Course Introduction
International Economics
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International Economics examines the flow of goods, services, and capital across national borders, analyzing how countries interact in the global marketplace. This course explores key concepts such as comparative advantage, trade policy, exchange rate determination, international financial markets, and the economic impact of globalization. Students will learn about the theoretical foundations of international trade and finance, as well as the real-world challenges and policy issues faced by governments and international organizations. The course provides a comprehensive understanding of how international economic relations shape global prosperity and influence domestic economic outcomes.
Recommended Textbook
International Economics 14th Edition by Robert Carbaugh
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17 Chapters
1874 Verified Questions
1874 Flashcards
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Page 2
Chapter 1: The International Economy and Globalization
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48 Verified Questions
48 Flashcards
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Sample Questions
Q1) What are the essential arguments in favor of free trade?
Answer: Proponents of an open trading system contend that international trade results in higher levels of consumption and investment, lower prices of commodities, and a wider range of product choices for consumers. Trade also enables workers to become more productive, and wages of workers whose skills are more scarce internationally tend to rise.
Q2) Although free trade provides benefits for consumers, it is often argued that import protection should be provided to domestic producers of strategic goods and materials vital to the nation's security.
A)True
B)False
Answer: True
Q3) The first wave of globalization was brought to an end by
A) The Great Depression
B) The Second World War
C) The First World War
D) The Smoot-Hawley Act
Answer: C
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3
Chapter 2: Foundations of Modern Trade Theory:
Comparative
Advantage
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170 Verified Questions
170 Flashcards
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Sample Questions
Q1) Referring to Table 2.2, the opportunity cost of one VCR in Japan is:
A) 1 ton of steel
B) 2 tons of steel
C) 3 tons of steel
D) 4 tons of steel
Answer: A
Q2) Referring to Table 2.1, the United States has the absolute advantage in the production of:
A) Steel
B) Televisions
C) Both steel and televisions
D) Neither steel nor televisions
Answer: C
Q3) Assume 1990 to be the base year. If by the end of 2004 a country's export price index rose from 100 to 140 while its import price index rose from 100 to 160, its terms of trade would equal 120.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Sources of Comparative Advantage
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) Owners of resources specific to export industries tend to lose from international trade, while owners of factors specific to import-competing industries tend to gain.
A)True
B)False
Answer: False
Q2) When transportation costs are added to our trade model, the low-cost exporting country produces less, consumes more, and exports less than that which occurs in the absence of transportation costs.
A)True
B)False
Answer: True
Q3) The Heckscher-Ohlin theory emphasizes the role that demand plays in the creation of comparative advantage.
A)True
B)False
Answer: False
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Chapter 4: Tariffs
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Sample
Questions
Q1) Suppose that the production of $500,000 worth of steel in the United States requires $100,000 worth of iron ore. The U.S. nominal tariff rates for importing these goods are 15 percent for steel and 5 percent for iron ore. Given this information, the effective rate of protection for the U.S. steel industry is approximately:
A) 6 percent
B) 12 percent
C) 18 percent
D) 24 percent
Q2) Suppose that the production of a $30,000 automobile in Canada requires $10,000 worth of steel. The Canadian nominal tariff rates for importing these goods are 25 percent for automobiles and 10 percent for steel. Given this information, the effective rate of protection for the Canadian automobile industry is approximately:
A) 15 percent
B) 32 percent
C) 48 percent
D) 67 percent
Q3) What happens to effective protection when the value added by the domestic producer declines?
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Chapter 5: Nontariff Trade Barriers
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Sample Questions
Q1) Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the US demands at $8 per bottle. If the US imposes a quota of 15 bottles of wine , how much revenue will the US government collect?
A) 0
B) $35
C) $70
D) $105
Q2) A firm would increase profits from dumping if it charges a lower price at home, where demand is inelastic, and a higher price abroad where demand is elastic.
A)True
B)False
Q3) 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
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Chapter 6: Trade Regulations and Industrial Policies
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129 Flashcards
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Sample Questions
Q1) Throughout the post-World War II era, the importance of tariffs as a trade barrier has:
A) Increased
B) Decreased
C) Remained the same
D) None of the above
Q2) The Uruguay Round of multilateral trade negotiations succeeded in establishing the World Trade Organization.
A)True
B)False
Q3) It is generally agreed that the Smoot-Hawley Act of 1930 led to improvements in U.S. exports and an overall increase in U.S. output and employment.
A)True
B)False
Q4) Industrial policies of the U.S. government have included subsidizing particular firms to promote national champions, nationalizing basic industries, and encouraging cartelization of industries.
A)True
B)False
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Chapter 7: Trade Policies for the Developing Nations
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) If the bauxite exporting countries form a cartel to \(\underline { \text { boost } }\) the price of bauxite so as to \(\underline { \text { increase } }\) sales revenue, they believe that the demand for bauxite:
A) Is inelastic with respect to price changes
B) Is elastic with respect to price changes
C) Will increase in response to a price increase
D) Will not change in response to a price change
Q2) A key factor underlying the instability of primary product prices and export receipts of developing nations is the
A) Low price elasticity of the demand of primary products
B) High price elasticity of supply of primary products
C) High price elasticity of demand of primary products
D) None of the above
Q3) Prior to the formation of the Organization of Petroleum Exporting Countries, individual oil producing nations,
A) Operated like sellers in a competitive market
B) Behaved like individual sellers in a monopoly market
C) Had considerable control over the price of oil
D) Both b and
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Page 9
Chapter 8: Regional Trading Arrangements
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Sample Questions
Q1) The highest stage of economic integration is a monetary union.
A)True
B)False
Q2) According to Figure 8.1, the formation of a Greece/Germany customs union would result in:
A) $20 of trade diversion
B) $40 of trade diversion
C) $20 of trade creation
D) $40 of trade creation
Q3) Trade creation would occur if Canada and the United States form a free-trade area, and Canadians then import less steel from the United States while importing more steel from Japan.
A)True
B)False
Q4) As of 1992, the European Union had achieved the monetary union stage of economic integration.
A)True
B)False
Q5) What factors influence the extent of trade creation and trade diversion?
Q6) Explain the theory of optimum currency areas.
Page 10
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Chapter 9: International Factor Movements and Multinational
Enterprises
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Sample Questions
Q1) Maquiladoras refer to an assemblage of U.S.-owned companies that combine Mexican parts and U.S. assembly to manufacture goods that are exported to Mexico.
A)True
B)False
Q2) International joint ventures tend to yield a welfare increasing market-power effect and a welfare decreasing cost-reduction effect.
A)True
B)False
Q3) As workers migrate from low-wage Mexico to high-wage United States, wages tend to rise in Mexico and fall in the United States.
A)True
B)False
Q4) Consider Figure 9.1. At the equilibrium price, domestic households attain ____ of consumer surplus:
A) $4
B) $8
C) $12
D) $16
Page 11
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Chapter 10: The Balance of Payments
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Sample Questions
Q1) Unilateral transfers consist of private-sector transfers, such as church contributions to alleviate starvation in Africa, as well as governmental transfers, such as foreign aid.
A)True
B)False
Q2) Concerning the balance of international indebtedness, when is a country a net creditor or a net debtor?
Q3) Although the United States has realized merchandise trade deficits since the early 1970s, its goods-and-services balance has always registered surplus.
A)True
B)False
Q4) Which balance-of-payments item does not directly enter into the calculation of the U.S. gross domestic product?
A) Merchandise imports
B) Shipping and transportation receipts
C) Direct foreign investment
D) Service exports
Q5) What does a current account deficit mean?
Q6) What are the components of the current account of the balance of payments?
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Chapter 11: Foreign Exchange
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Sample Questions
Q1) Assume that Boeing anticipates receiving 20 million yen in 3 months from exports of jumbo jets to a Japanese airline. The firm could hedge against the risk of a depreciation of the dollar against the yen by contracting to sell its expected yen proceeds for dollars in the forward market at today's forward rate.
A)True
B)False
Q2) In the early 1980s, the Federal Reserve pursued a tight monetary policy. All else being equal, the impact of that policy was to ____ interest rates in the United States relative to those in Europe and cause the dollar to ____ against European currencies.
A) Decrease, depreciate
B) Decrease, appreciate
C) Increase, depreciate
D) Increase, appreciate
Q3) An increase in the dollar price of other currencies tends to cause:
A) U.S. goods to be cheaper than foreign goods
B) U.S. goods to be more expensive than foreign goods
C) Foreign goods to be more expensive to residents of foreign nations
D) Foreign goods to be cheaper to residents of the United States
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Chapter 12: Exchange-Rate Determination
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Sample Questions
Q1) A primary reason that explains the \(\underline { \text { appreciation } }\) in the value of the U.S. dollar in the 1980s is:
A) Large trade surpluses for the United States
B) Relatively high inflation rates in the United States
C) Lack of investor confidence in the U.S. monetary policy
D) Relatively high interest rates in the United States
Q2) Exchange rate determination in the short run is underlied by which of the following assumptions:
A) Tariffs and quotas affect trade patterns only in the short run
B) Prices of goods and services affect trade patterns only in the short run
C) Expected returns on financial assets affect investment flows in the short run
D) Preferences for goods and services affect trade flows only in the short run
Q3) In a free market, exchange rates are determined by market fundamentals and market expectations.
A)True
B)False
Q4) In a free market, what determines exchange rates in the long run and the short run?
Q5) What is the asset market approach to exchange rate determination?
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Chapter 13: Mechanisms of International Adjustment
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Sample Questions
Q1) Refer to Figure 13.4. Starting at equilibrium income $100 billion, where (SI)<sub>0</sub> intersects (X - M)<sub>0</sub>, an autonomous decrease in Canadian exports of $10 billion leads to a $20 decrease in income and a trade deficit of $5 billion.
A)True
B)False
Q2) The essence of the classical price-adjustment mechanism is embodied in the quantity theory of money.
A)True
B)False
Q3) Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)<sub>0</sub> intersects (X-M)<sub>0</sub>, suppose that improving economic conditions abroad lead to an autonomous increase in Australian exports of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a
A) Rises to $60 billion, surplus of $2.5 billion
B) Rises to $60 billion, surplus of $5 billion
C) Falls to $40 billion, deficit of $2.5 billion
D) Falls to $40 billion, deficit of $5 billion
Q4) What is the foreign repercussion effect?
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Chapter 14: Exchange-Rate Adjustments and the Balance of Payments
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) Refer to Table 14.1. Assume that Toyota Inc. obtains all of its automobile inputs from Japanese suppliers. If the yen's exchange value appreciates from 200 yen = $1 to 100 yen = $1, the yen cost of a Toyota automobile equals:
A) 4,000,000 yen
B) 6,000,000 yen
C) 8,000,000 yen
D) 10,000,000 yen
Q2) When manufacturing computer software, suppose that Microsoft Inc. uses labor and materials whose costs are denominated in dollars and francs respectively. If the dollar's exchange value depreciates 10 percent against the franc, the franc-denominated cost of the firm's software falls by 10 percent.
A)True
B)False
Q3) According to the absorption approach, currency devaluation best improves a country's trade balance when its economy is at maximum capacity.
A)True
B)False
Q4) What is a pass-through relationship?
Page 16
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Chapter 15: Exchange-Rate Systems and Currency Crises
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Sample Questions
Q1) By the early 1970s, gold had been phased out of the international monetary system.
A)True
B)False
Q2) The purpose of currency devaluation is to cause the home country's exchange value to appreciate, thus reducing a balance of trade surplus.
A)True
B)False
Q3) Exchange rate controls
A) Achieved prominence during the economic crises of the late 1930's
B) Were popular immediately after World War II
C) Are widely used by the developing nations
D) All of the above
Q4) The central bank of the United Kingdom could \(\underline { \text { prevent } }\) the pound from\(\underline { \text { appreciating } }\) by:
A) Selling pounds on the foreign exchange market
B) Buying pounds on the foreign exchange market
C) Reducing its inflation rate relative to its trading partners
D) Promoting domestic investment and technological development
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Chapter 16: Macroeconomic Policy in an Open Economy
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Sample Questions
Q1) Assume a system of floating exchange rates. In response to relatively high interest rates abroad, suppose domestic investors place their funds in foreign capital markets. The result would be
A) a depreciation of the domestic currency and a rise in net exports
B) a depreciation of the domestic currency and a fall in net exports
C) an appreciation of the domestic currency and a rise in net exports
D) an appreciation of the domestic currency and a fall in net exports
Q2) Nations have typically placed greater importance to the goal of internal balance than to the goal of external balance.
A)True B)False
Q3) Currency devaluation and revaluation are considered to be expenditure-changing policies since they alter a country's aggregate demand for goods and services. A)True B)False
Q4) Was the Plaza Agreement of 1985 a success?
Q5) A nation realizes external balance when its current account is in equilibrium. A)True B)False
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Chapter 17: International Banking: Reserves, Debt, and Risk
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Sample Questions
Q1) To the extent that adjustments in prices, interest rates, and income levels promote balance-of-payments equilibrium, the demand for international reserves decreases.
A)True
B)False
Q2) Which international reserve asset was officially phased out of the international monetary system by the United States in the early 1970s?
A) Special drawing rights
B) Swap agreements
C) General arrangements to borrow
D) Gold
Q3) The demand for international reserves is negatively related to the level of world prices and income.
A)True
B)False
Q4) When exchange rates are fixed by central bankers, the need for international reserves disappears.
A)True
B)False
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