International Trade Test Questions
Course Introduction
International Trade explores the economic principles, policies, and institutional arrangements that govern the exchange of goods and services across national borders. The course examines key theories such as comparative advantage, absolute advantage, and the Heckscher-Ohlin model, while analyzing the impact of tariffs, quotas, and trade agreements on global markets. Students will learn about the roles of international organizations like the World Trade Organization (WTO), the effects of globalization on developing and developed economies, and contemporary issues such as trade disputes, protectionism, and the challenges posed by shifting geopolitical and economic landscapes.
Recommended Textbook
International Trade Theory and Policy 10th Edition by Paul R. Krugman
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Chapter 1: Introduction
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Sample Questions
Q1) Which of the following is NOT a major concern of international economic theory?
A)protectionism
B)the balance of payments
C)exchange rate determination
D)bilateral trade relations with China
E)the international capital market
Answer: D
Q2) Which of the following does NOT belong?
A)NAFTA
B)Uruguay Round
C)World Trade Organization
D)non-tariff barriers
E)major free trade agreements of the 1990s
Answer: D
Q3) It is argued that global trade tends to be more important to countries with smaller economies than the U.S.Is this empirically verified?
Answer: Yes.Figure 1-2 shows exports and imports as a percentage of national income in the U.S.and five other countries and notes that "International trade is even more important to most other countries than it is to the U.S."
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Chapter 2: World Trade: An Overview
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Sample Questions
Q1) Since World War II,the likelihood that foreign markets would gain importance to average exporters as a source of profits has
A)remained constant.
B)increased.
C)decreased.
D)fluctuated widely with no clear trend.
E)increased slightly before dropping off.
Answer: B
Q2) Approximately what percent of all world production of goods and services is exported to other countries?
A)10%
B)30%
C)50%
D)100%
E)90%
Answer: B
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Chapter 3: Labor Productivity and Comparative Advantage:
The Ricardian Model
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Sample Questions
Q1) Suppose the United States' production possibility frontier was flatter to the widget axis,whereas Germany's was flatter to the butter axis.We now learn that the German mark sharply depreciates against the U.S.dollar.We now know that
A)the United States has no comparative advantage
B)Germany has a comparative advantage in butter.
C)the United States has a comparative advantage in butter.
D)Germany has a comparative advantage in widgets.
E)Germany has lost its comparative advantage.
Answer: B
Q2) Given the information in the table above,if the world equilibrium price of widgets were 40 cloths,then
A)both countries could benefit from trade with each other.
B)neither country could benefit from trade with each other.
C)each country will want to export the good in which it enjoys comparative advantage.
D)neither country will want to export the good in which it enjoys comparative advantage.
E)both countries will want to specialize in cloth.
Answer: A
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Chapter 4: Specific Factors and Income Distribution
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Sample Questions
Q1) In the specific factors model,a 5% increase in the price of food accompanied by a 1% increase in the price of cloth will cause ________ in the welfare of labor,________ in the welfare of the fixed factor in the production of food,and ________ in the welfare of the fixed factor in the production of cloth.
A)an ambiguous change;an increase;a decrease
B)an ambiguous change;a decrease;an increase
C)an ambiguous change;an ambiguous change;an ambiguous change
D)a decrease;an ambiguous change;an ambiguous change
E)an increase;a decrease;an increase
Q2) U.S.imports of sugar are limited by an import quota that,according to a study updated in 2013,imposed annual costs on American consumers of
A)$2,000,000.
B)$1,500,000.
C)$1,000,000,000.
D)$200,000.
E)$370,000.
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Chapter 5: Resources and Trade: the Heckscher-Ohlin Model
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Sample Questions
Q1) Refer to the table above.If good S is capital intensive,then following the Heckscher-Ohlin Theory
A)country B will export good S.
B)country A will export good S.
C)both countries will export good S.
D)trade will not occur between these two countries.
E)both countries will import good S.
Q2) Refer to the table above.You are told that Country B has no minimum wage or child labor laws.Now the correct answer is
A)country B will export good S.
B)country A will export good S.
C)both countries will export good S.
D)trade will not occur between these two countries.
E)both countries will import good S.
Q3) Trade benefits a country by
A)increasing available consumption choices.
B)reducing the need for specialization in production.
C)reducing the relative price of the exported good.
D)increasing the real income of all resource owners.
E)increasing the wage rate.
Page 7
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Chapter 6: The Standard Trade Model
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Sample Questions
Q1) A country cannot produce a mix of products with a higher value than where
A)the isovalue line is tangent to the production possibility frontier.
B)the isovalue line intersects the production possibility frontier.
C)the isovalue line is above the production possibility frontier.
D)the isovalue line is below the production possibility frontier.
E)the isovalue line is tangent with the indifference curve.
Q2) The intertemporal tradeoff between present and future consumption is measured by the
A)real interest rate.
B)inflation rate.
C)nominal interest rate.
D)terms of trade.
E)rate of economic growth.
Q3) Suppose,as a result of various dynamic factors associated with exposure to international competition,Albania's economy grew,and is now represented by the rightmost production possibility frontier in the figure above.If its point of production with trade was point b,would you consider this growth to be export-biased or import biased? If Albania were a large country with respect to the world trade of A and B,how would this growth affect Albania's terms of trade? Its real income? What if Albania were a small country?
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Chapter 7: External Economies of Scale and the
International Location of Production
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Sample Questions
Q1) Is it possible for an equilibrium that is consistent with purely competitive conditions to arise in an industry with positive scale economies? If so,explain how this could happen.If not,why not?
Q2) When there are external economies of scale,an increase in the size of the market will
A)increase the number of firms and lower the price per unit.
B)increase the number of firms and raise the price per unit.
C)decrease the number of firms and raise the price per unit.
D)decrease the number of firms and lower the price per unit.
E)not affect the number of firms,but will lower the price per unit.
Q3) Patterns of interregional trade are primarily determined by ________ rather than ________ because factors of production are generally ________.
A)external economies;natural resources;mobile
B)internal economies;external economies;mobile
C)external economies;population;immobile
D)internal economies;population;immobile
E)population;external economies;immobile
Q4) Why are increasing returns to scale and fixed costs important in models of international trade and imperfect competition?
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Sample Questions
Q1) In the model of monopolistic competition,trade costs between countries cause
A)marginal costs of exported goods to exceed the marginal costs of goods sold domestically.
B)marginal costs of goods sold domestically to exceed the marginal costs of exported goods.
C)all firms that can earn a profit on domestic sales to export their goods at lower prices.
D)all firms that can earn a profit on domestic sales to export their goods at higher prices.
E)countries to negotiate the elimination of trade costs by mutual subsidization of trade.
Q2) A firm in long-run equilibrium under monopolistic competition will earn
A)zero economic profits because of free entry.
B)positive monopoly profits because each sells a differentiated product.
C)positive oligopoly profits because each firm sells a differentiated product.
D)negative economic profits because it has economies of scale.
E)positive economic profit if it engages in international trade.
Q3) An imperfectly competitive firm has the following total cost curve: C = 100 + 4Q.What is total cost equal to when Q = 10?
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Chapter 9: The Instruments of Trade Policy
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Sample Questions
Q1) Specific tariffs are
A)import taxes stated in specific legal statutes.
B)import taxes calculated as a fixed charge for each unit of imported goods.
C)import taxes calculated as a fraction of the value of the imported goods.
D)the same as import quotas.
E)import taxes calculated based solely on the origin country.
Q2) A lower tariff on imported steel would most likely benefit
A)foreign producers at the expense of domestic consumers.
B)domestic manufacturers of steel.
C)domestic consumers of steel.
D)workers in the steel industry.
E)foreign consumers of steel.
Q3) Which of the following are examples of goods that have been subject to voluntary export restraints?
A)Japanese cars and Chinese solar panels
B)Belgian chocolates and French wines
C)French wines and cheeses
D)Japanese sushi and German cars
E)Taiwanese electronics and Canadian barley
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Chapter 10: The Political Economy of Trade Policy
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Sample Questions
Q1) It may be demonstrated that any protectionist policy,which effectively shifts real resources to import competing industries or sectors will harm export industries or sectors.This may,for example,happen by the strengthening U.S.dollar in the foreign exchange market.Would you propose therefore that export industries lobby against protectionism in International Trade Commission proceedings? What of consumer advocates? Discuss the pros and the problems of such a suggestion.
Q2) Refer to the figure above,which shows domestic supply and demand.If P<sub>1</sub> is equal to P<sub>2</sub> (the world price)plus a tariff,then government revenue from the tariff is equal to
A)a + c
B)b
C)P<sub>1</sub> ( Q<sub>3</sub> - Q<sub>2</sub>)
D)P<sub>2</sub> [(Q<sub>2</sub> - Q<sub>1</sub>)+ (Q<sub>4</sub>Q<sub>3</sub>)]
E)a + b + c
Q3) Refer to above figure.What is the revenue gain or loss for Europe as a whole (including taxpayers)?
Q4) Refer to above figure.What happens to the Consumer Surplus of Hungarian customers as a result of this subsidy?
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Chapter 11: Trade Policy in Developing Countries
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Sample Questions
Q1) Refer to above figure.If OmL1 workers are employed in manufacturing then what is the marginal productivity of labor in agriculture?
Q2) A reason why it is difficult for developing countries to maintain a cartel is that
A)the elasticity of demand for a cartel's output decreases over time.
B)producers in the cartel have an economic incentive to cheat.
C)economic profits discourage other producers from entering the industry.
D)producers in the cartel have the motivation to lower prices but not to raise prices.
E)tariffs allow producers in the cartel to produce items that make no profit.
Q3) China's recent experience supports the proposition that
A)"economic miracles" are solely to be expected in small countries.
B)central planning and socialism can promote sustained economic growth.
C)a lessening of income disparities is a prerequisite for economic growth.
D)growth in a large country cannot be affected by its foreign sector.
E)policy changed can dramatically prompt export oriented growth
Q4) Refer to above figure.If manufacturing labor were to increase to OmL2,how much value would the economy as a whole gain?
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Chapter 12: Controversies in Trade Policy
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Sample Questions
Q1) The evidence usually cited to prove that globalization hurts workers in developing countries
A)is inconclusive due to poor statistical design of the underlying samples.
B)is inconclusive due to the poorly funded Central Statistical Office of Mexico.
C)is inconclusive due to the ambiguous theoretical implications of the findings.
D)is conclusive.
E)does not take into account the Heckscher-Ohlin model.
Q2) The proposal that trade agreements should include a system which monitors worker conditions and make the results available to consumers in the rich importing country
A)is consistent with the Invisible Hand paradigm.
B)is consistent with the market failure approach.
C)is consistent with the Ricardian theory of comparative advantage.
D)is consistent with the scale economies approach to trade theory.
E)is consistent with the principles laid out by the WTO.
Q3) Refer to the above table.Suppose both governments offer their respective company a $10 million subsidy.
Q4) What is a pollution haven?
Q5) Refer to the above table.Suppose the U.S.government (but not Europe)offers a $10 million subsidy?
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Chapter 13: National Income Accounting and the Balance of Payments
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Sample Questions
Q1) Movements in GDP
A)differ greatly from movements in GNP.
B)do not differ greatly from movements in GNP.
C)are not allowed to differ at all from movements in GNP by definition.
D)need to be inflation adjusted in order to match movements in GNP.
E)are not relevant to an examination of national income.
Q2) For most macroeconomists
A)national income accounts and national output accounts are equal to each other.
B)national income accounts exceed national output accounts.
C)national output accounts exceed national income accounts.
D)it is impossible to tell whether national income accounts equal to national output accounts.
E)national income accounts is much more important than national output accounts.
Q3) The services British capital provides in Spain are a service export from Britain
A)therefore they are subtracted from British GDP in calculating British GNP.
B)therefore they are added to Spanish GDP in calculating Spanish GDP.
C)therefore they are added to British GDP in calculating British GNP.
D)therefore they are added to Spanish GNP in calculating Spanish GDP.
E)therefore they are subtracted from Spanish GNP.
Q4) What is the national income identity for a closed economy?
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Chapter 14: Exchange Rates and the Foreign Exchange
Market: An Asset Approach
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Sample Questions
Q1) A the beginning of 2012,you pay $100 for a share of stock that then pays you a dividend of $1 at the beginning of 2013.If the stock price rises from $100 to $109 per share over the year,then you have earned an annual rate of return of A)5 percent.
B)1 percent.
C)9 percent.
D)4 percent.
E)10 percent.
Q2) Which of the following type of funds cater to wealthy individuals,are not bound by government regulations,and are actively traded in foreign exchange markets?
A)pension funds
B)mutual funds
C)hedge funds
D)exchange funds
Q3) What are the three factors that affect the demand for foreign currency?
Q4) Discuss the effects of a rise in the dollar interest rate on the exchange rate.
Q5) Using the data in the table above,plot today's dollar/euro exchange rate against the expected dollar return on euro deposits.
Page 16
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Chapter 15: Money,Interest Rates, and Exchange Rates
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Sample Questions
Q1) For a given level of
A)nominal GNP,changes in interest rates cause movements along the L(R,Y)schedule.
B)real GNP,changes in interest rates cause a decrease of the L(R,Y)schedule.
C)real GNP,changes in interest rates cause an increase of the L(R,Y)schedule.
D)nominal GNP,changes in interest rates cause an increase in the L(R,Y)schedule.
E)real GNP,changes in interest rates cause movements along the L(R,Y)schedule.
Q2) What term means an explosive and seemingly uncontrollable inflation in which money loses value rapidly and may even go out of use?
A)superinflation
B)stagflation
C)hyperinflation
D)maginflation
E)deflation
Q3) Money includes A)currency.
B)checking deposits held by households and firms.
C)deposits in the foreign exchange markets.
D)currency and checking deposits held by households and firms.
E)futures and deposits in the foreign exchange market.
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Chapter 16: Price Levels and the Exchange Rate in the Long Run
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Sample Questions
Q1) Discuss the differences between Absolute PPP and Relative PPP.
Q2) Suppose Russia's inflation rate is 200% over one year but the inflation rate in Switzerland is only 2%.According to relative PPP,what should happen over the year to the Swiss franc's exchange rate against the Russian ruble?
Q3) Under the monetary approach to the exchange rate
A)an interest rate decrease is associated with higher expected inflation and a currency that will be weaker on all future dates.
B)an interest rate increase is associated with higher expected deflation and a currency that will be weaker on all future dates.
C)an interest rate increase is associated with higher expected inflation and a currency that will be strengthened on all future dates.
D)an interest rate increase is associated with higher expected deflation and a currency that will be strengthened on all future dates.
E)an interest rate increase is associated with higher expected inflation and a currency that will be weaker on all future dates.
Q4) What is the real interest rate parity condition?
Q5) What is the real exchange rate between the dollar and the euro equal to?
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Chapter 17: Output and the Exchange Rate in the Short Run
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Q1) Which one of the following statements is the MOST accurate?
A)An increase in the real exchange rate and an increase in disposable income improve the current account.
B)A decrease in the real exchange rate and a decrease in disposable income improve the current account.
C)A decrease in the real exchange rate and a increase in disposable income improve the current account.
D)An increase in the real exchange rate and a decrease in disposable income improve the current account.
E)An increase in the real exchange rate and a decrease in disposable income lowers the current account.
Q2) A naïve implication of the DD-AA framework is that either fiscal or monetary policy can lead to full employment.Discuss why this view is naïve.
Q3) Use a figure to study the following question: Imagine that the economy is at a point on the DD-AA schedule that is above both AA and DD,where both the output and asset markets are out of equilibrium.Explain what will happen next.
Q4) Explain how the AA schedule is derived.
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Chapter 18: Fixed Exchange Rates and Foreign Exchange Intervention
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Sample Questions
Q1) Please discuss the difference between the terms devaluation and depreciation.
Q2) This question concerns the mechanism of a reserve currency standard. Two countries,X and Y,have two currencies,x and y,fixed to the reserve currency,the U.S.dollar.Suppose the exchange rate between x and the U.S.dollar is 3x per dollar.Suppose the exchange rate between y and the U.S.dollar is 5y per dollar.Explain (using numbers)the mechanism if the x-y exchange rate was 0.8 x per y.
Q3) Which one of the following statements is the MOST accurate?
A)Under a fixed exchange rate,central bank monetary tools are powerless to affect the economy's money supply.
B)Under a flexible exchange rate,central bank monetary tools are powerless to affect the economy's money supply or its output.
C)Under a fixed exchange rate,fiscal policy tools are powerless to affect the economy's money supply or its output.
D)Under a fixed exchange rate,central bank monetary tools are powerless to affect the economy's money supply or its output.
E)Under a dirty float exchange rate,central bank monetary tools are powerless to affect the economy's money supply or its output.
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Chapter 19: International Monetary Systems: An Historical Overview
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Q1) The costs of inflation have been most apparent in the post-war period in countries like
A)Serbia.
B)Belgium.
C)the United States.
D)Canada.
E)Japan.
Q2) In L.Frank Baum's classic 1900 children's book,The Wonderful Wizard of Oz,the name "oz" is a reference to
A)an ounce (oz. )of gold.
B)an ounce (oz. )of silver.
C)an ounce (oz. )of copper.
D)an ounce (oz. )of gold or silver.
E)an ounce (oz. )of wheat.
Q3) Discuss the impact of the restoration of convertibility in 1958.
Q4) "No central bank can be indifferent to its currency's value in the foreign exchange market." Discuss.
Q5) The case of New Zealand,described in the text,draws what technical conclusion regarding the country's international debt position?
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Chapter 20: Financial Globalization: Opportunity and Crisis
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Q1) The fact that assets of the political opponents of the U.S.were frozen in U.S.banks
A)was challenged as unconstitutional.
B)lead to an increased amount of funds being placed in Eurobanks.
C)lead to a violation of the Law of One Price.
D)lead to the Cold War.
E)lead to a violation of Regulation Q.
Q2) Asset trades that deal with equity instruments are best described as A)share of stock.
B)exchange rate.
C)bonds.
D)bank deposits.
E)factors.
Q3) What are the three types of transactions between the residents of different countries?
Q4) What are the three types of gains from international transactions between the residents of different countries?
Q5) Describe the extensive "safety net" that has been set up in the United States in order to reduce the risk of bank failure.
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Chapter 21: Optimum Currency Areas and the Euro
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Q1) Using the GG-LL framework,analyze the effect of an increase in the size and frequency of sudden shifts in the demand for a country's exports.
Q2) Describe the policy of "outright monetary transactions" or 0MT presented by the president of the European Central Bank in 2012.
Q3) What is the "doom loop" responsible for the rapid development and severity of the 2009 euro crisis?
Q4) The credibility theory of the EMS implies in effect that the political costs of violating international exchange rate agreements
A)cannot restrain governments from depreciating their currency to gain the short-term advantage of an economic boom at the long-term cost of higher inflation.
B)can restrain governments from depreciating their currency to gain the short-term advantage of an economic boom at the long-term cost of higher inflation.
C)cannot restrain governments from depreciating their currency in the short run.
D)cannot restrain governments from depreciating their currency in the long run.
E)cannot restrain governments from depreciating their currency to gain the long-term advantage of an economic boom.
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Chapter 22: Developing Countries: Growth, Crisis, and Reform
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Q1) In the instances where a loan has been issued under certain terms and has to be repaid,what happens when the borrower does not uphold these stipulations?
A)call
B)option
C)payment
D)default
E)fraud
Q2) For many developing countries,natural resources or agricultural commodities make up a ________ share of exports.
A)large
B)moderate
C)nonexistent
D)small
E)insubstantial
Q3) Explain the basic macroeconomic policy trilemma for open economies.
Q4) Explain why East Asian countries have done so well relative to South American countries.
Q5) Does it appear that currency boards make fixed exchange rates credible?
Q6) Does it appear that currency boards make low-inflation policies credible?
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