Post on 29-Oct-2014
Question 1 1 out of 1 points
If a country's PX/PY in autarky is less than the PX/PY on the world market, as the country
moves to trade, the relative price of good Y will _____ for home consumers. Thus, consumers
with a strong relative preference for good _____ would tend to oppose the movement to trade.
Answer
Selected Answer: decrease; X
Correct Answer: decrease; X
Question 2 1 out of 1 points
If, for a consumer, MUA/PA is greater than MUB/PB, then the consumer
Answer
Selected Answer: has an incentive to consume relatively more A, which will decrease his/her
MUA.
Correct Answer: has an incentive to consume relatively more A, which will decrease his/her
MUA.
Question 3 1 out of 1 points
If skilled labor is physically more abundant relative to unskilled labor in country A than in
country B, yet skilled labor is relatively higher priced compared with unskilled labor in country
A than in country B, this phenomenon could be accounted for by
Answer
Selected Answer: demand reversal.
Correct Answer: demand reversal.
Question 4 1 out of 1 points
If two countries with increasing opportunity costs have identical PPFs but different tastes, the
countries will have
Answer
Selected Answer: different relative commodity prices under autarky, and each country can gain
by exporting the good for which its consumers have the lower relative preference.
Correct Answer: different relative commodity prices under autarky, and each country can gain
by exporting the good for which its consumers have the lower relative preference.
Question 5 0 out of 1 points
If country A is defined as relatively capital-abundant in relation to country B by the price (or
economic) definition of factor abundance, then the price of labor relative to the price of capital is
______ in country A than in country B, and the Heckscher-Ohlin theorem would suggest that
country A would export relatively ______- intensive goods to country B.
Answer
Selected Answer: higher; labor
Correct Answer: higher; capital
Question 6 1 out of 1 points
Which one of the following is NOT an assumption made in the Heckscher-Ohlin analysis?
Answer
Selected Answer: imperfect competition
Correct Answer: imperfect competition
Question 7 0 out of 1 points
A production isoquant shows the various combinations
Answer
Selected Answer: of exports that a country's firms are willing to produce at various terms of
trade.
Correct Answer: of two factors of production that can produce the same amount of output of a
good.
Question 8 1 out of 1 points
Which of the following does NOTcontribute to a basis for trade between two countries?
Answer
Selected Answer: different absolute factor endowments but the same relative endowments
Correct Answer: different absolute factor endowments but the same relative endowments
Question 9 1 out of 1 points
Two indifference curves for an individual consumer _____ intersect; two community
indifference curves for a country _____.
Answer
Selected Answer: cannot; can intersect under some circumstances
Correct Answer: cannot; can intersect under some circumstances
Question 10 1 out of 1 points
In the neoclassical model of trade, the movement of a country from autarky to free trade
generally results in _____ specialization in production, _____ the situation in the Classical
model.
Answer
Selected Answer: partial; unlike
Correct Answer: partial; unlike
Question 11 1 out of 1 points
Suppose that we are in a two-factor, two-country world where the factors of production are labor
(L) and land (T), the returns to the factors are the wage rate (w) and the rental rate on land (t),
and the countries are country A and country B. In this situation, country A is land-abundant
relative to country B by the physical definition of relative factor abundance if ______, and
country A is land-abundant relative to country B by the price (or economic) definition if ______.
Answer
Selected Answer: (L/T)A < (L/T)B; (w/t)A > (w/t)B
Correct Answer: (L/T)A < (L/T)B; (w/t)A > (w/t)B
Question 12 1 out of 1 points
If two countries have identical production-possibilities frontiers but different tastes, it is possible
for each country to gain from trade with the other country
Answer
Selected Answer: in the neoclassical model but not in the Classical model.
Correct Answer: in the neoclassical model but not in the Classical model.
Question 13 1 out of 1 points
Suppose that, in the context of the Edgeworth box diagram in production, there are constant
returns to scale in each of the two industries. One good is relatively labor-intensive in its
production process, and the other good is relatively capital-intensive in its production process. In
considering this Edgeworth box diagram and the PPF that can be derived from it,
Answer
Selected Answer: the PPF will show increasing opportunity costs.
Correct Answer: the PPF will show increasing opportunity costs.
Question 14 1 out of 1 points
An implication of the Heckscher-Ohlin theorem is that
Answer
Selected Answer: two countries with identical tastes can still have a basis for trade if factor
endowments of the countries differ and if factor intensities of the commodities differ.
Correct Answer: two countries with identical tastes can still have a basis for trade if factor
endowments of the countries differ and if factor intensities of the commodities differ.
Question 15 1 out of 1 points
If good A costs $10 per unit in country A and $12 per unit in country B, and if transport costs
between A and B for the good are $3 per unit, an economist would say that
Answer
Selected Answer: the good will be a nontraded good.
Correct Answer: the good will be a nontraded good.
Question 16 1 out of 1 points
The magnification effect refers to the fact that, when a country is opened to trade,
Answer
Selected Answer: the price of the abundant factor rises faster than does the price of the export
good.
Correct Answer: the price of the abundant factor rises faster than does the price of the export
good.
Question 17 1 out of 1 points
The Stolper-Samuelson theorem suggests that, when a country is opened to international trade,
the relative price of the country's abundant factor of production will ______, and the relative
price of the country's scarce factor of production will ______.
Answer
Selected Answer: rise; fall
Correct Answer: rise; fall
Question 18 1 out of 1 points
In the Edgeworth box diagram for production,
Answer
Selected Answer: a movement from autarky to trade can be associated with a movement along
the contract curve (or production efficiency locus).
Correct Answer: a movement from autarky to trade can be associated with a movement along
the contract curve (or production efficiency locus).
Question 19 1 out of 1 points
The equilibrium condition for producers (i.e., the condition that exists when the isocost line is
tangent to an isoquant) is
Answer
Selected Answer: (MPPL/MPPK) = (w/r).
Correct Answer: (MPPL/MPPK) = (w/r).
Question 20 1 out of 1 points
If relatively capital-abundant country A opens trade with relatively labor-abundant country B,
and if the trade takes place in accordance with the Heckscher-Ohlin theorem, what would be the
consequence for factor prices (w/r) in the two countries?
Answer
Selected Answer: (w/r) falls in A and rises in B
Correct Answer: (w/r) falls in A and rises in B
Question 21 1 out of 1 points
Suppose that a country's factors of production are completely specific to the industries in which
they are located (i.e., factors in the X industry would contribute nothing to Y output if they were
in the Y industry, and factors in the Y industry would contribute nothing to X output if they were
in the X industry). In addition, suppose that the country has an autarky PX/PY that is greater than
the world PX/PY. In this situation, if the country is opened to international trade, it will
Answer
Selected Answer: export good Y and will obtain gains from exchange (a consumption gain) but
not gains from specialization (a production gain).
Correct Answer: export good Y and will obtain gains from exchange (a consumption gain) but
not gains from specialization (a production gain).
Question 22 1 out of 1 points
If a country's PX/PY in autarky is less than the PX/PY on the world market, then this country
has a comparative advantage in the _____ good, and, if the country now engages in international
trade and moves along its production-possibilities frontier, its production of the X good will
_____.
Answer
Selected Answer: X; increase
Correct Answer: X; increase
Question 23 1 out of 1 points
The equilibrium condition for consumer behavior pertaining to goods A and B is
Answer
Selected Answer: (MUB/MUA) = (PB/PA).
Correct Answer: (MUB/MUA) = (PB/PA).
Question 24 0 out of 1 points
Ignoring the negative sign, the slope of a consumer indifference curve at any given point on the
curve reflects
Answer
Selected Answer: the marginal rate of technical substitution (MRTS) between the factors of
production.
Correct Answer: the marginal rate of substitution (MRS) of the consumer between the two
goods.
Question 25 1 out of 1 points
If a commodity is classified as labor-intensive at one set of relative factor prices but capital-
intensive at another set of relative factor prices, this situation is known as
Answer
Selected Answer: factor-intensity reversal.
Correct Answer: factor-intensity reversal.
Question 1 0 out of 1 points
If the demand for traded goods is price-inelastic, the price-specie-flow mechanism will result in
Answer
Selected Answer: gold movements between countries that remove trade deficits and surpluses.
Correct Answer: gold movements between countries that worsen trade deficits and surpluses.
Question 2 1 out of 1 points
Suppose that, in a Classical constant opportunity costs framework, country A can produce 15
units of wheat if it devotes all of its resources to wheat production and 45 units of clothing if it
devotes all of its resources to clothing production. In a trading situation for this country, if the
world price ratio is Pwheat/Pclothing = 1/3 (or Pclothing/Pwheat = 3), country A would
Answer
Selected Answer: export clothing and import wheat.
Correct Answer: export clothing and import wheat.
Question 3 0 out of 1 points
If a country's relative price of X (compared to Y) in autarky is greater than the same relative
prices on the world market, then the country has a comparative advantage in good ________, and
it will __________.
Answer
Selected Answer: X; export X and import Y
Correct Answer: Y; export Y and import X
Question 4 0 out of 1 points
In the Dornbusch-Fischer-Samuelson graph above, a uniform improvement in labor productivity
in all the home country's industries would shift the A schedule ____ and would lead to the export
of a ____ number of goods by the home country.
Answer
Selected Answer: upward; smaller
Correct Answer: upward; greater
Question 5 0 out of 1 points
In the Classical (Ricardian) analysis,
Answer
Selected Answer: if a country has a comparative advantage in a good, it cannot have an
absolute advantage in the good.
Correct Answer: a country can have a comparative advantage in a good at the same time that it
has an absolute advantage in that good.
Question 6 1 out of 1 points
During the price-specie-flow adjustment process to a trade imbalance, if demands for goods are
inelastic, then, when the price level _____ in the country with the trade deficit, the value of that
country's exports will _____ as the price-specie-flow process takes place.
Answer
Selected Answer: falls; decrease
Correct Answer: falls; decrease
Question 7 0 out of 1 points
Suppose that, with constant opportunity costs, Spain can produce 1,000 units of clothing if it
devotes all of its resources to clothing production and 5,000 units of wheat if it devotes all of its
resources to wheat production. If Spain is opened to trade at a world price ratio of 1 wheat:0.3
clothing, Spain will export _____; if the world price ratio is 1 wheat:5 clothing, Spain will
_____.
Answer
Selected Answer: clothing; also export clothing
Correct Answer: wheat; also export wheat
Question 8 0 out of 1 points
Which of the following policies would NOT be consistent with the Mercantilist balance-of-trade
doctrine?
Answer
Selected Answer: import duties on final products
Correct Answer: payment of high wages to labor
Question 9 0 out of 1 points
Suppose that, in a Classical model with two goods, Germany can produce 50 units of steel or 30
units of textiles with 1 day of labor, whereas Switzerland can produce 45 units of steel or 45
units of textiles with 1 day of labor. If the exchange rate is fixed at 1 Swiss franc = 1 euro and if
the Swiss wage rate is 10 francs per day, then, in trading equilibrium, German wages
Answer
Selected Answer: must be equal to 10 euros per day.
Correct Answer: can be above, below, or equal to 10 euros per day - the answer cannot be
determined without more information.
Question 10 0 out of 1 points
As a country moves from autarky to trade, the relative price of the country's import good will
_____ for home consumers, and the relative price of the country's export good _____ for home
consumers.
Answer
Selected Answer: fall; also will fall
Correct Answer: fall; will rise
Question 11 0 out of 1 points
In Adam Smith's view, international trade
Answer
Selected Answer: was based on absolute cost differences.
Correct Answer: all of the above
Question 12 0 out of 1 points
The following Classical-type table shows the number of days of labor input required to obtain
one unit of output of each of the three commodities in each of the two countries:
good T good X good Y
United Kingdom 4 days 5 days 3 days
United States 4 days 4 days 2 days
Based on the information provided in the table above, if the U.S. wage rate of $40 per day and
the exchange rate of £1 = $1, what is the upper limit to the wage rate in the United Kingdom that
is consistent with two-way trade between the countries?
Answer
Selected Answer: £32 per day
Correct Answer: £40 per day
Question 13 0 out of 1 points
The assumption of constant costs of production in the Classical model results in a _____
production-possibilities frontier and, in the case of a small country, ______ specialization in
production when trade takes place.
Answer
Selected Answer: concave-to-the-origin; complete
Correct Answer: linear; complete
Question 14 0 out of 1 points
In the Dornbusch-Fischer-Samuelson model depicted in the figure above, a shift in tastes and
preferences towards home country goods will cause the _____ schedule to pivot to the _____ and
relative wages in the foreign country to ______.
Answer
Selected Answer: C; right; rise
Correct Answer: C; left; fall
Question 15 1 out of 1 points
The paradox of Mercantilism reflected that fact that
Answer
Selected Answer: rich countries were comprised of large numbers of poor people.
Correct Answer: rich countries were comprised of large numbers of poor people.
Question 16 1 out of 1 points
The policy of minimum government interference in or regulation of economic activity,
advocated by Adam Smith and the Classical economists, was known as
Answer
Selected Answer: laissez-faire.
Correct Answer: laissez-faire.
Question 17 0 out of 1 points
According to the labor theory of value,
Answer
Selected Answer: the value of a good is determined by the amount of labor with which each
unit of capital in an industry works.
Correct Answer: the price of good A compared to the price of good B bears the same
relationship as the relative amounts of labor used in producing each good.
Question 18 0 out of 1 points
A Mercantilist policymaker would favor which of the following policies or events pertaining to
his/her country?
Answer
Selected Answer: a minimum wage bill to protect workers' standard of living
Correct Answer: an increase in the percentage of factors of production devoted to adding value
to imported raw materials in order to later export the resulting manufactured goods
Question 19 1 out of 1 points
In the Dornbusch-Fischer-Samuelson model above, a rise in labor productivity in the home
country would cause real national income to _____ in the home country and _____ in the foreign
country.
Answer
Selected Answer: increase; also to increase
Correct Answer: increase; also to increase
Question 20 0 out of 1 points
In the Mercantilist view of international trade (in a two-country world),
Answer
Selected Answer: both countries could gain from trade at the same time, and the terms of trade
would be of no consequence for the distribution of the gains.
Correct Answer: one country's gain from trade would be associated with a loss for the other
country.
Question 21 0 out of 1 points
In a Ricardo-type model, if Portugal can produce twice as much wine per day as England but
only 1.5 times as much cloth per day as England, then, if Portuguese wages are 30 euros per day,
the upper limit to English wages per day is _____. (Assume 1 euro = £1.)
Answer
Selected Answer: £45
Correct Answer: £20
Question 22 1 out of 1 points
If, in a two-commodity, two-country Classical world, Sweden can make a unit of furniture with
10 days of labor and a unit of steel with 15 days labor, whereas Germany can make a unit of
furniture with 12 days of labor and a unit of steel with 12 days labor, then
Answer
Selected Answer: the pretrade price ratios indicate that Germany will export steel.
Correct Answer: the pretrade price ratios indicate that Germany will export steel.
Question 23 1 out of 1 points
The price-specie-flow mechanism suggested that
Answer
Selected Answer: a surplus country would experience an increase in its money supply and its
price level.
Correct Answer: a surplus country would experience an increase in its money supply and its
price level.
Question 24 0 out of 1 points
In the price-specie-flow doctrine, a deficit country will _____ gold, and this gold flow will
ultimately lead to _____ in the deficit country's exports.
Answer
Selected Answer: lose; a decrease
Correct Answer: lose; an increase
Question 25 0 out of 1 points
The following Classical-type table shows the number of days of labor input required to obtain
one unit of output of each of the three commodities in each of the two countries:
good T good X good Y
United Kingdom 4 days 5 days 3 days
United States 4 days 4 days 2 days
Based on the information in the above table, suppose that the wage rate in the United Kingdom is
£30 per day, the wage rate in the United States is $40 per day, and the exchange rate is £1 = $1.
In this situation, the United Kingdom will _____.
Answer
Selected Answer: export good T and import goods X and Y
Correct Answer: export goods T and X and import good Y
Question 1 1 out of 1 points
Suppose that the nominal tariff rate on final good X is 8 percent and that the weighted average
of the nominal tariff rates on the inputs used in producing good X is 12 percent. In this situation,
the effective rate of protection (ERP) for final good industry X
Answer
Selected Answer: must be less than 8 percent and can be negative.
Correct Answer: must be less than 8 percent and can be negative.
Question 2 1 out of 1 points
Which one of the following could NOT theoretically be offered to help explain the Leontief
paradox?
Answer
Selected Answer: a relatively strong U.S. demand for relatively labor-intensive goods
Correct Answer: a relatively strong U.S. demand for relatively labor-intensive goods
Question 3 1 out of 1 points
Other things being equal, which one of the following will cause an increase in the effective rate
of protection (ERP) in the automobile industry?
Answer
Selected Answer: a decrease in the nominal tariff rates on imported inputs used in making
automobiles
Correct Answer: a decrease in the nominal tariff rates on imported inputs used in making
automobiles
Question 4 1 out of 1 points
Since about 1970, in both developed and developing countries, the ratio of trade to GDP has
_____; over the same time period, in the United States and the European Union, the ratio of
imports from developing countries to total imports _____.
Answer
Selected Answer: increased; also has increased
Correct Answer: increased; also has increased
Question 5 1 out of 1 points
Which one of the following is NOT an example of making a trade instrument more restrictive
against imports, other things being equal?
Answer
Selected Answer: a shifting of an import good from an administrative classification category
with a high tariff to an administrative classification category with a low tariff
Correct Answer: a shifting of an import good from an administrative classification category
with a high tariff to an administrative classification category with a low tariff
Question 6 1 out of 1 points
If the Heckscher-Ohlin theorem is valid in practice (and assuming that capital and labor are
treated as the only two factors in the real world), then the Leontief statistic for a labor-abundant
country would be
Answer
Selected Answer: greater than 1.0.
Correct Answer: greater than 1.0.
Question 7 1 out of 1 points
If relatively labor-abundant country A has a Leontief statistic greater than 1.0 and relatively
capital-abundant country B has a Leontief statistic less than 1.0, this suggests that
Answer
Selected Answer: both countries are conforming to the prediction of the Heckscher-Ohlin
theorem.
Correct Answer: both countries are conforming to the prediction of the Heckscher-Ohlin
theorem.
Question 8 0 out of 1 points
Suppose that the offshore assembly provisions (OAP) of country A are extended to final good X
that is imported as well as produced domestically. This action will most likely
Answer
Selected Answer: stimulate production in country A of final good X.
Correct Answer: stimulate production in country A of components to final good X.
Question 9 1 out of 1 points
In the large-country case, an export tax
Answer
Selected Answer: leads to an increase in price in the importing country.
Correct Answer: leads to an increase in price in the importing country.
Question 10 1 out of 1 points
If the U.S. trade pattern is as indicated by the Leontief test, this would suggest that participation
in trade rather than in autarky by the United States has _____ the real return to U.S. capital and
_____ the real wage of U.S. labor.
Answer
Selected Answer: decreased; has increased
Correct Answer: decreased; has increased
Question 11 1 out of 1 points
The situation in the United States (and other developed countries) whereby an import good faces
a lower tariff if the good comes from a developing country than if the good comes from a
developed country is known as
Answer
Selected Answer: GSP treatment.
Correct Answer: GSP treatment.
Question 12 1 out of 1 points
The imposition of an export tax by a home country will lead to _____ in home country
consumer surplus and will _____ in home country producer surplus.
Answer
Selected Answer: an increase; lead to a decrease
Correct Answer: an increase; lead to a decrease
Question 13 0 out of 1 points
In the case of nonhomogeneous goods, the imposition of an import tariff
Answer
Selected Answer: produces a transfer from consumers to producers in the domestic market.
Correct Answer: taxes the domestic product as well as the import product.
Question 14 1 out of 1 points
In the general equilibrium graph with a production-possibilities frontier (PPF) and consumer
indifference curves,
Answer
Selected Answer: a tariff reduces both real income and the gains from exchange.
Correct Answer: a tariff reduces both real income and the gains from exchange.
Question 15 0 out of 1 points
Suppose that a country's unweighted-average (nominal) tariff rate (call it tU) and weighted-
average (nominal) tariff rate (call it tW) are calculated both with and without the inclusion of
prohibitive tariffs, and that the country does in fact have some prohibitive tariffs. In this
situation, the tU that includes the prohibitive tariffs _____ the same as the tU that excludes the
prohibitive tariffs, and the tW that includes the prohibitive tariffs _____ the same as the tW that
excludes the prohibitive tariffs.
Answer
Selected Answer: would not be; would be
Correct Answer: would be; would not be
Question 16 1 out of 1 points
If increased Heckscher-Ohlin-type trade were the major factor leading to increased income
inequality in the United States, then one would expect that the relative prices of skilled labor-
intensive goods to unskilled labor-intensive goods would have _____ and that nontraded goods
industries would have _____ their use of unskilled labor relative to skilled labor.
Answer
Selected Answer: risen; increased
Correct Answer: risen; increased
Question 17 1 out of 1 points
An import quota specifies the _____ amount of a good that can be imported into a country; a
step to becoming more protectionist would involve _____ in the quota.
Answer
Selected Answer: maximum; a reduction
Correct Answer: maximum; a reduction
Question 18 1 out of 1 points
If the capital/labor ratio in import-competing industries in country A is $8,000 per worker and
the capital/labor ratio in A's export industries is $4,000 per worker, then country A's Leontief
statistic is
Answer
Selected Answer: 2.00.
Correct Answer: 2.00.
Question 19 1 out of 1 points
In the production process of a final good industry, the direct factor requirements per unit of
output will be _____ the total factor requirements per unit of output; if the industry is relatively
capital-intensive when classified by direct requirements, it _____ be relatively capital-intensive
when classified by total requirements.
Answer
Selected Answer: less than; may not necessarily
Correct Answer: less than; may not necessarily
Question 20 0 out of 1 points
In the United States, in approximately the last 2-3 decades, the supply of highly skilled (HS)
labor relative to less highly skilled (LS) labor has been rising. At the same time, the ratio of HS
labor wages relative to LS labor wages has been _____; therefore, the demand for HS labor
relative to LS labor must have been increasing _____ than the supply of HS labor relative to LS
labor.
Answer
Selected Answer: falling; less rapidly
Correct Answer: rising; more rapidly
Question 21 1 out of 1 points
Which of the following is NOT an example of a nontariff barrier to the free flow of goods and
services in accordance with comparative advantage?
Answer
Selected Answer: specific duty of $1.00 per unit on each imported item
Correct Answer: specific duty of $1.00 per unit on each imported item
Question 22 1 out of 1 points
The United States now gives China permanent most-favored-nation (MFN) treatment [or normal
trade relations (NTR)]. This means that the tariff schedules applicable to U.S. imports from
China
Answer
Selected Answer: have the same tariff rates as the rates applicable to other countries to which
the United States grants MFN treatment.
Correct Answer: have the same tariff rates as the rates applicable to other countries to which
the United States grants MFN treatment.
Question 23 1 out of 1 points
Suppose that, in a real-world situation, a labor-abundant country's tariffs and nontariff barriers
are levied relatively more heavily on labor-intensive goods than on capital-intensive goods. In
this situation, a Leontief two-factor test would, other things being equal, be _____ the country's
adherence to the Heckscher-Ohlin trade pattern, compared with a situation in which trade
barriers were absent.
Answer
Selected Answer: biased toward confirming
Correct Answer: biased toward confirming
Question 24 1 out of 1 points
If demand reversal is the explanation for the Leontief paradox, this would imply that the demand
by the United States for labor-intensive goods is relatively _____; therefore, U.S. wages would
be relatively _____ compared to wages in U.S. trading partners.
Answer
Selected Answer: low; low
Correct Answer: low; low
Question 25 1 out of 1 points
In the large-country case, the imposition of an import quota
Answer
Selected Answer: can result in a net gain for the importing country if the government employs
an auction quota system to allocate the restricted imports.
Correct Answer: can result in a net gain for the importing country if the government employs
an auction quota system to allocate the restricted imports.
Question 1 0 out of 1 points
The Krugman economies-of-scale strategic trade policy model stresses that protection given to a
home firm will, other things being equal, _____ the marginal cost of producing each level of
home output and will _____ the marginal cost of producing each level of foreign output.
Answer
Selected Answer: decrease; also decrease
Correct Answer: decrease; increase
Question 2 1 out of 1 points
In the Uruguay Round of trade negotiations, the talks originally broke down in 1990 primarily
because of the strong disagreement between the United States and the European Community
with respect to
Answer
Selected Answer: subsidies and protection in agriculture.
Correct Answer: subsidies and protection in agriculture.
Question 3 1 out of 1 points
The use of a bilateral, item-by-item approach best characterizes which period of trade
negotiations?
Answer
Selected Answer: Reciprocal Trade Agreement negotiations
Correct Answer: Reciprocal Trade Agreement negotiations
Question 4 1 out of 1 points
In late 2003, the Bush administration unilaterally placed temporary import quotas on several
textile items imported from
Answer
Selected Answer: China.
Correct Answer: China.
Question 5 1 out of 1 points
The general policy rule that states that the appropriate policies for alleviating a problem are
those policies aimed directly at the source of the problem is called
Answer
Selected Answer: the specificity principle.
Correct Answer: the specificity principle.
Question 6 1 out of 1 points
Recent investigations of the political economy of trade policy have revealed that
Answer
Selected Answer: industries that would incur relatively large labor adjustment costs appear to
be relatively heavily protected.
Correct Answer: industries that would incur relatively large labor adjustment costs appear to be
relatively heavily protected.
Question 7 1 out of 1 points
The existence of which type of dumping most likely constitutes the weakest argument for the
imposition of an antidumping duty?
Answer
Selected Answer: persistent dumping
Correct Answer: persistent dumping
Question 8 1 out of 1 points
Which of the following is generally thought to have established the highest tariffs in U.S.
history?
Answer
Selected Answer: Tariff Act of 1930 (Smoot-Hawley Tariff)
Correct Answer: Tariff Act of 1930 (Smoot-Hawley Tariff)
Question 9 1 out of 1 points
A tariff placed upon a product in order to offset a foreign export subsidy is called
Answer
Selected Answer: a countervailing duty.
Correct Answer: a countervailing duty.
Question 10 1 out of 1 points
The optimum tariff rate for a country is that rate which, assuming no retaliation,
Answer
Selected Answer: maximizes the country's welfare.
Correct Answer: maximizes the country's welfare.
Question 11 0 out of 1 points
An early significant agreement in the negotiations of the Doha Development Agenda that is of
importance to developing countries occurred in
Answer
Selected Answer: antidumping provisions.
Correct Answer: pharmaceuticals pricing.
Question 12 0 out of 1 points
The World Trade Organization
Answer
Selected Answer: requires its member countries to eliminate all barriers to imports.
Correct Answer: is charged with implementing the agreements reached in the Uruguay Round
of trade negotiations.
Question 13 0 out of 1 points
The concept of results-based trade policy is
Answer
Selected Answer: consistent with GATT codes and guidelines.
Correct Answer: embodied in the new reciprocity approach to policy.
Question 14 1 out of 1 points
The first U.S. legislation to authorize adjustment assistance for workers displaced by tariff
reductions was the
Answer
Selected Answer: Trade Expansion Act of 1962.
Correct Answer: Trade Expansion Act of 1962.
Question 15 1 out of 1 points
The macroeconomic interpretation of a trade deficit for a country utilizes which one of the
following expressions (where Y = national income, C = consumption, I = investment, G =
government spending on goods and services, X = exports, and M = imports)?
Answer
Selected Answer: Y - (C + I + G) = (X - M)
Correct Answer: Y - (C + I + G) = (X - M)
Question 16 1 out of 1 points
It is not uncommon to find a voting industry minority able to put in place trade policies that
benefit them at the expense of the majority because
Answer
Selected Answer: perceived consumer benefits are less than the cost of voting, leading to
consumer absenteeism at the polls.
Correct Answer: perceived consumer benefits are less than the cost of voting, leading to
consumer absenteeism at the polls.
Question 17 0 out of 1 points
In the case of economists' definition of dumping, an exporting firm is selling its product at a
_____ price in the importing country than in the exporter's home country, and this suggests that
demand for the exporter's product is _____ in the exporting country than in the importing
country.
Answer
Selected Answer: higher; less elastic
Correct Answer: lower; less elastic
Question 18 1 out of 1 points
The argument that a tariff can provide temporary protection to an industry so that the industry
can expand, realize economies of scale, and eventually become an export industry is known as
the
Answer
Selected Answer: infant industry argument.
Correct Answer: infant industry argument.
Question 19 1 out of 1 points
If tariffs are used in an attempt to improve country A's balance of trade, and if exchange rates
are flexible, the imposition of the tariffs will cause _____ in the value of A's currency relative to
other currencies and, as a consequence, A's exports will _____.
Answer
Selected Answer: an increase; decrease
Correct Answer: an increase; decrease
Question 20 1 out of 1 points
In a two-country world, the terms-of-trade impact of a tariff will definitely improve the welfare
of the tariff-imposing country (assuming no retaliation) if the tariff-imposing country
Answer
Selected Answer: is situated in the inelastic portion of its trading partner's offer curve.
Correct Answer: is situated in the inelastic portion of its trading partner's offer curve.
Question 21 1 out of 1 points
Suppose that a country's producer subsidy equivalent (PSE) in agriculture is positive and the
country's consumer subsidy equivalent (CSE) for agricultural goods is negative. This situation
suggests that existing policies are working to _____ farmers and _____ consumers of farm
goods.
Answer
Selected Answer: subsidize; to tax
Correct Answer: subsidize; to tax
Question 22 0 out of 1 points
The graph above shows the demand and marginal revenue curves facing a foreign monopoly
supplier of a good to the home country, as well as the firm's horizontal marginal cost curve when
there is no tariff by the home country (MC) and the marginal cost curve when a specific tariff is
imposed by the home country (MC + T). Assume that average cost (AC) equals marginal cost. In
this situation, the price to home country consumers after the tariff has been imposed is
____________ .
Answer
Selected Answer: $14
Correct Answer: $27
Question 23 1 out of 1 points
Small groups may gain at the expense of the majority when
Answer
Selected Answer: all of the above
Correct Answer: all of the above
Question 24 1 out of 1 points
The macroeconomic view of a trade deficit implies that, other things being equal, the imposition
of a tariff will reduce the country's trade deficit
Answer
Selected Answer: only if the tariff leads to increased income in the country relative to the
country's spending.
Correct Answer: only if the tariff leads to increased income in the country relative to the
country's spending.
Question 25 1 out of 1 points
The successful Uruguay Round of trade negotiations transformed the then-existing sponsoring
agency into the _____, which began operation in _____.
Answer
Selected Answer: WTO; 1995
Correct Answer: WTO; 1995
Question 1 1 out of 1 points
If a PPP estimate of the dollar/pound exchange rate is $1.61/£ and the current spot rate is
observed to be $1.68/£, you should, viewing the long run,
Answer
Selected Answer: expect the dollar to appreciate against the pound.
Correct Answer: expect the dollar to appreciate against the pound.
Question 2 0 out of 1 points
Suppose that a speculator notes that the current 3-months forward rate on the euro is $1.26. The
speculator expects that, in 3 months, the euro will have a value of $1.30. In this situation, the
speculator would _____ euros on the forward market, and this activity _____ for the speculator.
Answer
Selected Answer: sell; involves risk
Correct Answer: buy; involves risk
Question 3 1 out of 1 points
In a setting of flexible exchange rates, suppose that the U.S. citizens decrease their import
purchases from the United Kingdom at the same time that British citizens increase their
purchases of stocks and bonds from the United States. The first action (the U.S. imports) by itself
would lead to _____ of the dollar against the pound; the second action by itself would _____ of
the dollar against the pound.
Answer
Selected Answer: an appreciation; also lead to an appreciation
Correct Answer: an appreciation; also lead to an appreciation
Question 4 1 out of 1 points
If the equilibrium value of the pound is $1.60 in time period 1, but U.K. prices double between
time periods 1 and 2 while U.S. prices rise by 60 percent, then the (relative) purchasing-power-
parity theory would say that the equilibrium value of the pound in time period 2 is
Answer
Selected Answer: $1.28.
Correct Answer: $1.28.
Question 5 0 out of 1 points
If a speculator observes that the current 3-months forward rate on Swiss francs is 20¢ = 1 franc,
but he/she expects that the spot rate in 3 months will be 30¢ = 1 franc, then this speculator would
now
Answer
Selected Answer: sell francs on the forward market.
Correct Answer: buy francs on the forward market.
Question 6 0 out of 1 points
In general, other things being equal, trade creation is more likely to outweigh trade diversion for
a home country forming a customs union with partner countries (i) if the total number of
countries forming the union is _____, and (ii) if the level of tariffs in the home country prior to
the formation of the union is _____.
Answer
Selected Answer: small rather than large; low rather than high
Correct Answer: large rather than small; high rather than low
Question 7 1 out of 1 points
The Big Mac Index
Answer
Selected Answer: is an absolute PPP index of the international value of the U.S. dollar based
on a single commodity.
Correct Answer: is an absolute PPP index of the international value of the U.S. dollar based on
a single commodity.
Question 8 1 out of 1 points
Suppose that Mexico trades only with Germany and the United States. Additionally, suppose
that in 1995 the spot rates were 0.2 euro = 1 peso and $0.10 = 1 peso, and that in 2005 the spot
rates were 0.15 euro = 1 peso and $0.12 = 1 peso. If Mexico's trade is 20 percent with Germany
and 80 percent with the United States, calculation of the effective exchange rate for Mexico
indicates that the peso
Answer
Selected Answer: appreciated from 1995 to 2005.
Correct Answer: appreciated from 1995 to 2005.
Question 9 0 out of 1 points
In the graph below pertaining to good X for country A (where DA is the demand for X by A's
consumers, SA is the supply curve of X from A's home producers, SB is the horizontal supply
curve of X to country A from country B, SC is the horizontal supply curve of X to country A
from country C, and S'B and S'C are the horizontal supply curves from B and C, respectively,
with a tariff in place), suppose that country A, from this initial situation, now forms a customs
union with country C.
If country A formed a customs union with country C rather than with country B, imports of good
X into country A would be the amount _____.
Answer
Selected Answer: Q3Q4
Correct Answer: Q1Q6
Question 10 0 out of 1 points
If Japan invests overseas because of its high saving rate (in excess of domestic investment
spending), then this investment can cause_____ of the Japanese yen and, thus, a consequent trade
_____ for Japan.
Answer
Selected Answer: a depreciation; deficit
Correct Answer: a depreciation; surplus
Question 11 1 out of 1 points
In which of the following relationships between the expected future spot rate (E[e]) of a foreign
currency and the current forward rate (efwd) of a foreign currency would a speculator have an
incentive to sell foreign currency in the forward market?
Answer
Selected Answer: E(e) < efwd
Correct Answer: E(e) < efwd
Question 12 1 out of 1 points
The graph below pertains to good X for country A, where DA is the demand for X by A's
consumers, SA is the supply curve of X from A's home producers, SB is the horizontal supply
curve of X to country A from country B, SC is the horizontal supply curve of X to country A
from country C, and S'B and S'C are the horizontal supply curves from B and C, respectively,
with a tariff in place.
With the tariffs in place for both countries B and C, imports of good X into country A are
represented by distance
Answer
Selected Answer: Q3Q4
Correct Answer: Q3Q4
Question 13 1 out of 1 points
A simultaneous increase in U.S. demand for German products and decrease in the desire of
German investors to send funds to the United States would, under a flexible exchange rate
system and with other things being equal, lead to _____ of the U.S. dollar against the euro and to
_____ of the euro against the dollar.
Answer
Selected Answer: a depreciation; an appreciation
Correct Answer: a depreciation; an appreciation
Question 14 1 out of 1 points
A given exchange rate will be more or less the same in all of the world's financial markets
because of
Answer
Selected Answer: currency arbitrage.
Correct Answer: currency arbitrage.
Question 15 0 out of 1 points
An exporter who is to receive payment in foreign currency in 3 months and who wants to
engage in hedging would _____ the foreign currency on the 3-months forward market in order to
protect himself/herself from _____ of the foreign currency.
Answer
Selected Answer: buy; a depreciation
Correct Answer: sell; a depreciation
Question 16 0 out of 1 points
If good X from country C faces a 10 percent tariff in country A and a 20 percent tariff in country
B, but if A and B have free trade between each other, then A and B are part of which type of
grouping?
Answer
Selected Answer: economic union
Correct Answer: free-trade area
Question 17 0 out of 1 points
In considering trade creation and trade diversion in the formation of a customs union between
countries and whether membership in the customs union enhances welfare in a home country,
two general rules are that the customs union is more likely to enhance welfare, other things being
equal, (i) if the union contains a _____ number of countries and (ii) if costs of production in the
partner countries in the case of trade diversion differ _____ from costs of production in the
outside world (the nonmember countries).
Answer
Selected Answer: small rather than large; greatly
Correct Answer: large rather than small; only slightly
Question 18 0 out of 1 points
Other things being equal, if exchange rates are flexible, and if U.S. consumers increase their
demand for Japanese goods at the same time that Japanese consumers increase their demand for
U.S. goods, then we would expect the dollar to
Answer
Selected Answer: remain unchanged in value relative to the yen.
Correct Answer: The answer is impossible to determine without more information.
Question 19 0 out of 1 points
The graph below pertains to good X for country A, where DA is the demand for X by A's
consumers, SA is the supply curve of X from A's home producers, SB is the horizontal supply
curve of X to country A from country B, SC is the horizontal supply curve of X to country A
from country C, and S'B and S'C are the horizontal supply curves from B and C, respectively,
with a tariff in place.
Suppose that, from the initial situation where country A's tariff was applied to both countries B
and C, country A now forms a customs union with country B. With this customs union in place,
imports into country A are represented by distance _____.
Answer
Selected Answer: Q3Q4, all of which constitute trade diversion from the noncustoms union
country.
Correct Answer: Q2Q5, only part of which constitute trade diversion from the noncustoms
union country.
Question 20 1 out of 1 points
In the graph below pertaining to good X for country A (where DA is the demand for X by A's
consumers, SA is the supply curve of X from A's home producers, SB is the horizontal supply
curve of X to country A from country B, SC is the horizontal supply curve of X to country A
from country C, and S'B and S'C are the horizontal supply curves from B and C, respectively,
with a tariff in place), suppose that country A, from this initial situation, now forms a customs
union with country B.
The net welfare effect on country A from the formation of the customs union with country B is
_____.
Answer
Selected Answer: areas (a + c) minus area f
Correct Answer: areas (a + c) minus area f
Question 21 1 out of 1 points
Which of the following is considered a positive dynamic effect of integration?
Answer
Selected Answer: economies-of-scale effects
Correct Answer: economies-of-scale effects
Question 22 1 out of 1 points
If U.K. interest rates are higher than Japanese interest rates, then the theory of covered interest
arbitrage would suggest that, in the £/yen exchange markets, the yen would be at a forward
_____ and the pound would _____.
Answer
Selected Answer: premium; be at a forward discount
Correct Answer: premium; be at a forward discount
Question 23 1 out of 1 points
If two countries remove all tariffs on each other's products and establish a common set of tariffs
against the rest of the world, but they take no further steps toward economic integration, these
two countries have formed
Answer
Selected Answer: a customs union.
Correct Answer: a customs union.
Question 24 1 out of 1 points
If country A forms a customs union with country B, then
Answer
Selected Answer: countries A and B may especially benefit from the union if substantial
economies of scale exist in some of the A and B industries.
Correct Answer: countries A and B may especially benefit from the union if substantial
economies of scale exist in some of the A and B industries.
Question 25 0 out of 1 points
In a production-possibilities/indifference curve diagram depicting the movement of a country
from a situation of a uniform tariff against all trading partners to a situation of a customs union
with one trading partner,
Answer
Selected Answer: home production of the country's export good will increase and home
production of the country's import good will also increase after the formation of the customs
union.
Correct Answer: home production of the country's export good will increase, and home
production of the country's import good will decrease after the formation of the customs union.
Question 1 1 out of 1 points
In Europe's Economic and Monetary Union (EMU), the member countries
Answer
Selected Answer: use a common currency (the euro).
Correct Answer: use a common currency (the euro).
Question 2 1 out of 1 points
The optimal size of international reserves occurs for a country at the point where the
Answer
Selected Answer: marginal benefit of holding the reserves equals the marginal cost of holding
the reserves.
Correct Answer: marginal benefit of holding the reserves equals the marginal cost of holding
the reserves.
Question 3 0 out of 1 points
The view that inflation in a country can lead to depreciation of the country's currency and, in
turn, further inflation is known as
Answer
Selected Answer: the purchasing power-parity-problem.
Correct Answer: the vicious circle hypothesis.
Question 4 0 out of 1 points
According to the theory of optimum currency areas, a country would be a good candidate for
membership in such an area if it had a _____ degree of factor mobility with other potential
member countries of the currency area and if the country were a relatively _____ economy.
Answer
Selected Answer: low; open
Correct Answer: high; open
Question 5 1 out of 1 points
The post-Bretton Woods international monetary system is generally thought to have been
characterized by all except which of the following features?
Answer
Selected Answer: Real exchange rates have been relatively constant during the period, and so
the system's existence, per se, has not had real economic effects.
Correct Answer: Real exchange rates have been relatively constant during the period, and so
the system's existence, per se, has not had real economic effects.
Question 6 1 out of 1 points
Other things being equal, a domestic monetary or financial shock (a shift in the LM curve) tends
to produce what relative degree of GDP change for the home country under a situation of flexible
exchange rates compared to a situation of fixed exchange rates?
Answer
Selected Answer: larger change with flexible rates
Correct Answer: larger change with flexible rates
Question 7 0 out of 1 points
Proponents of fixed exchange rates would find the most support for their position in which of
the following empirical results regarding the relationship between exchange rate variations and
the volume of international trade? (Assume that the empirical tests adequately account for other
factors that influence the trade volume.)
Answer
Selected Answer: no discernible relationship between exchange rate variations and the volume
of trade
Correct Answer: a negative relationship between exchange rate variations and the volume of
trade
Question 8 0 out of 1 points
A major advantage of the system of flexible exchange rates (as opposed to fixed exchange rates)
is commonly thought to be
Answer
Selected Answer: the strong possibility that the greater exchange rate risk under flexible rates
will increase the volume of international trade.
Correct Answer: the enhanced effectiveness of monetary policy in influencing national income
under flexible exchange rates.
Question 9 0 out of 1 points
If a country's currency's external value is tied or pegged to the currency values of the country's
leading trading partners, this arrangement is known as a
Answer
Selected Answer: managed float.
Correct Answer: peg against a "basket" of currencies, or a composite.
Question 10 0 out of 1 points
Two of the convergence criteria pertaining to initial membership in the EMU were that a
country's ratio of government debt to GDP must be _____ and that a country's ratio of
government budget deficit to GDP must _____.
Answer
Selected Answer: 3 percent or less; be 60 percent or less
Correct Answer: 60 percent or less; be 3 percent or less
Question 11 0 out of 1 points
In its lending to member countries, the International Monetary Fund (IMF)
Answer
Selected Answer: lends whatever amounts member countries may wish to borrow at a zero
interest rate and with no service charge on all loans.
Correct Answer: may increase the difficulty of obtaining loans and may insist on internal
policy changes by borrowing countries as the borrowers ask for additional loans.
Question 12 0 out of 1 points
In comparing the size of central bank reserves relative to world imports in the 1960-1972 (and
relatively fixed exchange rate) period with the same ratio from 1973 onward (a relatively flexible
exchange rate period), the ratio has been _____ in the more recent period. This result _____
consistent with the theoretical expectation of economists.
Answer
Selected Answer: larger; is not
Correct Answer: smaller; is
Question 13 1 out of 1 points
In theory, business cycles are _____ likely to be transmitted from one country to another under a
system of fixed exchange rates than under a system of flexible exchange rates. Economists also
generally accept that, theoretically monetary policy is _____ useful for dampening business
cycle activity under a system of fixed exchange rates than under a system of flexible exchange
rates.
Answer
Selected Answer: more; less
Correct Answer: more; less
Question 14 1 out of 1 points
Under the Bretton Woods system (which was set up at the end of World War II), exchange rates
were
Answer
Selected Answer: permitted to vary 1 percent above or below parity.
Correct Answer: permitted to vary 1 percent above or below parity.
Question 15 0 out of 1 points
In the Bretton Woods international monetary system, a country's currency, unless its par value
or parity value were officially changed, could not deviate more than _____ from its par value or
parity value. If the country's currency depreciated to its low point in this range, central banks
needed to _____ the currency in the exchange markets in order to keep the currency's value
within the specified range.
Answer
Selected Answer: plus or minus 1 percent; sell
Correct Answer: plus or minus 1 percent; buy
Question 16 0 out of 1 points
If a country's BP curve is flatter than its LM curve, then an external financial shock of a rise in
interest rates abroad would, under flexible exchange rates, lead to _____ in the home country's
national income. If exchange rates were fixed, this external financial shock would _____ in the
home country's national income.
Answer
Selected Answer: an increase; also lead to an increase
Correct Answer: an increase; lead to a decrease
Question 17 0 out of 1 points
In the current exchange rate arrangements of IMF members,
Answer
Selected Answer: the European Union countries fix their exchange rates against the U.S.
dollar.
Correct Answer: a substantial number of countries do not have a freely floating exchange rate.
Question 18 0 out of 1 points
Suppose that, using a system of multiple exchange rates, India wishes to discourage investors
from sending their funds overseas relative to employing the funds in production for export. If the
exchange rate for exports were set at 33 Indian rupees = $1.00, then which of the following
exchange rates for capital transactions potentially would be appropriate for implementing the
strategy?
Answer
Selected Answer: 1 Indian rupee = $0.03
Correct Answer: 1 Indian rupee = $0.02
Question 19 0 out of 1 points
If virtually all speculators buy a currency just before what would be the cyclical low point in the
currency's value without speculative activity, this speculation is likely to be _____ with respect
to its impact on the cycle's amplitude; if the speculators sell the currency just before what would
otherwise be the high values of the currency during its fluctuations, this speculation is _____ in
its impact.
Answer
Selected Answer: destabilizing; likely to be stabilizing
Correct Answer: stabilizing; also likely to be stabilizing
Question 20 0 out of 1 points
If a country adopts a currency board arrangement, a result is that the country's money supply
_____ be increased through the purchase of domestic assets from the country's citizens by the
country's central bank; in this arrangement, the country's money supply _____ be increased
through the purchase of foreign assets from the country's citizens by the country's central bank.
Answer
Selected Answer: can; cannot
Correct Answer: cannot; can
Question 21 1 out of 1 points
If a country has a currency board arrangement (with a 100-percent reserve system) in place, then
the country's money supply can be increased by a _____ by the country's central bank.
Answer
Selected Answer: purchase of foreign (external) assets from domestic citizens
Correct Answer: purchase of foreign (external) assets from domestic citizens
Question 22 0 out of 1 points
The IS/LM/BP analysis suggests that an external real sector shock, such as a rise in national
income abroad will cause, under fixed exchange rates, a _____ shift in a home country's BP
curve (assuming that short-term financial capital is not perfectly mobile), a _____ in the home
country's balance of payments, and _____ in the home country's national income.
Answer
Selected Answer: rightward; deficit; a decrease
Correct Answer: rightward; surplus; an increase
Question 23 0 out of 1 points
The Asian crisis of 1997-1998 involved movement of short-term financial capital _____
countries such as Thailand and Malaysia, with a consequent _____ of their currencies, which in
turn caused _____ in the trade balances of other countries of the world.
Answer
Selected Answer: out of; appreciation; a deterioration
Correct Answer: out of; depreciation; a deterioration
Question 24 0 out of 1 points
Under the Bretton Woods agreement,
Answer
Selected Answer: gold was demonetized as an international reserve asset.
Correct Answer: a country joining the IMF was assigned a quota to be paid in gold and the
country's own currency.
Question 25 0 out of 1 points
In the current international monetary system, countries
Answer
Selected Answer: must adopt floating exchange rates.
Correct Answer: have considerable latitude in choosing an exchange rate arrangement.