International Economic Policy
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Course Introduction
International Economic Policy explores the fundamental theories, institutional frameworks, and practical challenges involved in the formulation and implementation of economic policies across nations. The course examines topics such as trade agreements, exchange rate systems, international financial flows, global economic governance, and the role of organizations like the IMF, World Bank, and WTO. Through analysis of current events and case studies, students will gain insight into the impact of globalization, the interplay between domestic and international policy objectives, and the implications of economic policy decisions on growth, development, and inequality worldwide.
Recommended Textbook
International Economics 13th Edition by Robert Carbaugh
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Page 2
Chapter 1: the International Economy and Globalization
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Sample Questions
Q1) Relative to countries with low ratios of exports to gross domestic product,countries having high export to gross domestic product ratios are ____ vulnerable to changes in the world market.
A) Less
B) More
C) Equally
D) Any of the above
Answer: B
Q2) A firm's ____,relative to that of other firms,is generally regarded as the most important determinant of competitiveness.
A) Income level
B) Tastes and preferences
C) Governmental regulation
D) Productivity
Answer: D
Q3) 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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Chapter 2: Foundations of Modern Trade Theory:
Comparative Advantage
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Sample Questions
Q1) The terms of trade represents the rate of exchange between a country's exports and imports.
A)True
B)False
Answer: True
Q2) If the international terms of trade settle at a level that is between each country's opportunity cost:
A) There is no basis for gainful trade for either country
B) Both countries gain from trade
C) Only one country gains from trade
D) One country gains and the other country loses from trade
Answer: B
Q3) The trading principle formulated by Adam Smith maintained that:
A) International prices are determined from the demand side of the market
B) Differences in resource endowments determine comparative advantage
C) Differences in income levels govern world trade patterns
D) Absolute cost differences determine the immediate basis for trade
Answer: D
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Chapter 3: Sources of Comparative Advantage
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Sample Questions
Q1) The specific-factors theory analyzes the income distribution effects of trade in the short run when resources are immobile among industries.
A)True
B)False
Answer: True
Q2) The Leontief paradox provided:
A) Support for the principle of absolute advantage
B) Support for the factor endowment model
C) Evidence against the factor endowment model
D) Evidence against the principle of absolute advantage
Answer: C
Q3) Which trade theory is tantamount to a short-run version of the factor price equalization theory?
A) Specific factors theory
B) Product life cycle theory
C) Economies of scale theory
D) Overlapping demand theory
Answer: A
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Chapter 4: Tariffs
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Sample Questions
Q1) Consider Table 4.1.Prior to the tariff,domestic value added equals:
A) $25
B) $50
C) $75
D) $100
Q2) Although an import tariff provides the domestic government additional tax revenue,it benefits domestic consumers at the expense of domestic producers.
A)True
B)False
Q3) Consider Figure 4.1.With free trade,Mexico's producer surplus and consumer surplus respectively equal:
A) $5, $605
B) $25, $380
C) $45, $250
D) $85, $195
Q4) How can tariffs be justified?
Q5) Refer to Exhibit 4.2.The tariff's redistribution effect equals $7,000. A)True
B)False
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Chapter 5: Nontariff Trade Barriers
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Sample Questions
Q1) What are the intent and impact of domestic content requirements?
Q2) Concerning the restrictive impact of an import quota,assume there occurs an increase in the domestic demand for the import product.As long as the quota falls short of what would be imported under free market conditions,the economy's adjustment to the increase in demand would take the form of:
A) A decrease in domestic production of the import good
B) An increase in the amount of the good being imported
C) An increase in the domestic price of the import good
D) A decrease in domestic consumption of the import good
Q3) Consider Figure 5.2.In the absence of international dumping,ABC Inc.maximizes profits by selling ____ calculators at a price of $____; the firm realizes profits totaling $____.
A) 27, $5, $54
B) 27, $5, $36
C) 24, $4, $46
D) 24, $4, $28
Q4) Describe some of the differences between tariffs and quotas?
Q5) Is a tariff-rate quota a two-tier tariff? Why?
Q6) What is an OMA?
Page 7
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Chapter 6: Trade Regulations and Industrial Policies
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Sample Questions
Q1) Consider Figure 6.2.For Mexico's producers and consumers as a whole,the South Korean subsidy leads to a:
A) $120 welfare gain
B) $320 welfare gain
C) $120 welfare loss
D) $320 welfare loss
Q2) Consider Figure 6.1.At the monopoly price as established by Boeing,Canadian consumers realize $____ of consumer surplus from the availability of aircraft.
A) $4 million
B) $8 million
C) $12 million
D) $16 million
Q3) Consider Figure 6.2.As a result of the South Korean subsidy,Mexicans find their consumer surplus:
A) Rising by $160
B) Rising by $220
C) Falling by $160
D) Falling by $220
Q4) 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) Which of the following could partially explain why the terms of trade of developing countries might deteriorate over time?
A) Developing-country exports mainly consist of manufactured goods
B) Developing-country imports mainly consist of primary products
C) Commodity export prices are determined in highly competitive markets
D) Commodity export prices are solely determined by developing countries
Q2) The development of countries like South Korea and Singapore has been underlaid by all of the following except:
A) High domestic interest rates
B) R&D and product innovation
C) Education and on-the-job training
D) High levels of saving and investment
Q3) Empirical research indicates that the demand and supply schedules for most primary products are relatively inelastic to changes in price.
A)True
B)False
Q4) Describe the flying-geese pattern of economic growth? What countries have pursued this strategy?
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) A static welfare effect resulting from the formation of the European Union would be:
A) Economies of scale
B) Trade diversion
C) Investment incentives
D) Increased competition
Q2) Trade creation occurs when imports from a low-cost supplier outside of a customs union are replaced by purchases from a higher-cost supplier within the union.
A)True
B)False
Q3) The common agriculture policy of the European Union has supported European farmers via:
A) Export tariffs and domestic content regulations
B) Variable levies and voluntary export agreements
C) Content regulations and export subsidies
D) Export subsidies and variable levies
Q4) What factors influence the extent of trade creation and trade diversion?
Q5) What is meant by economic integration?
Q6) Explain the theory of optimum currency areas.
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Chapter 9: International Factor Movements and Multinational Enterprises
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Sample Questions
Q1) Most U.S.direct investment abroad occurs in:
A) Communications
B) Petroleum
C) Finance and insurance
D) Manufacturing
Q2) All of the following are potential advantages of an international joint venture except:
A) Sharing research and development costs among corporations
B) Forestalling protectionism against imports
C) Establishing work rules promoting higher labor productivity
D) Operating at diseconomy-of-scale output levels
Q3) Due to transfer-pricing problems,multinational corporations must shift profits away from countries with low corporate tax rates to high tax-rate countries,thus absorbing a larger tax bite.
A)True
B)False
Q4) International trade in goods and services and flows of productive factors are substitutes for each other.
A)True
B)False
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Chapter 10: the Balance of Payments
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Sample Questions
Q1) If a country realizes a current-account deficit in its balance of payments,it becomes a net supplier of funds to the rest of the world.
A)True
B)False
Q2) Unilateral transfers refer to two-sided transactions,reflecting the movement of goods and services in one direction with corresponding payments in the other direction.
A)True
B)False
Q3) By the mid-1980s,the United States had evolved from the status of a net-creditor nation to a net-debtor nation in its balance of international indebtedness.
A)True
B)False
Q4) Often,countries realizing rapid economic growth rates possess long-run current account deficits.
A)True B)False
Q5) What does a current account deficit mean?
Q6) 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) Foreign-exchange brokers help commercial banks carry out foreign exchange trading and maintain desired balances of foreign exchange.
A)True
B)False
Q2) Given an upward-sloping supply schedule of pounds and a downward-sloping demand schedule for pounds,an increase in the supply schedule causes an appreciation of the dollar against the pound.
A)True
B)False
Q3) If you have a commitment to pay a friend in Britain 1,000 pounds in 30 days,you could remove the risk of loss due to the appreciation of the pound by:
A) Buying dollars in the forward market for delivery in 30 days
B) Selling dollars in the forward market for delivery in 30 days
C) Buying the pounds in the forward market for delivery in 30 days
D) Selling the pounds in the forward market for delivery in 30 days
Q4) A person needing foreign exchange immediately would purchase it on the spot market.
A)True
B)False
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Chapter 12: Exchange-rate Determination
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Sample Questions
Q1) What is exchange rate overshooting?
Q2) Concerning exchange-rate determination,"market fundamentals" include all of the following except:
A) Monetary policy and fiscal policy
B) Profitability and riskiness of investments
C) Speculative opinion about future exchange rates
D) Productivity changes affecting production costs
Q3) Which theory of exchange-rate determination best views the foreign exchange market as being similar to a stock exchange where future expectations are important and prices are volatile?
A) Balance-of-payments approach
B) Purchasing-power-parity approach
C) Asset-markets approach
D) Monetary approach
Q4) Lower tariffs on U.S.agricultural imports cause the dollar to ____ in the ____.
A) Appreciate, long run
B) Depreciate, long run
C) Appreciate, short run
D) Depreciate, short run
Q5) What is the asset market approach to exchange rate determination?
Page 14
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Chapter 13: Balance-of-payments Adjustments
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Sample Questions
Q1) Which of the following balance-of-payments adjustment mechanisms is most closely related to the quantity theory of money?
A) Income-adjustment mechanism
B) Price-adjustment mechanism
C) Interest-rate-adjustment mechanism
D) Output-adjustment mechanism
Q2) Starting from a position where the nation's money demand equals the money supply and its balance of payments is in equilibrium,economic theory suggests that the nation's balance of payments would move into a surplus position if there occurred in the nation:
A) An increase in the money demand
B) A decrease in the money demand
C) An increase in the money supply
D) None of the above
Q3) The "rules of the game" served to reinforce and speed up the interest-rate-adjustment mechanism under a system of fixed exchange rates.
A)True
B)False
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) Currency devaluation is initiated by governmental policy rather than the free-market forces of supply and demand.
A)True
B)False
Q2) The absorption approach suggests that one of the following causes a trade deficit to decrease following currency depreciation:
A) A decline in domestic interest rates
B) A rise in domestic imports
C) A rise in government spending
D) A decline in domestic absorption
Q3) The J-curve effect implies that following a currency appreciation,a country's trade balance:
A) Worsens before it improves
B) Continually worsens
C) Improves before it worsens
D) Continually improves
Q4) How do movements in exchange rates affect domestic costs,in the presence of foreign sourcing?
Q5) What is a pass-through relationship?
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Chapter 15: Exchange-rate Systems and Currency Crises
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Sample Questions
Q1) Rather than constructing their own currency baskets,many nations peg the value of their currencies to a currency basket defined by the International Monetary Fund.Which of the following illustrates this basket?
A) IMF tranche
B) Special Drawing Rights
C) Primary reserve asset
D) Swap facility
Q2) Refer to Figure 15.1.Suppose the demand for francs increases from D? to D?.Under a fixed exchange rate system,the U.S.exchange stabilization fund could maintain a fixed exchange rate of $0.50 per franc by:
A) Selling francs for dollars on the foreign exchange market
B) Selling dollars for francs on the foreign exchange market
C) Decreasing U.S. exports, thus decreasing the supply of francs
D) Stimulating U.S. imports, thus increasing the demand for francs
Q3) 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
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Page 17
Chapter 16: Macroeconomic Policy in an Open Economy
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Sample Questions
Q1) Changes in a country's net exports,investment spending,or government spending will cause its aggregate demand curve to shift.
A)True
B)False
Q2) A nation experiences overall balance if it achieves:
A) Balance-of-payments equilibrium, full employment, and price stability
B) Balance-of-payments equilibrium, maximum productivity, and price stability
C) Full employment, price stability and no change in its money supply
D) Full employment, price stability, and maximum productivity
Q3) When a nation realizes external balance
A) it can have a current account deficit
B) it can have a current account surplus
C) it has neither a current account deficit nor a current account surplus
D) Both a and b
Q4) What happens to the balance of payments under a fixed exchange rate system,when expansionary or contractionary monetary policy is used?
Q5) What policy instrument should be used when demand-pull inflation exists?
Q6) Was the Plaza Agreement of 1985 a success?
Q7) What is international economic policy coordination?
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Chapter 17: International Banking: Reserves, debt, and Risk
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Sample Questions
Q1) 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
Q2) Are international reserve needs different for different exchange rate regimes?
Q3) Concerning international lending risk,credit risk refers to the probability that part or all of the interest rate or principal of a loan will not be repaid.
A)True
B)False
Q4) Which of the following is not considered an "owned" reserve?
A) National currencies
B) Gold
C) Special drawing rights
D) Oil facility
Q5) Why do countries hold international reserves?
Q6) Describe the eurocurrency market.
Q7) How can a bank reduce its exposure to the debt of developing nations?
Page 19
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