International Econ Final

Assume that both the United States and Germany produce beef and computer chips with the following costs: United States (dollars) Germany (marks) Unit cost of beef (B) 2 8 Unit cost of computer chips (C) 1 2 What is the opportunity cost of beef in the US? What is the opportunity cost of beef in Germany? 2 chips; 1/2 chip 1 chip; 2 chips 2 chips; 4 chips 4 chips; 2 chips

2 chips; 4 chips

If nation A can produce 5 units of good X or 10 units of good Y and nation B can produce 4 units of good X or 12 units of good Y we can conclude that both nations would gain from trade if nation A sold _____ units of good _____ for one unit of good _____ 2.5; X; Y 0.4; Y; X 2.5; Y; X 0.4; X; Y

2.5; X; Y

The international investment position of a nation Is also called the balance of indebtedness Is usefulness is in projecting the future flow of income from foreign investments and payments on foreign investments in the nation The total amount and the distribution of a nation's assets abroad, and foreign assets in the nation at the end of the year All of the above

All of the above

The model we call the gravity model of international trade predicts that trade between two nations is larger the larger the two nations the more open are the two nations the closer the two nations All of these are correct

All of these are correct

The Statistical discrepancy is needed to ensure that Current account plus capital account equal financial account Current account minus capital account equal financial account Current account plus the financial account equal capital account Current account equal capital account plus financial account

Current account minus capital account equal financial account

Doubling the amount of L and K under constant returns to scale does all of the following except: doubles the output of the L-intensive commodity doubles the output of the K-intensive commodity You Answered leaves the shape of the production frontier unchanged Doubling the amount of L and K under constant returns to scale does all of the following except: a. doubles the output of the L-intensive commodity b. doubles the output of the K-intensive commodity c. leaves output unchanged. d. leaves the shape of the production frontier unchanged

Doubling the amount of L and K under constant returns to scale does all of the following except: a. doubles the output of the L-intensive commodity b. doubles the output of the K-intensive commodity c. leaves output unchanged. d. leaves the shape of the production frontier unchanged

In the figure above, the international price of good X will be B'E' A E* A'

E*

Commercial bank deposits outside the country of their issue are commonly referred to as foreign deposits interest arbitrage reserve deposits Eurocurrency

Eurocurrency

Which of these is true? The gains from trade will offset the typical losses from specialization Gains from trade normally stem from both gains from exchange and gains from specialization all of these are false not all trade will result in gains from exchange

Gains from trade normally stem from both gains from exchange and gains from specialization

Given favorable terms of trade, in which good will Nation 1 specialize and export to Nation 2? Both Good Y Good X Neither

Good Y

Over time, the economic interdependence of nations has: been cyclical diminished remained unchanged grown

Grown

Which of the following statements is correct? In a customs union, member nations apply a uniform external tariff within a customs union there is unrestricted factor movement a customs union is a higher form of economic integration than a common market in a free-trade area, member nations harmonize their monetary and fiscal policies

In a customs union, member nations apply a uniform external tariff

Primary income receipts include the Net acquisition of portfolio investment assets Net acquisition of direct investment liabilities Income earned on foreign investments All of the above

Income earned on foreign investments

Which of these is not true for a nation that is in equilibrium in isolation? It consistently consumes inside its production frontier it reaches the highest indifference curve possible with its production frontier Marginal Rate of Transformation of X for Y equals MRS of X for Y, and they are equal to Px/Py the indifference curve is tangent to the nation's production frontier

It consistently consumes inside its production frontier

Which is false about the United States balance of payments in 2013? It was the most indebted nation in the world Its current-account deficit was larger than its trade deficit It had a very large trade deficit It borrowed heavily from abroad

Its current-account deficit was larger than its trade deficit

Which of the following is an example of intra-industry trade? The United States produces lettuce in the summer and imports lettuce from Chile in the winter The United States sends high technology goods to China and imports textiles and clothing. The United States ships wheat to Africa. Japan and the United States both import and export cars.

Japan and the United States both import and export cars.

What is the significance of the slope of the production possibility frontier? The steeper the slope, the more the good on the x axis (horizontal axis) is valued by consumers. The slope is the the opportunity cost of the good on the x (horizontal) axis. The slope graphically depicts the Gravity Model The slope can be used to determine in which good the country has an absolute advantage.

The slope is the the opportunity cost of the good on the x (horizontal) axis.

Which of the following is NOT an explanation for the growth of the trade deficit in the United States over the last thirty years the higher growth rate of the U.S. in the 1990s the rising price of oil in the 1970s The weak dollar in the 2010's the rising value of the dollar in the 1980s

The weak dollar in the 2010's

The WTO was established during the Uruguay Round Tokyo Round Doha Round Kennedy Round

Uruguay Round

Supporting the price of a commodity by buying it when its price is low is: a purchase contract a marketing board a buffer stock an export control

a buffer stock

Imagine a two-nation (A and B) world, with two-commodities (X and Y), and it is established that nation A has a comparative advantage in commodity X. In this case, nation B must have: an absolute disadvantage in commodity Y an absolute advantage in commodity Y a comparative advantage in commodity Y a comparative disadvantage in commodity Y

a comparative advantage in commodity Y

A shortage of pounds under a flexible exchange rate system results in: no change in the exchange rate a depreciation of the dollar a depreciation of the pound an appreciation of the dollar

a depreciation of the dollar

We say that commodity Y is K-intensive with respect to X when: more K is used in the production of Y than X less L is used in the production of Y than X a lower L/K ratio is used in the production of Y than X a higher K/L is used in the production of X than Y

a lower L/K ratio is used in the production of Y than X

A difference in relative commodity prices between nations can be based on a difference in: all answers are correct tastes technology factor endowments

all answers are correct

Foreign direct investment benefits the host nation because it: increases per capita income increases the productivity of labor increases the K/L ration all answers are correct

all answers are correct

In the wake of the 2008-2009 global financial crisis the following is a potential economic problem facing the world today all answers are correct continued poverty in many developing nations rising trade protection a large U.S. balance of payments deficit

all answers are correct

On which of the following principles does GATT rest? all answers are correct consultation among nations in solving trade disputes elimination of nontariff barriers nondiscrimination

all answers are correct

Which of the following was a primary cause of the U.S. balance of payments deficits during the late 1960s? Increased foreign competition all answers are correct Domestic inflation Capital outflows

all answers are correct

Which of these is a serious international economic problem facing the world today? Large volatility and disequilibria in exchange rates and frequent crises in emerging markets The rise of protectionism in developed countries and the high structural unemployment in Western Europe all answers are correct The restructuring problems of Eastern Europe and the former Soviet Union and the deep poverty of some of the poorest developing countries

all answers are correct

Community indifference curves: should never cross all answers are true are negatively sloped are convex to the origin

all answers are true

A difference in relative commodity prices between two nations can be based upon a difference in: all of these answers are correct factor endowments technology tastes

all of these answers are correct

Portfolio theory tells us that by investing in securities with yields that are inversely related over time: a given yield can be obtained at a smaller risk a two-way capital flow may be required to achieve a balanced portfolio all of these answers are correct a higher yield can be obtained for the same level of risk

all of these answers are correct

International trade can be based on economies of scale even if both nations have identical: tastes all these answers are correct technology factor endowments

all these answers are correct

An increase in the pound price of the dollar represents: an appreciation of the pound a devaluation of the dollar a depreciation of the dollar an appreciation of the dollar

an appreciation of the dollar

An international cartel refers to: dumping a bi-lateral international commodity agreement voluntary export restraints an organization of exporters

an organization of exporters

Under a gold standard, there cannot be a balance of payments surplus. there cannot be a balance of payments deficit. balance of payments imbalances should be quickly corrected by gold flows. countries must sterilize all gold transactions.

balance of payments imbalances should be quickly corrected by gold flows.

Assume that both the United States and Germany produce beef and computer chips with the following costs: United States (dollars) Germany (marks) Unit cost of beef (B) 2 8 Unit cost of computer chips (C) 1 2 Which good would the US Export? impossible to determine with information given US has a comparative advantage in both beef chips

beef

Over the last fifty years the current account balance of the United States has been deteriorating remained roughly the same always been in balance been improving

been deteriorating

With trade, nations can attain an indifference curve that is beyond the indifference curve it could attain without trade is negatively sloped inside the indifference curve it could attain without trade is positively sloped

beyond the indifference curve it could attain without trade

Direct investments usually involve the transfer of all of the above except: capital technology bonds

bonds

A production frontier that is concave from the origin indicates that the nation incurs increasing opportunity costs in the production of: commodity X only neither commodity both commodities commodity Y only

both commodities

According to the theory of covered interest arbitrage, if the interest differential in favor of the foreign country exceeds the forward discount on the foreign currency, there will be a: any of these answers is possible no capital flow under a covered interest arbitrage capital inflow under covered interest arbitrage capital outflow under covered interest arbitrage

capital outflow under covered interest arbitrage

Technical progress that increases the productivity of L proportionately more than the productivity of K is called: capital saving the Rybcynski Theorem neutral labor saving

capital saving

According to the factor price equalization theorem, a nation that has a relative capital abundance should specialize in goods that are ______ intensive resulting in an increase in the price of ______. labor; labor capital; capital labor; capital capital; labor

capital; capital

A customs union that allows for the free movement of labor and capital among its member nations is called a: preferential trade arrangement NAFTA agreement common market free-trade area

common market

When a nation has increasing returns to scale, the shape of its production possibility frontier is linear convex to the origin (bows outward from the origin) discontinuous concave to the origin (bows inward toward the origin)

convex to the origin (bows outward from the origin)

The spot sale of a currency combined with a forward repurchase of the same currency is a stop gap transaction forward discount transaction currency swap premium transaction

currency swap

The imposition of a tariff will increase imports, decrease domestic production, and increase consumption decrease imports, increase domestic production, and decrease consumption increase imports, increase domestic production, and decrease consumption decrease imports, decrease domestic production, and increase consumption

decrease imports, increase domestic production, and decrease consumption

You used to be able to purchase .85 Euro with one dollar, now you can purchase .9 Euro with one dollar. The Euro has appreciated depreciated

depreciated

If the terms of trade increase in a two-nation world, those of the trade partner: deteriorate remain unchange possibly increase or decrease improve

deteriorate

Which are is not an advantage of export-oriented industrialization? It overcomes the smallness of the domestic market and allows developing nations to take advantage of economies of scale production of manufactured goods for export requires and stimulates efficiency throughout the economy domestic industries grow accustomed to protection and have an incentive to become more efficient the expansion of manufactured exports is not limited by the size of the domestic market

domestic industries grow accustomed to protection and have an incentive to become more efficient

If a small nation increases the tariff on its import commodity, its: consumption of the commodity increases domestic price of the commodity increases production of the commodity decreases imports of the commodity increase

domestic price of the commodity increases

Increasing returns to scale means that doubling all inputs leads to a more than proportional increase in output. doubling all inputs leads to a proportional increase in output. doubling all inputs leads to a less than proportional increase in output. doubling all inputs leads to a decrease in output.

doubling all inputs leads to a more than proportional increase in output.

The exchange rate is kept nearly the same across different monetary centers by: inflation interest arbitrage exchange arbitrage hedging

exchange arbitrage

If the equilibrium price of corn in Nation A is below the international trade price, Nation A would be more likely to both import and export corn import corn export corn export its other products

export corn

In the H-O model, international trade is based mostly on a difference in: factor endowments economies of scale tastes technology

factor endowments

In general, for the last 50 years tariff rates around the world have been rising eliminated relatively unchanged falling

falling

What did the Mercantilists NOT advocate? stimulating the nation's exports the nation's accumulation of gold restricting the nations' imports free trade

free trade

The North American Free Trade Agreement (NATFA) and its replacement, the USMCA, is best defined as a preferential trade arrangement economic union free trade area customs union

free trade area

The Bretton Woods System was a: crawling peg system gold standard managed floating exchange rate system gold-exchange standard

gold-exchange standard

Moving to an indifference curve farther out from the origin shows lower costs higher costs higher satisfaction increased population

higher satisfaction

In the figure above, nation 2 will ___________ good X. export produce have excess supply of import

import

Intra-industry trade takes place: because perfect competition is the prevalent form of market organization because products are homogeneous because there is technological change. in order to take advantage of economies of scale

in order to take advantage of economies of scale

The formation of a trade-creating customs union where all economic resources of member nations are fully employed before and after the formation of the customs union leads to an: increase in the welfare of member nations only increase or decrease in the welfare of member and nonmember nations increase in the welfare of nonmember nations only increase in the welfare of member and nonmember nations

increase in the welfare of member and nonmember nations

Transport costs: prevent international trade. increase international trade. decrease the price in the importing country. increase the price in the importing country.

increase the price in the importing country.

International capital flows increase the welfare of the host country but not the investing country. increase world social welfare overall. increase the welfare of the investing country but not the host country. decrease world social welfare overall.

increase world social welfare overall.

International trade will ______ the price of a nation's abundant resources and _____ the price of a nation's scarce resources decrease; increase increase; increase increase; decrease decrease; decrease

increase; decrease

An import quota does all of the following except: increases domestic social welfare reduces domestic consumption increases the domestic price of the imported commodity increases domestic production

increases domestic social welfare

An increase in the demand of the imported commodity subject to a given import quota: reduces the domestic price of the commodity reduces the producers' surplus increases the domestic production of the commodity reduces the domestic quantity demanded of the commodity

increases the domestic production of the commodity

According to the Stolper-Samuelson theorem, the imposition of a tariff by a nation: increases the real return of the nation's scarce factor reduces the real return of the nation's scarce factor reduces the price of the imported good increases the real return of the nation's abundant factor

increases the real return of the nation's scarce factor

An increase in tastes for the import commodity in both nations: reduces the volume of trade increases the volume of trade leaves the volume of trade unchanged any of these is correct

increases the volume of trade

A trade-diverting customs union: increases trade among members but reduces trade with non-members increases trade among union members and with nonmember nations reduces trade among union members but increases it with nonmembers reduces trade among union members and with nonmember nations

increases trade among members but reduces trade with non-members

Which of the following was not negotiated under the Uruguay Round? reduction of tariffs on industrial goods reduction of subsidies on industrial products and on agricultural exports replacing quotas with tariffs increasing nontariff barriers among developing nations

increasing nontariff barriers among developing nations

Developing nations often experience wildly fluctuating export prices for their primary products because of: elastic and stable demand and supply inelastic and stable demand and supply inelastic and unstable demand and supply elastic and unstable demand and supply

inelastic and unstable demand and supply

The primary exports of developing nations tend to face demand that is _______ and supply that is _______. elastic; elastic inelastic; inelastic elastic; inelastic inelastic; elastic

inelastic; inelastic

The fundamental cause for the collapse of the Bretton Woods System was: lack of confidence inadequate liquidity inflationary pressure lack of an adequate adjustment mechanism

lack of an adequate adjustment mechanism

A customs union is more like to lead to trade creation and increased welfare under the following condition lower trade barriers with the rest of the world complementary economies a smaller number of members lower pre-union trade barriers with member countries

lower trade barriers with the rest of the world

The present international monetary system is a: gold standard flexible exchange rate system a target zone system managed exchange rate system

managed exchange rate system

Doubling only the amount of L available under constant returns to scale: leaves the output of the K-intensive commodity unchanged less than doubles the output of the L-intensive commodity doubles the output of the K-intensive commodity more than doubles the output of the L-intensive commodity

more than doubles the output of the L-intensive commodity

All of the following are examples of protectionism except tariffs dumping voluntary export restraints most favored nation treatment

most favored nation treatment

Expanding or opening international trade in a nation usually affects all members of society: most negatively but some positively negatively most positively but some negatively positively

most positively but some negatively

Over the last five decades, relative to the United States, real wages among industrialized countries have become equal. increased, then decreased. moved farther away. moved closer together.

moved closer together.

If the autarky (no trade) Px/Py is lower in nation 1 than in nation 2 without trade: nation 2 has a comparative advantage in commodity X nation 1 has a comparative advantage in commodity Y nation 2 has a comparative advantage in commodity Y none of the above

nation 2 has a comparative advantage in commodity Y

With free trade and increasing costs: at least one nation will consume inside its production frontier it will normally be in a nation's interest to not trade. neither nation will specialize completely in production small nations will benefit but large nations will be hurt

neither nation will specialize completely in production

According to traditional trade theory, a developing nation should export the commodity: that it cannot produce relatively more efficiently of its comparative advantage that is most differentiated. that intensive in the nation's relatively scarce factor

of its comparative advantage

The purchase of parts and components from overseas to reduce production costs is offshoring Linder's Theory outsourcing economies of scale

outsourcing

The temporary sale of a commodity at below cost or at a lower price abroad in order to drive foreign producers out of business is called: voluntary export restraints predatory dumping continuous dumping sporadic dumping

predatory dumping

A U.S. importer scheduled to make a payment of €100,000 in three months can hedge his foreign exchange risk by: selling €100,000 in the spot market for delivery in three months purchasing $100,000 in the forward market for delivery in three months purchasing €100,000 in the forward market for delivery in three months selling €100,000 in the spot market for delivery in three months

purchasing €100,000 in the forward market for delivery in three months

The imposition of an import tariff by a small nation: increases the nation's welfare reduces the nation's welfare leaves the nation's welfare unchanged any of the above is possible

reduces the nation's welfare

The Rybczynski theorem postulates that doubling L at constant relative commodity prices: doubles the output of the L-intensive commodity reduces the output of the K-intensive commodity reduces the output of both commodities increases the output of both commodities

reduces the output of the K-intensive commodity

According to the H-O model, trade reduces international differences in: terms of trade returns on capital, but not wages GDP relative and absolute factor prices

relative and absolute factor prices

Destabilizing speculation refers to the: all answers are correct sale of the foreign currency when the exchange rate rises or is high purchase of the foreign currency when the exchange rate falls or is low sale of the foreign currency when the exchange rate falls or is low

sale of the foreign currency when the exchange rate falls or is low

The brain drain refers to the transfer of: technology from developed to developing nations skilled labor and professionals from less advanced to more advanced nations skilled labor and professionals from developed to developing nations unskilled labor from developing to developed nations

skilled labor and professionals from less advanced to more advanced nations

A trade-creating customs union is one where: trade among members increases but trade with nonmembers decreases lower-cost imports from outside the customs union are replaced by higher-cost imports from a union member some domestic production in a member nation is replaced by lower-cost imports from another member nation trade among members decreases while trade with nonmembers increases

some domestic production in a member nation is replaced by lower-cost imports from another member nation

The opposite of hedging is holding speculation interest arbitrage selling forward

speculation

Portfolio investments refer primarily to: stocks and bonds any investment made in a foreign country short-term assets direct investments liquid assets

stocks and bonds

The global financial crisis of 2008-2009 began as a corruption crisis in Russia the public debt crisis in some European countries exchange rate crisis in Japan subprime mortgage crisis in the U.S. banking crisis in China

subprime mortgage crisis in the U.S.

In the absence of trade, technical progress increases the nation's welfare only if it is capital-saving. tends to decrease the nation's welfare. increases the nation's welfare only if it is labor-saving. tends to increase the nation's welfare.

tends to increase the nation's welfare.

A ratio of the index of the price of a nation's exports to the index of the price of a nation's imports is known as the nation's production possibility curve terms of trade offer curves gravity index

terms of trade

One important reason for the collapse of the Bretton Woods system was the U.S. balance of payments surplus the depletion of reserve dollars by foreign central banks the U.S. balance of payments deficit political unrest in the Middle East

the U.S. balance of payments deficit

Hedging refers to: the acceptance of a foreign exchange risk foreign exchange speculation the covering of a foreign exchange risk foreign exchange arbitrage

the covering of a foreign exchange risk

If SR=$1/€1 and the three-month FR=$0.99/€1: (SR=spot rate, FR = forward rate) the euro is at a three-month forward discount of 1% the euro is at a forward discount of 1% per year the dollar is at a three-month forward discount of 1% the euro is at a three-month forward premium of 1%

the euro is at a three-month forward discount of 1%

A tariff in a small country will benefit domestic consumers. the government imposing the tariff. foreign producers. the world as a whole.

the government imposing the tariff.

Two nations will trade a good until the relative costs of that good are equal between the two nations costs decrease exports no longer equal imports there is a shift in demand

the relative costs of that good are equal between the two nations

If two nations have identical production possibilities frontiers, it is possible for them to experience gains from trade if they have constant opportunity costs they have the same tastes and preference they have different tastes and preferences they have different natural resources

they have different tastes and preferences

Which is not a significant reason for private foreign direct investments? to maximize profits and diversify risks to avoid tariffs horizontal and vertical integration to take advantage of temporary favorable currency fluctuation

to take advantage of temporary favorable currency fluctuation

Which is not a dynamic benefit from the formation of a customs union? economies of scale increased competition trade creation stimulus to investment

trade creation

The United States can be characterized as relatively capital abundant and labor scarce. Thus, according to the H-O model, wages in the United States will be reduced by trade. capital-labor ratios in will be changed by trade. social welfare in the United States will be reduced by trade. the return on capital in the United States will be reduced by trade.

wages in the United States will be reduced by trade.