Global Trade Policy
Mock Exam
Course Introduction
Global Trade Policy examines the economic, political, and legal frameworks that shape international trade among nations. The course explores the development and implementation of trade policies by governments and international organizations, focusing on topics such as trade agreements, tariffs, non-tariff barriers, the World Trade Organization (WTO), and the impact of globalization on trade flows. Students will analyze the consequences of trade policy decisions on domestic economies, global markets, and sustainable development, considering the perspectives of both developed and developing countries. Through case studies and current events, the course provides insights into contemporary challenges facing the global trading system, including protectionism, trade wars, and the integration of emerging economies.
Recommended Textbook
International Economics 14th Edition by Robert Carbaugh
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1874 Verified Questions
1874 Flashcards
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Chapter 1: The International Economy and Globalization
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Sample Questions
Q1) Which of the following is a fallacy of international trade?
A) Trade is a zero-sum activity
B) Exports increase employment in exporting industries
C) Import restrictions increase employment in import-competing industries
D) Tariffs and quotas reduce trade volume
Answer: A
Q2) If a nation has an open economy, it means that the nation:
A) Allows private ownership of capital
B) Has flexible exchange rates
C) Has fixed exchange rates
D) Conducts trade with other countries
Answer: D
Q3) Multilateral trade negotiations have led to
A) Continued trade liberalization
B) Financial liberalization
C) Increased investment
D) All of the above
Answer: D
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3
Chapter 2: Foundations of Modern Trade Theory: Comparative Advantage
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Sample Questions
Q1) Unlike Adam Smith, David Ricardo's trading principle emphasizes the:
A) Demand side of the market
B) Supply side of the market
C) Role of comparative costs
D) Role of absolute costs
Answer: C
Q2) The theory of reciprocal demand best applies when one country has a "large" economy and the other country has a "small" economy.
A)True
B)False
Answer: False
Q3) The mercantilists contended that because one nation's gains from trade come the expense of its trading partners, not all nations could simultaneously realize gains from trade.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Sources of Comparative Advantage
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109 Flashcards
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Sample Questions
Q1) The factor endowment theory states that comparative advantage is explained
A) Exclusively by differences in relative supply conditions
B) Exclusively by differences in relative national demand conditions
C) Both supply and demand conditions
D) None of the above
Answer: A
Q2) The product-life-cycle theory applies best to trade in primary products in the short run.
A)True
B)False
Answer: False
Q3) 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
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Page 5
Chapter 4: Tariffs
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Sample Questions
Q1) The redistribution effect is the transfer of producer surplus to domestic consumers of the import-competing product.
A)True
B)False
Q2) Consider Figure 4.2. Of the $100 tariff, $____ is passed on to the U.S. consumer via a higher price, while $____ is borne by the foreign exporter; the U.S. terms of trade:
A) $25, $75, improve
B) $25, $75, worsen
C) $75, $25, improve
D) $75, $25, worsen
Q3) According to Figure 4.1, the loss in Mexican consumer surplus due to the tariff equals:
A) $225
B) $265
C) $285
D) $325
Q4) What happens to effective protection when the value added by the domestic producer declines?
Q5) How can tariffs be justified?
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Chapter 5: Nontariff Trade Barriers
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Sample Questions
Q1) Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the US demands at $8 per bottle. How much will the US produce and import in these circumstances?
A) 5 bottles, 40 bottles
B) 40 bottles, 0 bottles
C) 5 bottles, 35 bottles
D) 5 bottles, 0 bottles
Q2) Which trade restriction stipulates the percentage of a product's total value that must be produced domestically in order for that product to be sold domestically?
A) Import quota
B) Orderly marketing agreement
C) Local content requirement
D) Government procurement policy
Q3) Export subsidies levied by foreign governments on products in which the United States has a comparative disadvantage:
A) Lower the welfare of all Americans
B) Lead to increases in U.S. consumer surplus
C) Encourage U.S. production of competing goods
D) Encourage U.S. workers to demand higher wages
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Page 7
Chapter 6: Trade Regulations and Industrial Policies
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Sample Questions
Q1) According to the normal-trade-relations (most-favored-nation) principle, if the United States extends MFN treatment to China and then grants a low tariff on imports of shirts from South Korea, the United States is obligated to provide the identical low-tariff on imports of shirts from China.
A)True
B)False
Q2) Has industrial policy contributed significantly to Japan's economic growth?
Q3) The\(\underline { \text { high point } }\)of U.S. protection culminated with the passage of the:
A) Smoot-Hawley Act of 1930
B) General Agreements on Tariffs and Trade in 1947
C) Trade Reduction Act of 1962
D) Adjustment Assistance Act of 1970
Q4) Under the government procurement policy of the World Trade Organization, federal-state-local governments are prevented from discriminating in favor of the products of domestic suppliers on contracts valued at $1 million and more.
A)True
B)False
Q5) What is the essential idea behind strategic trade policy?
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Chapter 7: Trade Policies for the Developing Nations
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Sample Questions
Q1) Export-led growth industrialization suffers a major problem: it depends on the willingness and ability of foreign nations to absorb the goods exported by the country pursuing such a policy.
A)True
B)False
Q2) To help developing countries expand their industrial base, some industrial countries have reduced tariffs on designated manufactured imports from developing countries below the levels applied to imports from industrial countries. This scheme is referred to as:
A) Generalized system of preferences
B) Export-led growth
C) International commodity agreement
D) Reciprocal trade agreement
Q3) Consider Figure 7.1. Suppose the demand for tin decreases from D<sub>0</sub> to D<sub>2</sub>. Under a system of export quotas, the tin producers could maintain the target price by:
A) Increasing the quantity of tin supplied by 15 pounds
B) Increasing the quantity of tin supplied by 30 pounds
C) Decreasing the quantity of tin supplied by 15 pounds
D) Decreasing the quantity of tin supplied by 30 pounds
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Chapter 8: Regional Trading Arrangements
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Sample Questions
Q1) Pricing of consumer goods in the former Soviet Union was typically regulated by price ceilings which led to shortages.
A)True
B)False
Q2) By 1992 the European Union had become a full-fledged:
A) Economic union
B) Monetary union
C) Common market
D) Fiscal union
Q3) If a customs union includes the low-cost supplier of the world, there would be no adverse trade-diversion effect that would counteract the positive trade-creation effect.
A)True
B)False
Q4) The gains from having an optimum currency include
A) Price differentiation
B) Lower competition
C) Lower transaction costs
D) Both b and c
Q5) Concerning transition economies, what do the advocates of shock therapy propose?
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Chapter 9: International Factor Movements and Multinational Enterprises
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Sample Questions
Q1) The source (home) location of most of the world's leading multinational enterprises is:
A) North America and Europe
B) North America and Asia
C) Europe and South America
D) Europe and Asia
Q2) Critics of multinational corporations maintain that they often abandon domestic workers in order to take advantage of lower wage scales abroad.
A)True
B)False
Q3) Consider Figure 9.1. Compared to the market equilibrium position achieved by Sony Company and American Company as competitors, Venture Company as a monopoly leads to a deadweight loss of consumer surplus of:
A) $2
B) $4
C) $6
D) $8
Q4) What are the disadvantages of forming joint ventures?
Q5) What are Mexican maquiladoras?
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Chapter 10: The Balance of Payments
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Sample Questions
Q1) Refer to Table 10.3. The current-account balance registered a surplus of $30 billion.
A)True
B)False
Q2) Most economists contend that any reduction in the current account deficit is better achieved through increased national saving than through reduced domestic investment.
A)True
B)False
Q3) An increase in import restrictions by the U.S. government tends to promote a merchandise-trade surplus.
A)True
B)False
Q4) The U.S. has a balance of \(\underline { \text { trade deficit } }\) when its:
A) Merchandise exports exceed its merchandise imports
B) Merchandise imports exceed its merchandise exports
C) Goods and services exports exceed its goods and services imports
D) Goods and services imports exceed its goods and services exports
Q5) What are the components of the current account of the balance of payments?
Q6) What does a current account deficit mean?
Page 12
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Chapter 11: Foreign Exchange
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Sample Questions
Q1) Consider Table 11.1. Comparing Tuesday to the previous Monday, by Tuesday the dollar had:
A) Depreciated against the pound
B) Appreciated against the pound
C) Not changed against the pound
D) None of the above
Q2) Stabilizing speculation reinforces market forces by intensifying an appreciation or a depreciation in a currency's exchange value.
A)True
B)False
Q3) Refer to Figure 11.1. Suppose the exchange rate is $.70 per franc. Free-market forces would lead to a (an) ____ of the dollar against the franc and a (an) ____ in U.S. international competitiveness.
A) Depreciation, improvement
B) Depreciation, worsening
C) Appreciation, improvement
D) Appreciation, worsening
Q4) Is it possible to trade foreign exchange in the futures market? How does such trading differ from the forward market?
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Chapter 12: Exchange-Rate Determination
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Sample Questions
Q1) According to the principle of exchange-rate overshooting, a short-run depreciation of a currency is likely to be greater than a long-run depreciation of that currency.
A)True
B)False
Q2) If U.S. labor productivity growth is 2 percent per annum and Swiss labor productivity growth is 6 percent per annum, the dollar will depreciate against the franc under a system of floating exchange rates.
A)True
B)False
Q3) Concerning exchange rate forecasting, ____ relies on econometric models which are based on macroeconomic variables likely to affect currency values.
A) Fundamental analysis
B) Technical analysis
C) Judgmental analysis
D) Sunspot analysis
Q4) What is the asset market approach to exchange rate determination?
Q5) In a free market, what determines exchange rates in the long run and the short run?
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Chapter 13: Mechanisms of International Adjustment
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Sample Questions
Q1) Refer to Figure 13.4. Starting at equilibrium income $100 billion, where (SI)<sub>0</sub> intersects (X - M)<sub>0</sub>, an autonomous decrease in Canadian imports of $10 billion leads to a $20 billion decrease in income and a trade deficit of $5 billion.
A)True
B)False
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) Refer to Exhibit 13.1. The change in the level of U.S. imports resulting from the rise in U.S. income equals:
A) $5 billion
B) $10 billion
C) $15 billion
D) $20 billion
Q4) What is the foreign repercussion effect?
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Chapter 14: Exchange-Rate Adjustments and the Balance of Payments
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Sample Questions
Q1) According to the J-curve effect, an appreciation of the yens exchange value has:
A) No impact on the Japanese trade balance in the short run
B) No impact on the Japanese trade balance in the long run
C) An immediate negative effect on the Japanese trade balance
D) An immediate positive effect on the Japanese trade balance
Q2) Assume that Brazil has a constant money supply and that it devalues its currency. The monetary approach to devaluation reasons that one of the following tends to occur for Brazil:
A) Domestic prices rise--purchasing power of money falls--consumption falls
B) Domestic prices rise--purchasing power of money rises--consumption rises
C) Domestic prices fall--purchasing power of money rises--consumption falls
D) Domestic prices fall--purchasing power of money rises--consumption rises
Q3) In Figure 14.1, D represents the US demand curve for Toyotas and MC<sub>0</sub> represents the marginal cost of producing Toyotas. Assume that Toyota behaves like a monopolist in the US market. A shift in the marginal cost curve from MC<sub>0</sub> to MC<sub>1</sub> leads to
A) a complete pass-through ot the depreciation of the dollar
B) a complete pass-through of the appreciation of the dollar
C) a partial pass-through of the depreciation of the dollar
D) a partial pass-through of the appreciation of the dollar
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Chapter 15: Exchange-Rate Systems and Currency Crises
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Sample Questions
Q1) Proponents of freely floating exchange rates maintain that:
A) Central banks can easily modify fluctuations in exchange rates
B) The system allows policy makers freedom in pursuing domestic economic goals
C) Inelastic demand schedules prevent large fluctuations in exchange rates
D) Inelastic supply schedules prevent large fluctuations in exchange rates
Q2) Which exchange-rate mechanism calls for \(\underline { \text { frequent }
}\)redefining of the par value by small amounts to remove a payments disequilibrium?
A) Dual exchange rates
B) Adjustable pegged exchange rates
C) Managed floating exchange rates
D) Crawling pegged exchange rates
Q3) Refer to Figure 15.1. With a system of floating exchange rates, the equilibrium exchange rate is:
A) $0.40 per franc
B) $0.50 per franc
C) $0.60 per franc
D) $0.70 per franc
Q4) What is an SDR?
Q5) How can currency boards and dollarization prevent currency crises?
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Chapter 16: Macroeconomic Policy in an Open Economy
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Sample Questions
Q1) An \(\underline { \text { expenditure-reducing } }\) policy would consist of a decrease in:
A) The par value of a currency
B) Government expenditures
C) Import duties
D) Business or household taxes
Q2) Under floating exchange rates and high capital mobility, an expansionary monetary policy would help a country resolve a recession and a current account deficit.
A)True
B)False
Q3) Refer to Exhibit 16.1. To help drive the dollar's exchange value downward, the Federal Reserve would:
A) Reduce taxes
B) Increase taxes
C) Decrease the money supply
D) Increase the money supply
Q4) Was the Plaza Agreement of 1985 a success?
Q5) What is international economic policy coordination?
Q6) What policy instrument should be used when demand-pull inflation exists?
Page 18
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Chapter 17: International Banking: Reserves, Debt, and Risk
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Sample Questions
Q1) 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
Q2) A nation may experience debt-servicing problems because of
A) Pursuit of improper macroeconomic policies
B) Inadequate borrowing
C) Adverse economic events
D) Both a and c
Q3) The supply of international reserves consists of owned reserves and borrowed reserves.
A)True
B)False
Q4) When exchange rates are fixed by central bankers, international reserves are necessary for financing payments imbalances and the stabilization of exchange rates.
A)True
B)False
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