International Trade Review Questions
Course Introduction
International Trade explores the theories, policies, and institutions that shape the flow of goods, services, and capital across national borders. The course examines the historical and contemporary drivers of trade, the effects of trade on economic growth and development, and the impact of trade policies such as tariffs, quotas, and trade agreements. Students will analyze the roles of international organizations, regional trading blocs, and emerging economies, as well as debates surrounding globalization and protectionism. Real-world case studies and empirical analysis provide insights into current trade-related challenges and opportunities in the global 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) A nation that has an open economy:
A)allows private ownership of capital
B)has flexible exchange rates
C)has fixed exchange rates
D)trades with other nations
Answer: D
Q2) 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
Q3) Which of the following is most restricted to flow across national boundaries?
A)People
B)Capital Flows
C)Financial and Portfolio Investment
D)Foreign Direct Investment
Answer: A
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Chapter 2: Comparative Advantage
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Sample Questions
Q1) 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
Q2) The ratio of one commodity price to the price of another commodity is called (the):
A)absolute advantage
B)relative commodity price
C)constant opportunity costs
D)increasing opportunity costs.
Answer: B
Q3) The ability of one nation to produce a commodity using fewer resources than another nation is:
A)absolute advantage
B)comparative advantage
C)mercantilism
D)specialization
Answer: A
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Page 4
Chapter 3: The Standard Trade Model
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Sample Questions
Q1) The marginal rate of transformation is the amount of one commodity that a nation or region must give up to produce each additional unit of another commodity.
A)True
B)False
Answer: True
Q2) Community indifference curves that are ______________ show greater satisfaction,while community indifference curves _____________ show less satisfaction.
A)Closer to the origin,further from the origin
B)Concave to the origin,convex to the origin
C)Convex to the origin,concave to the origin
D)Further from the origin,closer to the origin
Answer: D
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) Which economist laid the foundation for the factor endowment theory with his article entitled "The Effect of Foreign Trade on the Distribution of Income"?
A)Eli Heckscher
B)Bertil Ohlin
C)Alfred Marshal
D)Raymond Vernon
Q2) Assume the cost of transporting computers from US to Japan is greater than the pre-trade price difference for computers between US and Japan.Trade in computers between US and Japan will:
A)be very profitable for both parties.
B)be a breakeven proposition for both parties.
C)occur.
D)not occur.
Q3) Non-traded goods and services are those that are not traded because of international barriers to entry,such as exorbitant import tariffs.
A)True
B)False
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6
Chapter 5: Trade Restrictions: Tariffs
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Sample Questions
Q1) 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
Q2) The change in welfare attributed to the terms of trade effect,when considered independently of changes in welfare associated with the decline in trade volume,will:
A)reduce the nation's welfare
B)increase the nation's welfare
C)not change the nation's welfare
D)have ambiguous outcomes with respect to gain or loss of welfare
Q3) Consumer surplus is the difference between what consumers are willing to pay for a commodity and the price they actually pay for the commodity.
A)True
B)False
Q4) In question 54 can you find out the deadweight loss to the society,the loss to the consumers and the gain of the producers and also the amount of the tariff revenue generated from the tariff.
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Page 7
Chapter 6: Nontariff Trade Barriers and the Political
Economy of Protectionism
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Sample Questions
Q1) In which form of dumping is a commodity sold at a lower price abroad in order to drive foreign producers out of business,after which prices are raised to take advantage of the newly acquired monopoly power abroad?
A)Pervasive
B)Persistent
C)Predatory
D)Sporadic
Q2) The US government introduced the trigger-price mechanism in the 1970's in response to dumping in what industry?
A)Steel
B)Cotton
C)Automobiles
D)Consumer Electronics
Q3) Suppose one country induces another to reduce exports of a particular commodity under threat of greater consequences.This would be known as:
A)dumping
B)a voluntary export restraint
C)a quota
D)an export subsidy
Page 8
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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(n)________________ is a group of nations with common monetary and fiscal policies in addition to the characteristics of a common market.
A)Preferential trade arrangement
B)Economic union
C)Common market
D)Free trade area
Q4) Benelux is an example of a(n):
A)preferential trade arrangement
B)customs union
C)common market
D)economic union
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Chapter 8: Growth and Development With International Trade
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Sample Questions
Q1) Which of the following is not one of the three main advantages of an import-substitution industrialization strategy?
A)The market for the industrial product already exists,as evidenced by imports of the commodity,so that risks are reduced in setting up an industry to replace imports
B)It is easier for developing nations to protect their domestic market against foreign competition than to force developed nations to lower trade barriers against their manufactured exports
C)Foreign firms are induced to establish so-called tariff factories to overcome the tariff wall of developing nations
D)It overcomes the smallness of the domestic market and allows a developing nation to take advantage of economies of scale
Q2) For most developing countries:
A)productivity is high among domestic workers.
B)population growth and illiteracy rates are low.
C)savings and investment levels are high.
D)agricultural goods and raw material tend to make up much of domestic output.
Q3) Briefly discuss the three most serious problems facing developing countries today.
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Page 10
Chapter 9: International Resource Movements and Multinational Corporations
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Sample Questions
Q1) When capital moves from lower returns to higher returns,there will be
A)greater efficiency in the use of capital internationally.
B)increased world output.
C)increased world welfare.
D)all of the above.
Q2) Investors are only interested in the rate of return.
A)True
B)False
Q3) 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
Q4) When an investor purchases __________,then he/she is purchasing a claim on the net worth of the firm.
A)a bond
B)stock
C)a mutual fund
D)real estate
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Q5) What are the basic reasons for a multinational corporations (MNCs)existence?
Chapter 10: Balance of Payments
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Sample Questions
Q1) Debit transactions involve the receipt of payments from foreigners.
A)True
B)False
Q2) What is the difference between a nation's balance of payment account and its international investment position?
Q3) If a foreign investor purchases $800 of US treasury bills and pays by drawing down his bank balances in the US by an equal amount,what would the entries be in the US balance of payments?
A)Treasury stock - credit of $800; Cash - debit of $800
B)Capital outflow - credit of $800; Capital inflow - debit of $800
C)Treasury stock - debit of $800; Cash - credit of $800
D)Capital inflow - credit of $800; Capital outflow - debit of $800
Q4) Which of the following is an example of a deficit in the balance of payments?
A)The excess of debits over credits in the current and financial accounts
B)The excess of credits over debits in the current account
C)The excess of credits over debits in the financial account
D)Both b & c
Q5) Briefly discuss the international investment position of the United States and how it has changed over the course of the past two decades.
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Chapter 11: The Foreign Exchange Market and Exchange Rates
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Sample Questions
Q1) If you have a commitment to pay a friend in Britain 1,000 pounds in 30 days,and you are holding US dollars,you could remove the risk of loss due to the appreciation of the pound by:
A)Buying dollars in the 30-day forward market
B)Selling dollars in the 30-day forward market
C)Buying pounds in the 30-day forward market
D)Selling pounds in the 30-day forward market
Q2) The principal function of the foreign exchange market is the transfer of funds,thus purchasing power,from one nation and currency to another.
A)True
B)False
Q3) A transaction that calls for the payment and receipt of the foreign exchange within two business days from the transaction date is a:
A)forward transaction
B)spot transaction
C)arbitrage transaction
D)foreign discount with respect to the domestic currency
Q4) Name and briefly describe the four levels of agents or participants in the foreign exchange market.
Page 13
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Chapter 12: Exchange Rate Determination
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Sample Questions
Q1) Which of the following would occur if labor productivity in the UK increased relative to that in the US,and before this increase the dollar was in an exchange rate equilibrium with the sterling?
A)The United States will now demand fewer imports
B)The US will now demand fewer pounds
C)The UK will supply more pounds to the US
D)The US will now demand more pounds
Q2) According to the law of one price,in order for commodity arbitrage to equalize the price of traded commodities,it is necessary to assume all of the following except?
A)Zero Transportation cost
B)No Tariffs
C)No NTBs
D)strong differentiation among the traded goods
Q3) In a nutshell,explain what the trade or elasticity approach says about exchange rate determination.
Q4) 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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Sample Questions
Q1) In a stable foreign exchange market,a nation can correct a deficit in its balance of payments by allowing its currency to __________.
A)appreciate
B)depreciate
C)remain constant
D)none of the above
Q2) A country with budget deficit which is also at full employment can improve its deficit situation by allowing its currency to depreciate,only if,
A)the real domestic absorption is reduced
B)the real domestic absorption is increased
C)level of imports can be increased
D)income can be increased
Q3) The price-specie-flow adjustment mechanism operates by the deficit nation losing gold and experiencing a reduction in its money supply.
A)True
B)False
Q4) Please explain the J-Curve effect in exchange rate determination.
Q5) How does the adjustment mechanism operate under a gold standard?
Page 15
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Chapter 14: Adjustment Policies
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Sample Questions
Q1) What is the correct order of events following an expansionary monetary policy with a flexible exchange rate?
A)Interest rate falls,investment and income rise,current account worsens
B)Currency depreciates,income rises more,current account improves
C)Current account worsens,interest rate falls,investment and income rise
D)Capital flows out,interest rate falls,currency depreciates
Q2) What is the correct order of events following an expansionary fiscal policy with a fixed exchange rate?
A)Currency may appreciate,capital flows in,interest rate rises
B)Production and income rise,current account worsens,currency may appreciate
C)Capital flows in,income expansion is reduced,currency may appreciate
D)Interest rate rises,current account worsens,production and income rise
Q3) What are the effects of running a high budget deficit,as the US does?
A)Low interest rates,compared to those abroad
B)Large capital outflows
C)Overvaluation of the dollar
D)Small trade deficits
Q4) External balance is usually a nation's most important economic objective.
A)True
B)False
Page 16
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Chapter 15: Flexible Versus Fixed Exchange Rates,european
Monetary Systems,and Macroeconomic Policy
Coordination
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Sample Questions
Q1) The system under which the exchange rate is always determined by the forces of demand and supply without any government intervention in foreign exchange markets is a(n):
A)fixed exchange rate system
B)import system
C)freely floating exchange rate system
D)export system
Q2) _________________ are the most extreme form of a fixed exchange rate system,short of adopting a common currency or dollarization.
A)Currency board arrangements
B)Adjustable peg systems
C)Crawling peg systems
D)Managed floating exchange rate systems
Q3) What are the advantages of International Macroeconomic Policy Coordination?
Q4) A clean float system has no government intervention at all in foreign exchange markets.
A)True
B)False
Q5) What is dollarization? What are some of the benefits and cost that go along with it? Page 17
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Page 18
Chapter 16: The International Monetary System: Past, present, and Future
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Q1) The Special Drawing Rights international reserves were created by the IMF to supplement other international reserves and distributed to member nations according to their quotas in the fund.
A)True
B)False
Q2) Which of these statements about the International Monetary Fund is not true?
A)It was created for the purpose of overseeing that nations followed an agreed-upon set of rules in international trade.
B)It provided borrowing facilities for nations in temporary balance-of-payments difficulties
C)Only in a case of fundamental disequilibrium was a nation allowed to change the par value of its currency
D)The IMF began normal operations on March 1,1950,with a membership of 35 nations.
Q3) In the event that one nation is able to exchange one national currency for another without any restriction or limitation,it is said that the currency is considered convertible.
A)True
B)False
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Page 19