Open Economy Macroeconomics
Mock Exam
Course Introduction
Open Economy Macroeconomics explores the economic interactions between countries, focusing on how national economies operate within a global context. The course examines topics such as exchange rate determination, balance of payments, international capital flows, and the effects of monetary and fiscal policy in open economies. Through theoretical frameworks and empirical analysis, students develop an understanding of how trade, investment, and financial markets connect economies worldwide, and gain insight into policy challenges faced by governments in a globally integrated environment.
Recommended Textbook
International Economics 13th Edition by Robert Carbaugh
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17 Chapters
1833 Verified Questions
1833 Flashcards
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Chapter 1: the International Economy and Globalization
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48 Verified Questions
48 Flashcards
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Sample Questions
Q1) 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
Q2) Empirical research indicates that ____ best enhances productivity gains for firms and industries.
A) Local competition
B) Regional competition
C) Global competition
D) No competition
Answer: C
Q3) Multilateral trade negotiations have led to
A) Continued trade liberalization
B) Financial liberalization
C) Increased investment
D) All of the above
Answer: D
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Chapter 2: Foundations of Modern Trade Theory:
Comparative Advantage
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166 Flashcards
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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) When nations are of similar size,and have similar taste patterns,the gains from trade
A) Are shared equally between them
B) Are impossible to determine
C) Are too small, so that trading is not beneficial
D) Are determined by the nation that has comparative advantage in the more essential product
Answer: A
Q3) 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
Page 4
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Chapter 3: Sources of Comparative Advantage
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106 Flashcards
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Sample Questions
Q1) Which of the following suggests that by widening the market's size,international trade can permit longer production runs for manufacturers,which leads to increasing efficiency?
A) Economies of scale
B) Diseconomies of scale
C) Comparative cost theory
D) Absolute cost theory
Answer: A
Q2) Which trade theory contends that a country that initially develops and exports a new product may eventually become an importer of it and may no longer manufacture the product?
A) Theory of factor endowments
B) Theory of overlapping demands
C) Economies of scale theory
D) Product life cycle theory
Answer: D
Q3) What is the focus of the product life cycle theory,and where is it applicable?
Answer: the product life cycle theory focuses on the role of technological innovation as a key determinant of trade patterns.It applies to manufactured goods.
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Page 5
Chapter 4: Tariffs
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Sample Questions
Q1) Consider Figure 4.2.Suppose the United States imposes a tariff of $100 on each ton of steel imported.With the tariff,the price of steel rises to $____ and imports fall to ____ tons.
A) $550, 20 tons
B) $550, 30 tons
C) $575, 20 tons
D) $575, 30 tons
Q2) If we consider the impact on both consumers and producers,then protection of the steel industry is:
A) In the interest of the United States as a whole, but not in the interest of the state of Pennsylvania
B) In the interest of the United States as a whole and in the interest of the state of Pennsylvania
C) Not in the interest of the United States as a whole, but it might be in the interest of the state of Pennsylvania
D) Not in the interest of the United States as a whole, nor in the interest of the state of Pennsylvania
Q3) How can tariffs be justified?
Q4) Can import duties have unintended side effects?
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Chapter 5: Nontariff Trade Barriers
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Sample Questions
Q1) Consider Figure 5.1.Suppose the Mexican government provides a subsidy of $200 per ton to its steel producers,as indicated by the supply schedule SM ?w?th s?bs?d??.
The overall deadweight welfare loss to Mexico equals:
A) $200
B) $400
C) $600
D) $800
Q2) Consider Figure 5.5.Suppose that the governments of Mexico and Japan negotiate a voluntary export agreement in which Japanese TV exports to Mexico are limited to 8 units.Under the quota,the price of TVs in Mexico equals $250 while Mexicans produce 10 TVs and purchase 18 TVs.
A)True
B)False
Q3) What are the intent and impact of domestic content requirements?
Q4) Import quotas tend to lead to all of the following except:
A) Domestic producers of the imported good being harmed
B) Domestic consumers of the imported good being harmed
C) Prices increasing in the importing country
D) Prices falling in the exporting country
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Chapter 6: Trade Regulations and Industrial Policies
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124 Verified Questions
124 Flashcards
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Sample Questions
Q1) In 1990 the United States and its allies imposed trade embargoes on exports/imports to/from Iraq in response to its invasion of Kuwait.The embargoes would induce smaller losses in Iraq's consumer surplus the:
A) Lesser its initial dependence on foreign products
B) Less elastic Iraq's demand schedule
C) Lesser the available output from alternative suppliers
D) More inelastic Iraq's supply schedule
Q2) Consider Figure 6.2.For Mexico's producers and consumers as a whole,the South Korean subsidy leads to a:
A) $120 welfare gain
B) $320 welfare gain
C) $120 welfare loss
D) $320 welfare loss
Q3) Proponents of the Smoot-Hawley Act of 1930 viewed it as a means of combating domestic unemployment.
A)True
B)False
Q4) Explain how advocates of strategic trade policy differ from the classical free traders in their treatment of externalities?
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Chapter 7: Trade Policies for the Developing Nations
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Sample Questions
Q1) As a profit-maximizing cartel,the Organization of Petroleum Exporting Countries would produce a greater output and charge a lower price than what would occur in a competitive market.
A)True
B)False
Q2) Which terms-of-trade concept emphasizes a nation's capacity to import?
A) Income terms of trade
B) Commodity terms of trade
C) Barter terms of trade
D) Price terms of trade
Q3) A primary goal of international commodity agreements has been the:
A) Maximization of members' revenues via export taxes
B) Nationalization of corporations operating in member nations
C) Adoption of tariff protection against industrialized nation sellers
D) Moderation of commodity price fluctuations when markets are unstable
Q4) The OPEC nations during the 1970s manifested their market power by utilizing:
A) Export tariffs levied for revenue purposes
B) Export tariffs levied for protective purposes
C) Import tariffs levied for protective purposes
D) Import tariffs levied for revenue purposes
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Chapter 8: Regional Trading Arrangements
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Sample Questions
Q1) Suppose that steel from Japan faces a 20 percent tariff in France and a 25 percent tariff in Italy,while France and Italy maintain free trade between each other.France and Italy are therefore part of a (an):
A) Free trade area
B) Customs union
C) Common market
D) Economic union
Q2) Pricing of consumer goods in the former Soviet Union was typically regulated by price ceilings which led to shortages.
A)True
B)False
Q3) The North American Free Trade Agreement was expected to benefit ____ the most.
A) Canada
B) Mexico
C) Greenland
D) United States
Q4) The highest stage of economic integration is a monetary union.
A)True
B)False
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Chapter 9: International Factor Movements and Multinational
Enterprises
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Sample Questions
Q1) Mexico's ____ refer to an assemblage of U.S.-owned companies that use U.S.-owned parts and Mexican assembly to manufacture goods that are exported to the United States.
A) Multinational corporations
B) International joint ventures
C) Maquiladoras
D) Transplants
Q2) Multinational corporations often locate manufacturing operations abroad in order to take advantage of foreign resource endowments or wage scales.
A)True
B)False
Q3) Which term best describes the New United Motor Manufacturing Co.?
A) Multinational enterprise
B) International joint venture
C) Multilateral contract
D) International commodity agreement
Q4) What are Mexican maquiladoras?
Q5) What are the disadvantages of forming joint ventures?
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Chapter 10: the Balance of Payments
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Sample Questions
Q1) If the United States government sells military hardware to Saudi Arabia,the transaction would be recorded on the U.S.balance of payments as a:
A) Current account debit
B) Current account credit
C) Capital account debit
D) Capital account credit
Q2) The role of ____ is to direct one nation's savings into another nation's investments:
A) Merchandise trade flows
B) Services flows
C) Current account flows
D) Capital flows
Q3) Refer to Table 10.3.The services balance registered a surplus of $100 billion.
A)True
B)False
Q4) If the current account of the balance of payments registers a deficit,the capital account registers a surplus,and vice versa.
A)True
B)False
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Chapter 11: Foreign Exchange
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Sample Questions
Q1) Arbitrage results in a riskless profit since a trader purchases a currency at a low price and simultaneously resells it at a higher price.
A)True
B)False
Q2) Refer to Figure 11.1.At the equilibrium exchange rate of ____ per franc,____ francs will be purchased at a total dollar cost of ____.
A) $.50, 5 million, $2.5 million
B) $.50, 5 million, $1.5 million
C) $.70, 3 million, $2.1 million
D) $.70, 7 million, $4.9 million
Q3) In the early 1980s,the Federal Reserve pursued a tight monetary policy.All else being equal,the impact of that policy was to ____ interest rates in the United States relative to those in Europe and cause the dollar to ____ against European currencies.
A) Decrease, depreciate
B) Decrease, appreciate
C) Increase, depreciate
D) Increase, appreciate
Q4) What foreign exchange transactions do banks typically engage in?
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Chapter 12: Exchange-rate Determination
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Sample Questions
Q1) The high foreign exchange value of the U.S.dollar in the early 1980s can best be explained by:
A) Additional investment funds made available from overseas
B) Lack of investor confidence in U.S. fiscal policy
C) Market expectations of rising inflation in the United States
D) American tourists overseas finding costs increasing
Q2) When deciding between U.S.and British government securities,an American investor typically considers:
A) U.S. and British interest rates and anticipated changes in the exchange rate
B) Budget deficits of the U.S. government and British government
C) Shifts in the demand for U.S. goods and British goods
D) U.S. and British inflation rates and anticipated changes in the exchange rate
Q3) Which example of market expectations causes the dollar to depreciate against the yen--expectations that the U.S.economy will have:
A) Faster economic growth than Japan
B) Higher future interest rates than Japan
C) Less rapid money supply growth than Japan
D) Lower inflation rates than Japan
Q4) What is the asset market approach to exchange rate determination?
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Chapter 13: Balance-of-payments Adjustments
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Sample Questions
Q1) J.M.Keynes suggested that a trade deficit nation
A) Would experience a fall in income
B) Would experience a decline in imports
C) Would require active intervention by the government
D) Both a and b
Q2) The classical gold standard
A) Existed from early 1800's to early 1900's
B) Did not allow for imports and exports of gold
C) Led to the outflow of gold from surplus nations
D) Led to the inflow of gold to deficit nations
Q3) The monetary approach to balance-of-payments adjustments suggests that all payments deficits are the result of:
A) Too high interest rates in the home country
B) Too low interest rates in the home country
C) Excess money supply over money demand in the home country
D) Excess money demand over money supply in the home country
Q4) Is the monetary approach to the balance-of-payments part of the traditional adjustment theories?
Q5) What is the foreign repercussion effect?
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Chapter 14: Exchange-rate Adjustments and the Balance of Payments
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96 Verified Questions
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Sample Questions
Q1) According to the J-curve concept,which of the following is false--that the effects of a currency depreciation on the balance of payments are:
A) Transmitted primarily via the income adjusted mechanism
B) Likely to be adverse or negative in the short run
C) In the long run positive, given favorable elasticity conditions
D) Influenced by offsetting devaluations made by other countries
Q2) Suppose the U.S.economy is operating at full capacity and the dollar's exchange value depreciates.According to the absorption approach,the United States would have to accept reductions in domestic spending if the U.S.trade balance is to improve as a result of the depreciation.
A)True
B)False
Q3) According to the absorption approach,currency devaluation best improves a country's trade balance when its economy is at maximum capacity.
A)True
B)False
Q4) What is a pass-through relationship?
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Chapter 15: Exchange-rate Systems and Currency Crises
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Sample Questions
Q1) The central bank of the United Kingdom could prevent the pound from appreciating by:
A) Selling pounds on the foreign exchange market
B) Buying pounds on the foreign exchange market
C) Reducing its inflation rate relative to its trading partners
D) Promoting domestic investment and technological development
Q2) A market-determined increase in the dollar price of the pound is associated with:
A) Revaluation of the dollar
B) Devaluation of the dollar
C) Appreciation of the dollar
D) Depreciation of the dollar
Q3) Suppose that Japan maintains a pegged exchange rate that overvalues the yen.This would likely result in:
A) Japanese exports becoming cheaper in world markets
B) Imports becoming expensive in the Japanese market
C) Unemployment for Japanese workers
D) Full employment for Japanese workers
Q4) How can currency boards and dollarization prevent currency crises?
Q5) Which nations use multiple exchange rates the most and why?
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Chapter 16: Macroeconomic Policy in an Open Economy
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Sample Questions
Q1) The appropriate expenditure-switching policy to correct a current account surplus is:
A) Currency revaluation
B) Currency devaluation
C) Expansionary monetary policy
D) Contractionary fiscal policy
Q2) Nations have typically placed greater importance to the goal of internal balance than to the goal of external balance.
A)True
B)False
Q3) Changes in a country's net exports,investment spending,or government spending will cause its aggregate demand curve to shift.
A)True
B)False
Q4) Direct controls may take the form of
A) Tariffs
B) Export subsidies
C) Export quotas
D) All of the above
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Chapter 17: International Banking: Reserves, debt, and Risk
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Sample Questions
Q1) The value of the SDR is tied to a currency basket consisting of the U.S.dollar,German mark,Japanese yen,French franc,and British pound.
A)True
B)False
Q2) Refer to Figure 17.1.Under a floating exchange rate system,the exchange rate would rise to $4 and U.S.monetary authorities would have to supply 4 million pounds to the foreign exchange market in exchange for dollars to maintain this rate.
A)True
B)False
Q3) Concerning international lending risk,credit risk refers to the probability that part or all of the interest rate or principal of a loan will not be repaid.
A)True
B)False
Q4) "Owned" international reserves consist of:
A) Special drawing rights
B) Oil facility
C) IMF drawings
D) Reciprocal currency arrangements
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