Globalization and Economic Policy
Question Bank
Course Introduction
This course explores the intricate relationship between globalization and economic policy, examining how increasing interconnectedness across borders influences national economies and the formulation of policy responses. Students will analyze the effects of trade liberalization, capital flows, and migration on economic growth, income distribution, and policy autonomy. The course also covers contemporary debates surrounding economic integration, the role of international institutions, and the challenges faced by policymakers in balancing domestic interests with global economic trends. Through case studies and theoretical frameworks, students will develop a critical understanding of the opportunities and constraints globalization presents for economic policymaking in both developed and developing countries.
Recommended Textbook
International Economics 15th Edition by Robert Carbaugh
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Page 2
Chapter 1: The International Economy and Globalization
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Sample Questions
Q1) In the long run,competitiveness depends on an industry's natural resources,its stock of machinery and equipment,and the skill of its workers in creating goods that people want to buy.
A)True
B)False
Answer: True
Q2) What is the most important factor which contributes to competitiveness?
Answer: Key to the concept of competitiveness is productivity,or output per worker hour.
Q3) Free traders maintain that an open economy is advantageous in that it provides all of the following except:
A) Increased competition for world producers
B) A wider selection of products for consumers
C) The utilization of the most efficient production methods
D) Relatively high wage levels for all domestic workers
Answer: D
Q4) What are the challenges of the international trading system?
Answer: Among the challenges that the international trading system faces are dealing with fair labor standards and concerns about the environment.
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3
Chapter 2: Foundations of Modern Trade Theory:
Comparative Advantage
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Sample Questions
Q1) Constant opportunity costs suggest that the relative cost of producing one product in terms of the other will remain the same no matter where a nation chooses to locate on its production-possibilities schedule.
A)True
B)False
Answer: True
Q2) Assuming increasing cost conditions,trade between two countries would not be likely if they have:
A) Identical demand conditions but different supply conditions
B) Identical supply conditions but different demand conditions
C) Different supply conditions and different demand conditions
D) Identical demand conditions and identical supply conditions
Answer: D
Q3) Refer to Table 2.2.According to the principle of comparative advantage:
A) South Korea should export steel
B) South Korea should export steel and VCRs
C) Japan should export steel
D) Japan should export steel and VCRs
Answer: A
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Chapter 3: Sources of Comparative Advantage
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Sample Questions
Q1) Which of the following suggests that a nation will export the commodity in the production of which a great deal of its relatively abundant and cheap factor is used?
A) The Linder theory
B) The product life cycle theory
C) The MacDougall theory
D) The Heckscher-Ohlin theory
Answer: D
Q2) The Leontief paradox:
A) Was applied to the product life cycle theory
B) Suggested that the U.S.exports labor-intensive goods
C) Found that national income differences underlie world trade patterns
D) Implied that diseconomies of scale occur at low output levels
Answer: B
Q3) Intra-industry trade would occur if computers manufactured in the United States by IBM are exported to Japan while the United States imports computers manufactured by Hitachi of Japan.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Tariffs
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Sample Questions
Q1) Relatively low wages in Mexico make it impossible for U.S.manufacturers of labor-intensive goods to compete against Mexican manufacturers.
A)True
B)False
Q2) Which trade policy results in the government levying a "two-tier" tariff on imported goods?
A) Tariff quota
B) Nominal tariff
C) Effective tariff
D) Revenue tariff
Q3) If I purchase a stereo from South Korea,I obtain the stereo and South Korea obtains the dollars.But if I purchase a stereo produced in the United States,I obtain the stereo and the dollars remain in America.This line of reasoning is:
A) Valid for stereos,but not for most products imported by the United States
B) Valid for most products imported by the United States,but not for stereos
C) Deceptive since Koreans eventually spend the dollars on U.S.goods
D) Deceptive since the dollars spent on a stereo built in the United States eventually wind up overseas
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Chapter 5: Nontariff Trade Barriers
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Sample Questions
Q1) Domestic content legislation applied to autos would tend to:
A) Support wage levels of American autoworkers
B) Lower auto prices for American autoworkers
C) Encourage American automakers to locate production overseas
D) Increase profits of American auto companies
Q2) During the 1980s,the U.S.government imposed sugar import quotas in an attempt to reduce its costs of maintaining price supports for U.S.sugar growers.
A)True
B)False
Q3) Tariffs and quotas on imports tend to involve larger sacrifices in national welfare than would occur under domestic subsidies.This is because,unlike domestic subsidies,import tariffs and quotas:
A) Permit less efficient home production
B) Distort choices for domestic consumers
C) Result in higher tax rates for domestic residents
D) Redistribute revenue from domestic producers to consumers
Q4) Consider Figure 5.5.The Japanese export quota's revenue effect totals $1200.
A)True
B)False
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Chapter 6: Trade Regulations and Industrial Policies
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Sample Questions
Q1) Consider Figure 6.3.With free trade,Iraq purchases ____ computers at a price of $____,and realizes $____ of consumer surplus from the availability of computers.
A) 30,$3,000,$25,000
B) 30,$3,000,$35,000
C) 30,$3,000,$45,000
D) 30,$3,000,$55,000
Q2) U.S.antidumping duties are intended to neutralize exports to the United States at prices below average total cost or exports to the United States at prices lower than those charged in the exporter's home market.
A)True
B)False
Q3) Export embargoes induce greater losses in consumer surplus for the target country:
A) The lesser its initial dependence on foreign produced goods
B) The more elastic the target country's demand schedule
C) The greater the available output from alternative suppliers
D) The more inelastic the target country's supply schedule
Q4) What is the basis for trade adjustment assistance?
Q5) Has industrial policy contributed significantly to Japan's economic growth?
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Chapter 7: Trade Policies for the Developing Nations
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Sample Questions
Q1) For the oil-importing countries,the increases in oil prices in 1973-1974 and 1979-1980 resulted in all of the following except:
A) Balance of trade deficits
B) Price inflation
C) Constrained economic growth
D) Improving terms of trade
Q2) If the bauxite exporting countries form a cartel to boost the price of bauxite so as to increase sales revenue,they believe that the demand for bauxite:
A) Is inelastic with respect to price changes
B) Is elastic with respect to price changes
C) Will increase in response to a price increase
D) Will not change in response to a price change
Q3) The majority of developing-nation exports are primary products such as agricultural goods and raw materials; of the manufactured goods exported by developing nations,most are labor-intensive goods.
A)True
B)False
Q4) Are economic downturns helpful to cartels?
Q5) What are some major trade problems faced by developing nations?
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Chapter 8: Regional Trading Arrangements
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Sample Questions
Q1) By the mid-1990s,the European Union had essentially achieved the common market stage of economic integration.
A)True
B)False
Q2) Assume that the formation of a customs union turns out to include the lowest-cost world producer of the product in question.Which effect could not occur for the participating countries?
A) Trade creation-production effect
B) Trade creation-consumption effect
C) Trade diversion
D) Scale economies and competition
Q3) In 1989 Canada and the United States agreed to implement a (an)____ over a ten year period.
A) Customs union
B) Common market
C) Free trade area
D) Economic union
Q4) Who were the losers in the U.S.as a result of NAFTA?
Q5) Explain the theory of optimum currency areas.
Q6) What is meant by economic integration?
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Chapter 9: International Factor Movements and Multinational
Enterprises
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Sample Questions
Q1) Consider Figure 9.2.At labor market equilibrium,the payment to U.S.capital owners equals:
A) $3
B) $6
C) $9
D) $12
Q2) If a joint venture among competing firms is able to cut costs by extracting wage concessions from domestic workers,national welfare increases.
A)True
B)False
Q3) Consider Figure 9.3.Policies that permit Honduran workers to freely migrate to Mexico would likely be resisted by:
A) Mexican capital owners
B) Native Mexican workers
C) Mexican capital owners and native Mexican workers
D) Neither Mexican capital owners nor native Mexican workers
Q4) What are the typical ways in which multinational enterprises have diversified their operations?
Q5) What are guest workers?
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Chapter 10: The Balance of Payments
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Sample Questions
Q1) If a country consistently realizes a current-account surplus in its balance of payments,it likely will become a "net debtor" in its balance of international indebtedness.
A)True
B)False
Q2) When all of the debit or credit items in the balance of payments are combined:
A) Merchandise imports equal merchandise exports
B) Capital imports equal capital exports
C) Services exports equal services imports
D) The total surplus or deficit equals zero
Q3) Current-account transactions include direct foreign investment,purchases of foreign government securities,and commercial bank loans made abroad.
A)True
B)False
Q4) The U.S.unilateral-transfers balance has consistently registered surplus in the past two decades.
A)True
B)False
Q5) What are the components of the current account of the balance of payments?
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Chapter 11: Foreign Exchange
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Sample Questions
Q1) Stabilizing speculation reinforces market forces by intensifying an appreciation or a depreciation in a currency's exchange value.
A)True
B)False
Q2) Consider Table 11.1.Concerning the Tuesday quotations: compared to the cost of buying 100 pounds on the spot market,if 100 pounds were bought for future delivery in 180 days the dollar cost of the pounds would be:
A) $3.40 higher
B) $3.40 lower
C) $6.80 higher
D) $6.80 lower
Q3) Refer to Exhibit 11.1.If U.S.investors cover their exchange rate risk,the extra return for the 6 months on the U.K.treasury bills is:
A) 1.0 percent
B) 1.5 percent
C) 2.0 percent
D) 2.5 percent
Q4) What foreign exchange transactions do banks typically engage in?
Q5) How is the equilibrium rate of exchange determined?
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Chapter 12: Exchange-Rate Determination
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Sample Questions
Q1) Concerning exchange rate forecasting,fundamental analysis involves consideration of a variety of macroeconomic variables and policies that tend to affect currency values.
A)True
B)False
Q2) As the profitability of Japanese assets rises relative to the profitability of Australian assets,Australian residents will make additional investments in Japan; this results in an increased demand for yen and a depreciation of the dollar under a system of floating exchange rates.
A)True
B)False
Q3) The relationship between the exchange rate and the prices of tradable goods is known as the:
A) Purchasing-power-parity theory
B) Asset-markets theory
C) Monetary theory
D) Balance-of-payments theory
Q4) What is exchange rate overshooting?
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) According to the monetary approach,balance-of-payments disequilibriums are the result of imbalances in a country's money supply and money demand.
A)True
B)False
Q3) The monetary approach contends that,under a fixed exchange rate system,an excess demand for money leads to a trade deficit.
A)True B)False
Q4) The monetary approach contends that,under a fixed exchange rate system,an excess supply of money leads to a trade surplus.
A)True
B)False
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Chapter 14: Exchange-Rate Adjustments and the Balance of Payments
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Sample Questions
Q1) According to the Marshall-Lerner condition,currency depreciation will worsen a country's balance of trade if the country's elasticity of demand for imports plus the foreign demand elasticity for the country's exports exceeds 1.0.
A)True
B)False
Q2) Assume that Ford Motor Company obtains all of its inputs in the United States and all of its costs are denominated in dollars.A depreciation of the dollar's exchange value:
A) Enhances its international competitiveness
B) Worsens its international competitiveness
C) Does not affect its international competitiveness
D) None of the above
Q3) When manufacturing computer software,suppose that Microsoft Inc.uses labor and materials whose costs are denominated in dollars and francs respectively.If the dollar's exchange value depreciates 10 percent against the franc,the franc-denominated cost of the firm's software falls by 10 percent.
A)True
B)False
Q4) What is a pass-through relationship?
Page 16
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Chapter 15: Exchange-Rate Systems and Currency Crises
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Q1) Under managed-floating exchange rates,market forces are allowed to determine exchange rates in the short run while central bank intervention is used to stabilize exchange rates in the long run.
A)True
B)False
Q2) Under managed floating exchange rates,the Federal Reserve could offset an appreciation of the dollar against the yen by:
A) Increasing the money supply which promotes falling interest rates and net investment outflows
B) Increasing the money supply which promotes rising interest rates and net investment inflows
C) Decreasing the money supply which promotes falling interest rates and net investment outflows
D) Decreasing the money supply which promotes rising interest rates and net investment inflows
Q3) The special drawing right is a currency basket of five major industrial country currencies.
A)True
B)False
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Chapter 16: Macroeconomic Policy in an Open Economy
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Sample Questions
Q1) Suppose Brazil faces domestic recession and a current account surplus.Should Brazil revalue its currency,one would expect the:
A) Recession to become less severe--surplus to become less severe
B) Recession to become more severe--surplus to become more severe
C) Recession to become more severe--surplus to become less severe
D) Recession to become less severe--surplus to become more severe
Q2) Expenditure-switching policies include fiscal policy and monetary policy.
A)True
B)False
Q3) Currency devaluation and revaluation are considered to be expenditure-changing policies since they alter a country's aggregate demand for goods and services.
A)True
B)False
Q4) Expenditure-switching policies alter the level of total spending (aggregate demand)for goods and services produced domestically and those imported.
A)True
B)False
Q5) What policy instrument should be used when demand-pull inflation exists?
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Chapter 17: International Banking: Reserves, Debt, and Risk
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Sample Questions
Q1) "Borrowed" international reserves consist of:
A) IMF drawings
B) Foreign currencies
C) Gold
D) Special drawing rights
Q2) Which organization is largely intended to make long-term reconstruction loans to developing nations?
A) Export-Import Bank
B) World Bank
C) International Monetary Fund
D) United Nations
Q3) Are international reserve needs different for different exchange rate regimes?
Q4) With an international gold standard,if a country ended up with a deficit from the balances on its current and capital accounts,it would:
A) Import gold to settle the balance
B) Export gold to settle the balance
C) Officially decrease the price of gold
D) Officially increase the price of gold
Q5) Why do countries hold international reserves?
Q6) How can a bank reduce its exposure to the debt of developing nations?
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