Course Introduction
International Economics
Textbook Exam Questions
International Economics explores the fundamental concepts and theories that govern trade and financial interactions between countries. The course examines the determinants and effects of international trade, the role and impact of trade policies, exchange rate mechanisms, balance of payments, and the global financial system. Students analyze the economic implications of globalization, regional integration, and international organizations, while also considering contemporary issues such as trade disputes, currency crises, and development challenges in various economies. Through case studies and real-world examples, the course equips students with the analytical tools necessary to understand and engage with the complexities of economic relations on a global scale.
Recommended Textbook
Introduction to International Economics 3rd Edition by Dominick Salvatore
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Page 2
Chapter 1: Introduction to the Global Economy
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Q1) The economic interdependence among nations has ___________ in the recent past.
A)decreased
B)remained the same
C)increased
D)hurt the world
Answer: C
Q2) The loose organization that blames globalization for many human and environmental problems throughout the world is:
A)The World Trade Organization
B)The World Bank
C)the protectionist movement
D)the anti-globalization movement
Answer: D
Q3) Globalization ____________:
A)Is inevitable in a world with converging tastes for consumer goods.
B)increases efficiency
C)is often blamed for increasing inequalities in income distribution in the world.
D)All of the above
Answer: D
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Chapter 2: Comparative Advantage
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Q1) Commodities exported and imported by each nation constitute the:
A)basis for trade
B)losses from trade
C)gains from trade
D)pattern of trade
Answer: D
Q2) ______________ states that the true cost of a commodity is the amount of a second commodity that must be given up to release just enough resources to produce one more unit of the first commodity:
A)Mercantilism
B)The law of comparative advantage
C)The labor theory of value
D)The opportunity cost theory
Answer: D
Q3) 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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Page 4
Chapter 3: The Standard Trade Model
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Q1) A(n)______________ opportunity cost in production is reflected in a _________ production possibilities frontier.
A)increasing,convex
B)declining,concave
C)increasing,concave
D)constant,convex
Answer: C
Q2) Points on lower community indifference curves are possible,but would not maximize_____________.
A)the cost of production
B)the nation's welfare
C)the nation's exports
D)the nation's MRS
Answer: B
Q3) The marginal rate of substitution of X for Y refers to the amount of Y that a nation or region must be willing to give up to produce each additional unit of X.
A)True
B)False
Answer: False
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Page 5
Chapter 4: The Heckscher-Ohlin and Other Trade Theories
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Q1) In his empirical test of Heckscher and Ohlin's model,Leontief found that
A)the US imported more labor intensive goods and exported more capital intensive goods.
B)the US imported more capital intensive goods and exported more labor intensive goods.
C)the US imported and exported more labor intensive goods.
D)the US imported and exported more capital intensive goods.
Q2) Which model states that a nation can shift from being a net exporter of a good to a net importer of the same good?
A)Specific-factors model
B)Technological gap model
C)Product cycle model
D)Real business cycle model
Q3) Increasing returns to scale refer to the production situation where inputs or factors of production grow proportionately more than output.
A)True
B)False
Q4) Show with a diagram how two countries with identical tastes but different factor endowments can benefit from trade.
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Chapter 5: Trade Restrictions: Tariffs
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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 domestic demand for good X is D<sup>d</sup> =165-35P.The domestic supply of good X is S<sup>d</sup> = 5+5P.Imports of good X are available in the world market at P<sub>x</sub> = 2.If the country imposes a specific tariff of t = 1 per unit imported X,what are the equilibrium price,quantity produced domestically,quantity consumed domestically,and quantity imported?
Q3) The difference between what consumers would be willing to pay for each unit of commodity and what they actually pay for that unit is called ____________.
A)producer surplus
B)consumer surplus
C)reservation price
D)import tariff
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Chapter 6: Nontariff Trade Barriers and the Political
Economy of Protectionism
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Q1) In which act was the most-favored-nations principle further developed?
A)The Smoot-Hawley Tariff Act of 1930
B)The U.S.Tariff Assignment Act of 1954
C)The Trade Agreements Act of 1934
D)The Sarbanes-Oxley Act
Q2) In the Uruguay Round,_______________ were reduced from an average of 4.7 percent to 3 percent.
A)tariffs on industrial products
B)agricultural export subsidies
C)quotas on manufactured goods
D)tariffs on intellectual property
Q3) A specified quantitative limit on a good that will be allowed to enter the country over a given period of time is referred to as:
A)a domestic subsidy
B)an import quota
C)an export subsidy
D)an import tariff
Q4) Scientific Tariff seems to be a good thing.What are the problems with it?
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Q5) When it comes to quota and tariff,how are the effects on the economy different?
Chapter 7: Economic Integration
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Q1) List and briefly describe,from loosest to tightest,the five types of economic integration:
Q2) When was the EFTA (European Free Trade Association)formed?
A)1960
B)1940
C)1970
D)1965
Q3) In the CMEA member countries,international transactions were controlled through ___________________.
A)duty-free zones
B)state trading companies
C)centrally planned economies
D)bilateral agreements
Q4) The organization of Communist bloc nations formed by the Soviet Union in 1949 to divert trade from Western nations and achieve a greater degree of self-sufficiency among Communist nations was the:
A)European Economic Area (EEA)
B)Council of Mutual Economic Assistance (CMEA)
C)North American Free Trade Agreement (NAFTA)
D)Southern Common Market (Mercosur)
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Chapter 8: Growth and Development With International Trade
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Q1) 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
Q2) 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
Q3) To this day,international trade remains as strong an engine of growth for regions of recent settlement as it was in the nineteenth century.
A)True
B)False
Q4) The International Wheat Agreement,signed in 1949,is still in operation today.
A)True
B)False
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Chapter 9: International Resource Movements and Multinational Corporations
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Q1) When a multinational corporation controls the raw material used in the production of its final good through a vertical integration,which of the following is most likely to happen?
A)The MNC will obtain an uninterrupted supply of the raw material at the lowest possible cost.
B)Consumers will pay lower prices for the good.
C)The MNC will face anti-trust charges for owning firms that produce both the raw material and the final good.
D)Consumers will pay higher prices for the good.
Q2) What are the basic reasons for a multinational corporations (MNCs)existence?
Q3) ________________ are the primary risks associated with activity in the bond market.
A)Bankruptcy and the variability of exchange rates
B)Bankruptcy and the variability in their market value
C)Variability in their market value and the risk of bank failure
D)Bankruptcy and the risk of bank failure
Q4) The two main types of foreign investments are portfolio and direct investments.
A)True
B)False
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Chapter 10: Balance of Payments
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Q1) A nation's international investment position is also called its:
A)Balance of international capital flow
B)Balance of international indebtedness
C)International capital accumulation standing
D)Current account balance
Q2) The capital account is the value of US assets abroad and foreign assets in the United States,other than official reserve assets.
A)True
B)False
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) US military aid granted to foreign countries is entered in the:
A)Merchandise trade account
B)Capital account
C)Current account
D)Official settlements account
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Chapter 11: The Foreign Exchange Market and Exchange Rates
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Q1) ________________ refers to the covering of an open position by eliminating some level of risk.
A)Arbitrage
B)Hedging
C)Foreign exchange risk
D)Speculation
Q2) ________________ is the sale of a foreign currency when the exchange rate falls or is lower,in the expectation that it will fall even lower in the future.
A)Destabilizing speculation
B)Stabilizing speculation
C)Hedging
D)Arbitrage
Q3) The percentage per year by which the forward rate on the foreign currency is below its spot rate is the:
A)forward increase
B)forward discount
C)forward transaction
D)forward premium
Q4) Please explain what is meant by Covered Interest Arbitrage.
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Chapter 12: Exchange Rate Determination
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Q1) According to the absolute PPP theory,which of the following would occur if the price level in the US decreases relative to the UK,and before this increase the dollar was in an exchange rate equilibrium with the sterling?
A)The United States will import more British goods and services
B)The US will now demand more pounds
C)The UK will supply less pounds to the US
D)US dollar will appreciate
Q2) Which of the following countries has experienced a higher rate of inflation than the US from 1973-2010?
A)Switzerland
B)Italy
C)Belgium
D)Austria
Q3) The trade or elasticities approach is more useful in explaining exchange rates during which time frame?
A)Short run
B)Medium run
C)Long run
D)Not useful at all
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Chapter 13: Automatic Adjustments With Flexible and Fixed Exchange Rates
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Q1) The _______________ states that the foreign exchange market is stable when in absolute sense the sum of the price elasticities of demands for imports and exports is greater than one.
A)J-curve effect
B)pass-through condition
C)Marshall-Lerner condition
D)stable market theory
Q2) 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
Q3) The US demand for euros is always___________.
A)negatively sloped
B)positively sloped
C)perfectly elastic
D)perfectly inelastic
Q4) What is the Marshall-Lerner Condition and how is it used?
15
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Chapter 14: Adjustment Policies
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Q1) In terms of their effect,how are the direct controls like tariffs and export subsidies different from say currency devaluation or depreciation?
Q2) What actions should be taken under the internal-external imbalance of recession and deficit?
A)Expansionary fiscal policy to correct for the deficit,and expansionary monetary policy to correct for the recession
B)Expansionary fiscal policy to correct for recession,and contractionary monetary policy to correct for deficit
C)Contractionary fiscal policy to correct for the recession,and expansionary monetary policy to correct for deficit
D)Contractionary fiscal policy to correct for the deficit,and contractionary monetary policy to correct for the recession
Q3) Monetary policy is very effective under a fixed exchange rate policy. A)True B)False
Q4) External balance is usually a nation's most important economic objective. A)True
B)False
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Chapter 15: Flexible Versus Fixed Exchange Rates,european
Monetary Systems,and Macroeconomic Policy
Coordination
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Q1) From March 1979 to September 1992,how many times the European Monetary System had to realign their currency as high-inflation member countries devalued their currencies?
A)5
B)11
C)12
D)14
Q2) What system was created to avoid the disadvantage of relatively large changes in par values and possibly destabilizing speculation?
A)Currency board arrangements
B)Adjustable peg system
C)Crawling peg system
D)Managed floating exchange rate system
Q3) Which of the following EU countries did not accept Euro as its currency
A)Austria
B)Belgium
C)Sweden
D)Italy
Page 17
Q4) What are the advantages of International Macroeconomic Policy Coordination?
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Chapter
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Q1) What are the arrangements under which national central banks negotiate to exchange each other's currency to be used to intervene in foreign exchange markets to combat international hot money flows?
A)General Arrangements to Borrow
B)Diminutive arrangements
C)Standby arrangements
D)Swap arrangements
Q2) Up to 1957,the U.S.deficits were small and the United States settled most of them in dollars.Nations with surplus were willing to accept dollars for what reason?
A)The U.S.stood ready to exchange dollars for gold at the fixed price of $35 an ounce
B)Dollars could be used as an international currency in bilateral transactions with US only
C)Dollar deposits earned no interest
D)US was going to devalue their currency
Q3) Confidence is the knowledge that the balance-of-payments adjustment mechanism is working adequately.
A)True
B)False
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