Econ 245

21. An increase in a nation's terms of trade will a. Increase the nation's gains from trade. b. Reduce the nation's gains from trade. c. Make other nations better off. d. Make the nation worse off.

a. Increase the nation's gains from trade.

19. If in autarky a nation is producing at a point on its PPF where the slope of PPF (= OC of X) is greater than the slope of CIC, then the nation should a. Produce less X and more Y. b. Produce more X and less Y. c. Produce more X and Y. d. Produce less X and Y.

a. Produce less X and more Y.

23. If a nation's opportunity cost of producing one unit of X is 1 unit of Y, and the world equilibrium price ratio is (PX/PY) = 2, then the nation will a. Specialize in and export good X. b. Specialize in and export good Y. c. Not trade at all. d. Import good X.

a. Specialize in and export good X.

18. Which of the following is not a characteristic of a set of community indifference curves (CICs)? a. They may intersect. b. They are downward sloping. c. The slope of a CIC changes as consumption changes. d. They indicate preferred combinations of goods.

a. They may intersect.

24. If the terms of trade in a nation increase in a two-nation world, then those of its trade partner a. deteriorate b. improve c. remain unchanged d. any of the above

a. deteriorate

7. International trade is similar to interregional trade in that both must overcome a. distance and space b. trade restrictions c. differences in currencies d. differences in monetary systems

a. distance and space

6. Over time, the economic interdependence of nations has a. grown b. diminished c. remained unchanged d. cannot say

a. grown

4. Based on the index of openness (or interdependence), international trade is most important to the standard of living of a. the United States b. Switzerland c. Germany d. England

b. Switzerland

11. The wage rate in Nation H is $4 per laborer and output per laborer in Nation H is 8 units of Cheese. The wage rate in Nation L is $1 per laborer and output per laborer in Nation L is 1 unit of Cheese. Which of the following must be true at these wage rates and productivity levels? a. Nation L will out-compete nation H in the production of Cheese. b. The price of Cheese in Nation H will be $0.50 and the price of Cheese in Nation L will be $1. c. The price of Cheese in Nation H will be $2 and the price of Cheese in Nation L will be $1. d. As a result of its lower wage rate, Nation L must have an absolute advantage in Cheese.

b. The price of Cheese in Nation H will be $0.50 and the price of Cheese in Nation L will be $1.

14. With reference to the statement in Question 12, if 3X is exchanged for 3Y a. nation A gains 2X b. nation B gains 6Y c. nation A gains 3Y d. nation B gains 3Y

b. nation B gains 6Y

20. Which of the following best characterizes the effect of trade? a. The PPF of at least one nation must shift in. b. One nation can gain only if another loses. c. All nations can consume outside its PPF. d. Nations move to a preferred position on the PPF.

c. All nations can consume outside its PPF.

3. Imports will most likely a. Increase the cost of living. b. Limit the variety of goods available to domestic consumers. c. Increase competition to import-competing firms. d. Compromise the quality of domestic goods.

c. Increase competition to import-competing firms.

22. A concave (or bowed out) PPF indicates increasing opportunity costs in the production of a. commodity X only b. commodity Y only c. both commodities d. neither commodity

c. both commodities

25. Mutually beneficial trade cannot occur if two nations have: a. identical PPF only. b. identical CIC only. c. identical PPF and CIC. d. identical GDP only.

c. identical PPF and CIC.

5. Which of the following statements about globalization is false? a. it increase economic efficiency b. it cannot be avoided c. it benefits all people d. none of the above

c. it benefits all people

12. If with one hour of labor time nation A can produce either 3X or 3Y while nation B can produce either 1X or 3Y (and labor is the only input), then a. nation A has a comparative disadvantage in commodity X b. nation B has a comparative disadvantage in commodity Y c. nation A has a comparative advantage in commodity X d. nation A has a comparative advantage in neither commodity

c. nation A has a comparative advantage in commodity X

2. Which of the following is not the subject matter of international finance? a. foreign exchange markets b. the balance of payments c. the basis and the gains from trade d. policies to adjust balance of payments disequilibria

c. the basis and the gains from trade

16. In Nation 1 the opportunity cost of producing 1 unit of Soup is 4 units of Nuts. In Nation 2 the opportunity cost of producing 1 unit of Soup is 1 Nut. The range for mutually beneficial trade price (in terms of relative price of Soup to Nuts, PS/PN) is a. 1 < PS/PN < 2. b. 1/4 < PS/PN < 1. c. 1/2 < PS/PN < 1. d. 1 < PS/PN < 4.

d. 1 < PS/PN < 4.

9. Mercantilists' recommended trade policies intended to produce which of the following? a. Specialization according to absolute advantage. b. Specialization according to comparative advantage. c. An export deficit. d. A gold inflow or trade surplus.

d. A gold inflow or trade surplus.

10. If Nation 1 can produce twice as many Autos per laborer as Nation 2, and Nation 2 can produce one- half as many DVD players per laborer as Nation 1, then a. The opportunity cost of producing DVD players is lower in Nation 2. b. The opportunity cost of producing autos is higher in Nation 1. c. Nation 2 must have an absolute advantage in DVD players. d. Neither nation has a comparative advantage in DVD players.

d. Neither nation has a comparative advantage in DVD players.

17. If in a two-nation (A and B), two-commodity (X and Y) world, it is established that nation A has a comparative advantage in commodity X, and then nation B must have a. an absolute advantage in commodity Y b. an absolute disadvantage in commodity Y c. a comparative disadvantage in commodity Y d. a comparative advantage in commodity Y

d. a comparative advantage in commodity Y

1. International economics deals with a. the flow of goods, services and payments among nations b. policies directed at regulating the flow of goods, services and payments c. the effects of policies affecting international trade and finance on the welfare of the nation d. all of the above

d. all of the above

8. The anti-globalization movement blames globalization for a. increasing income inequalities in the world b. child labor c. environmental pollution d. all of the above

d. all of the above

13. With reference to the statement in Question 12, before trade a. PX/PY = 1 in nation A b. PX/PY = 3 in nation B c. PY/PX = 1/3 in nation B d. all of the above is correct

d. all of the above is correct

5. With reference to the statement of Question 12, the range of mutually beneficial trade between nation A and B is a. 3Y < 3X < 5Y b. 5Y < 3X < 9Y c. 3Y < 3X < 9Y d. 1Y < 3X < 3Y

c. 3Y < 3X < 9Y