Course Introduction
International Economics Test
Preparation
International Economics explores the principles and theories that govern economic interactions between countries, including trade, investment, and monetary flows. The course covers topics such as the gains from trade, comparative advantage, trade policy instruments, and the impact of globalization. It examines international financial systems, exchange rates, and balance of payments, providing students with an understanding of how global economic forces shape national economies and influence policy decisions. Through real-world case studies and theoretical frameworks, students gain the analytical tools necessary to assess the challenges and opportunities presented by an increasingly interconnected world economy.
Recommended Textbook
Introduction to International Economics 3rd Edition by Dominick Salvatore
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16 Chapters
861 Verified Questions
861 Flashcards
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Page 2
Chapter 1: Introduction to the Global Economy
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Sample Questions
Q1) Even though trade is important for both large and small countries it is much more important for a smaller country than a larger one.Explain.
Answer: Larger countries like the USA have a large internal market which allows their firms to become large enough to enjoy economies of scale.They also will have more and a variety of resources.Small countries do not have a lot of resources and at the same time there internal market is small.So smaller countries have a lot at stake compared to the larger countries when it comes to trade.
Q2) International trade theory and policies as they relate to individual nations are the _____________________ aspects of international economics.
A)International finance
B)microeconomic
C)national income accounting
D)macroeconomic
Answer: B
Q3) Exchange rates can remain in disequilibria for long periods of time.
A)True
B)False
Answer: True
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3
Chapter 2: Comparative Advantage
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Sample Questions
Q1) According to Adam Smith,in order for two countries to voluntarily trade,both nations must gain.
A)True
B)False
Answer: True
Q2) Adam Smith advocated a policy in which:
A)The government regulates all aspects of economic activity
B)The government interferes with economic activity to a moderate level
C)The government keeps regulation of economic activity to a minimum
D)The governments interference in economic activity is completely non-existent
Answer: C
Q3) Could a country which has no absolute advantage in anything still trade and benefit from trade?
Answer: Yes,trade will be beneficial to this country as long as it can find a comparative advantage in a product.In order to have comparative advantage,a country does not require absolute advantage in that product.As long as the opportunity cost of production is smaller compared to another country,we will be able to show that it has comparative advantage in that product.
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4
Chapter 3: The Standard Trade Model
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Sample Questions
Q1) What is another name for the opportunity cost of a commodity?
A)marginal rate of substitution (MRS)
B)marginal rate of transformation (MRT)
C)revealed comparative advantage
D)marginal rate of return
Answer: B
Q2) A point of intersection would represent ___________ on two different community indifference curves,which goes against their true definition.
A)unequal satisfaction
B)equal satisfaction
C)equal costs
D)equal MRS
Answer: B
Q3) The tastes or demand preferences of a nation are given by:
A)production frontiers
B)community indifference curves
C)marginal rate of transformation(MRT)
D)consumption possibilities curves
Answer: B
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Page 5
Chapter 4: The Heckscher-Ohlin and Other Trade Theories
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Sample Questions
Q1) Show with a diagram how two countries with identical tastes but different factor endowments can benefit from trade.
Q2) Which of the following states that a nation will export commodities intensive in its relatively abundant and cheap factor and that international trade brings about equalization in returns to homogeneous factors across countries?
A)Heckscher-Ohlin theory
B)Stolper-Samuelson theorem
C)Differentiated product theorem
D)None of the above
Q3) The ______________ hypothesizes that a portion of international trade is based on the introduction of new products or processes.
A)specific-factors model
B)technological gap model
C)product cycle model
D)real business cycle model
Q4) Transportation cost the extent of trade.Can transportation cost have the potential to completely eliminate any possibility of trade?
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Chapter 5: Trade Restrictions: Tariffs
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Sample Questions
Q1) A defining characteristic of a "small nation" relative to a "large nation" with respect to identifying the welfare effects of a tariff is that the:
A)small nation has less land mass than a large nation
B)small nation cannot influence world price of imported goods as much as a large nation can
C)small nation has a smaller trade deficit than the large nation
D)small nation has a smaller population compared to a large nation
Q2) The consumption component of the deadweight loss in a small nation arises with a tariff because
A)the tariff causes consumers to consume less of the good than they normally would have without the tariff.
B)the tariff causes consumers to consume more of the good than they normally would have without the tariff.
C)consumers continue to consume the same quantity of the good as before the tariff,but they receive less utility than before the tariff
D)the marginal utility of the consumption of each good is less after the imposition of the tariff than before,resulting in a loss of consumer surplus
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Page 7
Chapter 6: Nontariff Trade Barriers and the Political
Economy of Protectionism
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Sample Questions
Q1) The purpose of the trade promotion authority that has been granted to the President of the U.S.was to give the government more time to deliberate on trade agreements that have been negotiated with the government.
A)True
B)False
Q2) The World Trade Organization was established by the _______________ of multilateral trade negotiations.
A)Kennedy Round
B)Tokyo Round
C)Uruguay Round
D)Doha Round
Q3) The Uruguay Round provides for tougher and quicker action to resolve disputes resulting from the use of __________,but does not ban their use.
A)Tariffs
B)Anti-dumping laws
C)Quotas
D)Subsidies
Q4) When it comes to quota and tariff,how are the effects on the economy different?
Q5) Scientific Tariff seems to be a good thing.What are the problems with it?
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Chapter 7: Economic Integration
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Sample Questions
Q1) List and briefly describe,from loosest to tightest,the five types of economic integration:
Q2) Direct investments made in a nation or other economic units to avoid import tariffs are known as:
A)tariff factories
B)tariff diversion
C)tariff creation
D)duty-free zones
Q3) A _________________ allows no tariffs or other barriers on trade among members,and it harmonizes trade policies toward the rest of the world.
A)Preferential trade arrangements
B)Customs union
C)Common market
D)Free trade area
Q4) After the customs union is formed and trade barriers among the member nations are enacted,the member nations may become less efficient due to the joined union.
A)True
B)False
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Chapter 8: Growth and Development With International Trade
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Sample Questions
Q1) Although traditional trade theories suggest that developing countries should specialize in labor intensive commodities like,raw material,food,minerals,etc.,why do some developing countries believe that a pattern of specialization under the theory of comparative advantage relegated them to a subordinate position compared to the developed nations?
Q2) When a nation's terms of trade deteriorates to the point where the nation is worse off after growth than before,the nation has experienced:
A)immiserizing growth
B)post trade stagnation
C)unbalanced growth
D)impeded growth
Q3) Which economist found that export instability was somewhat larger for developing nations than for developed nations during the postwar period?
A)Hans Singer
B)Alasdair MacBean
C)Alfred Marshall
D)Kenneth Arrow
Q4) Briefly discuss the three most serious problems facing developing countries today.
Page 10
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Chapter 9: International Resource Movements and Multinational Corporations
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Sample Questions
Q1) When will a resident of one country purchase bonds of another country?
A)if the returns on bonds are higher in the other country
B)if the returns on bonds are lower in the other country
C)if the returns on bonds cannot be taxed domestically
D)if the returns on bonds are equal in both countries
Q2) A purchase of 10% or more of a corporation constitutes a portfolio investment. A)True
B)False
Q3) IBM does not want to license foreign producers because it wants to retain complete control over its ____________ and to ensure consistence in _____________.
A)trade secrets and patents; workforce
B)accounting process; quality and service
C)trade secrets and patents; quality and services
D)stock; quality and service
Q4) Why does a multinational firm have to go for direct foreign investment instead of licensing a local firm to carry out production on its behalf?
Q5) In reality,investors always know precisely the average return on stocks. A)True
B)False
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Chapter 10: Balance of Payments
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Sample Questions
Q1) Which of the following is not included in the current account?
A)Currently produced goods and services
B)Income on foreign investments
C)Unilateral transfers
D)Direct Foreign Investment
Q2) During the fiscal year 2009,how much did the US export in dollars?
A)$1 - $2.5 trillion
B)$100 - $500 million
C)$500 million - $1 billion
D)$5 - $10 billion
Q3) During the fiscal year of 2009,what was the net balance in the US current account?
A)+ $481 billion
B)+ $805 billion
C)- $378 billion
D)- $3 billion
Q4) Briefly discuss the international investment position of the United States and how it has changed over the course of the past two decades.
Q5) Why does the balance of good part of the total balance of payment always get prominence?
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Chapter 11: The Foreign Exchange Market and Exchange Rates
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Sample Questions
Q1) Which of the following generates an increase in a nation's supply of foreign currencies?
A)American tourists visit Japan
B)An American firm exports goods to Canada
C)An individual in the US buys bonds from France
D)a US firm imports goods from Europe
Q2) The exchange rate between any two currencies is kept the same in different monetary centers by ____________.
A)the effective exchange rate
B)speculation
C)arbitrage
D)hedging
Q3) _______________ are medium term financial instruments falling somewhat between short term Eurocurrency bank loans and long-term international bonds bank deposits denominated in a currency other than that of the nation in which the deposit is held.
A)Eurobonds
B)Eurodollars
C)Euronotes
D)Offshore deposits
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Chapter 12: Exchange Rate Determination
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Sample Questions
Q1) Relative purchasing-power parity theory postulates that the equilibrium exchange rate is equal to the ratio of the price levels in the two nations.
A)True
B)False
Q2) If the rate of inflation is suddenly expected to be 8% higher than previously anticipated in the US than in the UK,the dollar should immediately depreciate by what percent with respect to the pound in order to keep prices equal in the US and the UK?
A)8%
B)10%
C)6%
D)9%
Q3) Which of the following approaches to exchange rate determination stresses the role of the flow of goods and services in the determination of exchange rates?
A)The portfolio model of exchange rates
B)The asset model of exchange rates
C)The trade approach to exchange rates
D)All of the above
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Chapter 13: Automatic Adjustments With Flexible and Fixed Exchange Rates
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Q1) The increase in imports induced by a dollar increase in income is called the
A)import elasticity of demand
B)marginal propensity to import
C)income elasticity of imports
D)none of the above
Q2) ___________ account(s)for the impact a change in a large nation's income and trade has on the rest of the world and which the rest of the world in turn has on a nation.
A)Foreign repercussions
B)Absorption
C)The synthesis of automatic adjustments
D)The foreign multiplier
Q3) When a(n)_____________condition is present,a disturbance from the equilibrium exchange rate pushes the exchange rate farther away from equilibrium.
A)unstable foreign exchange market
B)Marshall-Lerner condition
C)J-curve effect
D)stable foreign exchange market
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Chapter 14: Adjustment Policies
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Sample Questions
Q1) Inflation resulting from an oil price shock is classified as which of the following?
A)Demand-pull inflation
B)Supply-push inflation
C)Cost-push inflation
D)Price-pull inflation
Q2) The current account deficit and the budget deficit move together; therefore,the budget deficit can be used to fully explain the account deficit.
A)True
B)False
Q3) Which of the following is an example of an exchange control?
A)Restrictions on international capital flows
B)Intervention in forward markets
C)Multiple exchange rates
D)All of the above
Q4) Fiscal policy is utterly useless under a fixed exchange rate policy.
A)True
B)False
Q5) Describe why monetary policy under a fixed exchange rate system is impotent.
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Chapter 15: Flexible Versus Fixed Exchange Rates,european
Monetary Systems,and Macroeconomic Policy
Coordination
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Q1) Advocates of fixed exchange rates claim that flexible exchange rates:
A)increase the volume of international trade and investment
B)lead to stabilizing speculation
C)are inflationary
D)makes internal balance of the economy more difficult to attain
Q2) Which of the following EU countries did not accept Euro as its currency
A)Austria
B)Belgium
C)Sweden
D)Italy
Q3) In order to attain the goal of a monetary union,the president of the European Commission recommended a stage based transition.Which stage of this transition involved the completion of the monetary union with the establishment of a single currency and a European Central Bank.
A)Stage one
B)Stage two
C)Stage three
D)Stage four
17
Q4) What is dollarization? What are some of the benefits and cost that go along with it?
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Chapter 16: The International Monetary System: Past, present, and Future
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Q1) What are the arrangements under which member nations negotiate with the IMF for advance approval for future borrowings from the Fund so they will be immediately available?
A)General Arrangements to Borrow
B)Diminutive arrangements
C)Standby arrangements
D)Swap arrangements
Q2) After the transition period ended,the Bretton Woods system required that the member countries implement all of the following except
A)Remove all restrictions on the convertibility of their currencies into dollar
B)Do not impose additional trade restrictions
C)Do not have restrictions on international liquid financial flows
D)Existing trade restrictions were to be removed gradually
Q3) During which decades did 'dollar glut' develop?
A)Late 1940s,early 1950s
B)Late 1950s,early 1960s
C)Late 1960s,early 1970s
D)Late 1970s,early 1980s
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