezing wages and prices,but an orthodox one would.
A)True
B)False
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Chapter 16: Export-Oriented Growth in East Asia
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Sample Questions
Q1) All of the Newly Industrializing Economies are in East Asia.
A)True
B)False
Q2) One of the functions of deliberation councils is to
A)coordinate foreign investment from different countries.
B)set educational policy for universities and colleges.
C)coordinate government policy and private investment.
D)broaden the economies base of exports.
E)ensure stability in the country's fiscal and monetary policies.
Q3) Which of the following is NOT a mechanism the HPAE 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
Q4) Identify at least three key factors in the HPAE's economic success?
Q5) What appears to have been one of the major causes of the Asian financial crisis?
Q6) Contrast the economic experience of the HPAE with the experience in Latin America,especially with regard to the 1980s and in terms of weathering financial crises.
Page 18
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Chapter 17: The Bric Countries in the World Economy
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Sample Questions
Q1) Describe how Brazil and Russia are similar and how they are different.
Q2) Which of the following is not a potential source of comparative advantage for China in the manufacturing sector?
A)Abundant low wage,low skill workers
B)A large domestic market that can lead to scale economies
C)Coastal areas with good logistics for international trade
D)Abundant credit from China's government sector to set up manufacturing operations
Q3) Which of the following accurately depicts the situation of India's trade in services and what it might mean for the global economy?
A)It is not perceived as threatening to the industrialized nations so it is likely to grow without any impact.
B)Because it is nothing new,other economies have had time to adjust.
C)It creates only harm to other national economies.
D)It may lead to protectionist sentiment and policies in other nations as comparative advantages shift.
Q4) Three forces played a significant role in preparing Indian policy makers for economic reform.Describe them.
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