International Economics Exam 2 Practice Questions
If the value of a country's exports is $300 billion and the value of imports is $200 billion, the trade balance is: a. $100 billion. b. $500 billion. c. $70 billion. d. $30 billion.
a. $100 billion.
(Scenario: Discriminating Monopolist) The demand curve in its home market is P = 200 - Q; the demand curve in its foreign market is P = 160 - 2Q; and its marginal cost is a constant $20 per unit. Its marginal revenue in the home market is MR =200 - 2Q and is MR = 160 - 4Q in the foreign market. What is the discriminating monopolist's price in the domestic market? a. $70 b. $110 c. $90 d. $35
b. $110
Poland requires 4 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. The Czech Republic requires 6 hours of labor to produce 1 ton of coal and 1 hour of labor to produce a bushel of wheat. The international price of wheat must fall between which of the following two prices? a. between 4 tons and 6 tons of coal per bushel of wheat b. between 1/6 ton and 1/4 ton of coal per bushel of wheat c. between 1/4 ton and 1/3 ton of coal per bushel of wheat d. between 1/3 ton and 1.5 tons of coal per bushel of wheat
b. between 1/6 ton and 1/4 ton of coal per bushel of wheat
If a country's external wealth is $250 billion and its external liabilities are $400 billion, what are the external assets? a. $400 billion b. $250 billion c. $650 billion d. $150 billion
c. $650 billion
There is (are) _____ country or countries in the simple Ricardian model. a. three b. four c. two d. one
c. two
Gross domestic product (GDP) minus the trade balance (TB) is equal to: a. GDP. b. GNDI. c. GNI. d. GNE.
d. GNE.
If a country exports bicycles and imports cloth, the terms of trade are: a. 1/Pbicycles b. Pcloth/Pbicycles c. Pbicycles • Pcloth d. Pbicycles/Pcloth
d. Pbicycles/Pcloth
If a country's external assets are $400 billion and its external liabilities are $250 billion, what is the country's external wealth? a. $150 billion b. $650 billion c. $400 billion d. $250 billion
a. $150 billion
Chile and Argentina each produce jellybeans and peanut butter, using labor as their only resource. Each country has 1,000 hours of labor. In Chile, an hour produces a pound of jellybeans and 2 hours produce a pound of peanut butter. In Argentina, an hour produces a pound of jellybeans and 3 hours produces a pound of peanut butter. When they do not trade with each other, Chile consumes 600 pounds of jellybeans and 200 pounds of peanut butter, and Argentina consumes 400 pounds of jellybeans and 200 pounds of peanut butter. Suppose that Chile and Argentina begin to trade with each other. Each completely specializes in the product in which it finds its comparative advantage. How many pounds of peanut butter and jellybeans do the two countries jointly produce? a. 1,000 pounds of jellybeans and 500 pounds of peanut butter b. 1,000 pounds of jellybeans and 400 pounds of peanut butter c. 500 pounds of jellybeans and 1,000 pounds of peanut butter d. 333.33 pounds of jellybeans and 500 pounds of peanut butter
a. 1,000 pounds of jellybeans and 500 pounds of peanut butter
A trade deficit exists when: a. EX − IM < 0. b. EX − IM > 0. c. EX + IM = 0. d. EX = IM.
a. EX − IM < 0.
The case of ________ has been referred to in the press and business publications as an example of right-minded import protection in the United States. a. Harley-Davidson motorcycles b. U.S. steel c. Dole bananas d. the Chrysler corporation
a. Harley-Davidson motorcycles
Assume a nation's external wealth is negative. Also assume all liabilities and assets are denominated in a foreign currency. How will its wealth change when its currency appreciates in world markets? a. Its external wealth will rise. b. There will be no change in the value of its wealth. c. Its external wealth will fall. d. It depends on the currency in which it has its assets and liabilities.
a. Its external wealth will rise.
_____ is (are) assumed to be the only factor(s) of production in the Ricardian model. a. Labor b. Offshored inputs c. Land d. Labor and capital
a. Labor
Which of the following is a justification for infant industry protection? a. The firm's total cost curve must shift leftward over time so that it becomes competitive at world prices. b. The firm's learning allows it to produce more output and take advantage of increasing returns to scale. c. The firm's learning must shift its average cost curve down over time so that it becomes competitive at world prices. d. The firm's output must increase so that it moves down along its average cost curve over time and becomes competitive at world prices.
a. The firm's total cost curve must shift leftward over time so that it becomes competitive at world prices.
Why did Ricardo's model of comparative advantage compare two countries? a. Two is the smallest number of countries that can be used in a model of comparative advantage. b. His example would not work for more than two countries. c. Ricardo's model compared two countries because his example applied only to the explanation of trade between two particular countries, Portugal and England. d. Ricardo's model compared two countries because there were two goods in the model.
a. Two is the smallest number of countries that can be used in a model of comparative advantage.
The Ricardian model focuses on how differences in _________ influence international trade patterns. a. comparative costs b. demand c. absolute costs d. transportation costs
a. comparative costs
A nation will gain from trade if it: a. consumes outside its PPF and produces along its PPF. b. produces and consumes outside its PPF. c. produces and consumes along its PPF. d. produces outside its PPF and consumes along its PPF.
a. consumes outside its PPF and produces along its PPF.
If a perfectly competitive industry suddenly became a monopolist, equilibrium output would _________, and the equilibrium price would _________. a. decrease; increase b. decrease; decrease c. increase; decrease d. increase; increase
a. decrease; increase
A worker's "real" wage is related to: a. her productivity in the workplace, the value of her production to her employer, and the nation's absolute advantage in production of that product. b. the value of her production to her employer. c. the nation's absolute advantage in production of that product. d. her productivity in the workplace.
a. her productivity in the workplace, the value of her production to her employer, and the nation's absolute advantage in production of that product
The differences in no-trade prices across countries create an opportunity for international trade between the countries. Specifically, the country with the: a. lower relative no-trade price for a good, for example cloth, can gain by exporting cloth. b. the country with the lower relative no-trade price for a good, for example cloth, can gain by importing cloth. c. the country with the lower absolute no-trade prices for two goods, for example cloth and wine, can gain by exporting both goods. d. higher relative no-trade price for a good, for example cloth, can gain by exporting cloth.
a. lower relative no-trade price for a good, for example cloth, can gain by exporting cloth.
If a home country is exporting corn and importing bikes and if the relative price Pc/Pb is increasing, then: a. the home country will export more corn. b. the home country will import the same number of bikes. c. there is no change in the trade pattern for the home country. d. the home country will export less corn.
a. the home country will export more corn.
Which of the following transactions falls in the financial account (FA)? a. the import of home and foreign assets b. the import of factor services c. the export of goods and services d. unilateral transfers received
a. the import of home and foreign assets
Which of the following would cause a financial account (FA) surplus? a. the purchase of stock in a U.S. corporation by a foreign buyer b. the sale of heavy trucks used in construction by a domestic seller to a foreign buyer c. the sale of stock in a U.S. corporation held by a foreign owner to a domestic buyer d. the purchase of stock in a U.S. corporation by a U.S. buyer
a. the purchase of stock in a U.S. corporation by a foreign buyer
The production possibility frontier (PPF) of a country in a Ricardian model is a straight line because: a. there are no diminishing returns. b. there are diminishing returns. c. the model focuses only on two goods. d. the slope of the PPF equals the ratio of marginal products of labor of two goods.
a. there are no diminishing returns.
If the value of a country's exports is $100 billion and the value of imports is $107 billion, the trade balance is: a. −$7 billion. b. $7 billion. c. $207 billion. d. $100 billion.
a. −$7 billion.
(Scenario: A Monopolist) A monopolist faces a demand curve given by P = 20 - Q and has total costs given by TC = Q2. By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR = 20 - 2Q and its marginal cost is MC = 2Q. Now suppose that the country in which this monopolist is located decides to engage in international trade. The world price of the product produced by the monopolist is $12. What is its profit-maximizing price? a. $20 b. $12 c. $15 d. $10
b. $12
Chile and Argentina each produce jellybeans and peanut butter, using labor as their only resource. Each country has 1,000 hours of labor. In Chile, an hour produces a pound of jellybeans and 2 hours produce a pound of peanut butter. In Argentina, an hour produces a pound of jellybeans and 3 hours produces a pound of peanut butter. When they do not trade with each other, Chile consumes 600 pounds of jellybeans and 200 pounds of peanut butter, and Argentina consumes 400 pounds of jellybeans and 200 pounds of peanut butter. What is the price of peanut butter in Argentina before the two countries begin to trade with each other? a. 1/2 pound of jellybeans per pound of peanut butter b. 3 pounds of jellybeans per pound of peanut butter c. 1/3 pound of jellybeans per pound of peanut butter d. 2 pounds of jellybeans per pound of peanut butter
b. 3 pounds of jellybeans per pound of peanut butter
If the maximum number of units of cloth produced is 300 and the maximum number of units of corn produced is 600, then with an MPLcloth = 2, what is the MPLcorn? a. 5 b. 4 c. 7 d. 6
b. 4
Assume the MPLc = 2 cars and the MPLb = 5 boats. There are 150 workers in this hypothetical economy. What is the maximum number of boats that can be produced? a. 30 b. 750 c. 150 d. 300
b. 750
Gross national expenditure (GNE) is equal to: a. GNI plus NUT. b. GNDI plus the financial account (FA) and the capital account (KA). c. GDP plus NFIA. d. GNE plus TB.
b. GNDI plus the financial account (FA) and the capital account (KA).
GNDI plus the financial account (FA) and the capital account (KA) is equal to: a. GNI. b. GNE. c. GDP. d. GNDI.
b. GNE.
Which of the following is FALSE? a. Savings is less than investment if and only if current account is negative or in deficit. b. Gross national disposable income is less than gross national expenditure, if and only if current account is positive or in surplus. b. Gross national disposable income is less than gross national expenditure, if and only if current account is negative or in deficit. d. Savings is greater than investment if and only if current account is positive or in surplus.
b. Gross national disposable income is less than gross national expenditure, if and only if current account is positive or in surplus.
There are several conditions that justify limiting imports to ensure the survival of the "infant industry" and to justify government protection. Which of the following is(are) a justification? a. Protection allows a firm an opportunity to move down along its average cost curve over time to become competitive at world prices. b. Protection allows a firm to reduce future costs and cause its average cost curve to shift downwards. c. There should not be any knowledge spillovers. d. Protection allows a firm to shift its total cost curve to the left.
b. Protection allows a firm to reduce future costs and cause its average cost curve to shift downwards.
Which of the following factors is NOT part of the current account of a country? a. unilateral transfers b. Social Security contributions c. imports d. exports
b. Social Security contributions
Why do monopolistic firms practice international dumping? a. They are able to take advantage of increasing costs. b. They face more elastic demand conditions in their export market than in their local market. c. They face the same demand conditions in their local and export markets. d. They face more elastic demand conditions in their local market than in their export markets.
b. They face more elastic demand conditions in their export market than in their local market.
If we know that a country has a lower marginal product of labor (MPL) in producing a particular good than the other country, we can conclude that this country has: a. a comparative advantage in the production of the other good. b. a lower amount of output per worker for that good. c. a lower opportunity cost of producing that good. d. a comparative advantage in the production of that good.
b. a lower amount of output per worker for that good.
In the simple two-country, two-good Ricardian model described in the chapter, if one country has a comparative advantage in the production of one of the goods, then the other country has a(n) _____ advantage in the production of the other good. a. absolute b. comparative c. resource d. technological
b. comparative
Gross domestic product is composed of: a. consumption, investment, and government spending only. b. consumption, investment, government spending, and net exports. c. consumption and investment only. d. tax revenue minus government spending.
b. consumption, investment, government spending, and net exports.
The federal government approves higher spending for secondary education. In which of the following elements of GDP is this purchase included? a. gross private domestic investment b. government consumption expenditure c. personal consumption expenditure d. credit expenditure
b. government consumption expenditure
The differences in no-trade prices across countries create an opportunity for international trade between them. Specifically, the country with the _____ relative no-trade price of a good, for example cloth, can gain by exporting cloth. a. higher b. lower c. much higher d. same
b. lower
Monopolistic firms that practice international dumping: a. suffer losses on their sales in foreign markets. b. maximize their monopoly profits. c. suffer losses on their sales in domestic markets. d. are subject to antidumping taxes in their home countries.
b. maximize their monopoly profits.
A −$500 transaction in the balance of payments account: a. needs a +$1,000 balancing transaction. b. needs a +$500 balancing transaction. c. does not need a balancing transaction. d. needs a −$500 balancing transaction.
b. needs a +$500 balancing transaction.
+$90 transaction in the balance of payments account: a. does not need a balancing transaction. b. needs a −$90 balancing transaction. c. needs a +$90 balancing transaction. d. needs a −$180 balancing transaction.
b. needs a −$90 balancing transaction.
The export supply curve has a flat part at the: a. maximum quantity of that good that the country can produce. b. opportunity cost of one good's production. c. relative world price of one good. d. imports of that good.
b. opportunity cost of one good's production.
The United States, Canada, and Mexico signed the North American Free Trade Agreement to facilitate the significant trade that occurs between the three countries. The main reason the United States, Canada, and Mexico trade is:: a. Canada's large size b. proximity c. higher tariffs d. differences in technology
b. proximity
What is the MOST likely reason why neighboring nations engage in trade? a. labor availability b. proximity c. shared membership in a free-trade area d. similar tastes and preferences
b. proximity
Countervailing duties are used to offset any advantages that foreign exporters might gain over domestic producers because of foreign: a. quotas. b. subsidies. c. infant industry protection. d. tariffs.
b. subsidies.
The product of the (MPL) of corn and the total amount of labor is equal to _____ that can be produced in this economy. a. the maximum amount of bicycles b. the maximum amount of corn c. the minimum amount of corn d. the minimum amount of bicycles
b. the maximum amount of corn
A country's level of external wealth may change over time because of: a. price effects. b. valuation effects. c. credit flows. d. goods and services flows.
b. valuation effects.
In the Ricardian model, wages are equal across industries because: a. workers are freely mobile between countries. b. workers are freely mobile between industries. c. workers prefer to work in exporting industries. d. employers care for their workers.
b. workers are freely mobile between industries.
In a two-country Ricardian model, a country exports corn and imports bicycles. The relative world price of bicycles equals Pb/Pc = 2. The country's marginal products of labor to produce bicycles and corn are, respectively, MPLb = 10 and MPLc = 30. What is the real wage in terms of corn? a. 30 b. 10 c. 15 d. 60
c. 15
Which of the following is the correct equation for GDP? a. GDP = C + G b. GDP = C c. GDP = C + I + G − IM + EX d. GDP = C + I + G
c. GDP = C + I + G − IM + EX
Gross national income (GNI) is equal to: a. GNI plus NUT. b. GNE plus TB. c. GDP plus NFIA. d. GNDI plus the financial account (FA) and the capital account (KA).
c. GDP plus NFIA.
Gross national disposable income (GNDI) minus net unilateral transfers (NUT) is equal to: a. GNDI b. GDP c. GNI d. GNE
c. GNI
Gross domestic product (GDP) plus the net factor income from abroad (NFIA) is equal to: a. GNDI. b. GDP. c. GNI. d. the financial account (FA) plus the capital account (KA).
c. GNI.
What made David Ricardo's critique of mercantilism especially convincing? a. He picked Portugal and England. b. Cloth was not in fact produced in England. c. He showed that gains from trade are possible when exports do not exceed imports and that there are no tariffs. d. Portugal was a large importer of wine at the time.
c. He showed that gains from trade are possible when exports do not exceed imports and that there are no tariffs.
Which of the following is(are) why antidumping actions are used more frequently than safeguard actions? I. It is easier to meet the criterion that imports have caused "material injury" to a domestic industry than the criterion that imports were a "substantial cause of serious injury." II. The President does not need to approve antidumping duties. III. The President has to approve duties imposed under safeguard actions. a. II b. I c. I, II, and III d. III
c. I, II, and III
Assuming a firm would not survive without protection, what should the government do if the present value of the profits and value added from operating an infant industry firm exceed the deadweight loss of imposing protection? a. It should not impose the tariff—the losses exceed the gains. b. The government should just ban all imports of that product until the "infant" is able to compete on its own. c. It should impose the tariff—the gains exceed the losses. d. If it imposes the tariff, it may actually create more problems that cannot be foreseen—do not impose the tariff.
c. It should impose the tariff—the gains exceed the losses.
Why might infant industry protection of the Chinese automobile industry be considered successful? a. China has become the world's second largest consumer of autos. b. The tariff rate on Chinese imports of automobiles fell from 260% in the early 1980s to about 25% today. c. Many foreign auto producers established operations in China behind the high infant industry tariff protection. d. Chinese demand for automobiles increased dramatically in the past 20 years.
c. Many foreign auto producers established operations in China behind the high infant industry tariff protection.
Gross national disposable income (GNDI) less gross national income (GNI) is equal to: a. GNDI. b. NFIA. c. NUT. d. TB.
c. NUT.
If investment exceeds private savings, then the current account: a. must be zero. b. must be negative. c. Not enough information is provided to answer the question. d. must be positive.
c. Not enough information is provided to answer the question.
The price of a country's exports divided by the price of its imports is called: a. Opportunity cost b. The slope of the production possibility frontier c. Terms of trade d. Ratio of exports to imports
c. Terms of trade
In a two-country Ricardian model, the relative world price of bicycles equals Pb/Pc = 2. The country's marginal products of labor to produce bicycles and corn are, respectively, MPLb = 20 and MPLc = 15. In the international trade equilibrium, this country will export: a. neither bicycles nor corn. b. corn. c. bicycles. d. both bicycles and corn.
c. bicycles.
Asset exports occur when domestic entities: a. increase savings and decrease spending both domestically and internationally. b. decrease savings and increase spending on foreign goods. c. borrow internationally by selling assets to foreigners. d. save internationally by purchasing foreign assets.
c. borrow internationally by selling assets to foreigners.
The increase in total utility derived from trading products is called: a. labor productivity b. comparative advantage c. gains from trade d. trade patterns
c. gains from trade
Assume that a country does not produce a product but consumes some of it. For example, Costa Rica does not produce airplanes but Costa Rican airlines may own airplanes. Such a country is a(n) ____ of that good. a. producer b. offshorer c. importer d. exporter
c. importer
Domestic purchases of foreign goods are called: a. offshoring b. exports c. imports d. products
c. imports
The differences in no-trade prices across countries create an opportunity for international trade between them. Specifically, the country with the _____ relative no-trade price of a good, for example cloth, can gain by _____ cloth. a. lower; importing b. higher; exporting c. lower; exporting d. lower; consuming
c. lower; exporting
If we know the slope of the production possibility frontier (PPF), we can determine the: a. maximum amount of each good that can be produced if the country produces only that good. b. total amount of labor in the economy. c. opportunity cost of each product. d. marginal product of labor of each product.
c. opportunity cost of each product.
Michael buys an iPad for personal use. In which of the following elements of GDP is this purchase included? a. credit expenditure b. government consumption expenditure c. personal consumption expenditure d. gross private domestic investment
c. personal consumption expenditure
The trade balance (TB) is: a. the total income resources available to the home country. b. a measure of all international transactions in goods, services, and income that occur through market transactions or transfers. c. the difference between payments made for imports and payments received for exports. d. the value of unilateral transfers the country receives from the rest of the world minus those it gives to the rest of the world.
c. the difference between payments made for imports and payments received for exports.
(Scenario: Discriminating Monopolist) The demand curve in its local market is P = 200 - Q; the demand curve in its export market is P = 160 - 2Q; and its marginal cost is a constant $20 per unit. Its marginal revenue in the local market is MR =200 - 2Q and is MR = 160 - 4Q in the export market. What is the discriminating monopolist's profit-maximizing output in the export market? a. 110 b. 90 c. 70 d. 35
d. 35
In 2009, U.S. liabilities were dollar-denominated corporate and official debt for the most part, while U.S. external assets were mostly equities, bank loans, government debt, and foreign direct investment, denominated in foreign currencies. When the dollar fell in the wake of the financial crisis, what net effect was there on U.S. external wealth? a. External wealth declined since the dollar fell and U.S. assets were not worth as much. b. No change occurred because the change in currency value affects everything equally. c. External wealth declined since the weak dollar forced the United States to default on loans. d. External wealth rose since the value of liabilities was already in dollars and changed little, but assets denominated in foreign currencies increased in value.
d. External wealth rose since the value of liabilities was already in dollars and changed little, but assets denominated in foreign currencies increased in value.
What are the likely effects of a U.S. antidumping duty on imported steel? a. The U.S. terms of trade will improve and U.S. steel imports will rise. b. The U.S. terms of trade will worsen and U.S. steel imports will rise. c. The foreign price of steel will rise and the United States will avoid deadweight losses. d. The U.S. price of steel will rise and the United States will suffer deadweight losses.
d. The U.S. price of steel will rise and the United States will suffer deadweight losses.
(Scenario: Far North Canadian Lumber) Suppose that Far North Canadian Lumber, Ltd., sells lumber in Canada at a price of $1,000 per 1,000 board feet and exports the same lumber to the United States at a price of $600 per 1,000 board feet. U.S. Lumber, Inc., produces and sells lumber for $700 per 1,000 board feet in the United States. What other condition must be satisfied in order for the U.S. government to impose an antidumping duty on Canadian lumber imports? a. There must be material injury to both a U.S. and a Canadian lumber producer. b. There must be material injury to a Canadian lumber producer. c. All these conditions must be satisfied. d. There must be material injury to a U.S. lumber producer.
d. There must be material injury to a U.S. lumber producer.
An example of infant industry protection is the computer industry in Brazil from 1977 to 1988. It is widely concluded that the effort was: a. a complete success, because now Brazil manufactures nearly all computer CPUs. b. as measured on a cost-benefit basis, still unclear due to potential future gains. c. successful, although there were costs to pay in higher prices, making PCs unattainable for most Brazilian consumers. d. a failure.
d. a failure.
If a country's external assets are $450 billion and its external liabilities are $225 billion, the country is: a. a net debtor. b. a fiscally responsible nation. c. an underdeveloped country. d. a net creditor.
d. a net creditor.
David Ricardo believed that: a. trade cannot increase the world's output of goods. b. trade will benefit countries when it generates gold and silver for the national treasury. c. trade is a zero-sum game; that is, a country benefits at the expense of other countries. d. all nations can gain from free international trade.
d. all nations can gain from free international trade.
It is generally easier for a firm to get _______________ than _______________ ; therefore, many more of the former are in place than the latter. a. safeguard tariffs; antidumping duties b. subsidies; tariffs c. import quotas; tariffs d. antidumping and countervailing duties; safeguard tariffs
d. antidumping and countervailing duties; safeguard tariffs
Which type of tariff is used to offset subsidies on exports entering the United States? a. antidumping duties b. export duties c. safeguard duties levied under the escape clause d. countervailing duties
d. countervailing duties
Mitty's Repair buys a new engine hoist. In which of the following elements of GDP is this purchase included? a. government consumption expenditure b. credit expenditure c. personal consumption expenditure d. gross private domestic investment
d. gross private domestic investment
The differences in no-trade prices across countries create an opportunity for international trade between them. Specifically, the country with the: a. lower relative no-trade price of a good, for example cloth, can gain by importing cloth. b. lower absolute no-trade prices of two goods, for example cloth and wine, can gain by exporting both goods. c. higher relative no-trade price for a good, for example cloth, can gain by exporting cloth. d. higher relative no-trade price for a good, for example cloth, can gain by importing cloth
d. higher relative no-trade price for a good, for example cloth, can gain by importing cloth
When a firm sells products at lower prices to foreign purchasers, it is known as: a. restraint of trade. b. price gouging. c. reciprocal dumping. d. international dumping.
d. international dumping.
When a firm in one nation purchases unfinished products internationally and adds further processing to sell in the domestic market, this is known as: a. factor movement b. marketing arrangements c. barter d. offshoring
d. offshoring
A low wholesale price of a traded good, for example snowboards, can be attributed to offshoring or to low: a. demand b. wages c. tariffs d. quality
d. quality
Personal consumption expenditures equal: a. the value of all goods and services produced as output by firms, minus the value of all intermediate goods and services purchased as inputs b. the spending by the public sector on final goods and services. c. the total spending by firms or households on final goods and services to make additions to the stock of capital. d. the total spending by private households on final goods and services.
d. the total spending by private households on final goods and services.
What do net unilateral transfers (NUT) measure? a. the difference between payments made for imports and payments received for exports b. all international transactions in goods, services, and income that occur through market transactions or transfers c. the total income resources available to the home country d. the value of unilateral transfers the country receives from the rest of the world minus those it gives to the rest of the world
d. the value of unilateral transfers the country receives from the rest of the world minus those it gives to the rest of the world
