Open Economy Macroeconomics
Test Bank
Course Introduction
Open Economy Macroeconomics explores the functioning of national economies in a global context, examining how countries interact through trade, investment, and financial markets. The course covers key topics such as exchange rate determination, balance of payments, international monetary systems, and policy responses to external shocks. Students will analyze the effects of openness on macroeconomic stabilization, monetary and fiscal policy, and economic growth. Throughout the course, both theoretical frameworks and empirical evidence are used to understand contemporary issues facing open economies, with special attention to the challenges and opportunities of globalization.
Recommended Textbook
International Economics 6th Edition by James Gerber
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17 Chapters
830 Verified Questions
830 Flashcards
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Page 2
Chapter 1: The United States in a Global Economy
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46 Verified Questions
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Sample Questions
Q1) Capital and labor only very recently have been free to move across international borders.
A)True
B)False
Answer: False
Q2) Economists
A)describe reducing tariffs and quotas as shallow integration.
B)describe reducing tariffs and quotas as deep integration.
C)believe that changing domestic policies affecting trade is a relatively simple process.
D)believe that the work of reducing trade barriers is done since most tariffs are low and most quotas eliminated.
E)believe the original motivation for nations forming domestic policies and regulations was to create trade barriers to foreign companies.
Answer: A
Q3) Most of what we buy and sell never makes it out of domestic markets.
A)True
B)False
Answer: True
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3
Chapter 2: International Economic Institutions Since World War
Ii
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50 Verified Questions
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Sample Questions
Q1) The Tokyo Round of the GATT negotiations was notable because it was the first round
A)that included Japan.
B)that included textiles and apparel.
C)to begin establishing rules on subsidies.
D)to begin discussions of exchange rates.
E)to limit the tariffs of the United States.
Answer: C
Q2) Which of the following is NOT a feature of a common market?
A)Substantial coordination of macroeconomic policies among the members
B)Free trade in goods and services between the members
C)Common external barriers to trade
D)Factor mobility
Answer: A
Q3) Which round of GATT first addressed subsidies?
Answer: The Tokyo Round
Q4) The IBRD part of the World Bank is set up to lend to whom and for what types of projects?
Answer: Developing nations' governments for specific development projects or major government economic policy adjustments
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Chapter 3: Comparative Advantage and the Gains From Trade
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Sample Questions
Q1) Which of the following statements is FALSE?
A)Comparative advantage is the principle upon which trade patterns are based.
B)Opportunity cost measures the real cost to a country of producing a certain product.
C)The gains from trade are the result of differences in opportunity cost and comparative advantage.
D)A country that possesses an absolute advantage will always have a comparative advantage.
E)Comparative advantage is necessary and sufficient for trade.
Answer: D
Q2) Based on Table 3.1,the pre-trade relative price of a computer in Mexico is
A)three pairs of shoes.
B)one pair of shoes.
C)one-half pair of shoes.
D)one-third pair of shoes.
E)None of the above.
Answer: A
Q3) What type of policies did Adam Smith attack in his book,An Inquiry into the Nature and Causes of the Wealth of Nations?
Answer: Mercantilism
Page 5
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Chapter 4: Comparative Advantage and Factor
Endowments
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Sample Questions
Q1) Offshoring required which types of advances?
Q2) Using the specific factors model,assume that strawberry production requires the specific factor of land,tractor production requires the specific factor of capital,and labor is variable.If the United States is capital abundant compared to Mexico,and Mexico is land abundant compared to the United States,then in the short run with trade,which of the following is TRUE?
A)Mexican wages will rise more than the increase in the price of tractors in Mexico.
B)U)S.wages will rise less than the fall in the price of tractors in the United States.
C)The owners of capital in the United States will see a larger increase in their incomes in percentage terms than the increase in the price of tractors.
D)The owners of land in Mexico will see a smaller increase in their incomes in percentage terms than the increase in the price of strawberries.
Q3) The bulk of offshoring is vertical,relating to producing a component piece in an overall supply chain production.
A)True
B)False
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Chapter 5: Beyond Comparative Advantage
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Q1) Economies of scale are an important determinant of comparative advantage based trade.
A)True
B)False
Q2) Intraindustry trade can lead to lower prices and job creation in both the exporting and the importing nation.
A)True
B)False
Q3) Which of the following is FALSE?
A)Economies of scale may be internal,external,or both.
B)With internal economies of scale,the gains from trade include a wider selection of consumer choices and lower prices.
C)With external economies of scale,the gains from trade are less certain since,in theory,they can lock in production in a less efficient country and prevent the development of production in a more efficient country.
D)Internal economies of scale lead firms to regionally concentrate their industry.
Q4) Which industry was first covered by a free trade agreement between Canada and the United States?
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7
Chapter 6: The Theory of Tariffs and Quotas
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Q1) Which of the following is FALSE?
A)Tariffs are a relatively easy tax to administer and often form an important part of revenue for low-income countries.
B)Taxes on income,sales,and property require more complex accounting systems than do tariffs.
C)Low-income countries often have large informal markets with the sales of many goods and services not being recorded,which makes it difficult to apply many kinds of taxes.
D)Taxes on income and property run into powerful interest groups in low-income countries,which work to prevent the creation or payment of these taxes.
E)Tariffs are not an attractive tax option for most low-income countries,so they mostly rely on quota licenses for revenue.
Q2) The production side efficiency loss of a tariff is caused by
A)confusion about prices when a tariff is imposed.
B)higher profits gained by foreign producers.
C)the expansion of relative inefficient domestic production.
D)the contraction of domestic consumption.
E)the increase in government revenue.
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Chapter 7: Commercial Policy
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Sample Questions
Q1) Television programming might be targeted for protection in a country using which of the following arguments?
A)Infant industry
B)National security
C)Need for retaliation
D)Labor argument
E)Cultural protection
Q2) There are asymmetric incentives to support and to oppose protectionist trade policies,with the stronger incentives going to those that would seek protection.
A)True
B)False
Q3) The biggest flaw in the logic of the labor argument is the failure to consider
A)the needs of developing countries.
B)the impact of tariffs on inflation.
C)the differences in national productivity levels.
D)the strategy of multinational businesses.
E)the impact on employment levels.
Q4) Under Special 301,what is the U.S.government required to do?
Q5) Critique the infant industry or the labor argument for protection.
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Chapter 8: International Trade and Labor and Environmental Standards
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Sample Questions
Q1) The best way to address differences in labor and environmental standards is through trade barriers.
A)True
B)False
Q2) Which of the following is FALSE?
A)Most of the world's population lives in countries classified as low- or lower-middle income.
B)All labor and environmental conditions improve with income growth.
C)Percentage wise,more children work in low-income countries than in higher income countries.
D)With such large income differences internationally,it is not surprising that there are very large differences in most social,economic,and environmental indicators.
Q3) What are two main obstacles to increased international integration?
Q4) The International Labor Organization has been around since 1919,and has a consistent record of being willing to take action against countries that violate core labor standards.
A)True
B)False
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Q5) What does empirical research suggest about the existence of pollution havens?
Chapter 9: Trade and the Balance of Payments
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Q1) Based on Table 9.1,if the information in the table is typical of current and financial account values over a long period,then it would be reasonable to infer that
A)the net international investment position is negative.
B)the net international investment position is positive.
C)national savings are less than domestic investment.
D)government accounts are in deficit.
E)the current account balance is greater than domestic investment.
Q2) Describe the technology transfer benefit of capital flows and the political power cost of large capital flows into low-income countries.
Q3) Based on Table 9.2,total savings,private plus public,is equal to
A)3 percent of GNP.
B)18 percent of GNP.
C)16 percent of GNP.
D)20 percent of GNP.
E)None of the above.
Q4) What is the difference between the U.S.current account deficits of the 1980s and the 1990s?
Q5) How do recent current account deficits compare to GNP and to past ratios?
Q6) What does a current account deficit do that is positive for a nation?
Page 11
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Chapter 10: Exchange Rates and Exchange Rate Systems
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56 Verified Questions
56 Flashcards
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Sample Questions
Q1) A firm that buys foreign exchange in order to take advantage of higher foreign interest rates is
A)speculating.
B)demonstrating purchasing power parity.
C)engaging in interest rate arbitrage.
D)responding to fluctuations in the business cycle.
E)ignoring the nominal rate of exchange.
Q2) What are the differences and similarities between a depreciation and devaluation of a currency?
Q3) When an individual or firm in the United States requests that a bank sell foreign exchange,the bank will probably
A)call a foreign bank and arrange a purchase.
B)call the central bank and arrange a purchase.
C)call another bank customer with foreign exchange holdings.
D)call another domestic bank and arrange a purchase.
E)call a foreign exchange broker and arrange a purchase.
Q4) Which currency is most commonly traded?
Q5) When did major currencies begin floating against each other,ending the Bretton Woods system?
Page 12
Q6) Which type of exchange rate system minimizes external shocks to an economy?
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Chapter 11: An Introduction to Open Economy
Macroeconomics
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Sample Questions
Q1) Describe the difficult choices in macroeconomic policy that Argentina faced in the late 1990s.
Q2) All of the following took place during the Great Depression except A)increase in unemployment from about 3.4 percent to about 25 percent and a decrease in real GDP by about 30 percent between 1929 in 1933.
B)an increase in taxes because of the fear that budget deficits would undermine business confidence.
C)a fall in the money supply by more than 30 percent.
D)a rise in inflation during the early 1930s.
E)the stock market crashed by about one-third in October of 1929.
Q3) Describe the policies a nation would follow to correct a current account deficit.What are the primary purposes of each type of policy?
Q4) What typically happens to imports as income and spending rise?
Q5) Contractionary fiscal policy attempts to shift aggregate demand to the right. A)True B)False
Q6) Expansionary fiscal policy is likely to lead a nation's currency to depreciate. A)True B)False
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Chapter 12: International Financial Crises
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Sample Questions
Q1) International financial flows changed in meaningful ways,and these changes were brought to the attention of policy makers by the Asian financial crisis.Describe three changes.
Q2) If governments promise to bail out the financial system in the event of a crisis,this creates a moral hazard problem.Describe this problem.
Q3) Current research suggests that countries that adopt a pegged exchange rate may be more vulnerable to an exchange rate crisis.
A)True
B)False
Q4) What are the costs of capital mobility?
Q5) All of the following are possible outcomes of a financial crisis except A)bank failings and disintermediation.
B)decreases in investment.
C)a recession.
D)a sure competitive advantage accompanied by a comparative advantage.
E)depreciation or devaluation of a currency.
Q6) An exchange rate crisis may lead to a banking crisis and disintermediation.
A)True
B)False
Page 14
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Chapter 13: The United States in the World Economy
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30 Verified Questions
30 Flashcards
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Sample Questions
Q1) What are bilateral investment treaties?
Q2) When did NAFTA go into effect?
Q3) What lessons did Mexico's policy makers learn from the 1980s debt crisis? What reforms did President Salinas pursue? What were his main goals?
Q4) What two trends was Canada trying to address in negotiating CUSTA?
Q5) The main area of economic activity that Canada chose not to open to free trade is A)agriculture.
B)oil and gas.
C)lumber.
D)the cultural industries.
E)financial services.
Q6) Purchasing power parity (PPP)measurements of income are a way to make international comparisons by correcting for national differences in A)unemployment.
B)inflation.
C)prices of goods and services.
D)economic growth.
E)government subsidies.
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Chapter 14: The European Union: Many Markets Into One
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Sample Questions
Q1) Which EU institution has played a significant role is responding to the economic crisis that began in 2007?
Q2) The roots of the European Union are in agreements within the coal and steel industries.
A)True
B)False
Q3) Other nations had tried economic union in the past,and since adopting a common currency had shown economic benefits for them,the nations of Europe decided to try it too.
A)True
B)False
Q4) According to the principle of subsidiarity,in which of the following areas should the authority for making decisions be taken from national governments and given to the EU?
A)Pollution of a trans-national waterway
B)Limits on the hours retails stores are allowed to be open
C)Highway traffic laws
D)Recycling requirements on packaging
E)All of the above.
Q5) Members of which European Union institution are popularly elected?
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Chapter 15: Trade and Policy Reform in Latin America
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Sample Questions
Q1) One of the main causes of economic inequality in Latin America is the
A)failure of governments to support urban consumers.
B)lack of progress in raising agricultural productivity.
C)lack of governmental interest in solving the problem of inequality.
D)focus of governments on agricultural exports to the detriment of food production.
E)oil crisis of the 1970s.
Q2) Alan Garcia
A)in his first Presidency in Peru,followed free market economic policies.
B)nationalized the property of the financial services sector during his first Presidency.
C)was never freely elected in Peru and ruled with the support of the military.
D)maintained balanced budgets and helped Peru avoid the economic problems most Latin American nations were experiencing in the 1980s.
Q3) Latin American economies have become relatively more closed to international trade since 1985.
A)True
B)False
Q4) Briefly describe orthodox stabilization policies.
Q5) What is the primary reason exchange rates were overvalued under ISI?
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Chapter 16: Export-Oriented Growth in East Asia
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Q1) The HPAE focused their education spending on the university level to better develop high technology workers.
A)True
B)False
Q2) Rent-seeking activities have been a major problem in the HPAE and contributed greatly to the Asian financial crisis.
A)True
B)False
Q3) Describe several components of the institutional environment in the HPAEs that are critical to their success.
Q4) Which of the following is NOT a mechanism the HPAE used to share wealth across all layers of society?
A)significant investments in rural infrastructure
B)free public education
C)tax policies that strongly redistributed income from rich to poor
D)land reform
Q5) Name the eight HPAEs.
Q6) Which factors account for most of the growth in the HPAEs?
Q7) What did the HPAE do to share wealth across all levels of society?
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Chapter 17: The Bric Countries in the World Economy
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Sample Questions
Q1) What is the difference between Chinese and Indian trade in services?
Q2) What is the pattern of exports and imports in China and India?
A)Exports are heavily subsidized through government policy.
B)Many barriers to imports exist.
C)Exports and imports are tied together,with exports depending on imported inputs and technology.
D)Imports are not important to either nation's economy.
Q3) China's initial economic reforms were in which sector?
A)Manufacturing
B)Infrastructure
C)Agriculture
D)Mining
Q4) China has a larger population than India and is expected to be the most populous nation in the world throughout the twenty-first century.
A)True
B)False
Q5) China has few state-owned enterprises left in its economy.
A)True
B)False
Q6) Who was the leader of Chinese economic reforms?
Page 19
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