International Economics
Pre-Test Questions
Course Introduction
International Economics explores the theories, policies, and dynamics that govern trade and financial interactions between countries. The course covers fundamental concepts such as comparative advantage, trade barriers, balance of payments, exchange rates, and the effects of globalization. Students will analyze the impact of international economic policies, examine the role of global institutions like the World Trade Organization (WTO) and International Monetary Fund (IMF), and assess current issues such as trade disputes, economic integration, and emerging markets. Through case studies and empirical analysis, the course equips students with the tools to understand and evaluate real-world international economic problems and policy debates.
Recommended Textbook
International Economics 15th Edition by Robert Carbaugh
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17 Chapters
1863 Verified Questions
1863 Flashcards
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Chapter 1: The International Economy and Globalization
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48 Verified Questions
48 Flashcards
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Sample Questions
Q1) ____ is the ability of a firm/industry,under free and fair market conditions,to design,produce,and market goods and services that are better and/or cheaper than those of other firms/industries.
A) Competitiveness
B) Protectionism
C) Comparative advantage
D) Absolute advantage
Answer: A
Q2) Studies have shown that there is an inverse relationship between
A) Local competition and regional competition
B) Regional competition and global competition
C) level of trade barriers and economic growth
D) level of education and communications infrastructure
Answer: C
Q3) Most of the world's population now lives in countries that are:
A) integrated into world markets
B) becoming integrated into world markets
C) near poverty
D) a and b
Answer: D
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Chapter 2: Foundations of Modern Trade Theory:
Comparative Advantage
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Sample Questions
Q1) A terms-of-trade index that equals 150 indicates that compared to the base year:
A) It requires a greater output of domestic goods to obtain the same amount of foreign goods
B) It requires a lesser amount of domestic goods to obtain the same amount of foreign goods
C) The price of exports has risen from $100 to $150
D) The price of imports has risen from $100 to $150
Answer: B
Q2) The Ricardian model of comparative advantage is based on all of the following assumptions except:
A) Only two nations and two products
B) Product quality varies among nations
C) Labor is the only factor of production
D) Labor can move freely within a nation
Answer: B
Q3) Who gains more from trade,when nations are of unequal economic size?
Answer: If one nation is significantly larger than the other,the larger nation attains fewer gains from trade,while the smaller nation captures most of the gains from trade.
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Chapter 3: Sources of Comparative Advantage
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Sample Questions
Q1) If Japanese workers receive lower wages in the production of autos than do American workers:
A) Japan will have a comparative advantage in the production of autos
B) Japan will have an absolute advantage in the production of autos
C) Production costs will be lower in Japan than in the U.S.
D) Production costs could be lower in the U.S.if American labor productivity is higher than the Japanese
Answer: D
Q2) The Heckscher-Ohlin theory contends that over a period of years a country that initially is an exporter of a product will become an importer of that product.
A)True
B)False
Answer: False
Q3) In industries where the final product is much less weighty or bulky than the materials from which it is made,firms tend to locate production near resource supplies.
A)True
B)False
Answer: True
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5
Chapter 4: Tariffs
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124 Flashcards
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Sample Questions
Q1) A compound tariff permits a specified amount of goods to be imported at one tariff rate while any imports above this amount are subjected to a higher tariff rate.
A)True
B)False
Q2) Arguments for U.S.trade restrictions include all of the following except
A) Job protection
B) Infant industry support
C) Maintenance of domestic living standard
D) Improving incomes for developing countries
Q3) Is it possible for a low nominal tariff rate to understate the effective rate of protection? What is tariff escalation?
Q4) With a specific tariff,the degree of protection afforded domestic producers varies directly with changes in import prices.
A)True
B)False
Q5) Can import duties have unintended side effects?
Q6) How can tariffs be justified?
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Page 6
Chapter 5: Nontariff Trade Barriers
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Sample Questions
Q1) An elimination of nontariff barriers on apples tends to increase apple imports,reduce profits of import-competing apple producers,and generate job losses for domestic apple workers.
A)True
B)False
Q2) Consider Figure 5.3.Suppose the rest of the world can supply apples to Sweden at a price of $0.60 per pound.With free trade,Sweden produces ____ pounds of apples and imports ____ pounds of apples.
A) 10,8
B) 10,18
C) 6,22
D) 6,16
Q3) Consider Figure 5.1.Suppose the Mexican government provides a subsidy of $200 per ton to its steel producers,as indicated by the supply schedule S<sub>M (with subsidy)</sub>. As a result of the subsidy Mexican steel producers gain ____ of producer surplus.
A) $200
B) $400
C) $600
D) $800
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Chapter 6: Trade Regulations and Industrial Policies
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129 Flashcards
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Sample Questions
Q1) According to the General Agreement on Tariffs and Trade and its successor,the World Trade Organization,only bilateral trade negotiations can take place between a country and its trading partners.
A)True
B)False
Q2) The principle of normal trade relations (most-favored-nation)treatment was established with the passage of the:
A) Fordney-McCumber Act of 1922
B) Smoot-Hawley Act of 1930
C) Reciprocal Trade Agreements Act of 1934
D) Trade Act of 1974
Q3) The United States
A) Has been a heavy user of antidumping laws to protect domestic producers
B) Has rarely used antidumping laws to protect domestic producers
C) Has targeted antidumping action against China,Japan,Canada,Italy,and Germany
D) Both a and c
Q4) Has industrial policy contributed significantly to Japan's economic growth?
Q5) What is the basis for trade adjustment assistance?
Q6) What is the essential idea behind strategic trade policy?
Page 8
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Chapter 7: Trade Policies for the Developing Nations
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Sample Questions
Q1) Consider the global market for tin represented by figure 7.4.Initially equilibrium is at point A with a market price of $3.50 per pound and 50,000 pounds.In ordr to keep tin price relatively stable an International Tin Agreement has set a price floor of $3.27 and a ceiling of $4.02.As the demand for tin increases to D<sub>1</sub> how will the buffer-stock manager need to respond?
A) buy 10,000 pounds of tin
B) buy 20,000 pounds of tin
C) sell 10,000 pounds of tin
D) sell 20,000 pounds of tin
Q2) Developing countries have complained that because their commodity terms of trade has deteriorated in recent decades,they should receive preferential tariff treatment from industrialized countries.
A)True
B)False
Q3) Not only do changes in demand induce relatively wide fluctuations in price when supply is inelastic,but changes in supply induce relatively wide fluctuations in price when demand is inelastic.
A)True
B)False
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Page 9
Chapter 8: Regional Trading Arrangements
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130 Flashcards
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Sample Questions
Q1) The European Union has achieved all of the following except:
A) Adopted a common fiscal policy for member nations
B) Established a common system of agricultural price supports
C) Disbanded all tariffs among its member countries
D) Levied common tariffs on products imported from nonmembers
Q2) Luxembourg is a member of:
A) a free trade area
B) a monetary union
C) Benelux
D) Both a and c
Q3) If the United Kingdom and Italy eliminate all tariffs on each other's goods and all restrictions to factor movements between them,and implement a uniform system of import restrictions against the rest of the world,these countries have formed a common market.
A)True
B)False
Q4) By the mid-1990s,the European Union had essentially achieved the common market stage of economic integration.
A)True
B)False
Page 10
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Chapter 9: International Factor Movements and Multinational
Enterprises
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96 Flashcards
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Sample Questions
Q1) In recent years,most foreign direct investment in the United States has come from:
A) Western Europe
B) Central America
C) South America
D) Asia
Q2) Consider Figure 9.1.With Sony Company and American Company behaving as competitors,the equilibrium price and output respectively equal:
A) $4 and 2 units
B) $4 and 4 units
C) $6 and 2 units
D) $6 and 4 units
Q3) Which of the following would best explain why foreign direct investment might be attracted to the United States?
A) U.S.price ceilings that hold down the price of energy
B) U.S.wage rates exceeding the productivity of U.S.labor
C) Artificially high prices being charged for the stock of U.S.firms
D) Anticipations of future reductions in U.S.tariff levels
Q4) What are guest workers?
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Chapter 10: The Balance of Payments
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Sample Questions
Q1) Referring to the balance-of-payments statement,an international transaction refers to the exchange of goods,services,and assets between residents of one country and those abroad.
A)True
B)False
Q2) 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
Q3) The United States would be a "net creditor" if the value of U.S.assets abroad exceeded the value of foreign assets in the United States.
A)True
B)False
Q4) A surplus on Germany's goods-and-services balance indicates that Germany has sold more goods and services to foreigners than it has bought from them over a one-year period.
A)True
B)False
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Chapter 11: Foreign Exchange
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Sample Questions
Q1) Refer to Table 11.4.On Wednesday,the 180-day forward franc was selling at a:
A) 0.6 percent premium per annum against the dollar
B) 1.6 percent premium per annum against the dollar
C) 0.6 percent discount per annum against the dollar
D) 1.6 percent discount per annum against the dollar
Q2) A currency speculator's goal is to buy a currency at a low price and immediately resell it at a higher price,thus realizing a riskless profit.
A)True
B)False
Q3) Refer to Figure 11.2.A shift in the demand for francs from D<sub>0</sub> to D<sub>1</sub> or a shift in the supply of francs from S<sub>0</sub> to S<sub>2,</sub> would result in a (an):
A) Depreciation in the dollar against the franc
B) Appreciation in the dollar against the franc
C) Unchanged dollar/franc exchange rate
D) None of the above
Q4) If it takes 113.28 yen to buy $1,it takes $.009624 to buy 1 yen.
A)True
B)False
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Chapter 12: Exchange-Rate Determination
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133 Flashcards
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Sample Questions
Q1) Exchange-rate overshooting is based on the notion that the supply schedule of a currency is more elastic in the short run than in the long run.
A)True
B)False
Q2) If Mexico applies tariffs to imports of manufactured goods,Mexico's demand for foreign exchange will rise and the peso will depreciate under a system of floating exchange rates.
A)True
B)False
Q3) If real interest rates decline in the United States relative to real interest rates abroad,the dollar's exchange value will appreciate under a floating exchange-rate system.
A)True B)False
Q4) Given an efficient foreign exchange market,the spot rate is the rational approximation of the markets expectation of the forward rate that will exist at the end of the forward period.
A)True
B)False
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Chapter 13: Mechanisms of International Adjustment
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107 Flashcards
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Sample Questions
Q1) Suppose the United States levies an interest equalization tax,which taxes Americans on dividend and interest income from foreign securities.Such a tax would be intended to:
A) Encourage financial movements from the United States to overseas
B) Discourage financial movements from the United States to overseas
C) Discourage financial movements from overseas to the United States
D) None of the above
Q2) Refer to Exhibit 13.1.The value of the multiplier for the United States equals:
A) 2
B) 3
C) 4
D) 5
Q3) For the income adjustment mechanism to reverse a trade deficit,economic policymakers must be willing to permit domestic income to increase which leads to rising imports.
A)True
B)False
Q4) Is the monetary approach to the balance-of-payments part of the traditional adjustment theories?
Q5) 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) According to the Marshall-Lerner condition,currency depreciation will worsen a country's balance of trade if the country's elasticity of demand for imports plus the foreign demand elasticity for the country's exports exceeds 1.0.
A)True
B)False
Q2) Given favorable elasticity conditions,an appreciation of the yen results in
A) A smaller Japanese trade deficit
B) A larger Japanese trade surplus
C) Decreased prices for imported products for Japan
D) Increased prices for imported products for Japan
Q3) Complete currency pass-through arises when a 10 percent depreciation in the value of the dollar causes U.S.:
A) Import prices to fall by 10 percent
B) Import prices to rise by 10 percent
C) Export prices to rise by 10 percent
D) Export prices to rise by 20 percent
Q4) How is the absorption approach used for analyzing the effects of currency devaluation?
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) Given an initial equilibrium in the money market and foreign exchange market,suppose the Federal Reserve decreases the money supply of the United States.Under a floating exchange rate system,the dollar would:
A) Appreciate in value relative to other currencies
B) Depreciate in value relative to other currencies
C) Be officially devalued by the government
D) Be officially revalued by the government
Q2) A market-determined decrease in the dollar price of the pound is associated with:
A) Revaluation of the dollar
B) Devaluation of the dollar
C) Appreciation of the dollar
D) Depreciation of the dollar
Q3) Assume that interest rates in London rise relative to those in Switzerland.Under a floating exchange-rate system,one would expect the pound (relative to the franc)to:
A) Depreciate due to the increased demand for pounds
B) Depreciate due to the increased demand for francs
C) Appreciate due to the increased demand for francs
D) Appreciate due to the increased demand for pounds
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Chapter 16: Macroeconomic Policy in an Open Economy
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Sample Questions
Q1) The goals of the Plaza Agreement of 1985 were to combat protectionism in the U.S.Congress,promote world economic expansion by stimulating demand in Germany and Japan,and to ease the burden of the U.S.debt service.
A)True
B)False
Q2) The Bonn Summit of 1978 and Plaza Accord of 1985 are examples of international policy coordination.
A)True
B)False
Q3) Given a system of floating exchange rates,an expansionary monetary policy by the Federal Reserve will cause
A) the dollar to appreciate and will decrease U.S.net exports
B) the dollar to appreciate and will increase U.S.net exports
C) the dollar to depreciate and will increase U.S.net exports
D) the dollar to depreciate and will decrease U.S.net exports
Q4) Changes in a country's net exports,investment spending,or government spending will cause its aggregate demand curve to shift.
A)True
B)False
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Chapter 17: International Banking: Reserves, Debt, and Risk
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Sample Questions
Q1) To reduce their exposure to developing country debt,lending commercial banks have practiced all of the following except:
A) Making outright loan sales to other commercial banks
B) Reducing their capital base as a cushion against losses
C) Dealing in debt-for-debt swaps with foreign governments
D) Dealing in debt/equity swaps with foreign governments
Q2) There exists a direct relationship between the degree of exchange rate flexibility and the need for international reserves.
A)True
B)False
Q3) Which of the following is not a characteristic of the Eurodollar market? It:
A) Is mainly located in the United Kingdom and continental Europe
B) Operates as a financial intermediary,bringing together lenders and borrowers
C) Deals in interest-bearing time deposits and loans to governments
D) Grew in response to the deregulation of interest rate ceilings on U.S.savings accounts
Q4) Are international reserve needs different for different exchange rate regimes?
Q5) Why do countries hold international reserves?
Q6) How can a bank reduce its exposure to the debt of developing nations?
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