International Business Economics
Exam Materials
Course Introduction
International Business Economics explores the economic principles and analytical frameworks underpinning the operations of firms and markets in a global context. The course examines how factors such as trade policies, exchange rates, international financial systems, and cross-border investments shape the strategies and performance of businesses operating internationally. Students will analyze the impact of globalization, regional economic integration, and economic institutions on international business decisions. Through case studies and real-world examples, the course provides insights into the challenges and opportunities facing firms in diverse economic environments, equipping students with the tools to make informed decisions in the dynamic world of international business.
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) The movement to free international trade is most likely to generate short-term unemployment in which industries?
A) Industries in which there are neither imports nor exports
B) Import-competing industries
C) Industries that sell to domestic and foreign buyers
D) Industries that sell to only foreign buyers
Answer: B
Q2) With globalization and import competition,U.S.prices have generally:
A) increased
B) decreased
C) remained stable
D) all of these at various times
Answer: B
Q3) Economists have generally found that economic growth rates have a close relation to:
A) openness to trade
B) education
C) communications infrastructure
D) all of these
Answer: D
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Chapter 2: Foundations of Modern Trade Theory: Comparative Advantage
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Sample Questions
Q1) Introducing indifference curves into our trade model permits us to determine:
A) Where a nation chooses to locate along its production possibilities curve in autarky
B) The precise location of a nation's production possibilities curve
C) Whether absolute cost or comparative cost conditions exist
D) The currency price of one product in terms of another product
Answer: A
Q2) In a two-country,two-product world,the statement "Japan enjoys a comparative advantage over France in steel relative to bicycles" is equivalent to:
A) France having a comparative advantage over Japan in bicycles relative to steel
B) France having a comparative disadvantage against Japan in bicycles and steel
C) Japan having a comparative advantage over France in steel and bicycles
D) Japan having a comparative disadvantage against Japan in bicycles and steel
Answer: A
Q3) Who gains more from trade,when nations are of unequal economic size?
Answer: If one nation is significantly larger than the other,the larger nation attains fewer gains from trade,while the smaller nation captures most of the gains from trade.
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Chapter 3: Sources of Comparative Advantage
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Sample Questions
Q1) The theory of overlapping demands applies best to trade in manufactured goods.
A)True
B)False
Answer: True
Q2) Chinese manufacturers face rising wages because of:
A) China's one-child policy
B) land policies
C) bureaucratic delay in being declared an urban dweller
D) all of these
Answer: D
Q3) Hong Kong is relatively abundant in labor,while Canada is relatively abundant in capital.In both countries the production of shirts is relatively more labor intensive than the production of computers.According to the factor endowment theory,Hong Kong will have a(n):
A) Absolute advantage in the production of shirts and computers
B) Absolute advantage in the production of computers
C) Comparative advantage in the production of shirts
D) Comparative advantage in the production of computers
Answer: C
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Page 5
Chapter 4: Tariffs
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Sample Questions
Q1) Consider Table 4.1.After the tariff,domestic value added equals:
A) $25
B) $50
C) $75
D) $100
Q2) The deadweight losses of an import tariff consist of the protection effect plus the consumption effect.
A)True
B)False
Q3) Should the home country be "large" relative to the world,its imposition of a tariff on imports would lead to an increase in domestic welfare if the terms-of-trade effect exceeds the sum of the:
A) Revenue effect plus redistribution effect
B) Protective effect plus revenue effect
C) Consumption effect plus redistribution effect
D) Protective effect plus consumption effect
Q4) Refer to Exhibit 4.2.The tariff's redistribution effect equals $7,000.
A)True
B)False
Q5) Can import duties have unintended side effects?
Page 6
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Chapter 5: Nontariff Trade Barriers
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Sample Questions
Q1) If a tariff and an import quota lead to equivalent increases in the domestic price of steel,then:
A) The quota results in efficiency reductions but the tariff does not
B) The tariff results in efficiency reductions but the quota does not
C) They have different impacts on how much is produced and consumed
D) They have different impacts on how income is distributed
Q2) 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
Q3) An elimination of nontariff barriers on apples tends to increase apple imports,reduce profits of import-competing apple producers,and generate job losses for domestic apple workers.
A)True
B)False
Q4) Is a tariff-rate quota a two-tier tariff? Why?
Q5) What is the price-based definition of dumping?
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Chapter 6: Trade Regulations and Industrial Policies
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Sample Questions
Q1) As a way of helping American firms trade in the world market,U.S.trade law provides antitrust exemptions for horizontal combinations of American firms engaged solely in export trade.Such firms are permitted to form:
A) Export trade associations
B) Domestic international sales corporations
C) Export-import banks
D) Commodity sales corporations
Q2) 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
Q3) If the U.S.government pursued a "knowledge-based growth policy," it would subsidize particular firms to help them compete in the world economy.
A)True
B)False
Q4) What is the essential idea behind strategic trade policy?
Q5) What is the basis for trade adjustment assistance?
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Chapter 7: Trade Policies for the Developing Nations
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Sample Questions
Q1) Figure 7.5 represents the global market for tin.The initial equilibrium price and quantity is at point A.As a result of an International Tin Agreement a price range of $3.27 - $4.02 is set.As the supply of tin increases from S<sub>0</sub> to S<sub>1</sub>,the buffer-stock manager will need to
A) buy 10,000 pounds of tin
B) buy 20,000 pounds of tin
C) sell 10,000 pounds of tin
D) sell 20,000 pounds of tin
Q2) Which method has not generally been used by the international commodity agreements to stabilize commodity prices?
A) Production quotas applied to the level of commodity output
B) Buffer stock arrangements among producing nations
C) Export restrictions applied to international sales of commodities
D) Measures to nationalize foreign-owned production operations
Q3) Developing countries have complained that because their commodity terms of trade has deteriorated in recent decades,they should receive preferential tariff treatment from industrialized countries.
A)True
B)False
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Page 9
Chapter 8: Regional Trading Arrangements
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Sample Questions
Q1) The EU has abolished restrictions on agricultural products traded internally.
A)True
B)False
Q2) In the short run,Mexico would realize overall welfare gains from becoming a member of the North American Free Trade Agreement if the resulting diseconomies of scale effect more than offset the competition effect.
A)True
B)False
Q3) Consider Figure 8.1.The value of the trade creation effect,resulting from the Greece/France customs union,equals:
A) $5
B) $10
C) $15
D) $20
Q4) Luxembourg is a member of:
A) a free trade area
B) a monetary union
C) Benelux
D) Both a and c
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Chapter 9: International Factor Movements and Multinational Enterprises
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Sample Questions
Q1) Firms undertake multinational operations in order to:
A) Hire low-wage workers
B) Manufacture in nations they have difficulty exporting to C) Obtain necessary factor inputs
D) All of the above
Q2) What are the disadvantages of forming joint ventures?
Q3) Vertical integration occurs if a parent multinational corporation establishes foreign subsidiaries to produce intermediate goods or inputs that go into the production of a finished good.
A)True
B)False
Q4) Consider Figure 9.1.Assume Venture Company's formation yields new cost reductions,indicated by MC<sub>1</sub>=AC<sub>1</sub>,which result from changes in work rules by Venture Company employees that led to higher worker productivity.The net effect of Venture Company's formation on the welfare of the domestic economy is:
A) No change
B) Gain of $2
C) Gain of $4
D) Loss of $2
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Chapter 10: The Balance of Payments
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Sample Questions
Q1) Services transactions on Canada's balance-of-payments statement would include Canadian ships transporting lumber to Japan,foreign tourists spending money in Canada,and Canadian engineers designing bridges in China.
A)True
B)False
Q2) The value to American residents of income earned from overseas investments shows up in which account in the U.S.balance of payments?
A) Current account
B) Trade account
C) Unilateral transfers account
D) Capital account
Q3) To reduce a current account deficit,a country should either decrease the budget deficit of its government or reduce investment spending relative to saving.
A)True
B)False
Q4) What does a current account deficit mean?
Q5) What are the components of the current account of the balance of payments?
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Page 12
Chapter 11: Foreign Exchange
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Sample Questions
Q1) If Citibank quoted bid and offer rates for the Swiss franc at $.4850/$.4854,the bank would be prepared to buy,say,1 million francs for $485,000 and sell them for $485,400.
A)True B)False
Q2) The supply schedule of pesos has a negative-sloping region corresponding to the inelastic region on the Mexican demand schedule for foreign currency.
A)True B)False
Q3) Assume that Boeing anticipates receiving 20 million yen in 3 months from exports of jumbo jets to a Japanese airline.The firm could hedge against the risk of a depreciation of the dollar against the yen by contracting to sell its expected yen proceeds for dollars in the forward market at today's forward rate.
A)True B)False
Q4) If it takes $0.18544 to purchase 1 French franc,it takes 5.3926 francs to purchase $1. A)True B)False
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Chapter 12: Exchange-Rate Determination
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Sample Questions
Q1) In 1985 and 1986 U.S.interest rates fell relative to interest rates in Japan.Under floating exchange rates,this would lead to the dollar's exchange value depreciating against the yen.
A)True
B)False
Q2) Refer to Figure 12.2.As the profitability of assets in Switzerland rises relative to the profitability of assets in the United States,U.S.residents make additional investments in Switzerland; this leads to an increased demand for francs and a depreciation of the dollar's exchange value.
A)True
B)False
Q3) The purchasing-power-parity theory is used to predict exchange-rate movements in the short run.
A)True
B)False
Q4) Day-to-day influences on foreign exchange rates always cause rates to move in the same direction as changes in long-term market fundamentals.
A)True
B)False
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Chapter 13: Mechanisms of International Adjustment
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Sample Questions
Q1) Refer to Figure 13.1.U.S.capital and financial account schedule CA<sub>0</sub> would shift upwards,or downwards,for all of the following reasons except:
A) U.S.residents being taxed on income earned from foreign investments
B) U.S.banks being restricted on loans that can be made abroad
C) U.S.political stability changing relative to foreign political stability
D) U.S.interest rates changing relative to foreign interest rates
Q2) For an open economy subject to international trade,equilibrium income occurs where saving plus investment equals imports plus exports.
A)True
B)False
Q3) Refer to Figure 13.2.Starting at equilibrium income $50 billion,where (S-I)<sub>0</sub> intersects (X-M)<sub>0</sub>,suppose that improving profit expectations lead to an autonomous increase in Australian investment of $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.
A) Rises to $60 billion,deficit of $2.5 billion
B) Rises to $60 billion,deficit of $5 billion
C) Falls to $40 billion,surplus of $2.5 billion
D) Falls to $40 billion,surplus of $5 billion
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Page 15
Chapter 14: Exchange-Rate Adjustments and the Balance of Payments
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Sample Questions
Q1) When manufacturing automobiles,suppose that General Motors uses labor and materials whose costs are denominated in dollars and pounds respectively.If the dollar's exchange value appreciates by 15 percent against the pound,the pound-denominated cost of a GM vehicle rises by 15 percent.
A)True
B)False
Q2) Refer to Table 14.1.Assume that Toyota Inc.imports steel from U.S.suppliers,whose costs are denominated in dollars,while all other inputs are obtained from Japanese suppliers whose costs are denominated in yen.If the yen's exchange value appreciates from 200 yen = $1 to 100 yen = $1,the dollar-equivalent cost of a Toyota automobile equals:
A) $24,000
B) $30,000
C) $36,000
D) $42,000
Q3) A depreciation of the dollar results in Whirlpool dishwashers becoming less competitive in Europe.
A)True
B)False
Page 16
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Chapter 15: Exchange-Rate Systems and Currency Crises
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Sample Questions
Q1) As a policy instrument,currency devaluation may be controversial since it:
A) Imposes hardships on the exporters of foreign countries
B) Imposes hardships on exporters of the devaluing country
C) Is generally followed by unemployment in the devaluing country
D) Is generally followed by price deflation in the devaluing country
Q2) To keep the yen's exchange value from appreciating against the dollar,Japan's exchange stabilization fund would buy yen for dollars on the foreign exchange market.
A)True
B)False
Q3) The purpose of currency devaluation is to cause the home country's exchange value to appreciate,thus reducing a balance of trade surplus.
A)True
B)False
Q4) If Uganda revalues its shilling by 20 percent and Burundi devalues its franc by 5 percent,the shillings exchange value will appreciate by 25 percent against the franc.
A)True
B)False
Q5) Which nations use multiple exchange rates the most and why?
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Chapter 16: Macroeconomic Policy in an Open Economy
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Sample Questions
Q1) Under a fixed exchange-rate system and high capital mobility,a contraction in the domestic money supply leads to a:
A) Trade-account deficit and a capital-account surplus
B) Trade-account deficit and a capital-account deficit
C) Trade-account surplus and a capital-account surplus
D) Trade-account surplus and a capital-account deficit
Q2) Refer to Exhibit 16.1.The Federal Reserve might refuse to support the accord on the grounds that when helping to drive the dollar's exchange value downward,it promotes an increase in the U.S.:
A) Rate of inflation
B) Budget deficit
C) Unemployment level
D) Economic growth rate
Q3) A nation experiences external balance if it achieves:
A) No net changes in its international gold stocks
B) Productivity levels equal to those of its trading partners
C) An increase in its money supply equal to increases overseas
D) Equilibrium in its balance of payments
Q4) Was the Plaza Agreement of 1985 a success?
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) The International Monetary Fund has sometimes demanded that financially-troubled nations,that borrow from the IMF,undergo austerity programs including slashing of public spending and private consumption.
A)True
B)False
Q2) Concerning international debt,____ refers to a negotiated reduction in the contractual obligations of the debtor country and includes schemes such as markdowns and write-offs of debt.
A) Debt/equity swap
B) Debt-for-debt swap
C) Debt forgiveness
D) Debt sales
Q3) The demand for international reserves is negatively related to the level of world prices and income.
A)True
B)False
Q4) How can a bank reduce its exposure to the debt of developing nations?
Q5) Describe the eurocurrency market.
Q6) Are international reserve needs different for different exchange rate regimes?
Page 19
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