International Economic Policy Review
Questions
Course Introduction
International Economic Policy examines the strategies and frameworks that guide the economic interactions between nations. The course explores key theories of international trade and finance, the function of global institutions such as the IMF and WTO, and the impact of policy decisions on economic growth, development, and stability. Topics include exchange rates, trade agreements, globalization, fiscal and monetary policies in an international context, and contemporary issues such as trade wars, economic sanctions, and regional integration. Through case studies and policy analysis, students will gain a comprehensive understanding of how economic policies are formed and their effects on the global economy.
Recommended Textbook
International Economics 9th Edition by Steven Husted
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Page 2
Chapter 1: An Introduction to International Trade
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Sample Questions
Q1) As measured by the index of openness,the United States is relatively closed,and yet,it was the world's largest exporter in 2007.
A)True
B)False
Answer: False
Q2) How would you characterize the types of goods that are traded internationally?
Answer: While automobiles rank third,petroleum ranks first,and most trade is in agricultural products,ram materials,semimanufactured goods,and capital goods.
Q3) As of 2007,the United States is the world's largest importer.
A)True
B)False
Answer: True
Q4) International trade
A)accounts for more than 90 percent of world economic activity.
B)is a relatively small (about 30 percent of world output)but growing part of world economic activity.
C)has been growing at about the same rate as the world economy.
D)Both A and C.
Answer: B
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Chapter 2: Tools of Analysis for International Trade Models
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Sample Questions
Q1) Production under increasing opportunity costs can result from the two industries using factors of production in different combinations.
A)True
B)False
Answer: True
Q2) If a country has a bowed out (concave to the origin)production possibility frontier,then production is said to be subject to
A)constant opportunity costs.
B)decreasing opportunity costs.
C)first increasing and then decreasing opportunity costs.
D)increasing opportunity costs.
Answer: D
Q3) In autarky equilibrium,
A)production equals consumption.
B)exports equal imports.
C)there is no international trade.
D)All of the above.
Answer: D
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4
Chapter 3: The Classical Model of International Trade
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Sample Questions
Q1) Refer to the figure above.In equilibrium,this country produces at point A)B.
B)C.
C)D.
D)E.
Answer: A
Q2) Given constant returns to scale between labor and output,if it takes 1 hour to make 10 yards of cloth,then 100 yards of cloth can be made in A)10 hours.
B)100 hours.
C)1000 hours.
D)Can't tell without knowing how much capital is used.
Answer: A
Q3) Countries with low wages will always be able to export to countries with high wages. A)True
B)False
Answer: False
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Page 5
Chapter 4: The Heckscher-Ohlin Model
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Sample Questions
Q1) According to the factor price equalization theorem,the ________ factor should oppose free trade policies in any given country.
A)abundant
B)scarce
C)neither
D)Can't tell without more information
Q2) Refer to the figure above.This country's exports equal
A)CE units of X.
B)GH units of Y.
C)CD units of X.
D)DE units of Y.
Q3) Explain carefully why the assumption of identical technology worldwide eliminates the classical basis for international trade.
Q4) Even if some people are hurt by international trade,the HO model predicts that free international trade improves the standard of living for the country as a whole.
A)True
B)False
Q5) Compare and contrast the classical and HO theories of international trade.
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Chapter 5: Tests of Trade Models: the Leontief Paradox and Its Aftermath
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Sample Questions
Q1) A problem with Leontief's methodology is that
A)he had no information on U.S. and foreign factor endowments.
B)he did not use information on foreign factor intensities.
C)he ignored the roles of other factors of production such as natural resources.
D)All of the above are problems.
Q2) MacDougall showed in his tests that
A)relatively higher U.S. labor productivity was associated with relatively higher U.K. export ratios.
B)relatively higher U.K. labor productivity was associated with relatively higher U.K. export ratios.
C)labor productivity ratios and export ratios were not associated with each other. D)None of the above.
Q3) Does the presence in the real world of intraindustry trade prove or disprove the classical or Heckscher-Ohlin models? Explain.
Q4) Linder argues that trade is based on international similarities in preferences rather than international differences in costs of production.
A)True
B)False
Page 7
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Chapter 6: Tariffs
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Sample Questions
Q1) Refer to the figure above.With free trade,the total quantity of imports would equal
A)10,000 units.
B)20,000 units.
C)22,000 units.
D)30,000 units.
Q2) If a tariff on bikes causes domestic bike prices to rise by 20% and domestic value added in the domestic bike industry to rise by 30%,then
A)the nominal rate of protection of bikes is 20%.
B)the effective rate of protection of bikes is 30%.
C)the effective rate of protection is higher than the nominal rate.
D)All of the above.
Q3) Free trade is better than protection for a small country.
A)True
B)False
Q4) A prohibitive tariff has
A)only revenue effects.
B)only protective effects.
C)both protective and revenue effects.
D)neither protective nor revenue effects.
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Chapter 7: Nontariff Barriers and Arguments for Protection
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Sample Questions
Q1) If the pollution havens hypothesis is true,we should expect world pollution to decline as a result of international trade and globalization.
A)True
B)False
Q2) The United States bans most imports from all of the following countries except A)China.
B)Cuba.
C)North Korea.
D)Iran.
Q3) Refer to the figure above.The quota generates deadweight costs of A)$10,000.
B)$12,000.
C)$30,000.
D)$50,000.
Q4) Strategic trade policy considerations imply that free trade policies should never be pursued.
A)True
B)False
Q5) Are tariffs and quotas equivalent in their economic effects? Demonstrate.
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Chapter 8: Commercial Policy: History and Practice
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Sample Questions
Q1) According to U.S.law,domestic firms can obtain protection from foreign dumping,even if this protection is harmful to overall U.S.welfare.
A)True
B)False
Q2) Briefly describe some of the current policies the United States has in place to limit both fairly and unfairly traded goods.
Q3) ________ protection,similar to the escape clause in U.S.law,refers to temporary protection given to local industries facing competition from fairly traded foreign products.
A)Safeguards
B)Countervailing duty
C)Fair trade
D)Competitive trade
Q4) Prior to the Uruguay Round agreement,the GATT was criticized because A)it had no mechanism for enforcing its rules.
B)prominent segments of world trade, including trade in agriculture and services, were not covered by GATT rules.
C)member countries could veto GATT rulings not in their interests.
D)All of the above.
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Chapter 9: Preferential Trade Agreements
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Sample Questions
Q1) Refer to the figure above.If A forms a customs union with C,the post agreement price will be
A)$10
B)$15
C)$20
D)$25
Q2) Which of the following countries is not a member of NAFTA?
A)Canada.
B)The United States of America.
C)Mexico.
D)All three countries form part of NAFTA.
Q3) Refer to the figure above.If A imposes a per unit tariff of $10 on imports from both B and C,it will import
A)40 units from B.
B)10 units from C.
C)40 units from each.
D)40 units from B and 10 units from C.
Q4) Membership in a customs union may be either welfare improving or welfare worsening.Illustrate and explain.
Q5) Why is NAFTA controversial? Briefly describe both sides of this controversy.
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Chapter 10: International Trade and Economic Growth
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Sample Questions
Q1) If an economy experiences an increase in its labor force,everything else constant,then at constant world prices,it will
A)export more, if the country was initially labor abundant.
B)import more, if the country was initially labor abundant.
C)export more, if the country was initially capital abundant.
D)Both A and B above.
Q2) The ratio of the percentage change in consumption of a good divided by the percentage change in income (as measured by GDP)is known as the
A)income elasticity of demand.
B)income expansion path.
C)demand elasticity equivalent.
D)trade effectiveness.
Q3) ________ policies involve government support for manufacturing sectors in which a country has potential comparative advantage.
A)Comprehensive development
B)Primary-export-led development
C)Import-substitution development
D)Outward-looking development
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12
Chapter 11: The Balance of Payments
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Sample Questions
Q1) It is possible for every nation to have BOP surpluses.
A)True
B)False
Q2) Define the official settlements balance. Is there any difference between the United States and other countries in terms of what this balance measures? How does this affect the ability of the countries to run current account deficits?
Q3) ________ indicates whether a country is a net borrower from or lender to the rest of the world.
A)The basic balance
B)The liquidity balance
C)The capital account
D)The current account
Q4) Credit entries on the Balance of Payments are the entries that would
A)mean a loss of foreign exchange.
B)bring foreign exchange into the country.
C)indicate a surplus exists.
D)exist at the bottom line after all accounts are totaled.
Q5) How are the current account and the financial account related?
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Chapter 12: The Foreign Exchange Market
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Sample Questions
Q1) If a foreign exchange speculator expects the spot rate of the dollar nine months from today to be lower than today's forward rate on the dollar for delivery in nine months,she may
A)buy dollars in the spot market nine months from today.
B)sell dollars in the spot market nine months from today.
C)sell dollars forward today and buy them in the spot market nine months from today.
D)buy dollars forward today and resell them in the spot market nine months from today.
Q2) An important feature of a ________ is that the holder has the right,but not the obligation,to buy or sell currency.
A)swap
B)foreign exchange arbitrage
C)foreign exchange option
D)futures market contract
Q3) A European option can only be exercised on the final day,the expiration date.
A)True
B)False
Q4) Explain the similarities and differences between the forward and futures markets.
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Page 14
Chapter 13: International Monetary Systems
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Sample Questions
Q1) ________ keeps the exchange rate fixed in the short run but then adjusts its value at regular intervals to account for supply and demand pressures.
A)The European Monetary System
B)A managed floating
C)A crawling peg
D)A crawling float
Q2) Evidence shows that flexible exchange rates have created a destabilizing speculation in the foreign exchange market.
A)True
B)False
Q3) Given the currencies below,which was not replaced by the Euro?
A)German mark
B)Irish pound
C)British pound
D)French franc
Q4) The greater domestic money supply fluctuations are,the less likely that we observe a pegged exchange rate regime.
A)True
B)False
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Chapter 14: Exchange Rates in the Short Run
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Sample Questions
Q1) Suppose that in the United States and the United Kingdom the real rate of interest is 1 percent and constant. In this case,the nominal interest rates in both countries
A)are equal.
B)differ solely by the expected future spot rate differential.
C)differ solely by the expected inflation differential.
D)differ solely by the forward rate differential.
Q2) The effective return from a foreign investment is
A)the domestic interest rate plus the forward premium (discount).
B)the foreign interest rate plus the forward premium (discount).
C)the nominal interest rate minus inflation.
D)the real interest rate.
Q3) Deviations from interest rate parity occur due to
A)transaction costs.
B)government controls.
C)political risk.
D)All of the above.
Q4) How are interest rates and inflation rates related?
Q5) Derive the interest parity condition and interpret it.
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Chapter 15: Exchange Rates in the Long Run
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Sample Questions
Q1) The only reason that exchange rates change is because overall price levels in the countries change.
A)True
B)False
Q2) Briefly explain the difference between absolute and relative PPP.
Q3) What are the main reasons for deviations from PPP? Give,at least,5 reasons with a short explanation.
Q4) The law of one price should hold well for
A)differentiated products.
B)any individual goods traded internationally.
C)homogeneous goods.
D)All of the above.
Q5) Relative PPP indicates that
A)the exchange rate between any two currencies is equal to the ratio of their price indexes.
B)the same good sells for the same price internationally.
C)the percentage change in the exchange rate is equal to the inflation differential between the domestic and foreign country.
D)relative prices determine exchange rates.
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Chapter 16: Theories of the Current Account Balance
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Sample Questions
Q1) Which of the following has been offered as a possible explanation to the evidence that the exchange-rate pass-through effect to import prices has been declining in developed economies?
A)That foreign exporters have been increasingly adopting "pricing-to-market" policies.
B)That transaction costs have decreased in recent years.
C)That global leaders have encouraged this phenomenon.
D)That the share of imports with prices more sensitive to exchange rates has been increasing.
Q2) J-curve effects following a devaluation are simply a theoretical issue with no real world importance.
A)True
B)False
Q3) Both the ________ do not put a great deal of emphasis on the capital account.
A)absorption and monetary approaches
B)monetary and elasticities approaches
C)elasticities and absorption approaches
D)None of the above
Q4) What is pricing to market? Where is it most prevalent?
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Chapter 17: Open Economy Macroeconomics
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Sample Questions
Q1) External balance refers to
A)an economy which is on its LM curve.
B)an economy which is on its IS curve.
C)an economy which is on its BP curve.
D)All of the above.
Q2) What policies would you recommend to the U.S.government to lower the balance of trade deficit and decrease net capital inflows?
Q3) The open-economy multiplier is equal to the reciprocal of the marginal propensity to save.
A)True
B)False
Q4) With floating exchange rates
A)monetary policy is effective.
B)fiscal policy is ineffective.
C)monetary and fiscal policy are effective.
D)fiscal and monetary policy are ineffective.
Q5) Monetary policy is most effective at home when exchange rates are flexible. A)True
B)False
Q6) Illustrate the effectiveness of monetary policy with fixed exchange rates.
Page 19
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Chapter 18: International Banking, debt and Risk
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Sample Questions
Q1) The key interest rate in the Eurocurrency market is the
A)London interbank offer rate.
B)Eurobank spread rate.
C)Prime rate.
D)C.D. rate.
Q2) The Paris Club refers to the irregular meetings of creditor governments with debtor nations.
A)True
B)False
Q3) The IMF granted in November of 2008 a $15 billion dollar loan to Hungary,which was at the time undergoing financial stress as a result of the global crisis.
A)True
B)False
Q4) Briefly discuss the following:
(a)Debt-equity swaps
(b)IMF "conditionality"
(c)LIBOR
(d)Petrodollars
Q5) What is Islamic Banking?
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