Course Introduction
International Trade Review Questions
International Trade explores the fundamental principles, theories, and practices that govern the exchange of goods and services across national borders. The course examines the reasons behind international trade, the role of comparative advantage, and the effects of trade policies such as tariffs, quotas, and trade agreements. Students will analyze the impact of globalization on economies, study the structure of international markets, and consider the roles of organizations such as the World Trade Organization (WTO). Topics also include balance of payments, exchange rates, and the economic, political, and social implications of global trade.
Recommended Textbook
International Economics 15th Edition by Robert Carbaugh
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17 Chapters
1863 Verified Questions
1863 Flashcards
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Page 2
Chapter 1: The International Economy and Globalization
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Sample Questions
Q1) The movement to free international trade is most likely to generate short-term unemployment in which industries?
A) Industries in which there are neither imports nor exports
B) Import-competing industries
C) Industries that sell to domestic and foreign buyers
D) Industries that sell to only foreign buyers
Answer: B
Q2) Increased foreign competition tends to:
A) Intensify inflationary pressures at home
B) Induce falling output per worker-hour for domestic workers
C) Place constraints on the wages of domestic workers
D) Increase profits of domestic import-competing industries
Answer: C
Q3) A firm's ____,relative to that of other firms,is generally regarded as the most important determinant of competitiveness.
A) Income level
B) Tastes and preferences
C) Governmental regulation
D) Productivity
Answer: D
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Chapter 2: Foundations of Modern Trade Theory:
Comparative Advantage
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Sample Questions
Q1) Assume 1990 to be the base year.If by the end of 2004 a country's export price index rose from 100 to 130 while its import price index rose from 100 to 115,its terms of trade would equal 113.
A)True
B)False
Answer: True
Q2) The trading-triangle concept is used to indicate a nation's:
A) Exports,marginal rate of transformation,terms of trade
B) Imports,terms of trade,marginal rate of transformation
C) Marginal rate of transformation,imports,exports
D) Terms of trade,exports,imports
Answer: D
Q3) Adam Smith
A) Was a leading advocate of free trade
B) Developed the concept of absolute advantage
C) Maintained that labor costs represent the major determinant of production cost
D) All of the above
Answer: D
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Chapter 3: Sources of Comparative Advantage
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Sample Questions
Q1) Which of the following best applies to the theory of overlapping demands?
A) Manufactured goods
B) Services
C) Primary products
D) None of the above
Answer: A
Q2) The Leontief Paradox suggested that,in contrast to the predictions of the factor-endowment theory,U.S.exports were less capital-intensive than U.S.import-competing goods.
A)True
B)False
Answer: True
Q3) 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
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Page 5
Chapter 4: Tariffs
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Sample Questions
Q1) A specific tariff is expressed as a fixed percentage of the total value of an imported product.
A)True
B)False
Q2) Refer to Exhibit 4.2.As a result of the tariff,the price of imported motorcycles equals $13,000 and imports total 4 cycles.
A)True
B)False
Q3) When the production of a commodity does not utilize imported inputs,the effective tariff rate on the commodity:
A) Exceeds the nominal tariff rate on the commodity
B) Equals the nominal tariff rate on the commodity
C) Is less than the nominal tariff rate on the commodity
D) None of the above
Q4) According to the infant-industry argument,temporary tariff protection granted to an infant industry will help it become competitive in the world market; when international competitiveness is achieved,the tariff should be removed.
A)True
B)False
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Chapter 5: Nontariff Trade Barriers
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Sample Questions
Q1) Because export subsidies tend to result in domestic exporters charging lower prices on their goods sold overseas,the home country's:
A) Export revenues will decrease
B) Export revenues will rise
C) Terms of trade will worsen
D) Terms of trade will improve
Q2) Consider Figure 5.5.Assuming that the revenue effect of the export quota accrues to Japanese firms,the overall welfare loss to Mexico equals $2100 as a result of the quota.
A)True
B)False
Q3) Tariffs and quotas on imports tend to involve larger sacrifices in national welfare than would occur under domestic subsidies.This is because,unlike domestic subsidies,import tariffs and quotas:
A) Permit less efficient home production
B) Distort choices for domestic consumers
C) Result in higher tax rates for domestic residents
D) Redistribute revenue from domestic producers to consumers
Q4) What is the price-based definition of dumping?
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Chapter 6: Trade Regulations and Industrial Policies
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Sample Questions
Q1) Countervailing duties are intended to neutralize any unfair advantage that foreign exporters might gain over domestic producers because of foreign:
A) Tariffs
B) Subsidies
C) Quotas
D) Buy-national policies
Q2) Under U.S.commercial policy,the escape clause results in:
A) Temporary quotas granted to firms injured by import competition
B) Tariffs that offset export subsidies granted to foreign producers
C) Tax advantages extended to minority-owned exporting firms
D) Duties which offset commercial dumping on the part of foreign firms
Q3) Consider Figure 6.3.With free trade,Iraq purchases ____ computers at a price of $____,and realizes $____ of consumer surplus from the availability of computers.
A) 30,$3,000,$25,000
B) 30,$3,000,$35,000
C) 30,$3,000,$45,000
D) 30,$3,000,$55,000
Q4) Has industrial policy contributed significantly to Japan's economic growth?
Q5) What is the basis for trade adjustment assistance?
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Chapter 7: Trade Policies for the Developing Nations
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Sample Questions
Q1) Consider Figure 7.2.Assume there exists a cartel of several producers that is maximizing total profit.If one producer cheats on the cartel agreement by decreasing its price and increasing its output,rational action of the other producers is to:
A) Increase their price in order to regain sacrificed profits
B) Decrease their price as well
C) Keep on selling at the agreed-upon price
D) Give the product away for free
Q2) Rather than conduct massive stabilization operations,buffer stock officials will periodically revise target prices should they move out of line with long-term price trends.
A)True
B)False
Q3) Consider Figure 7.2.Suppose the supply of tin increases from S<sub>0</sub> to S<sub>1</sub>.Under a buffer stock system,the buffer-stock manager could maintain the target price by:
A) Purchasing 15 pounds of tin
B) Purchasing 30 pounds of tin
C) Selling 15 pounds of tin
D) Selling 30 pounds of tin
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Chapter 8: Regional Trading Arrangements
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Sample Questions
Q1) The formation of the European Monetary Union is expected to entail benefits for member countries which include all of the following except:
A) Greater certainty for investors within the EMU
B) Lower costs of transactions within the EMU
C) Independent monetary policies run by the central bank of each member country
D) Enhanced competition among companies in member countries
Q2) The gains from having an optimum currency include
A) Price differentiation
B) Lower competition
C) Lower transaction costs
D) Both b and c
Q3) Consider Figure 8.1.Assume Greece levies a per-unit tariff of $20 on imports from both Germany and France. As a result of the $20 tariff,Greece's consumer surplus falls by:
A) $90
B) $100
C) $110
D) $120
Q4) Explain the theory of optimum currency areas.
Q5) What factors influence the extent of trade creation and trade diversion?
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Chapter 9: International Factor Movements and Multinational
Enterprises
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Sample Questions
Q1) Due to transfer-pricing problems,multinational corporations must shift profits away from countries with low corporate tax rates to high tax-rate countries,thus absorbing a larger tax bite.
A)True
B)False
Q2) In natural-resource oriented industries,such as oil and copper,joint ventures have often been formed by several companies since the cost of resource-extraction may be prohibitively large for a particular company.
A)True
B)False
Q3) Multinational enterprises:
A) Increase the transfer of technology between nations
B) Make it harder for nations to foster activities of comparative advantage
C) Always enjoy political harmony in nations where their subsidiaries operate
D) Require governmental subsidies in order to conduct worldwide operations
Q4) If a joint venture among competing firms is able to cut costs by extracting wage concessions from domestic workers,national welfare increases.
A)True
B)False
11
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Chapter 10: The Balance of Payments
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Sample Questions
Q1) Current-account transactions include direct foreign investment,purchases of foreign government securities,and commercial bank loans made abroad.
A)True
B)False
Q2) In the balance-of-payments statement,statistical discrepancy is treated as part of the merchandise trade account because merchandise transactions are generally the most frequent source of error.
A)True
B)False
Q3) Concerning a country's business cycle,rapid growth of production and employment is commonly associated with:
A) Large or growing trade deficits and current account deficits
B) Large or growing trade deficits and current account surpluses
C) Small or shrinking trade deficits and current account deficits
D) Small or shrinking trade deficits and current account surpluses
Q4) Often,countries realizing rapid economic growth rates possess long-run current account deficits.
A)True
B)False
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Chapter 11: Foreign Exchange
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Sample Questions
Q1) A foreign currency option is an agreement between a holder (corporation)and a writer (commercial bank)giving the holder the right to buy or sell a certain amount of foreign currency at any time through some specified date.
A)True
B)False
Q2) The most important (in terms of dollar value)type of foreign exchange transaction by U.S.banks is the:
A) Spot transaction
B) Forward transaction
C) Swap transaction
D) Option transaction
Q3) The exchange rate is kept the same in all parts of the market by:
A) Forward cover
B) Hedging
C) Exchange speculation
D) Exchange arbitrage
Q4) Is it possible to trade foreign exchange in the futures market? How does such trading differ from the forward market?
Q5) How is the equilibrium rate of exchange determined?
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Chapter 12: Exchange-Rate Determination
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Sample Questions
Q1) The Canadian dollar would depreciate on the foreign exchange market if:
A) Canadian consumer tastes change in favor of goods produced domestically
B) The profitability of assets in Canada rises relative to the profitability of assets abroad
C) Canada experiences a disastrous wheat-crop failure,leading to imports of more wheat
D) Canada realizes technological improvements in the production of manufactured goods,leading to relatively low costs for Canada
Q2) Under floating exchange rates,short-run exchange rates are primarily determined by national differences in real interest rates and shifting expectations of future exchange rates.
A)True
B)False
Q3) Refer to Figure 12.2.As the profitability of assets in Switzerland rises relative to the profitability of assets in the United States,U.S.residents make additional investments in Switzerland; this leads to an increased demand for francs and a depreciation of the dollar's exchange value.
A)True
B)False
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Chapter 13: Mechanisms of International Adjustment
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Sample Questions
Q1) An "automatic" adjustment mechanism would require a trade-surplus nation to accept price deflation and/or falling income as the cost of increasing imports.
A)True
B)False
Q2) 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
Q3) Assume that Canada initially faces payments equilibrium in its merchandise trade account as well as in its capital and financial account.Now suppose that Canadian interest rates increase to levels higher than those abroad.For Canada,this tends to promote:
A) Net financial inflows
B) Net financial outflows
C) Net merchandise exports
D) Net merchandise imports
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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Sample Questions
Q1) Assume the Canadian demand elasticity for imports equals 1.2,while the foreign demand elasticity for Canadian exports equals 1.8.Responding to a trade deficit,suppose the Canadian dollar depreciates by 10 percent.For Canada,the depreciation would lead to a(n):
A) Worsening trade balance--a larger deficit
B) Improving trade balance--a smaller deficit
C) Unchanged trade balance
D) None of the above
Q2) In Figure 14.1,D represents the US demand curve for Toyotas and MC<sub>0</sub> represents the marginal cost of producing Toyotas.A shift in the marginal cost curve from MC<sub>0</sub> to MC<sub>1</sub> represents
A) an appreciation of the dollar relative to the yen
B) an appreciation of the yen relative to the dollar
C) a depreciation of the dollar relative to the yen
D) neither an appreciation nor a depreciation of the dollar relative to the yen
Q3) How do movements in exchange rates affect domestic costs,in the presence of foreign sourcing?
Q4) How is the absorption approach used for analyzing the effects of currency devaluation?
Page 16
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Chapter 15: Exchange-Rate Systems and Currency Crises
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Sample Questions
Q1) The par values of most developing-country currencies are currently defined in terms of gold.
A)True
B)False
Q2) Under a floating exchange-rate system,which of the following best leads to a depreciation in the value of the Canadian dollar?
A) A decrease in the Canadian money supply
B) A fall in the Canadian interest rate
C) An increase in national income overseas
D) Rising inflation overseas
Q3) Under adjustable pegged exchange rates,if the rate of inflation in the United States exceeds the rate of inflation of its trading partners:
A) U.S.exports tend to rise and imports tend to fall
B) U.S.imports tend to rise and exports tend to fall
C) U.S.foreign exchange reserves tend to rise
D) U.S.foreign exchange reserves remain constant
Q4) What is an SDR?
Q5) Which nations use multiple exchange rates the most and why?
Q6) How can currency boards and dollarization prevent currency crises?
Page 17
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Chapter 16: Macroeconomic Policy in an Open Economy
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Sample Questions
Q1) In a closed economy,which of the following will cause the economy's aggregate demand curve to shift to the right?
A) decreases and wages and salaries paid to employees
B) increases in the prices of oil and natural gas
C) decreases in income taxes for households
D) decreases in the productivity of labor
Q2) What happens to the balance of payments under a fixed exchange rate system,when expansionary or contractionary monetary policy is used?
Q3) An expenditure-increasing policy would consist of an increase in:
A) Import tariffs
B) Import quotas
C) Governmental taxes
D) The money supply
Q4) Given fixed exchange rates,assume Mexico initiates contractionary monetary and fiscal policies to combat inflation.These policies will also:
A) Reduce a balance-of-payments surplus
B) Reduce a balance-of-payments deficit
C) Increases both imports and exports
D) Decrease both imports and exports
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Chapter 17: International Banking: Reserves, Debt, and Risk
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Sample Questions
Q1) A nation may experience debt-servicing problems because of
A) Pursuit of improper macroeconomic policies
B) Inadequate borrowing
C) Adverse economic events
D) Both a and c
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 SDR has replaced the dollar,yen,and mark as the key asset of the international financial system.
A)True
B)False
Q4) By the 1990s,the British pound had replaced the U.S.dollar as the world's key currency.
A)True
B)False
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