International Economics
Mock Exam
Course Introduction
International Economics explores the principles, theories, and policy issues related to the global economic environment. The course examines key topics such as international trade theory, trade policy, exchange rates, balance of payments, and the impact of globalization on economic development. Students will analyze the determinants and effects of trade between nations, understand the functioning of international financial markets, and evaluate policy debates and contemporary challenges in the international economy. Through case studies and real-world examples, the course equips students with analytical tools to assess the economic implications of cross-border interactions and policy decisions.
Recommended Textbook
International Finance Theory and Policy 10th Edition by Paul R. Krugman
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12 Chapters
706 Verified Questions
706 Flashcards
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) An important insight of international trade theory is that when two countries engage in voluntary trade
A) one country always benefits at the expense of the other.
B) it is almost always beneficial to both countries.
C) it only benefits the low wage country.
D) it only benefits the high wage country.
E) it is almost never beneficial to both countries.
Answer: B
Q2) The insight that patterns of trade are primarily determined by international differences in labor productivity was first proposed by
A) Adam Smith.
B) David Hume.
C) David Ricardo.
D) Eli Heckscher.
E) Lerner and Samuelson.
Answer: A
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Chapter 2: National Income Accounting and the Balance of Payments
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Sample Questions
Q1) What types of international transactions are recorded in the balance of payment accounts?
Answer: Three types: transactions that involve exports and imports of good and services;transactions that involve the purchase or sell of financial assets;and exports and imports of good and services;other activities resulting in transfer of wealth between countries which are recorded in the capital account.
Q2) A closed economy
A) can save either by building up its capital stock or by acquiring foreign wealth. B) can save only by building up its capital stock.
C) can save only by acquiring foreign wealth.
D) cannot save either by building up its capital stock or by acquiring foreign wealth. E) can save by avoiding excessive imports.
Answer: B
Q3) What are the main aspects of economic life that macroeconomics analysis is most concerned with?
Answer: There are four main aspects: unemployment,saving,trade imbalances,and money and the price level.
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Page 4
Chapter 3: Labor Productivity and Comparative Advantage:
The Ricardian Model
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Sample Questions
Q1) If the world terms of trade for a country are somewhere between the domestic cost ratio of H and that of F,then
A) country H but not country F will gain from trade.
B) country H and country F will both gain from trade.
C) neither country H nor F will gain from trade.
D) only the country whose government subsidizes its exports will gain.
E) country F but not country H will gain from trade.
Answer: B
Q2) Given the information in the table above
A) neither country has a comparative advantage in cloth.
B) Home has a comparative advantage in cloth.
C) Foreign has a comparative advantage in cloth.
D) Home has a comparative advantage in both cloth and widgets.
E) neither country has a comparative advantage in widgets.
Answer: B
Q3) Given the information in the table above.What is the opportunity cost of Cloth in terms of Widgets in Foreign?
Answer: One half a widget.
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Chapter 4: Specific Factors and Income Distribution
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Sample Questions
Q1) In the specific factors model,which of the following is treated as a specific factor?
A) land
B) labor
C) cloth
D) food
E) technology
Q2) Those who will lose from free trade are ________ factors in sectors that produce goods that are ________.
A) immobile; also imported
B) mobile; also imported
C) immobile; exported
D) mobile; exported
E) mobile; untraded
Q3) In the specific factors model,labor is defined as a(an)
A) mobile factor.
B) specific factor.
C) fixed factor.
D) variable factor.
E) intensive factor.
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Page 6
Chapter 5: Resources and Trade: The Heckscher-Ohlin
Model
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Sample Questions
Q1) Use the diagram above to identify the pre-trade situation for Australia and Sri-Lanka.Where on the K/L axis will you find each of the two countries? Which of the two countries has a higher relative wage,w/r? Which product is the labor intensive,and which is the land intensive one? Show where the relative price of cloth to food will be found once trade opens between these two countries.Show where the relative wages of each will appear.
Q2) Refer to the table above.If you are told that Country B is very much richer than Country A,then the correct answer is
A) country B will export good S.
B) country A will export good S.
C) both countries will export good S.
D) trade will not occur between these two countries.
E) both countries will import good S.
Q3) In the 2-factor,2 good Heckscher-Ohlin model,the two countries differ in
A) tastes and preferences.
B) military capabilities.
C) the size of their economies.
D) relative abundance of factors of production.
E) labor productivities.
Q4) "A good cannot be both land- and labor-intensive." Discuss.
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Chapter 6: The Standard Trade Model
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Sample Questions
Q1) An export subsidy has the opposite effect on terms of trade to the effect of an import tariff.Domestically a tariff will raise the price of the import good,deteriorating the domestic terms of trade.A production subsidy for the export product will lower the local price of the export good,lowering the domestic terms of trade for the country.Hence the export subsidy and the import tariff have the same effect.This analysis seems to contradict the first sentence in this paragraph.Discuss this paradox.
Q2) The intertemporal budget constraint is defined as:
A) DP + DF/(1 + r) = QP + QF/(1 + r)
B) V = QP + QF/(1 + r)
C) V = DP + DF/(1 + r)
D) DF + DP/(1 + r) = QF + QP/(1 + r)
E) DP + DF(1 + r) = QP + QF(1 + r)
Q3) An export subsidy will cause the terms of trade of the ________ country to ________ and will ________ the country.
A) exporting; suffer; harm
B) exporting; improve; benefit
C) importing; suffer; harm
D) importing; suffer; benefit
E) importing; improve; harm
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Page 8
Chapter 7: External Economies of Scale and the
International Location of Production
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Sample Questions
Q1) If a firm's output more than doubles when all inputs are doubled,production is said to occur under conditions of
A) increasing returns to scale.
B) imperfect competition.
C) intra-industry equilibrium.
D) constant returns to scale
E) decreasing returns to scale.
Q2) 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?
Q3) If a firm's output doubles when all inputs are doubled,production is said to occur under conditions of
A) increasing returns to scale.
B) imperfect competition.
C) intra-industry equilibrium.
D) constant returns to scale
E) decreasing returns to scale.
Q4) Why is it that if an industry is operating under conditions of internal scale economies then the resultant equilibrium cannot be consistent with the pure competition model?
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Chapter 8: Firms in the Global Economy: Export
Decisions,Outsourcing,and Multinational Enterprises
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Sample Questions
Q1) Imagine scale economies were not only external to firms,but were also external to individual countries.That is,the larger the worldwide industry (regardless of where firms or plants are located),the cheaper would be the per-unit cost of production.Describe what world trade would look like in this case.
Q2) Two countries engaged in trade in products with no scale economies,produced under conditions of perfect competition,are likely to be engaged in
A) inter-industry trade.
B) monopolistic competition.
C) intra-industry trade.
D) Heckscher-Ohlin trade.
E) oligopolistic competition
Q3) When a multinational affiliate replicates elements of a production process in a foreign country it is called ________ foreign direct investment.
A) vertical
B) horizontal
C) transitional
D) bisectional
E) direct
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Chapter 9: The Instruments of Trade Policy
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Sample Questions
Q1) Some argue that tariffs always hurt the imposing country's economic welfare,and are typically designed to shift resources from one sector to another,protected or preferred one,within an economy.Find and discuss a counter example to this argument.
Q2) Refer to above figure.With a specific tariff of $3 per unit,what is the quantity of Widgets produced domestically?
Q3) A policy of tariff reduction in the computer industry is
A) in the interest of the United States as a whole and in the interest of computer producing regions of the country.
B) in the interest of United States as a whole but not in the interest of computer producing regions of the country.
C) not in the interest of the United States as a whole but in the interests of computer producing regions of the country.
D) not in the interest of the United States as a whole and not in the interests of computer consumers.
E) not in the interest of the United States as a whole but in the interests of foreign computer producers.
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Chapter 10: The Political Economy of Trade Policy
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Sample Questions
Q1) The authors of the text believe that
A) second-best policy is worse than optimal policy.
B) special interest groups generally enhance national welfare.
C) national welfare is likely to be enhanced by the imposition of an optimal tariff.
D) market failure arguments tend to support free-trade policy.
E) there is no such thing as national welfare.
Q2) The average tariff rate dutiable imports in the United States is approximately
A) less than 10 % of the value of imports.
B) 15% of the value of imports.
C) 20 % of the value of imports.
D) 25% of the value of imports.
E) more than 30% of the value of imports.
Q3) In 1990 the United States imposed trade embargoes on Iraq's international trade.The negative effect on Iraq's consumer surplus would be greater the
A) less elastic Iraq's demand schedule.
B) more elastic Iraq's demand schedule.
C) greater Iraq's dependence on foreign products.
D) more inelastic Iraq's supply schedule.
E) less elastic Iraq's labor force is.
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Page 12
Chapter 11: Trade Policy in Developing Countries
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Sample Questions
Q1) Refer to above figure.If OmL1 workers are employed in manufacturing then what is the marginal productivity of labor in agriculture?
Q2) The experience of Chile's foreign sector in the last two decades of the 20th century supports the proposition that economic growth is supported by
A) import substitution.
B) industrialization policies.
C) trade liberalization policies.
D) intra-industry trading.
E) trade embargoes.
Q3) Taiwan and South Korea are examples of developing nations that have recently pursued these industrialization policies
A) import substitution.
B) export promotion.
C) commercial dumping.
D) multilateral contract.
E) trade embargoes.
Q4) 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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Sample Questions
Q1) The existence of positive externalities due to the impossibility of full appropriability
A) supports the conclusions of the Heckscher-Ohlin model.
B) rejects the usefulness of government protectionism.
C) supports the concept that the government should support only high-tech industries.
D) provides support for government protectionism.
E) supports arguments for free trade.
Q2) Refer to the above table.Suppose both governments offer their respective company a $10 million subsidy.
Q3) The WTO seems at times to be interfering in domestic policy since
A) the line between domestic policies and de factor protectionism is often fuzzy.
B) it is a supra-national organization with the power to overturn governments.
C) it determines which nations may trade what with whom.
D) it punishes naughty nations.
E) it exempts the U.S. and other powerful member nations from many of its edicts.
Q4) Refer to the above table.Suppose Airbus is set to produce the aircraft before Boeing.Which company will enter the market?
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Page 14