International Economics
Midterm Exam
Course Introduction
International Economics explores the principles and dynamics governing the exchange of goods, services, and capital across national borders. The course examines key theories of trade, the impact of globalization, the role of international institutions, and the effects of trade policies such as tariffs and quotas. Students analyze balance of payments, exchange rates, and currency markets to understand how international economic interactions influence development, competitiveness, and economic growth. The course provides analytical tools to assess current issues such as trade disputes, regional integration, and the effects of global financial crises on national economies.
Recommended Textbook
Introduction to International Economics 3rd Edition by Dominick Salvatore
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861 Verified Questions
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Page 2
Chapter 1: Introduction to the Global Economy
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Sample Questions
Q1) 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
Q2) The economic interdependence among nations has ___________ in the recent past.
A)decreased
B)remained the same
C)increased
D)hurt the world
Answer: C
Q3) The study of the whole economy,such as the total receipts and payments of a nation and the general price index,is considered to be a:
A)microeconomic application
B)macroeconomic application
C)both micro and macroeconomic application
D)foreign exchange application
Answer: B
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Page 3
Chapter 2: Comparative Advantage
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Sample Questions
Q1) According to the following table,the UK can gain from trade with the US by giving up how much cloth for 9 bushels of wheat?
\(\begin{array}{|l|c|c|}
\hline &\text { U.S. }&\text { U.K.} \\
\hline \text {Wheat (bushels/hr) }& 9 & 3 \\
\hline\text { Cloth (yards/hr) }& 5 & 4 \\
\hline
\end{array}\)
A)Anything less than 12 yards of cloth
B)Anything greater than 9 yards of cloth
C)Only less than 5 yards of cloth
D)Only greater than 10 yards of cloth
Answer: A
Q2) Merchants,bankers,and government officials from Spain,France,and Portugal outline the principles and ideas of mercantilism in the publication The Wealth of Nations.
A)True
B)False
Answer: False
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Chapter 3: The Standard Trade Model
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Q1) A nation with no trade partners,existing in isolation,is said to be in a state of:
A)autarky
B)equilibrium
C)disequilibrium
D)absolute advantage
Answer: A
Q2) The slope of a production frontier is also referred to as the marginal rate of substitution.
A)True
B)False
Answer: False
Q3) Community indifference curves are __________________ sloped and _____________ to the origin.
A)positively,concave
B)negatively,convex
C)positively,convex
D)negatively,concave
Answer: B
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Chapter 4: The Heckscher-Ohlin and Other Trade Theories
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Q1) Increasing returns to scale refer to the production situation where inputs or factors of production grow proportionately more than output.
A)True
B)False
Q2) Which theory states that a nation will tend to export commodities intensive in its relatively abundant and cheap factor?
A)Heckscher-Ohlin theory
B)Stolper-Samuelson theory
C)Product cycle theory
D)Intraindustry trade theory
Q3) International trade acts as a substitute for the international mobility of factors of production in its effect on factor prices.
A)True
B)False
Q4) Which of the following would least likely apply to the product cycle theory?
A)Digital cameras
B)Coal
C)Televisions
D)Computers
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Chapter 5: Trade Restrictions: Tariffs
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Q1) In question 54 can you find out the deadweight loss to the society,the loss to the consumers and the gain of the producers and also the amount of the tariff revenue generated from the tariff.
Q2) The reduction in the price of the import commodity that results when a large nation imposes an import tariff is attributed to the ____________ and constitutes a __________ of welfare for the nation.
A)consumption effect of the tariff,loss
B)terms of trade effect of the tariff,loss
C)protective effect,gain
D)terms of trade effect,gain
Q3) "Using international trade theory,we can unambiguously state that the imposition of a tariff imposes net losses to the imposing nation." Is this statement true or false? Explain.
Q4) Consumer surplus is the difference between what consumers are willing to pay for a commodity and the price they actually pay for the commodity.
A)True
B)False
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Chapter 6: Nontariff Trade Barriers and the Political
Economy of Protectionism
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Q1) Industrial policies stimulate the development and growth of high-tech industries,in most cases,in an industrial nation.
A)True
B)False
Q2) Trade-related investment measures introduce the requirement that foreign investors buy supplies locally or export as much as they import.
A)True
B)False
Q3) An elimination of non-tariff barriers on computers would tend to increase computer imports,reduce profits of import-competing computer producers,and generate job losses for domestic apple workers.
A)True
B)False
Q4) 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
Q5) When it comes to quota and tariff,how are the effects on the economy different?
Page 8
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Chapter 7: Economic Integration
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Sample Questions
Q1) When was the EFTA (European Free Trade Association)formed?
A)1960
B)1940
C)1970
D)1965
Q2) Which free trade area was formed in 1960 by the United Kingdom,Austria,Denmark,Norway,Portugal,Sweden,and Switzerland?
A)European Economic Area (EEA)
B)European Free Trade Association (EFTA)
C)North American Free Trade Agreement (NAFTA)
D)Southern Common Market (Mercosur)
Q3) At the time of the NAFTA agreement,who was the United States' largest trading partner?
A) Canada
B)Japan
C)Mexico
D)England
Q4) An economic union is the most robust form of economic integration.
A)True
B)False
Page 9
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Chapter 8: Growth and Development With International Trade
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Q1) ______________ are international attempts to stabilize and increase the prices and earnings of the primary exports of developing nations.
A)Farm equalization committees
B)Agricultural stabilization commissions
C)Marketing boards
D)International commodity agreements
Q2) Which of the following areas would have countries which are more likely to use trade primarily as a vent for agricultural surplus? Southeast Asia
A)Eastern Europe
B)North America
C)South America
Q3) If a nation's terms of trade increases from ½ to 1,and consumption increases from a lower indifference curve to a higher one,this nation is experiencing immiserizing growth.
A)True
B)False
Q4) The International Wheat Agreement,signed in 1949,is still in operation today.
A)True
B)False
Page 10
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Chapter 9: International Resource Movements and Multinational Corporations
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Sample Questions
Q1) A purchase of 10% or more of a corporation constitutes a portfolio investment.
A)True
B)False
Q2) By using the Portfolio Theory in the context of Risk Diversification,provide an explanation for two-way international portfolio investment.
Q3) Investments in securities with yields that are inversely correlated is known as
A)basic Investment theory.
B)risk diversification.
C)vertical integration.
D)horizontal integration.
Q4) ______________________ can explain two-way international portfolio investments.
A)Portfolio theory and risk diversification
B)Horizontal integration
C)Risk assumption
D)Vertical integration
Q5) The two main types of foreign investments are portfolio and direct investments.
A)True
B)False
Page 11
Q6) What are the basic reasons for a multinational corporations (MNCs)existence?
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Chapter 10: Balance of Payments
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Q1) ____________ are balance of payments transactions involving the receipt of payments from foreigners.
A)Debit transactions
B)Credit transactions
C)Accommodating transactions
D)Autonomous transactions
Q2) Which of the following is not true about a nation's balance of payment?
A)Balance of Payment information is important to Banks
B)Balance of Payment keeps record or all the transactions that took place between the resident of a country and the rest of the world
C)Balance of Payment is useful to individuals involved in international trade and finance
D)Balance of Payment information is not important for a business firm
Q3) Which of the following is an example of a capital outflow for the US?
A)A domestic increase of assets held by foreign investors
B)A reduction in US foreign asset holdings
C)An increase in US foreign asset holdings
D)Unilateral transfers from foreigners
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13
Chapter 11: The Foreign Exchange Market and Exchange Rates
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Sample Questions
Q1) Which currencies are traded in the futures market?
A)the Japanese Yen and the British pound
B)the Japanese Yen,the British pound,the Australian dollar,the Canadian dollar,the Mexican peso,the Swiss franc and the euro
C)all foreign currencies and the US dollar
D)the British pound,the U.S.dollar,and the Japanese yen
Q2) The foreign exchange market is:
A)where American consumers purchase goods imported from other countries
B)where domestic commercial bank deposits are denominated in a currency other than the home nation's
C)the framework for the exchange of one national currency for another
D)where bank deposits are denominated in a currency other than that of the nation in which the deposit is held
Q3) Exchange rates are not free to fluctuate in response to market forces.
A)True
B)False
Q4) If it takes 116.57 yen to buy one dollar,it takes $.0085785 to buy one yen.
A)True
B)False
Page 14
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Chapter 12: Exchange Rate Determination
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Q1) According to the monetary approach,expectation can play a major role in the determination of exchange rate.If between US and EMU there is a significant interest rate differential (US interest rate is significantly higher than the EMU interest rate)but at the same time dollar is also expected to depreciate in the future by more than the positive interest differential,then which of the following is most likely to happen?
A)Dollar will depreciate
B)Dollar will appreciate
C)There will be a significant increase in the supply of Euro in the US
D)There will be a significant decrease in the demand for Euro
Q2) Which of the following approaches to exchange rate determination postulates that the exchange rate is determined in the process of equilibrating the total demand and supply of the national currency in each nation?
A)The purchasing-power parity theory
B)The monetary model of exchange rates
C)The trade approach to exchange rates
D)The elasticities approach to exchange rates
Q3) In a nutshell,explain what the trade or elasticity approach says about exchange rate determination.
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Page 15
Chapter 13: Automatic Adjustments With Flexible and Fixed Exchange Rates
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Q1) The foreign exchange market is stable if:
A) <sub>M </sub> + <sub>X </sub>< 1
B) <sub>M </sub> + <sub>X </sub>= 1
C) <sub>M </sub> + <sub>X </sub>> 1
D) <sub>M </sub> + <sub>X </sub>> 2
Q2) When a(n)___________________ condition is present,a disturbance from the equilibrium exchange rate gives rise to automatic forces that push the exchange rate back toward the equilibrium rate.
A)unstable foreign exchange market
B)Marshall-Lerner condition
C)J-curve effect
D)stable foreign exchange market
Q3) In an open economy,if the marginal propensity to save s = .20 and the marginal propensity to import m = .30,then what should be the foreign trade multiplier? A)2
Q4) What is the Marshall-Lerner Condition and how is it used?
Page 16
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Chapter 14: Adjustment Policies
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Q1) According to Jan Tinbergen,the 1996 Nobel Prize winner,a nation should have:
A)Half as many effective policy instruments for use,as the number of objectives it wants to achieve
B)Twice as many effective policy instruments for use than the number of objectives it wants to achieve
C)Just as many effective policy instruments for use as the number of independent objectives it wants to achieve
D)Just one policy instruments to use to achieve all the objectives it wants to pursue
Q2) Which of the following is concerned with changing the aggregate demand of the nation?
A)Internal balance
B)Expenditure-changing policies
C)External balance
D)Expenditure-switching policies
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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17
Chapter 15: Flexible Versus Fixed Exchange Rates,european
Monetary Systems,and Macroeconomic Policy
Coordination
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Q1) Under a ____________,a nation is free to utilize all polices at its disposal to achieve its goal of full employment with price stability without having to worry about external balance.
A)flexible exchange rate system
B)fixed exchange rate system
C)managed peg
D)gold standard
Q2) The currencies of member nations in an optimum currency area float jointly with respect to the currencies of nonmember nations.
A)True
B)False
Q3) At the beginning of 1999,the European Monetary System became the _________________ with the introduction of the euro and the adoption of a common monetary policy by the European Central Bank.
A)European Monetary Institute
B)European Monetary Union
C)European Currency Unit
D)European Monetary Cooperation Fund
18
Q4) What are the advantages of International Macroeconomic Policy Coordination?
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Chapter 16: The International Monetary System: Past,
and Future
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Q1) The Special Drawing Rights international reserves were created by the IMF to supplement other international reserves and distributed to member nations according to their quotas in the fund.
A)True
B)False
Q2) Seigniorage is a high-level status established within the IMF once a nation reaches a predefined level of gross domestic product and thus a significant investment in the Fund itself.
A)True
B)False
Q3) What economic term represents the large amount of foreign-held dollars resulting from past US balance-of-payments deficits?
A)Dollar superfluity
B)Dollar overhang
C)Dollar glut
D)Unaccounted dollars
Q4) Under the Gold Standard if a country suffered from balance-of-payment disequilibrium,what was the process of adjustment? Please explain.
Page 19
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