International Economics
Exam Questions
Course Introduction
International Economics explores the theories, policies, and real-world dynamics that govern economic interactions between countries. The course covers the fundamentals of international trade, including comparative advantage, trade patterns, and the effects of globalization on economies. It examines the functioning of international financial markets, balance of payments, exchange rates, and the impact of trade policies and agreements. Students will analyze the roles of international organizations, such as the World Trade Organization and the International Monetary Fund, in promoting economic stability and development. Through case studies and contemporary issues, the course encourages critical understanding of how international economics shapes global wealth, employment, and policy decisions.
Recommended Textbook
International Finance Theory and Policy 10th Edition by Paul R. Krugman
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) International trade theory implies that international trade is beneficial to all trading countries.However,casual observation leads to the conclusion that official obstruction of international trade flows is widespread.How might you reconcile these two facts?
Answer: This question is meant to allow students to offer preliminary discussions of issues,which will be explored in depth later in the book.
Q2) Because the Constitution forbids restraints on interstate trade
A) the U.S. may not impose tariffs on imports from NAFTA countries.
B) the U.S. may not affect the international value of the $ U.S.
C) the U.S. may not put restraints on foreign investments in California if it involves a financial intermediary in New York State.
D) the U.S. may not impose export duties.
E) the U.S. may not disrupt commerce between Florida and Hawaii.
Answer: E
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Chapter 2: National Income Accounting and the Balance of Payments
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Q1) Government purchases are defined as
A) only goods purchased by federal, state, or local governments.
B) all goods and services purchased by the federal government.
C) all goods and services purchased by the federal or state government.
D) all goods and services purchased by the federal, state, or local government.
E) goods and services purchased from the government.
Answer: D
Q2) Over the 1980s
A) there is no question that a large increase in U.S. foreign assets did occur.
B) there is a question whether a large decrease in U.S. foreign assets did occur.
C) there is no question that a large decrease in U.S. foreign assets did occur.
D) there is no question that there was almost no change in U.S. foreign assets.
E) there is no question that rising exports exceeded U.S. foreign debt.
Answer: C
Q3) Discuss the values of private saving in closed and open economies.
Answer: In a closed economy,private saving, S ,is equals to,I + (G - T).In a open economy,private saving, S ,is equals to I + CA + (G - T).Open economy helps in extending the opportunities for private saving or dis-saving,or borrowing.
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Chapter 3: Labor Productivity and Comparative Advantage:
The Ricardian Model
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Q1) It is generally claimed that a movement from autarky to free trade consistent with Ricardian comparative advantage increases the economic welfare of each of the trade partners.However,it may be demonstrated that under certain circumstances,not everyone in each country is made better off.Illustrate such a case.
Answer: (a)If inter-generational,or economic growth considerations are taken into account,then a country may end up specializing in a good that has no or few growth linkages with the rest of the economy (e.g.,an "enclave" sector).
(b)If some of the residents of a country have tastes biased toward their exportable,then they may suffer due to the trade-affected increase in the market price of the exportable good.
Q2) In the Ricardian model,if a country's trade is restricted,this will cause all EXCEPT which?
A) limited specialization and the division of labor
B) reduced volume of trade and reduced gains from trade
C) nations to produce inside their production possibilities curves
D) a country to produce some of the product of its comparative disadvantage
E) raised costs as more diverse product is produced internally
Answer: C
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Chapter 4: Specific Factors and Income Distribution
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Q1) The slope of a country's production possibility frontier is equal to ________ and the optimal production point is located where the slope is equal to ________.Assume that output of good Y is measured on the vertical axis,output of good X is measured on the horizontal axis,MPL is the marginal product of labor with a subscript indicating which good,P is the price of a good,and w is the wage rate.
A) -MPLY/MPLX; -PX/PY
B) -PX/PY; -MPLY/MPLX;
C) -PX/w; -PY/w
D) -MPLY/w; -MPLF/w
E) -MPLX/MPLY; -PX/PY
Q2) The specific factors model was developed by
A) Paul Samuelson and Ronald Jones.
B) Adam Smith and David Ricardo.
C) Richard Nixon and Robert Kennedy.
D) C.B. deMille and Gordon Willis.
E) Bill Clinton and Monica Lewinsky.
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Chapter 5: Resources and Trade: The Heckscher-Ohlin Model
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Q1) The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage in that the former
A) has only two countries.
B) has only two products.
C) has two factors of production.
D) has two production possibility frontiers (one for each country).
E) has varying wage rates.
Q2) International trade has strong effects on income distributions.Therefore,international trade
A) will tend to hurt some groups in each trading country.
B) is beneficial to everyone in both trading countries.
C) will tend to hurt one trading country.
D) will tend to hurt everyone in both countries.
E) will be beneficial to all those engaged in international trade.
Q3) Why do we observe the Leontief paradox?
Q4) Countries do not in fact export the goods the H.O.theory predicts.Discuss.
Q5) Why are prices of factors of production NOT equalized?
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Q6) Why do you suppose that South-South trade does not conform in volume,but does conform in pattern with expectations generated by the Heckscher-Ohlin model?
Chapter 6: The Standard Trade Model
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Q1) An import tariff will cause the terms of trade of the ________ country to ________ and will ________ the country.
A) importing; improve; benefit
B) exporting; improve; benefit
C) importing; suffer; harm
D) exporting; improve; harm
E) importing; improve; harm
Q2) It may be argued that theoretically,international capital movements
A) tend to hurt labor in donor countries.
B) tend to hurt the donor countries.
C) tend to hurt the recipient countries.
D) tend to hurt labor in recipient countries.
E) increase future production in donor countries.
Q3) If Slovenia were a large country in world trade,then if it instituted a large set of subsidies for its exports,this must
A) harm its terms of trade.
B) have no effect on its terms of trade.
C) improve its terms of trade.
D) decrease its marginal propensity to consume.
E) harm world terms of trade.
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Chapter 7: External Economies of Scale and the
International Location of Production
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Sample Questions
Q1) Why are increasing returns to scale and fixed costs important in models of international trade and imperfect competition?
Q2) Suppose that two countries,A and B,employ the same technology in the production of a good.External economies of scale apply in both countries.Analyze the effects of trade on long-run production levels if country A has a comparatively lower cost of production when trade begins.
Q3) In the presence of external economies of scale,trade
A) may or may not improve welfare in both countries.
B) will unambiguously improves welfare in both countries.
C) will unambiguously worsens welfare in both countries.
D) will unambiguously worsen welfare in the exporting country and improve welfare in the importing country.
E) will unambiguously improve welfare in the exporting country and worsen welfare in the importing country.
Q4) What is meant by an "industrial district" and what are the three main sources of the economic advantages derived from locating in such a district?
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Page 9
Chapter
Decisions,Outsourcing,and Multinational Enterprises
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Q1) When a multinational affiliate replicates production in a foreign country it is called ________ foreign direct investment.
A) horizontal
B) vertical C) transitional
D) bisectional
E) direct
Q2) Imperfectly competitive firms have a demand curve that ________ and a marginal revenue curve that ________ and is ________ the demand curve. A) slopes downward; slopes downward; below B) is horizontal; is horizontal; the same as C) slopes downward; is horizontal; above D) is horizontal; slopes downward; below E) slopes downward; slopes downward; the same as
Q3) What are the consequences of outsourcing production on the welfare of countries?
Q4) Refer to above figure.The monopolist can export as much as it likes of its steel at the world price of $5/ton.How much steel will the monopolist sell,and at what price?
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Chapter 9: The Instruments of Trade Policy
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Sample Questions
Q1) If the tariff on computers is not changed,but the government then adds hitherto nonexistent tariffs on imported semi-conductor components,then the effective rate of protection in the computer industry will A) increase.
B) decrease.
C) remain the same.
D) depend on whether computers are PCs or "Supercomputers."
E) no longer apply.
Q2) The excess supply curve of a product we (H)import from foreign countries (F)increases as
A) excess demand of country H increases.
B) excess demand of country F increases.
C) excess supply of country H increases.
D) excess supply of country F increases.
E) excess supply of country F decreases.
Q3) Refer to above figure.With a specific tariff of $3 per unit,what is the quantity of Widgets consumed domestically?
Q4) Refer to above figure.What is the amount of government revenue resulting from imposition of the tariff?
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Chapter 10: The Political Economy of Trade Policy
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Q1) Refer to the figure above,which shows domestic supply and demand.If P is equal to P (the world price)plus a tariff,then government revenue from the tariff is equal to A) a + c
B) b
C) P ( Q - Q )
D) P [(Q - Q ) + (Q - Q )]
E) a + b + c
Q2) Today U.S.protectionism is concentrated in A) high-tech industries.
B) labor-intensive industries.
C) industries in which Japan has a comparative advantage.
D) computer intensive industries.
E) capital-intensive industries.
Q3) The median voter model
A) works well in the area of trade policy.
B) is not intuitively reasonable.
C) tends to result in biased tariff rates.
D) does not work well in the area of trade policy.
E) is not widely practiced in the United States.
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Chapter 11: Trade Policy in Developing Countries
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Q1) All the following nations except ________ have recently utilized export-led growth policies.
A) Hong Kong
B) South Korea
C) Argentina
D) Singapore
E) Taiwan
Q2) The experience of sub-Saharan Africa,as compared to that of "Other Asia" (not including the HPAEs)supports the argument that
A) high rates of protection tend to harm economic growth.
B) the poorer is the country the easier it is for it to "catch up" economically.
C) low rates of protection tend to promote economic growth.
D) free trade always best stimulates a developing country's economy.
E) neither trade liberalization nor import substitution is a foolproof strategy for economic development.
Q3) It is argued that import substitution is a misguided trade policy if the intent is to promote long-term economic growth.Explain the reasons underlying this argument.
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Chapter 12: Controversies in Trade Policy
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Q1) The Shipbreakers of Alang represent a perfect example of how a developing country can apply the principles of the Heckscher-Ohlin model,since
A) shipbreaking is generally considered to be a capital-intensive operation and India, being a large country has much capital.
B) shipbreaking is a labor-intensive operation in India, and India has many workers since it is such a large country.
C) shipbreaking is a labor-intensive operation in India, and India's availability of capital per worker is less than that of its trade partners.
D) shipbreaking is a capital-intensive operation elsewhere in the world, and therefore represents a case of a factor intensity reversal.
E) India's climate lends itself to the work involved in shipbreaking.
Q2) It is still the conventional wisdom in the U.S.that compliance with NAFTA requirements is having a deleterious effect on U.S.highway safety standards,on U.S.pollution and other environmental standards,and on U.S.jobs.What facts would proponents of an expansion of NAFTA (e.g.,to include all of Central and South American countries)need to marshall in order to convince you?
Q3) Describe the environmental Kuznets curve.
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