International Economic Policy Exam Review
Course Introduction
International Economic Policy examines the key theories, institutions, and issues shaping economic relations between nations. The course explores topics such as trade policy, international finance, development strategies, global economic governance, and the impact of international organizations like the IMF, World Bank, and WTO. Students analyze how governments formulate and implement economic policies in response to globalization, international competition, and evolving economic challenges, with attention to the interplay between economic objectives and political considerations on the global stage.
Recommended Textbook
Introduction to International Economics 3rd Edition by Dominick Salvatore
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16 Chapters
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861 Flashcards
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Chapter 1: Introduction to the Global Economy
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Sample Questions
Q1) In the last decade,the United States averaged a _______ percent unemployment rate
A)15
B)20
C)Less than 5
D)10
Answer: C
Q2) _____________ in the United States attracts funds from other nations.
A)An increase in net exports
B)A decrease in interest rates
C)An increase in the inflation rate
D)An increase in interest rates
Answer: D
Q3) The anti-globalization movement believes globalization benefits corporations and multinationals at the expense of human and environmental well-being.
A)True
B)False
Answer: True
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Chapter 2: Comparative Advantage
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Sample Questions
Q1) According to mercantilism,the flow of _____________ would settle the export surplus that results from trade.
A)Gold and diamonds
B)Diamonds and rubies
C)Silver and copper
D)Gold and silver
Answer: D
Q2) The analysis of economic forces that justify the existence of trade and its degree between two nations is referred to as:
A)basis for trade
B)losses from trade
C)gains from trade
D)pattern of trade
Answer: A
Q3) According to opportunity cost theory,the cost or price of a commodity is determined by,or can be inferred exclusively from,its labor content.
A)True
B)False
Answer: False
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Page 4
Chapter 3: The Standard Trade Model
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Sample Questions
Q1) The point of tangency between the production possibilities frontier and community indifference curve reflects:
A)the nation's comparative advantage
B)internal equilibrium relative to commodity price in the nation
C)external equilibrium relative to commodity price in the nation
D)Both A and B
Answer: D
Q2) Relative prices are different for each nation because their production frontiers and indifference curves differ in _______________.
A)shape and location
B)shape,but not location
C)location,but not shape
D)neither shape nor location
Answer: A
Q3) Deindustrialization is the decline in the share of manufacturing employment and the relative importance of manufacturing.
A)True
B)False
Answer: False
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Page 5
Chapter 4: The Heckscher-Ohlin and Other Trade Theories
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Sample Questions
Q1) Which of the following states that the difference in relative factor abundance and relative factor prices is the cause of the pretrade difference in relative commodity prices between two nations?
A)Stolper-Samuelson theorem
B)Differentiated product theorem
C)Heckscher-Ohlin theorem
D)None of the above
Q2) Assume a nation where labor is mobile between industries but capital is not.The specific-factors model states that trade leads to which of the following?
A)A reduction in the return to capital used to produce the nation's export commodity
B)A reduction in the return to capital used in the nation's import-competing industry
C)An increase in the return to labor used in the production of both imports and exports.
D)Ambiguous outcomes in the return to all capital.
Q3) Show with a diagram how two countries with identical tastes but different factor endowments can benefit from trade.
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Chapter 5: Trade Restrictions: Tariffs
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Sample Questions
Q1) The effects attributed to the decline in the volume of trade in a large nation,considered independently of changes in terms of trade,will
A)reduce the nation's welfare
B)increase the nation's welfare
C)not change the nation's welfare
D)have ambiguous outcomes with respect to gain or loss of welfare
Q2) A defining characteristic of a "small nation" relative to a "large nation" with respect to identifying the welfare effects of a tariff is that the:
A)small nation has less land mass than a large nation
B)small nation cannot influence world price of imported goods as much as a large nation can
C)small nation has a smaller trade deficit than the large nation
D)small nation has a smaller population compared to a large nation
Q3) A(n)__________ is a tax or duty levied on the traded commodity as it enters a nation.
A)ad valorem tariff
B)compound tariff
C)optimum tariff
D)import tariff
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Page 7
Chapter 6: Nontariff Trade Barriers and the Political
Economy of Protectionism
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Sample Questions
Q1) Under the most-favored-nations principle,the Senate has the power to negotiate mutual tariff reductions of up to 65% with other nations.
A)True
B)False
Q2) Strategic trade policy argues that an activist trade policy in oligopolistic markets subject to extensive external economies can increase a nation's welfare.
A)True
B)False
Q3) In which act was the most-favored-nations principle further developed?
A)The Smoot-Hawley Tariff Act of 1930
B)The U.S.Tariff Assignment Act of 1954
C)The Trade Agreements Act of 1934
D)The Sarbanes-Oxley Act
Q4) Partial exemption from U.S.tax laws on income earned from exports is provided for by:
A)the U.S.Export Tax Relief Act of 1971
B)the Sarbanes-Oxley Act
C)the U.S.Foreign Sales Corporations provisions of the U.S.tax code
D)the General Sales Tax Act of 1973
Page 8
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Chapter 7: Economic Integration
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Sample Questions
Q1) Direct investments made in a nation or other economic units to avoid import tariffs are known as:
A)tariff factories
B)tariff diversion
C)tariff creation
D)duty-free zones
Q2) Suppose that apples from Japan face a 15% tariff in Germany and a 20% tariff in Italy,while Germany and Italy maintain free trade between each other.Germany and Italy are therefore part of a(n):
A)Free trade area
B)Customs union
C)common market
D)economic union
Q3) Which of the following barriers are imposed by the EU to equalize the price of imported agricultural products and agricultural prices set by the EU?
A)orderly market agreements
B)export quotas
C)variable import levies
D)import quotas
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Page 9
Chapter 8: Growth and Development With International Trade
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Sample Questions
Q1) Assume in base year 1995,the net barter terms of trade is equal to 100,and we find that,for the 2004 fiscal year,the US price index for exports has risen 8 percent and the price index for imports has fallen by 4 percent.What is the value of the U.S.net barter terms of trade?
A)63.4
B)101.2
C)88.6
D)112.5
Q2) Ghana established a marketing board in which of the following commodities following World War II?
A)Cocoa
B)Rice
C)Bananas
D)Iron ore
Q3) Which of the following agreements was based on export controls?
A)The International Rice Agreement
B)The International Sugar Agreement
C)The International Cocoa Bean Agreement
D)The International Banana Agreement
Page 10
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Chapter 9: International Resource Movements and Multinational Corporations
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Sample Questions
Q1) _____________ allow the investor to lend capital to get fixed payouts or returns at regular intervals and then receive the face value at a predetermined date in the future.
A)Stocks
B)Bonds
C)Dividends
D)Mutual funds
Q2) A purchase of 10% or more of a corporation constitutes a portfolio investment.
A)True
B)False
Q3) If less than full employment is present,then foreign investments tend to ________ the level of employment in the investing country and __________ foreign investments in the host country.
A)Decrease; increase
B)Increase; decrease
C)Decrease; decrease
D)Increase; increase
Q4) Direct investments would not include takeovers by another firm.
A)True
B)False
11
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Chapter 10: Balance of Payments
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Sample Questions
Q1) Gifts are not accounted for in a nation's balance of payments because no currency changes hands.
A)True
B)False
Q2) Briefly discuss the international investment position of the United States and how it has changed over the course of the past two decades.
Q3) Which of the following does the international investment position consider?
A)The total amount of a nation's assets abroad at the end of the year
B)The distribution of a nation's assets abroad at the end of the year
C)The foreign assets in the nation at the end of the year
D)All of the above
Q4) _____________ is an example of a credit transaction in the balance of payments.
A)Imports of goods and services
B)Exports of goods and services
C)Unilateral transfers to foreigners
D)Capital outflows
Q5) Why does the balance of good part of the total balance of payment always get prominence?
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Chapter 11: The Foreign Exchange Market and Exchange Rates
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Sample Questions
Q1) Eurobonds are defined as:
A)long-term debt securities sold outside the borrower's country to raise long-term capital in a currency other than the currency of the nation where the securities are sold.
B)bank deposits denominated in a currency other than that of the nation in which the deposit is held.
C)commercial bank deposits in one nation denominated in the currency of another nation.
D)Bonds purchased from any nation that is a member of the European Union.
Q2) A television costs 600 Canadian dollars (CAD)in Canada and 500 US dollars (USD)in the US.The exchange rate between the Canadian dollar and the US dollar is:
A)1.2 CAD per 1 USD
B)1.2 USD per 1 CAD
C).833 CAD per 1 USD
D)Cannot determine
Q3) A currency is said to have depreciated against the dollar if the dollar price of the currency has increased.
A)True
B)False
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Chapter 12: Exchange Rate Determination
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Sample Questions
Q1) From which of the following does a nation's demand for foreign exchange arise?
A)From the inflow of foreign investments
B)From the sale of the foreign currency by the speculators when they expect the foreign currency to depreciate
C)From speculators when they expect the foreign currency to appreciate
D)Both a & c
Q2) According to absolute PPP theory,we expect that the price of any particular product should be the same in different countries,but in reality this is often not the case.
A)True
B)False
Q3) According to the relative purchasing-power parity theory,what is the percentage change in the exchange rate if the price for one unit of corn in the US is $10 in 2003 and $12 in 2004,and in the UK, 15 in 2003 and 20 in 2004?
A)-14.7%
B)13.3%
C)-13.3%
D)10.5%
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Page 14
Chapter 13: Automatic Adjustments With Flexible and Fixed Exchange Rates
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Q1) A country with budget deficit which is also at full employment can improve its deficit situation by allowing its currency to depreciate,only if,
A)the real domestic absorption is reduced
B)the real domestic absorption is increased
C)level of imports can be increased
D)income can be increased
Q2) When a(n)_____________condition is present,a disturbance from the equilibrium exchange rate pushes the exchange rate farther away from equilibrium.
A)unstable foreign exchange market
B)Marshall-Lerner condition
C)J-curve effect
D)stable foreign exchange market
Q3) The ratio of the change in income to the change in exports and/or investments is:
A)the multiplier
B)the foreign trade multiplier
C)equilibrium level of income
D)the marginal propensity to save
Q4) What is the Marshall-Lerner Condition and how is it used?
Page 15
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Chapter 14: Adjustment Policies
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Q1) What is the correct order of events following an expansionary monetary policy with a fixed exchange rate?
A)Interest rate falls,investment and income rise,current account worsens,overall balance-of-payment worsens
B)Interest rate falls,capital account improves,money supply falls in order to maintain fixed exchange rate
C)Capital flows out,interest rate falls,overall balance-of-payments worsens
D)interest rate increases,capital flows in and balance-of-payment improves
Q2) During 1997 to 2000,interest rates were kept higher in the US while some countries like Germany lowered their interest rate,during this period all of the following happened in the US market except
A)There was huge financial inflows in the US economy
B)The US enjoyed rapid economic growth
C)Dollar kept on appreciating
D)US was accumulating a trade surplus
Q3) Why during the period of fixed exchange rate,monetary policy is considered to be ineffective.
Q4) Describe why monetary policy under a fixed exchange rate system is impotent.
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Page 16
Chapter 15: Flexible Versus Fixed Exchange Rates,european
Monetary Systems,and Macroeconomic Policy
Coordination
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Q1) Under a flexible exchange rate system,monetary policies must be changed in order to correct the nation's balance of payments disequilibrium.
A)True
B)False
Q2) The exchange rate arrangement whereby the nation fixes the exchange rate and allows the nation's money supply to increase or decrease only in response to balance-of-payments surpluses or deficit is known as (a):
A)Currency board arrangements
B)Dollarization
C)Crawling peg system
D)Managed floating exchange rate system
Q3) Under a(n)_____________ ,the nation's monetary authorities are entrusted with the responsibility of intervening in foreign exchange markets to smooth out short-run fluctuations in exchange rates without attempting to affect their long-run trend.
A)currency board arrangements
B)adjustable peg system
C)crawling peg system
D)managed floating exchange rate system
Page 17
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Chapter
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Q1) The Bretton Woods System replaced the gold standard as the international exchange system,yet continued to use gold as an indirect foundation of foreign exchange rates.Briefly discuss the system and its development and ultimate collapse.
Q2) The repayment period for borrowing from the IMF is approximately how long?
A)1-3 years
B)indefinitely
C)3-5 years
D)10-20 years
Q3) To overcome the stagnant growth it was experiencing for the past 10-15 years,Japan undertook which of the following measures?
A)A reduction of interest rates to near 0%
B)Undertook programs to build infrastructure (roads,etc.)that oftentimes was not necessary
C)Undervaluation of the yen
D)All of the above
Q4) Under the Gold Standard if a country suffered from balance-of-payment disequilibrium,what was the process of adjustment? Please explain.
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