International Political Economy
Final Exam
Course Introduction
International Political Economy explores the complex interactions between politics and economics on a global scale. This course examines how states, markets, and international institutions influence the flow of goods, services, capital, and labor across borders. Topics include the origins and evolution of the global economic system, the role of international organizations such as the IMF and World Bank, trade policies, globalization, development, and the political dynamics of economic crises. Through theoretical frameworks and case studies, students will develop a deeper understanding of the power relations and policy choices that shape economic outcomes worldwide.
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) Roughly one-sixth of the world's population lives on less than $1 a day
A)True
B)False Answer: True
Q3) National and regional problems can quickly become global problems in an interdependent world.
A)True
B)False Answer: True
Q4) Free trade restricts a nation's ability to specialize in specific commodities that may allow for more efficient use of resources.
A)True
B)False
Answer: False
Page 3
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Chapter 2: Comparative Advantage
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Q1) From 1815 to1914,the United States was the only Western nation that was completely free of mercantilist ideas.
A)True
B)False
Answer: False
Q2) According to the following table,the UK has a comparative advantage in: \(\begin{array}{|l|c|c|}
\hline &\text { U.S. }&\text { U.K.} \\
\hline \text {Wheat (bushels/hr) }& 9 & 3 \\
\hline\text { Cloth (yards/hr) }& 6 & 4 \\
\hline
\end{array}\)
A)Wheat
B)Cloth
C)Both
D)Neither
Answer: B
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Chapter 3: The Standard Trade Model
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Q1) If a nation must employ resources that become progressively less suited for the production of a good:
A)decreasing opportunity costs are present
B)the nation should produce only that good
C)increasing opportunity costs are present
D)the nation should not produce any of that good
Answer: C
Q2) A nation may consume _____________ only with specialization in production and trade.
A)inside its production frontier
B)outside its production frontier
C)on its consumption frontier
D)tangent to its consumption frontier
Answer: B
Q3) 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
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Chapter 4: The Heckscher-Ohlin and Other Trade Theories
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Q1) The Heckscher-Ohlin theory is often referred to as the factor-endowment theory.
A)True
B)False
Q2) The product cycle model was introduced by:
A)Wassily Leontief
B)Alfred Marshall
C)Eli Heckscher
D)Raymond Vernon
Q3) Which of the following does not help in explaining the inadequacies of the Heckscher-Ohlin model in explaining basis for international trade ?
A)Economies of scale
B)Product differentiation
C)Technological differences and the existence of product cycles
D)Leontief's Paradox
Q4) With ______________,inputs increase proportionately more than the increase in output.
A)Increasing returns to scale
B)Decreasing returns to scale
C)Constant returns to scale
D)International returns to scale
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Chapter 5: Trade Restrictions: Tariffs
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Q1) In Figure 1,if the free trade price was $10 and a $5 tariff was imposed on the imports,then how much is the consumption effect of the tariff (how much will the consumers loose as a result of the tariff)?
A)10
B)20
C)50
D)90
Q2) Graphically,how is the consumer surplus measured?
A)the area above the demand curve
B)the area under the demand curve and above the market price
C)the area above the supply curve and below the market price
D)the area under the supply curve
Q3) In Figure 1,if the free trade price was $10 and a $5 tariff was imposed on the imports,then how much is the gain in producer surplus?
A)20
B)40
C)50
D)80
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Chapter 6: Nontariff Trade Barriers and the Political
Economy of Protectionism
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Q1) GATT was an international organization composed of nations that would ultimately become known as the EU.
A)True
B)False
Q2) The infant-industry argument states that temporary trade protection is needed to protect a new industry against competition from more established and efficient foreign firms.
A)True
B)False
Q3) In order to avoid outsourcing or offshoring,the national government could provide the firm with trade protection in the form of:
A)a tariff
B)a quota
C)a subsidy
D)this is not allowed by WTO rules
Q4) Briefly discuss the four major rounds of international trade negotiations held under the direction of the General Agreement on Tariffs and Trade.Include discussion of the primary outcomes of each round.
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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) The formation of a customs union generates static effects for members,but not dynamic effects.
A)True
B)False
Q2) _______________ occurs when some domestic production in a member of the customs union is replaced by lower-cost imports from another member nation.
A)Trade creation
B)Trade diversion
C)Economies of scale
D)Decreasing returns to scale
Q3) A ____________________ is the form of economic integration wherein all barriers are removed on trade among members,but each nation retains its own barriers to trade with nonmembers.
A)preferential trade arrangements
B)customs union
C)common market
D)free trade area
Q4) List and briefly describe,from loosest to tightest,the five types of economic integration:
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Chapter 8: Growth and Development With International Trade
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Sample Questions
Q1) Assume in base year 1990,the net barter terms of trade is equal to 100,and we find that,for the 2004 fiscal year,the US price index for exports has fallen 7 percent and the price index for imports has risen by 5 percent.What is the value of the U.S.net barter terms of trade?
A)63.4
B)101.2
C)88.6
D)112.5
Q2) Which of the following countries is characterized by rapid growth in gross domestic product in industrial production and manufactured exports?
A)Hong Kong
B)Korea
C)Singapore
D)All of these countries
Q3) Export pessimism is the belief that a lack of protectionist policies towards developing countries will lead to a slowing of exports in developed ones.
A)True
B)False
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Chapter 9: International Resource Movements and Multinational Corporations
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Q1) Direct investments would not include takeovers by another firm.
A)True
B)False
Q2) The basic motive for international portfolio investments is
A)to earn higher returns domestically than are possible abroad.
B)to earn higher returns abroad than are possible domestically.
C)to earn returns domestically on incomes earned abroad.
D)to earn returns abroad that cannot be taxed domestically.
Q3) A purchase of 10% or more of a corporation constitutes a portfolio investment.
A)True
B)False
Q4) Why was US direct investment in Latin America lower in 1985 than in 1980?
A)inflation in the US
B)recessions in the Latin American countries
C)international debt problems in the Latin American countries
D)a recession in the US
Q5) From 1950 to 2002,both US private holdings of foreign long-term securities and foreign private holdings of US long-term securities increased very rapidly.
A)True
B)False
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Chapter 10: Balance of Payments
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Q1) ____________ is an example of a debit transaction in the balance of payments.
A)Exports of goods and services
B)Unilateral transfers to foreigners
C)Capital inflows
D)Receipt of a vase as a gift from a foreign country
Q2) Which of the following is true about the balance of payments?
A)Although there are millions of transactions each year,it is necessary to keep a detailed record of them for accurate accounting purposes
B)The balance of payments aggregates all merchandise trade into a few major categories
C)The balance of payments does not include transactions in which the residents of foreign nations are not directly involved
D)Not only are the net balances of each type of international capital flow included in the balance of payments,but a detailed breakdown of these transactions is accounted for as well
Q3) The earnings received from abroad for the services of US assets abroad are recorded in the capital account.
A)True
B)False
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Page 12
Chapter 11: The Foreign Exchange Market and Exchange Rates
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Q1) _______________ 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
Q2) An exchange rate is defined as:
A)the interest rate at which currencies can borrowed
B)the domestic currency price of the foreign currency
C)the ratio of export prices to import prices
D)The domestic currency price of a market basket of the most traded currencies in the world
Q3) 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
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Chapter 12: Exchange Rate Determination
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Q1) In the real world exchange rate,overshooting is not observed and can be considered theoretical rhetoric.
A)True
B)False
Q2) Absolute purchasing-power parity theory postulates that the percentage change in the exchange rate is equal to the difference in the percentage change in the price level in the two countries.
A)True
B)False
Q3) If the rate of inflation is suddenly expected to be 7% higher in the US than in the UK,and higher than previously anticipated,the dollar should immediately depreciate by 9 percent with respect to the pound in order to keep prices equal in the US and the UK.
A)True
B)False
Q4) In a nutshell,explain what the trade or elasticity approach says about exchange rate determination.
Q5) Discuss the difference between the absolute purchasing-power parity theory and the relative purchasing-power parity theory.
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Chapter 13: Automatic Adjustments With Flexible and Fixed Exchange Rates
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Q1) In a closed economy without a government sector,the equilibrium level of income is found where income is equal to
A)planned consumption expenditures divided by planned business investment
B)the ratio of planned business investment to planned consumption expenditures
C)planned consumption expenditures plus planned business investment plus planned net exports
D)planned consumption expenditures plus planned business investment.
Q2) Suppose a £1 gold coin in the UK contained 115 grains of pure gold,while a $1 gold coin in the US contained 25 grains.What is the mint parity exchange rate between pounds and dollars?
A)£4.87 per dollar
B)$4.87 per pound
C)$)22 per pound
D)£0.22 per dollar
Q3) When demand is unitary elastic,then a change in price will leave expenditures on the commodity at a greater value.
A)True
B)False
Q4) Please explain the J-Curve effect in exchange rate determination.
Page 15
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Chapter 14: Adjustment Policies
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Q1) Which of the following is not discussed in the book as one of the important national economic goal or objectives?
A)Internal balance
B)A reasonable growth rate
C)An equitable distribution of income
D)A strong defense mechanism
Q2) What are the effects of running a high budget deficit,as the US does?
A)High interest rates,compared to those abroad
B)Large capital Outflows
C)Overvaluation of the dollar
D)Both A and C
Q3) In terms of their effect,how are the direct controls like tariffs and export subsidies different from say currency devaluation or depreciation?
Q4) What objectives do nations undertake when facing cost-push inflation?
A)Full employment
B)Balance-of-payments equilibrium
C)Price stability
D)All of the above
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) The institution of the European Monetary System that provides short-term and medium-term balance-of-payments assistance to member nations is known as:
A)the European Currency Unit
B)the European Monetary Cooperation Fund
C)the European Assistance Fund
D)the European Monetary Institute
Q2) A clean float system has no government intervention at all in foreign exchange markets.
A)True
B)False
Q3) The second stage of the monetary union,approved at a meeting in Maastricht in December 1991,called for the creation of the________________.
A)European Currency Unit
B)European Monetary Cooperation Fund
C)Supranational Monetary Agency
D)European Monetary Institute
Q4) What are the advantages and disadvantages of fixed versus flexible exchange rates?
Q5) What are the advantages of International Macroeconomic Policy Coordination? Page 17
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Q1) Which international institution was set up in 1956 to stimulate private investments in developing nations from indigenous and foreign sources?
A)International Monetary Fund
B)International Bank for Reconstruction and Development
C)International Development Association
D)International Finance Corporation
Q2) _______ is a standard of international reserve classification.
A)A silver standard
B)A silver-exchange standard
C)A pure fiduciary standard
D)A gold-silver standard
Q3) Which of the following statements about the Uruguay Round is true?
A)Textile subsidies were reduced to an all-time low
B)Patent protection for pharmaceuticals was disappointing
C)Subsidies on agriculture were reduced to an all-time low
D)The insurance sector was included in the agreement
Q4) What policy should a country like the United States pursue in the face of increased competition from manufactured exports of emerging economies?
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