Professional Documents
Culture Documents
Hagen Krmer
Faculty for Management Sciences
and Engineering
International Economics
Content
Chapter 1
Introduction - The Global Economy
1-1
6) According to the text, which of the following would NOT be a reason to convince economists
that the benefits of trade outweigh the costs?
A) The casual empirical evidence of historical experience
B) The evidence of statistical comparisons of countries
C) Trade benefits consumers in terms of lower prices and increased variety of goods.
D) Trade makes possible increased innovation, access to new technology, and economies of
scale.
E) The associated costs are minor and negligible.
1) Capital flows between countries are smaller than in past decades in absolute terms.
2) Since the end of World War II, world trade has grown much faster than world output.
3) Multilateral international organizations help resolve disputes but they may also reduce
national sovereignty.
4) Most economists support open trade because it increase our choices as consumers, lowers
costs for producers, increases competition and innovation, and leads to greater diffusion of
technological change.
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Chapter 2
International Economic Institutions snce World War II
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Chapter 3
Comparative Advantage and Gains from Trade
1) Based on Table 3.1, the opportunity cost of a pair of shoes in the United States is
A) three computers.
B) two computers.
C) one computer.
D) one-half computer.
E) None of the above.
2) 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.
3) Based on Table 3.1, trade between the United States and Mexico will occur as long as the
relative price of shoes is between
A) three computers and one computer.
B) three computers and two computers.
C) one-half computer and one-third computer.
D) six computers and three computers.
E) None of the above.
4) The economic philosophy that favors strict limits on imports and strong support for exports is
called
A) zero sum.
B) autarky.
C) mercantilism.
D) comparative advantage.
E) absolute advantage.
5) If a nation has no absolute advantage, then it
A) cannot gain from trade.
B) still gains from trade.
C) can only gain from trade if it raises its productivity levels.
D) can only gain from trade if it reduces wages paid.
E) can only gain from trade if it produces outside its production possibilities curve.
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Chapter 4
Comparative Advantage and Factor Endowments
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4-2
9) 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 StolperSamuelson Theorem, the incomes of the owners of __________ are likely to rise in Brazil after
trade with Chile begins.
A) capital
B) labor
C) natural resources
D) It is impossible to determine which will be favored.
10) Which of the following would NOT be associated with the LATE PHASE of the product
cycle?
A) Consumption in high income countries begins to exceed production.
B) Increasing share of output is moving to developing countries where abundant low skilled and
semi-skilled labor keep production costs low.
C) Consumption continues to grow in low income countries.
D) There is experimentation and improvement in design and manufacturing.
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Chapter 5
Beyond Comparative Advantage
2) Which of the following is NOT true about the Grubel-Lloyd (GL) index given by the
Xi - Mi
?
equation: GLi = 1 i i
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2) Interindustry trade is not based on comparative advantage since it consists of the export and
import of similar countries and mostly between countries that have similar productivity,
technology, and factor endowments.
4) Intraindustry trade can lead to lower prices and job creation in both the exporting and the
importing nation.
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_____________________________________________________________________________
2) If the United States and Canada trade hydro-powered electricity for Hollywood films, what
type of trade does this represent?
_____________________________________________________________________________
3) If the United States and Mexico trade Budweiser for Modelo beer, what type of trade does this
represent?
_____________________________________________________________________________
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Chapter 9
Trade and the Balance of Payments
1) If the residents of a country receive income from their foreign investments, it is counted as a
A) credit in the current account.
B) debit in the current account.
C) credit in the capital account.
D) debit in the capital account.
E) debit in either the capital or current account, depending on the type of investment income.
2) Which of the following is NOT part of the current account?
A) Dividends received on a foreign investment
B) Purchase of a plane ticket on a foreign airline
C) Shipment of food aid to a poor country
D) Purchase of a foreign bond
E) All of the above.
3) If a country runs a current account surplus and national private savings equals domestic
investment, then the combined governmental accounts
A) must be balanced.
B) must be positive.
C) must be negative.
D) could be either negative or positive, depending on the capital account.
E) could be either negative or positive, depending on the net international investment position.
4) If all government budgets are balanced, and S is greater than I, then
A) the net international investment position must be positive.
B) the financial account must be positive.
C) the financial account must be negative.
D) the net international investment position must be negative.
E) Both A and B.
5) The difference between GNP and GDP is
A) GNP includes income received from abroad and excludes income paid abroad.
B) GNP excludes income received from abroad and includes income paid abroad.
C) GNP includes exports and imports.
D) GNP excludes exports and imports.
E) GNP includes capital flows received from abroad and excludes capital flows to foreign
countries.
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Use the following table to answer the next question(s). All values are measured as a percent of
GNP.
Table 9.2
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Chapter 10
Exchange Rates and Exchange Rate Systems
1) Suppose the dollar is subject to a floating exchange rate system and that R is the number of
dollars per unit of foreign exchange. If R increases, then the dollar
A) depreciates.
B) appreciates.
C) is devalued.
D) is revalued.
E) Both A and C.
4) Suppose that the nominal exchange rate between the U.S. dollar and the Canadian dollar is
0.75 U.S. dollars per Canadian dollar. If Canada's rate of inflation is 0 percent and the U.S. rate
is 10 percent, then the real exchange rate for the U.S. dollar will
A) appreciate by about 9 percent.
B) appreciate by 10 percent.
C) depreciate by about 9 percent.
D) depreciate by 10 percent.
E) None of the above.
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2) If inflation in the rest of the world is lower than inflation in Brazil, Brazil's currency (the real)
would tend to appreciate.
3) If Mexicans increasingly lose confidence in their domestic financial markets and move their
assets to other countries, the peso will depreciate.
4) A forward exchange market contract obligates the owner to make a trade at a specified
exchange rate a fixed number of days in the future.
5) If more European and Japanese firms want to build factories and expand their offshore
investments in the United States, the supply of U.S. dollars on foreign exchange markets will
increase as a result of this investment activity.
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2) How does the growth in the daily volume of foreign currency transactions compare with the
growth rate of the global economy?
____________________________________________________________
4) If the forward rate is greater than the spot rate, what are markets signaling about their
expectations for the future spot rates for the home currency?
____________________________________________________________
5) If inflation is higher in the home market, what is expected to happen to the real value of the
home currency as time passes?
____________________________________________________________
8) When did major currencies begin floating against each other, ending the Bretton Woods
system?
____________________________________________________________
9) The most important participants in foreign exchange markets are ____________________
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