EXAM 4 REVIEW

Between 1934 and 1971, the U.S. government bought and sold gold (with other governments) at the price per ounce of: A. $35 B. $70 C. $350 D. $700

A. $35

Refer to the above graph, which shows the supply and demand for British pounds. D1 and S1 represent the initial demand and supply curves. What will be the new equilibrium as indicated in the graph if there is an increase in consumer spending by the British for American products and a decrease in consumer spending by Americans for British products? A. A B. C C. H D. J

A. A

The International Monetary Fund was created under the: A. Bretton Woods Agreement of 1944 B. GATT Agreement of 1947 C. United Nations Charter in 1949 D. Kennedy Round of Trade Agreements in 1967

A. Bretton Woods Agreement of 1944

Which statement is true? A. Comparative advantage means that total world output will be greatest when each good is produced by the nation that has the lowest domestic opportunity cost B. Comparative advantage means that total world output will decline when each good is produced by the nation with the lowest domestic opportunity cost C. Specialization is complete among nations when opportunity costs rise as any given nation produces more of a particular product D. Specialization is complete among nations when opportunity costs fall as any given nation produces more of a particular product Autos and chemicals are in units of one million

A. Comparative advantage means that total world output will be greatest when each good is produced by the nation that has the lowest domestic opportunity cost

The current account section in a nation's balance of payments includes: A. Its goods exports and imports, and its services exports and imports. B. Foreign purchases of domestic assets C. Purchases of foreign assets D. All of these.

A. Its goods exports and imports, and its services exports and imports.

In the real world, specialization is rarely complete because: A. nations normally experience increasing opportunity costs in producing more of the product in which they are specializing. B. production possibilities curves are straight lines rather than curves bowed outward as viewed from the origin. C. one nation's imports are necessarily another nation's exports. D. international law prohibits monopolies.

A. nations normally experience increasing opportunity costs in producing more of the product in which they are specializing.

An excise tax on an imported good that is not produced domestically is called a: A. protective tariff. B. import quota. C. revenue tariff. D. voluntary export restriction.

A. protective tariff.

Refer to the above table. What will be the rate of exchange for one euro? A. $0.80 B. $0.90 C. $1.00 D. $1.10

B. $0.90

Refer to the above table. If European governments decided to fix the price of a euro at $0.80, they would have to sell: A. 90 euros B. 114 euros C. 155 euros D. 210 euros

B. 114 euros

Refer to the above table. If the U.S. government decides to fix or peg the price of the euro at $1.00, it would have to buy: A. 120 euros B. 160 euros C. 200 euros D. 300 euros

B. 160 euros

Refer to the above table. At equilibrium, how many euros will be purchased in the market? A. 286 B. 300 C. 360 D. 400

B. 300

The United States' most important trading partner quantitatively is: A. China. B. Canada. C. Mexico. D. Japan.

B. Canada.

Refer to the above graph, which shows the supply and demand for British pounds. D1 and S1 represent the initial demand and supply curves. What will be the new equilibrium as indicated in the graph if the domestic price level rises rapidly in the United States and remains constant in Britain? A. I B. J C. H D. A

B. J

"The nation needs to prevent foreign nations from selling their excess goods in our nation at a price below cost so we can save American firms." This quotation would be most closely associated with which protectionist argument? A. Increase domestic employment B. Protection against dumping C. Strategic trade policy D. Cheap foreign labor

B. Protection against dumping

The organization created to oversee the provisions of multilateral trade agreements, resolve disputes under the international trade rules, and meet periodically to consider further trade liberalization is called the: A. International Monetary Fund (IMF). B. World Trade Organization (WTO). C. Common Market Organization (CMO). D. International Trade Commission (ITC).

B. World Trade Organization (WTO).

Countries engaged in international trade specialize in production based on: A. relative levels of GDP. B. comparative advantage. C. relative exchange rates. D. relative inflation rates.

B. comparative advantage.

Suppose the domestic price (no-international-trade price) of wheat is $3.50 a bushel in the United States while the world price is $4.00 a bushel. Assuming no transportation costs, the United States will: A. have a domestic shortage of wheat. B. export wheat. C. import wheat. D. neither export nor import wheat.

B. export wheat.

In the U.S. balance of payments, foreign purchases of assets in the United States are a: A. foreign currency outflow. B. foreign currency inflow. C. current account item. D. debit, or outpayment.

B. foreign currency inflow.

The gain from international trade is: A. increased employment in the domestic export sector. B. more goods than would be attainable through domestic production alone. C. tariff revenue. D. increased employment in the domestic import sector.

B. more goods than would be attainable through domestic production alone.

The gain from international trade is: A. increased employment in the domestic export sector. B. more goods than would be attainable through domestic production alone. C. tariff revenue. D. increased employment in the domestic import sector.

B. more goods than would be attainable through domestic production alone.

If a nation has a comparative advantage in the production of X, this means the nation: A. cannot benefit by producing and trading this product. B. must give up less of other goods than other nations in producing a unit of X. C. has a production possibilities curve identical to those of other nations. D. is not subject to increasing opportunity costs.

B. must give up less of other goods than other nations in producing a unit of X.

Refer to the above table. At equilibrium what will be the euro rate of exchange for one U.S. dollar? A. .95 euro B. 1.00 euros C. 1.11 euros D. 1.23 euros

C. 1.11 euros

A major goal of the World Trade Organization is to: A. Increase the protection of producers against foreign trade competition B. Encourage bilateral trade agreements between nations C. Expand international trade among nations D. Maximize tariff revenue for governments

C. Expand international trade among nations

On the basis of the above information: A. Gamma should export both tea and pots to Sigma. B. Sigma should export tea to Gamma and Gamma should export pots to Sigma. C. Gamma should export tea to Sigma and Sigma should export pots to Gamma. D. Gamma should export tea to Sigma, but it will not be profitable for the two nations to exchange pots.

C. Gamma should export tea to Sigma and Sigma should export pots to Gamma.

A major aim of the International Monetary Fund (IMF) is to: A. Increase gold reserves in member nations B. Reduce protectionist policies in international markets to promote trade C. Increase international liquidity in foreign exchange markets D. Reduce unemployment and inflation in member nations

C. Increase international liquidity in foreign exchange markets

The effect of devaluations of the dollar in the early 1970s was to: A. Raise the price of US exports B. Increase the U.S. balance of payments deficit C. Lower the price of U.S. exports D. Lower the price of U.S. imports

C. Lower the price of U.S. exports

When the distribution of resources and technology changes among nations: A. It costs more to produce all products B. It costs less to produce all products C. The relative efficiency of producing products changes D. Each nation will specialize in producing one product

C. The relative efficiency of producing products changes

Which is an example of a nontariff barrier (NTB)? A. an export subsidy B. an excise tax on the physical volume of imported goods C. box-by-box inspection requirements for imported fruit D. an excise tax on the dollar value of imported goods

C. box-by-box inspection requirements for imported fruit

Evidence of a chronic balancer of payments deficit is: A. a decline in amount of the nation's currency held by other nations. B. an excess of exports over imports. C. diminishing reserves of foreign currencies. D. an increase in the international value of the nation's currency.

C. diminishing reserves of foreign currencies.

Suppose the United States eliminates high tariffs on German bicycles. As a result, we would expect: A. the price of German bicycles to increase in the United States. B. employment to decrease in the German bicycle industry. C. employment to decrease in the U.S. bicycle industry. D. profits to rise in the U.S. bicycle industry.

C. employment to decrease in the U.S. bicycle industry.

Suppose the domestic price (no-international-trade price) of copper is $1.20 a pound in the United States while the world price is $1.00 a pound. Assuming no transportation costs, the United States will: A. have a domestic surplus of copper. B. export copper. C. import copper. D. neither export nor import copper.

C. import copper.

The financial account balance is a nation's: A. net investment income minus its net transfers. B. exports of goods and services minus its imports of goods and services. C. sale of real and financial assets to people living abroad minus its purchases of real and financial assets from foreigners. D. domestic investment spending minus domestic saving.

C. sale of real and financial assets to people living abroad minus its purchases of real and financial assets from foreigners.

In the past, Canada has agreed to set an upper limit on the total amount of softwood lumber sold to the United States. This is an example of a(n): A. import quota. B. export subsidy. C. voluntary export restriction. D. protective tariff.

C. voluntary export restriction.

A market basket of goods costs $260 in the United States and 200 pounds in the United Kingdom. The "purchasing power parity rate" is 1 pound = $1.50. According to purchasing power parity theory, the market basket of goods in the United States should cost: A. $67 B. $77 C. $260 D. $300

D. $300

The trade deficit on goods in 2007 was: A. $155 billion B. $279 billion C. $479 billion D. $816 billion

D. $816 billion

Refer to the above data. What are the limits of the terms of trade between Gamma and Sigma? A. 1 tea = 2 pots to 1 tea = 6 pots B. 1 tea = 3 pots to 1 tea = 6 pots C. 1 tea = 2 pots to 1 tea = 3.5 pots D. 1 tea = 1 pot to 1 tea = 3 pots

D. 1 tea = 1 pot to 1 tea = 3 pots

United States exports as a percent of total world exports is: A. 20.2 percent of world exports B. 4.8 percent of world exports C. 28.5 percent of world exports D. 10.3 percent of world exports

D. 10.3 percent of world exports

United States exports of goods and services in 2010 (on a national income account basis) are about: A. 20 percent of U.S. GDP. B. 4 percent of U.S. GDP. C. 28 percent of U.S. GDP. D. 13 percent of U.S. GDP.

D. 13 percent of U.S. GDP.

The United States ended its policy of converting the dollar into gold at $35 per ounce for other governments in: A. 1890 B. 1920 C. 1946 D. 1971

D. 1971

Refer to the above data. Assume that before specialization and trade Gamma and Sigma both chose production possibility "C." Now if each specializes according to comparative advantage, the gains from specialization and trade will be: A. 40 tons of pots. B. 20 tons of tea and 20 tons of pots. C. 20 tons of tea. D. 40 tons of tea.

D. 40 tons of tea.

Which is a likely result of imposing tariffs to increase domestic employment? A. A decrease in consumer prices B. A decrease in the tariff rates of foreign nations C. An increase in the number of jobs D. An increase in the possibility of retaliatory tariffs

D. An increase in the possibility of retaliatory tariffs

The best example of a capital-intensive good is: A. Wool B. Digital cameras C. Wheat D. Chemicals

D. Chemicals

From an economic perspective, studies of the costs of trade barriers show that they: A. Are outweighed by the reduction in foreign competition provided by the barriers B. Are much less than benefits for domestic producers and workers C. Are about equal to the benefits from trade barriers D. Far exceed their benefits for society

D. Far exceed their benefits for society

In terms of absolute dollar volume, the top 3 leaders in world exports are: A. Japan, China, and the European Union. B. the United States, England, and Canada. C. Germany, England, and the United States. D. Germany, the United States, and China.

D. Germany, the United States, and China.

Studies show that: A. it is impossible to estimate the benefits of trade barriers. B. costs and benefits of trade barriers are about equal. C. benefits of trade barriers exceed their costs in developing nations. D. costs of trade barriers exceed their benefits, creating an efficiency loss for society.

D. costs of trade barriers exceed their benefits, creating an efficiency loss for society.

Suppose the United States sets a limit on the number of tons of sugar that can be imported each year. This is an example of a(n): A. protective tariff. B. revenue tariff. C. voluntary export restriction. D. import quota.

D. import quota.

Free trade based on comparative advantage is economically beneficial because: A. it promotes an efficient allocation of world resources. B. it increases competition. C. it provides consumers with a wider range of products. D. of all of these reasons.

D. of all of these reasons.