World Economy Exam Practice Tests
Course Introduction
World Economy examines the structure, operation, and evolution of the global economic system, focusing on international trade, finance, and development. The course explores key theories explaining economic interactions among nations, analyzes the role of major institutions such as the World Trade Organization and International Monetary Fund, and considers the impact of globalization on growth, inequality, and sustainability. Students will critically evaluate current economic issues, such as trade conflicts, emerging markets, global supply chains, and the challenges posed by economic crises, fostering a comprehensive understanding of the interconnected world economy.
Recommended Textbook
International Economics 7th Edition by James Gerber
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17 Chapters
1201 Verified Questions
1201 Flashcards
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Page 2
Chapter 1: The United States in a Global Economy
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46 Verified Questions
46 Flashcards
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Sample Questions
Q1) 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.
Answer: A
Q2) What are some of the main advantages and disadvantages of the extensive financial and commercial networks linking nations today?
Answer: Some of the advantages are that buyers receive lower prices,more choice,and more access to innovative technology.The major disadvantage is that a crisis is more likely to spread from one part of the world to another.
Q3) Why are high domestic savings rates important?
Answer: High savings rates are correlated with high domestic investment.
Q4) What are the positive impacts of migration on migrants and the firms that hire them?
Answer: Higher incomes for migrants and lower labor costs for firms
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3
Chapter 2: International Economic Institutions Since World
War II
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56 Verified Questions
56 Flashcards
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Sample Questions
Q1) With a partial trade agreement, A)goods and services are allowed to cross boundaries without tariffs.
B)two or more countries agree to liberalize trade in a selected group of categories.
C)two or more countries set common tariffs toward non-members.
D)two or more countries allow the free mobility of inputs such as labor and capital.
Answer: B
Q2) WTO talks in the late 1990s led to openings in both financial services and telecommunications.
A)True
B)False
Answer: True
Q3) Which of the following was NOT a creation of the Bretton Woods conference?
A)World Bank
B)IMF
C)IBRD
D)WTO
Answer: D
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Page 4
Chapter 3: Comparative Advantage and the Gains From Trade
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Sample Questions
Q1) The nation as a whole is better off from trade as long as the gains from the winners exceed the losses from the losers.
A)True
B)False
Answer: True
Q2) All of the following are true EXCEPT
A)trade between two nations reduces their opportunity costs.
B)trade makes nations dependent on each other.
C)trade between nations will not benefit all citizens.
D)the principle of comparative advantage does not apply to countries with limited resources.
Answer: D
Q3) When economists talk about the gains from trade they mean that
A)no one ever gets hurt by trade.
B)the benefits of trade outweigh the losses.
C)business firms benefit from trade but not necessarily individuals.
D)trade increases government revenue through taxes on imports.
E)economic restructuring is usually quick and painless.
Answer: B
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Chapter 4: Comparative Advantage and Factor
Endowments
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Sample Questions
Q1) Suppose that Brazil is capital abundant and Chile is natural resource abundant.If timber is natural resource intensive and computers are capital intensive,then according to the Heckscher-Ohlin Theorem,Chile should export goods that
A)intensively use labor input.
B)intensively use capital input.
C)intensively use natural resources.
D)use capital and labor in about equal proportions.
Q2) Chinese exports of toys and footwear can be explained by factor endowments,while Chinese exports of telecommunications equipment and computers and accessories can be explained by product-cycle analysis.
A)True
B)False
Q3) Nations that have only a single abundant resource face significant risks,even when that resource is highly valued.
A)True
B)False
Q4) If General Motors imports parts from its plants in Canada and Mexico for finished trucks that it will sell across the NAFTA region,what type of trade does this represent?
Page 6
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Chapter 5: Beyond Comparative Advantage
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Sample Questions
Q1) Describe the two sources of economies of scale and how these economies of scale lead to intraindustry trade.
Q2) 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.
Q3) Industrial policies have not been effective in encouraging investment in clean energy.
A)True B)False
Q4) Paul Krugman has stated that international trade is really about geography. A)True B)False
Q5) Describe how Mexico's manufacturing has changed location and type over time.
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Chapter 6: The Theory of Tariffs and Quotas
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Sample Questions
Q1) Both tariffs and quotas lead to a decrease in imports,a decrease in domestic consumption,and an increase in domestic production.
A)True
B)False
Q2) Which of the following is NOT an expected benefit of reducing nontariff barriers to trade?
A)Fewer firms to compete with B)Lower prices for many goods
C)Increase in the volume of exports and imports
D)Improved overall economic welfare
Q3) Nontariff measures are generally much more difficult to eliminate than tariffs and quotas because they are embedded more deeply in national economic policies.
A)True
B)False
Q4) Use a graph to demonstrate why quotas are likely to cause increased deadweight losses over time.
Q5) When did intellectual property rights become part of trade agreements?
Q6) Carefully explain why tariffs create deadweight losses.
Q7) What is the name of the agreement related to intellectual property rights?
Page 8
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Chapter 7: Commercial Policy
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Sample Questions
Q1) Predatory dumping occurs when
A) foreign firms sell below cost with the intent to drive firms out of the domestic market.
B) foreign firms sell below cost because the product is perishable.
C) foreign firms sell at a price that is below the price of domestic firms.
D) foreign firms sell at a price that covers the cost of their variable inputs.
Q2) Why do both developed and less-developed countries protect clothing and textiles heavily?
Q3) Developed countries have lost comparative advantage in A) high-tech industries.
B) labor-intensive industries.
C) capital-intensive industries.
D) agricultural industries.
Q4) Television programming might be targeted for protection in a country using which of the following arguments?
A) Infant industry
B) National security
C) Labor argument
D) Cultural protection
Q5) Under Special 301, what is the U.S. government required to do?
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Chapter 8: International Trade and Labor and Environmental Standards
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Sample Questions
Q1) What are two main obstacles to increased international integration?
Q2) In what industrial sector are children most likely to be working?
Q3) Developing countries are usually unwilling to negotiate over labor standards because
A)the WTO always tends to rule in favor of industrialized nations.
B)they fear that industrialized nations are trying to undermine their comparative advantage-production of agriculture and textiles/apparel-and close the markets of high-income countries in these areas.
C)they fear that they may be unable to compete without some protection of their industries.
D)organized labor would not allow them to negotiate with other countries.
Q4) The WTO encourages nations to take unilateral action on trade issues,including issues involving environmental protection.
A)True
B)False
Q5) The WTO allows trade protection to protect endangered species.
A)True
B)False
Q6) Which region has the highest proportion of its children working?
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Chapter 9: Trade and the Balance of Payments
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Sample Questions
Q1) All of the following are true about foreign direct investment (FDI)and portfolio investment except
A)increases in the flow of portfolio investments increase the likelihood of financial crisis.
B)both portfolio investments and FDI are the same in that they both give their holders a claim on the future output of the foreign economy.
C)FDI is relatively illiquid compared to portfolio investment.
D)portfolio investments have been on the decline in recent years (or decades).
Q2) Technology transfer
A)is not encouraged by low-income countries.
B)is not beneficial to high-income countries.
C)is a consequence of direct investment.
D)is a consequence of all foreign investment.
Q3) Carefully explain the pros and cons of borrowing from other countries.
Q4) Which of the following is an example of direct foreign investment?
A)A U.S. citizen buys stock in a Mexican company.
B)The Bank of China buys U.S. Treasury bonds.
C)Apple builds a plant in Ireland.
D)A company in England buys inputs to production from a German company.
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Page 11
Chapter 10: Exchange Rates and Exchange Rate Systems
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91 Verified Questions
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Sample Questions
Q1) Economists usually favor a return to the gold standard.
A)True
B)False
Q2) Speculation would involve using forward contracts and options to reduce the exchange rate risk on future foreign exchange transactions.
A)True
B)False
Q3) If Juana contracts to buy U.S.office equipment in U.S.dollars and her domestic currency depreciates against the U.S.dollar between the time the contract is signed and the bill is paid,she will wind up paying less for the equipment because she stayed in the spot market.
A)True
B)False
Q4) The biggest disadvantage of a fixed exchange rate is the
A)increased probability of high inflation.
B)tradeoff between supporting the exchange rate and adjusting the trade balance.
C)tradeoff between supporting the exchange rate and maintaining economic growth.
D)tradeoff between supporting the exchange rate and maintaining a balanced budget.
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Chapter 11: An Introduction to Open Economy
Macroeconomics
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80 Flashcards
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Sample Questions
Q1) The J-curve effect that results from currency depreciation results is due to A)the initial effect having positive effects on the current account balance.
B)the value of imports increasing by more than the value of exports at the time of devaluation.
C)exports and imports being totally unresponsive to changes in exchange rates.
D)decreases in the dollar price of imports.
Q2) Along the aggregate supply curve
A)the horizontal part represents a situation where the economy is operating above full employment levels.
B)inflation would be a primary concern along the horizontal part of the aggregate supply curve.
C)the horizontal section of the aggregate supply curve represents the limit of production.
D)the middle, upward-sloping part of the aggregate supply curve would be associated with a growing economy that experienced increased prices from resources that are becoming relatively scarce.
Q3) Which nations make up the G8?
Q4) Explain why expenditure switching and expenditure reducing policies need to be used together.
Page 13
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Chapter 12: International Financial Crises
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Sample Questions
Q1) Small devaluations are usually sufficient to stem capital flight.
A)True
B)False
Q2) Describe the Mexican peso crisis in terms of the imbalances that caused it,the policies Mexico used to respond,and the lessons learned.
Q3) Although financial crises can be unpredictable,they are usually preceded by identifiable vulnerabilities.
A)True
B)False
Q4) With regard to the IMF,"mission creep" means that
A)the IMF was making loans to nonmember countries.
B)the IMF had expanded its lending to an inappropriate level.
C)the IMF had taken on extended responsibilities that it should be authorized to perform.
D)the IMF had taken on responsibilities for which it was not suited.
Q5) Explain the meaning of IMF conditionality and why it has been criticized.
Q6) Some countries have borrowed as much as 500 percent of their IMF quotas.
A)True
B)False
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Chapter 13: The United States in the World Economy
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57 Flashcards
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Sample Questions
Q1) What is the United States' primary trade promotion initiative with Africa?
Q2) Under the side agreements to the NAFTA,
A)low environmental standards should not be used to attract trade or investment.
B)the U.S. sets environmental standards.
C)the U.S. enforces environmental standards in the rest of the free trade area.
D)environmental standards are not specifically discussed.
Q3) What are bilateral investment treaties?
Q4) One problem with NAFTA that is NOT shared by some other trade blocs is that
A)national environmental laws differ greatly.
B)the countries are at very different stages of economic development.
C)the countries speak different languages.
D)the countries are not natural trading partners.
Q5) Even though Mexico is a developing country,the NAFTA market is very rich.
A)True
B)False
Q6) Which of the following is NOT a true statement about U.S.exports?
A)Services have become more important part of exports.
B)The U.S. is the world's second-largest exporter of goods.
C)Three-fourths of U.S. merchandise exports are manufactured goods.
D)The manufacturing sector in the U.S. is no longer significant.
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Chapter 14: The European Union: Many Markets Into One
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Sample Questions
Q1) According to the text,what is the major long-run issue facing the European Union?
Q2) Each of the 15 members of the European Union that joined before May,2004 use the euro as their currency.
A)True
B)False
Q3) After implementation of the Single European Act,value added taxes in the EU were A)completely harmonized.
B)unchanged.
C)partially harmonized with minimum and maximum permissible values set by the EU. D)cut in half in order to increase the role of corporate taxes.
Q4) The fact that 10 additional nations joined the European Union in May 2004 is an example of deepening.
A)True
B)False
Q5) Explain the major problems that occurred with the implementation of the SMP.
Q6) When did the European Union become a common market?
Q7) Which EU institution has played a significant role is responding to the economic crisis that began in 2007?
Page 16
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Chapter 15: Trade and Policy Reform in Latin America
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Sample Questions
Q1) ISI policies were brought to an end primarily by
A)their inability to solve the crises of the 1980s.
B)authoritarian governments interested in total control over the economy.
C)populist politicians.
D)protests by consumers.
Q2) According to Prebisch and other ISI theoreticians,countries should begin to shift their comparative advantage away from primary commodity production by first producing
A)industrial goods such as pumps and generators.
B)complex consumer goods such as autos and appliances.
C)simple consumer goods such as food products and textiles.
D)minerals and agricultural products.
Q3) Import substitution industrialization in Latin America
A)relied on increased exports.
B)provided subsidies for exports.
C)shifted the bulk of exports away from primary commodities.
D)created disincentives to export.
Q4) What is the primary reason exchange rates were overvalued under ISI?
Q5) Briefly describe orthodox stabilization policies.
Q6) What are the three initial conditions that trigger economic populism?
Page 17
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Chapter 16: Export-Oriented Growth in East Asia
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Sample Questions
Q1) The main contributor to growth in the high growth Asian economies,according to empirical research was government industrial policies.
A)True
B)False
Q2) The voices of business and industry are less likely to influence government policy than the voices of consumers in the high-growth Asian economies.
A)True
B)False
Q3) In the high-growth Asian economies,inflation is kept under control and budget deficits and foreign debt levels are kept within the ability of the governments and the economies to handle them,which is quite different from the past experience of the Latin American region.
A)True
B)False
Q4) Describe several components of the institutional environment in the high-growth Asian economies that are critical to their success.
Q5) Name the eight high-growth Asian economies.
Q6) Which factors account for most of the growth in the high growth Asian economies?
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Chapter 17: China and India in the World Economy
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Sample Questions
Q1) China's initial economic reforms were in which sector?
A)Manufacturing
B)Infrastructure
C)Agriculture
D)Mining
Q2) China exports more services than India.
A)True
B)False
Q3) Some claim that China's trade surpluses are created by currency undervaluation.Is this true? Explain.
Q4) Openness and change in the economic models of India and China have meant for the world economy all of the following EXCEPT
A)hundreds of millions of people have escaped poverty.
B)many manufactured goods and services have become cheaper.
C)forced some firms to downsize, offshore or otherwise change business practices.
D)increased the market power of firms in industrialized countries as they gained most from this evolving trade.
Q5) Who was the leader of Chinese economic reforms?
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