International Economics
Final Test Solutions
Course Introduction
International Economics explores the fundamental principles and theories governing economic interactions between countries. The course covers topics such as international trade, comparative advantage, exchange rates, balance of payments, trade policies, and the impact of globalization on economies. Students will analyze how goods, services, and capital flow across borders, the role of international organizations, and the effects of trade agreements and economic integration. Emphasis is placed on understanding both the benefits and challenges of international economic relations, equipping students with analytical tools to assess real-world global economic issues.
Recommended Textbook
International Business Competing in the Global Marketplace 11th Edition by
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2183 Verified Questions
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Page 2
Charles W. L. Hill
Chapter 1: Globalization
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Sample Questions
Q1) Discuss the characteristics of globalization. Use an example in your discussion. Answer: Globalization refers to a fundamental shift in the world economy in which national economies are no longer relatively self-contained entities. Instead, nations are moving toward an interdependent global economic system. Within this new global economy, an American might drive to work in a car designed in Germany that was assembled in Mexico by DaimlerChrysler from components made in the United States and Japan that were fabricated from Korean steel and Malaysian rubber. A company does not have to be the size of these multinational giants to facilitate, and benefit from, the globalization of markets.
Q2) A number of econometric studies have found consistent evidence of a hump-shaped relationship between income levels and pollution levels. According to this, as an economy grows and income levels rise:
A) initially the pollution levels remain low.
B) after a while, the pollution levels decrease.
C) the pollution levels also rise in proportion to the economic growth.
D) there is increasing industrialization which leads to greater pollution.
Answer: B
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Page 3
Chapter 2: National Differences in Political Economy, and Legal Systems
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Sample Questions
Q1) Peoples' right to protest on issues of accountability in public expenditure would be possible in a _____ political set-up.
A) dictatorial
B) democratic
C) totalitarian
D) fascist
Answer: B
Q2) The term used to describe a state in which authoritarian elements have captured some or much of the machinery of state and use this in an attempt to deny basic political and civil liberties.
A) Authoritarian dictatorship
B) Right-wing democracies
C) Representative totalitarianism
D) Pseudo-democracies
Answer: D
Q3) Patents discourage companies from committing themselves to extensive basic research.
A)True
B)False
Answer: False
Page 4
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Chapter 3: National Differences in Economic Development
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Sample Questions
Q1) Political freedom is one of the measures used by the Human Development Index (HDI) to measure the quality of human life in different nations.
A)True
B)False
Answer: False
Q2) Economic freedom necessarily equates with political freedom.
A)True
B)False
Answer: False
Q3) Why does education lead to economic development?
Answer: Nations that invest more in education will have higher growth rates because an educated population is a more productive population. A survey of 14 statistical studies that looked at the relationship between a country's investment in education and its subsequent growth rates concluded investment in education did have a positive and statistically significant impact on a country's rate of economic growth.
Q4) Most property in poor countries is owned legally by investors.
A)True
B)False
Answer: False
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Chapter 4: Differences in Culture
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Sample Questions
Q1) The _____ instrument is designed to address the notion that a leader's effectiveness is contextual. It is embedded in the societal and organizational norms, values, and beliefs of the people being led.
A) GLOBE
B) WVS
C) IND
D) CVS
Q2) Hofstede's research has been criticized because it was culturally bound.
A)True
B)False
Q3) Describe the four dimensions of culture as identified by Geert Hofstede.
Q4) An antagonistic relationship between management and labor classes may result in lower costs of production.
A)True
B)False
Q5) Max Weber thought that devout Hindus would be less likely to engage in entrepreneurial activity than devout Protestants.
A)True
B)False
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Chapter 5: Ethics, Corporate Social Responsibility, and Sustainability
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Sample Questions
Q1) The _____ approaches to ethics hold that the moral worth of actions or practices is determined by their consequences.
A) naïve immoralist
B) cultural relativist
C) righteous moralist
D) utilitarian
Q2) In the international business setting, one of the most common ethical issues involves _____.
A) hiring practices
B) government deregulation
C) the moral obligation of multinational corporations
D) facilitating payments
Q3) Under the veil of ignorance, everyone is imagined to be ignorant of:
A) all of his/her particular characteristics.
B) fundamental rights and privileges.
C) the moral worth of actions or practices.
D) the minimum levels of morally acceptable behavior.
Q4) What are ethical dilemmas? Why do they exist?
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Q5) Describe the five-step process that businesses can use to think through ethical problems.
Chapter 6: International Trade Theory
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Sample Questions
Q1) The theories of Smith and Ricardo show that countries should not engage in international trade for products that it is able to produce for itself.
A)True
B)False
Q2) The theories of international trade claim that promoting free trade is generally in the best interests of:
A) a country, although it may not always be in the best interest of an individual firm.
B) all multinational corporations.
C) an individual firm, although it may not always be in the best interest of a country.
D) the World Trade Organization.
Q3) What will happen, according to Paul Samuelson's critique, if a rich country enters into a free trade agreement with a poor country?
A) Both the countries will incur losses due to the exchanges between them.
B) The productivity of the poor country will decline rapidly.
C) The poor country will rapidly improve its productivity.
D) Both the countries will garner benefits from the exchanges between them.
Q4) Explain the concept of free trade.
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Chapter 7: Government Policy and International Trade
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Sample Questions
Q1) _____ are the highest rate that can be charged, which is often, but not always, the rate that is charged.
A) Ad valorem tariff rates
B) Tariff rents
C) Specific tariff rates
D) Bound tariff rates
Q2) Discuss the infant industry argument for intervention in markets. What is GATT's position on the argument?
Q3) The "millennium round" ended in 1999 with:
A) a successful record on agricultural products.
B) a new agenda for the next round focusing on financial services.
C) no agreement on the reduction of barriers to cross-border trade and investment.
D) a decision to avoid FDI.
Q4) The infant industry argument is the latest argument for government intervention in trade.
A)True
B)False
Q5) What is the TRIPS agreement? Why was it established?
Q6) What happened to GATT during the 1980s and early 1990s?
Page 9
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Chapter 8: Foreign Direct Investment
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Sample Questions
Q1) Rivals rarely imitate what a firm does in an oligopoly.
A)True
B)False
Q2) When a firm is considering FDI, what are the some of the negotiating points it must weigh before making its decision?
Q3) Governments normally are concerned when their country is running a surplus on the current account of their balance of payments.
A)True
B)False
Q4) The pragmatic nationalist view highlights _____ of FDI.
A) only the benefits
B) only the costs
C) both the benefits and costs
D) neither the benefits nor the costs
Q5) Discuss the reasons for the growth in FDI over the last 30 years.
Q6) Licensing is usually a good option for firms in high-tech industries where protecting firm-specific expertise is of paramount importance.
A)True
B)False
Page 10
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Chapter 9: Regional Trade Pacts Give the Mexican Auto
Industry an Edge
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Sample Questions
Q1) Country A and Country B entered into a free trade agreement recently. After this, Country A starts importing heavy machinery from CountryB. Country A used to previously import such machinery at lower rates from another country. Which of the following has occurred in this scenario?
A) Trade creation
B) Efficiency gain
C) Trade deficit
D) Trade diversion
Q2) Which of the following is directly elected by the populations of the member states and is primarily a consultative rather than legislative body?
A) The European Parliament
B) The European Commission
C) The Council of the European Union
D) The Court of Justice
Q3) The bulk of intra-ASEAN trade consisted of goods whose tariffs had been reduced through an ASEAN preferential trade arrangement.
A)True
B)False
Q4) What is ASEAN? What is its basic goal? How successful is ASEAN?
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Chapter 10: The Foreign Exchange Market
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Sample Questions
Q1) Which of the following is the most important foreign exchange trading center?
A) London
B) New York
C) Tokyo
D) Singapore
Q2) Transaction exposure includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies.
A)True
B)False
Q3) International businesses use foreign exchange markets for many reasons. Which of the following is one of these reasons?
A) To receive payments from domestic investors that are in local currencies.
B) To pay a foreign company for its products or services in its native country's currency.
C) To invest for short terms in money markets when they have spare cash.
D) To cover themselves from all risks involved in currency speculation.
Q4) With the help of an example, explain how a tourist participates in the foreign exchange market.
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Chapter 11: The International Monetary System
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Sample Questions
Q1) Moral hazard arises when people behave recklessly because they know they will be saved if things go wrong.
A)True
B)False
Q2) The United States had large and growing trade deficit between 1980 and 1985. Despite this, the value of U.S. dollar rose during this period. Which of the following is a factor that caused this occurrence?
A) United States attracted heavy inflows of capital from foreign investors during this period.
B) Banks in the United States offered low interest rates to investors during this period.
C) Markets across the world witnessed strong economies during this period.
D) Developed countries in Europe maintained trade equilibrium and supplied goods to underdeveloped countries.
Q3) The World Bank was established at the at Bretton Woods conference to:
A) establish an international monetary system.
B) promote general economic development.
C) establish gold standard across the world.
D) fund the initiatives of the United Nations.
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13
Chapter 12: The Global Capital Market
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Sample Questions
Q1) The spread between the Eurocurrency deposit rate and the Eurocurrency lending rate is more than the spread between the domestic deposit and lending rates.
A)True
B)False
Q2) The element of risk into investing in foreign assets is more with _____ exchange rates.
A) floating B) pegged C) fixed D) managed
Q3) The cost of capital is the difference between cost of inputs and outputs. A)True
B)False
Q4) Systematic risk refers to movements in a stock portfolio's value that are:
A) attributable to macroeconomic forces affecting an economy.
B) specific to the firm or individuals who invest in a portfolio.
C) attributable to factors pertaining to an individual firm.
D) specific to the company that facilitates the investment portfolio.
Q5) What is a capital market? Define market makers.
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Chapter 13: The Strategy of International Business
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Sample Questions
Q1) Firms usually respond to pressures for cost reduction by trying to:
A) lower the costs of value creation.
B) be locally responsive.
C) undertaking product differentiation.
D) diversifying product lines.
Q2) A strategy that focuses on increasing the attractiveness of a product is referred to as a(n) _____.
A) differentiation strategy
B) low cost strategy
C) effectiveness strategy
D) efficiency strategy
Q3) A consumer surplus can be best described as:
A) what the consumer has "left-over" after a purchase.
B) how much extra a consumer has to pay for a product.
C) value for the money.
D) the premium charged for a quality product.
Q4) When consumer tastes and preferences differ significantly between countries, there is low pressure for local responsiveness.
A)True
B)False
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Chapter 14: The Organization of International Business
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Sample Questions
Q1) A decentralized organization allows managers to respond to environmental changes more quickly than in a centralized organization.
A)True
B)False
Q2) Which of the following is a potential drawback of the worldwide area structure?
A) This structure discourages division of the organization into autonomous entities.
B) This structure makes it difficult to decentralize decisions regarding operations authority.
C) This structure makes it difficult to realize location and experience curve economies.
D) This structure reduced local responsiveness.
Q3) There is low interdependence, performance ambiguity, and costs of control in firms pursuing a(n) _____.
A) localization strategy
B) international strategy
C) transnational strategy
D) global strategy
Q4) Why should a firm centralize its decision-making?
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Chapter 15: Entry Strategy and Strategic Alliances
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Sample Questions
Q1) Many American firms that sold oil-refining technology to firms in the Gulf now find themselves competing with these firms in the world oil market. This is an example of:
A) a firm entering into a turnkey project with a foreign enterprise, inadvertently creating a competitor.
B) a firm entering into a turnkey deal having no long-term interest in the foreign country.
C) a country subsequently proving to be a major market for the output of the process that has been exported.
D) a firm selling its process technology through franchisees in different countries.
Q2) Costs that an early entrant has to bear that a later entrant can avoid are known as
A) first-mover costs
B) late-mover disadvantages
C) pioneering costs
D) licensing fees
Q3) What are first-mover advantages? Discuss these advantages.
Q4) Explain the relationship between first-mover disadvantages and pioneering costs.
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Page 17
Chapter 16: Exporting, Importing, and Countertrade
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Sample Questions
Q1) Which of the following is true of exporting?
A) A common pitfall of exporting is a poor understanding of competitive conditions in the foreign market.
B) Securing financing is rarely a problem for exporters.
C) A common pitfall of exporting is trying too hard to customize a product offering rather than "sticking with what you know."
D) Most exporters have a very good understanding of the competitive conditions in the foreign market.
Q2) A counterpurchase gives exporters more flexibility than an offset.
A)True
B)False
Q3) Explain why barter is viewed as the most restrictive counter-trade arrangement.
Q4) What type of firms is most likely to engage in countertrade? Why?
Q5) The Export-Import Bank is an independent agency of the _____.
A) European Union
B) World Trade Organization
C) United Nations
D) U.S. government
Q6) Describe a typical international trade transaction.
Page 18
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Chapter 17: Global Production and Supply Chain Management
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Sample Questions
Q1) Packaging is intended to achieve a set of multilayered functions, which can be grouped into (1) perform, (2) protect, and (3) inform. Which of the following is one of the functions of the "perform" group?
A) The package's ability to preserve the products to maintain their freshness or newness
B) The package's ability to provide the necessary security and safety to ensure that the products reach their end destination in their intended shape
C) The package's ability to contain the products properly
D) The ability of the product in the package to handle being transported between nodes in the global supply chain
Q2) A(n) _____ is often placed near a competitor's headquarters or main operations, near the most demanding customers, or near key suppliers of unique and critically important parts.
A) outpost factory
B) source factory
C) contributor factory
D) lead factory
Q3) When does concentration of production make sense?
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Page 19
Chapter 18: Global Marketing and RD
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Sample Questions
Q1) If a producer sells through an import agent, a wholesaler, and a retailer, then:
A) a long channel exists.
B) the retail system must be concentrated.
C) the internet probably plays a big role in the economy.
D) there is no channel.
Q2) Other things being equal, the rate of new-product development seems to be greater in countries where:
A) less money is spent on basic and applied R&D.
B) consumers are affluent.
C) underlying demand is weak.
D) competition is mild.
Q3) The set of choices the firm offers to its targeted market is known as the ____.
A) marketing mix
B) marketing concept
C) marketing strategy
D) market promotion
Q4) Discuss the role of technology in new-product development, including the concept of "creative destruction."
Q5) What factors affect the rate of new-product development in countries?
Q6) Compare and contrast push strategies and pull strategies.
Page 20
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Chapter 19: Global Human Resource Management
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Sample Questions
Q1) A _____ may be paid to ensure that the expatriate enjoys the same standard of living in the foreign location as at home.
A) housing allowance
B) hardship allowance
C) cost-of-living allowance
D) differential allowance
Q2) _____ makes it difficult to evaluate the performance of expatriate managers objectively.
A) Unintentional bias
B) Lack of proximity
C) Intentional bias
D) Inadequate hard data
Q3) A firm following a(n) _____ approach to staffing believes that the host-country nationals should be recruited to manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters.
A) geocentric
B) eurocentric
C) polycentric
D) ethnocentric
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Page 21
Chapter 20: Accounting and Finance in the International Business
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Sample Questions
Q1) Most banks charge a(n) _____ for moving cash from one location to another.
A) transfer fee
B) internal forward rate
C) accounting service fee
D) audit fee
Q2) Describe three factors that complicate the process of an international business.
Q3) Auditing standards are rules that define the accounting principles and monetary policy of a nation.
A)True
B)False
Q4) Which of the following is a disadvantage of pursuing a transfer pricing policy?
A) It is not useful in shifting earnings from a high-tax country to a low-tax one.
B) Transfer pricing does not treat each subsidiary as a profit center.
C) It is not effective when significant currency devaluation is expected.
D) A transfer price policy cannot be used to move funds when dividends are restricted.
Q5) What are the nine possible combinations of the three exchange rates proposed by Lessard and Lorange in the control process?
Q6) What are the shortcomings of IASB?
Page 22
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