5 Minute Quizes

If the price of British pounds in terms of the U.S. dollars is $1.80 per pound, then the price of U.S. dollars in terms of British pounds is: (A) £0.555 per dollar. (B)£3.60 per dollar. (C)£0.90 per dollar. (D)£1.80 per dollar.

(A) £0.555 per dollar.

Which of the following is true of a quota: (A)A quota is a quantitative restriction on imports. (B) Imposition of a quota by a country causes the world price of the good imported by this country to rise. (C)A quota is always more efficient than a tariff. (D)Imposition of a quota causes domestic prices to fall below world prices.

(A)A quota is a quantitative restriction on imports.

Which of the following can best explain the clustering of some industries, such as banking and finance in New York City and high-technology computer production in Silicon Valley? (A)External scale economies (B)Perfect competition (C)Intra-industry trade (D)Comparative advantage

(A)External scale economies

Which of the following is true of intra-industry trade? (A)Intra-industry trade is said to occur when the United States exports Ford automobiles and imports Honda automobiles. (B)Intra-industry trade is usually discouraged by the government. (C)Intra-industry trade is said to occur when the United States exports Ford automobiles and imports petroleum. (D)Intra-industry trade is mostly based on the differences stressed in the Heckscher-Ohlin trade theory.

(A)Intra-industry trade is said to occur when the United States exports Ford automobiles and imports Honda automobiles.

A bottle of wine can be produced in France with 2 labor hours, and in the United States with 4 labor hours. A pound of beef can be produced in France with 1 labor hour, and in the United States with ½ labor hours. Which of the following is true in this context? (A)The United States has both comparative and absolute advantage in the production of beef. (B)France has an absolute advantage in the production of beef. (C)France has a comparative advantage in the production of beef. (D)The United States has an absolute, but not a comparative advantage in the production of beef.

(A)The United States has both comparative and absolute advantage in the production of beef.

Considering the United States to be a capital-abundant country, which of the following facts would contradict the predictions of the Heckscher-Ohlin theory? (A)The United States is a net importer of capital-intensive products. (B)The United States is a net importer of labor-intensive products. (C)The United States is a net importer of products that use farmland intensively. (D)The United States is a net importer of certain natural resources such as petroleum.

(A)The United States is a net importer of capital-intensive products.

Which of the following is an impact of tariffs on the country imposing them? (A)The domestic consumers pay a higher price for the imported products. (B)The domestic producers of import-competing products are forced to charge a lower price for their products to retain market share. (C)The supply of the domestic import-competing products declines. (D)The demand for the imported goods by the domestic consumers increases.

(A)The domestic consumers pay a higher price for the imported products.

Which of the following is true of a common market? (A)There is free movement of capital and labor among the member countries. (B)The member countries export similar products to the non-member countries. (C)The member countries have identical monetary and fiscal policies. (D)The member countries do not import any good from the non-member countries.

(A)There is free movement of capital and labor among the member countries.

International trade patterns are broadly consistent with the Heckscher-Ohlin prediction that nations tend to export the products that use their abundant factors intensively. (A)True (B)False

(A)True

Mercantilists believed that a country gains from international trade only at the expense of another country or countries. (A)True (B)False

(A)True

A debit item in the balance of payments is: (A)an item for which the country must pay. (B) (C) (D)

(A)an item for which the country must pay.

Cooperation between oligopolistic firms is difficult because: (A)each firm has an incentive to "cheat" on the agreements made. (B)firms gain more through competition. (C)firms rarely have mutual interests. (D)each firm has a monopoly power on its own product.

(A)each firm has an incentive to "cheat" on the agreements made.

If international trade is based on product differentiation, for a country the basis for: (A)exporting is the domestic production of unique models or varieties demanded by some consumers in foreign markets. (B)importing is that the price of the imports is the same as the price of the domestic products. (C)exporting is that the domestic producers can charge a much higher price in the international markets. (D)importing is that foreign firms usually enjoy external scale economies.

(A)exporting is the domestic production of unique models or varieties demanded by some consumers in foreign markets.

For small open economy, assume that the marginal propensity to import is 0.3, and that interest rates, exchange rates, and the price level are all constant. If an increase of $10 billion in government spending results in an increase of $6 billion in imports, then: (A)real GDP increases by $4 billion. (B) taxes increase by $10 billion. (C) real domestic investment decreases by $4 billion. (D)the spending multiplier is 2.

(A)real GDP increases by $4 billion.

Other things remaining unchanged, if American exports to Japan increase and American imports from Japan decrease, then under a floating exchange rate system, we would expect: (A)the U.S. dollar to appreciate (B)the supply curve of Japanese yen to shift inward. (C)the yen value of a U.S. dollar to be higher in Tokyo than in New York. (D)the demand for Japanese yen to increase in the foreign exchange market.

(A)the U.S. dollar to appreciate

A country's balance of payments records: (A)the flows of value between that country's residents and residents of the rest of the world during a period of time. (B) (C) (D)

(A)the flows of value between that country's residents and residents of the rest of the world during a period of time.

The United States is relatively capital-abundant because: (A)the ratio of capital to other inputs is greater in the United States than that in the rest of the world. (B)capital costs more in the United States than in the rest of the world. (C)the United States has more capital than the rest of the world. (D)the United States produces and exports primary products to the rest of the world and imports manufactured goods.

(A)the ratio of capital to other inputs is greater in the United States than that in the rest of the world.

A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: World price of wine (free trade): $20 per bottle Domestic production (free trade): 500,000 bottles Domestic production (after tariff): 600,000 bottles Domestic consumption (free trade): 750,000 bottles Domestic consumption (after tariff): 650,000 bottles The imposition of the tariff on wine will cause the surplus of the domestic consumers to _____ by _____. (A) rise; $3.5 million (B) fall; $3.5 million (C) fall; $250,000 (D)fall; $10 million

(B) fall; $3.5 million

Harry used work in a launderette and earned $30 a day. After work, he normally had a chicken burger worth $5 at McDonalds. However, his pay was lowered to $20 some days later. Then after work he used to have a vegetable burger worth $3. Here the vegetable burger is an example of a(n): (A)normal good. (B) inferior good. (C)luxury good. (D)complement good.

(B) inferior good.

According to the relative version of purchasing power parity, when the inflation differential between the foreign country and the home country is positive: (A)the inflation rate in the home country tends to decrease. (B) the domestic currency tends to appreciate. (C)the domestic currency tends to depreciate. (D)the inflation rate in the home country overshoots

(B) the domestic currency tends to appreciate.

A small country imports T-shirts. With free trade at a world price of $10, domestic production is 10 million T-shirts and domestic consumption is 42 million T-shirts. The country's government now decides to impose a quota to limit T-shirt imports to 20 million per year. With the import quota in place, the domestic price rises to $12 per T-shirt and domestic production rises to 15 million T-shirts per year. If the government auctions the quota licenses, calculate the revenue collected by the government. (A)$240 million (B)$40 million (C) (D)

(B)$40 million

If the marginal propensity to save is 0.3 and the marginal propensity to import is 0.2, then value of the simple spending multiplier is: (A)1.5 (B)2.0 (C)0.1 (D)0.5

(B)2.0

If a country does not have an absolute advantage in the production of at least one commodity, then it cannot gain from free trade. (A)True (B)False

(B)False

Which of the following statements is true? (A)If the expected future spot exchange rate value of the foreign currency decreases, there will be international financial repositioning toward foreign-currency assets, thereby causing the domestic currency to depreciate. (B)If the domestic interest rate rises, there will be international financial repositioning toward domestic-currency assets, thereby causing the domestic currency to appreciate. (C)If the expected future spot dollar per euro exchange rate increases, there will be international financial repositioning toward the dollar-denominated assets thereby causing the euro to depreciate. (D)If foreign interest rates increase, the domestic interest rate remaining unchanged, there will be international financial repositioning toward domestic-currency assets and the domestic currency will appreciate

(B)If the domestic interest rate rises, there will be international financial repositioning toward domestic-currency assets, thereby causing the domestic currency to appreciate.

Which of the following is true of consumer surplus? (A)It is graphically represented as the area under the equilibrium price and above the supply curve of a good. (B)It is the difference between the value that one places on a good and the price paid for the good. (C)It is used to measure the impact of a change in price on the economic well-being of the producers. (D)It is the net gain in economic well-being associated with producing and selling the equilibrium quantity of a good.

(B)It is the difference between the value that one places on a good and the price paid for the good.

The table given below shows the units of land and labor required to produce a unit of bread and cheese respectively in country X. Identify the correct statement. bread cheese Labor Input 5 20 Land Input 4 10 (A)The opportunity cost of producing an extra unit of bread is 2 units of cheese. (B)Production of bread is relatively land-intensive in the country. (C)Production of bread is relatively labor-intensive in the country. (D)The domestic price ratio in the country is 2 units of bread per unit of cheese.

(B)Production of bread is relatively land-intensive in the country.

According to the specialized-factor pattern, the more a factor is concentrated in the production of a product, the more it stands to gain from an increase in the price of this product. (A)False (B)True

(B)True

Free trade is a zero-sum activity because a county always gains at the expense of its trading partner. (A)False (B)True

(B)True

Trade makes some people absolutely better off and others absolutely worse off in each of the trading countries. However, the gainers and losers in the short-run are somewhat different from those in the long-run, because more adjustment can occur in the long-run. (A)False (B)True

(B)True

When taking into account foreign-income repercussions, the spending multiplier is: (A)larger because an increase in domestic imports causes a surplus in the official settlements balance (B)larger because an increase in domestic imports causes foreign income to rise and thus boosts domestic exports. (C) (D)

(B)larger because an increase in domestic imports causes foreign income to rise and thus boosts domestic exports.

Governments choose to use voluntary export restraints rather than tariffs because: (A)the increase in the price of the imported good in the domestic market is much lower in case of VERs than tariffs. (B)tariffs more obviously violate the international rules of the WTO. (C) (D)

(B)tariffs more obviously violate the international rules of the WTO.

If a small country imposes a tariff on imported motorcycles: (A)the surplus of both the domestic producers and consumers of motorcycles will decline. (B)the surplus of the domestic producers of motorcycles will increase, but the surplus of the domestic consumers will decline. (C)the surplus of the domestic producers of motorcycles will decline, but the surplus of the domestic consumers will increase. (D)the surplus of both the domestic producers and consumers of motorcycles will increase.

(B)the surplus of the domestic producers of motorcycles will increase, but the surplus of the domestic consumers will decline.

In international trade jargon, constant cost production-possibility curves are associated with _____ specialization while increasing cost production-possibility curves are associated with _____ specialization. (A) no; partial (B)partial; complete (C) complete; partial (D)complete; no

(C) complete; partial

If a country exports the good that it can produce at a low opportunity cost and imports those goods that it would otherwise produce at a high opportunity cost, we say that such trade is based on: (A)the theory of absolute advantage (B)theory of factor endowments (C) the theory of comparative advantage. (D)the arbitrage pricing theory.

(C) the theory of comparative advantage.

Which of the following is an expected effect of a tariff or a nontariff barrier (NTB) on a product? (A)A decrease in government revenue (B)A decrease in the domestic production of the product (C)An increase in the employment of labor and other resources used in the import-competing industry in the tariff imposing country (D)An increase in domestic consumption of the imported product

(C)An increase in the employment of labor and other resources used in the import-competing industry in the tariff imposing country

If C represents aggregate consumption, Id represents domestic investments, G represents government expenditures, E represents national expenditures on goods and services, X represents foreign demands for exports, and M represents domestic demand for imports, then aggregate demand in an economy equals: (A)C + Id + G. (B)E + C + Id + (X - M). (C)C + Id + G + (X - M). (D)C + Id + G + (M - X).

(C)C + Id + G + (X - M).

In a country's balance of payments, which of the following items will be recorded as a debit entry? (A)Assets owned by domestic residents are sold to nonresidents (B)Foreign bank balances owned by domestic residents are reduced (C)Domestic bank balances owned by foreigners are reduced (D)

(C)Domestic bank balances owned by foreigners are reduced

Which of the following statements is true? (A)All the domestic producers benefit when a country engages in free trade. (B)Free trade causes contraction of the export-oriented sector. (C)Free trade causes contraction in the import-competing sector. (D)Free trade restricts consumption choices of the domestic consumers.

(C)Free trade causes contraction in the import-competing sector.

Which of these statements about cartel pricing power is true? (A)The more inelastic the market-demand for the cartel's product, the lower will be the price that the cartel members can charge to maximize profits. (B)The greater the elasticity of supply of the non-cartel members, the higher will be the price set by the cartel members. (C)The higher the piling up of unsold inventories, the higher will be the price set by the cartel members. (D)The larger the share of world production controlled by the cartel, the higher will be the price set by the members.

(C)The higher the piling up of unsold inventories, the higher will be the price set by the cartel members.

Which of the following refers to trade diversion? (A)The change in the trade pattern such that the good which was formerly imported is now exported as the government subsidizes its production (B)The volume of trade that is redirected from low-cost exporters to higher cost domestic firms when the domestic government imposes import restrictions (C)The volume of trade that is redirected from low-cost exporters to higher-cost trade bloc member countries (D)

(C)The volume of trade that is redirected from low-cost exporters to higher-cost trade bloc member countries

The exchange rate policy of a "crawling peg" adopted by the Chinese government in 2005 means that the government (A)held a balanced portfolio of assets including a variety of foreign currencies. (B)caved in to pressures from foreign governments. (C)allowed small and controlled changes in the exchange-rate value over time. (D)pegged the Yuan to the U.S. dollar at the equilibrium exchange rate.

(C)allowed small and controlled changes in the exchange-rate value over time.

The Heckscher-Ohlin theory predicts that trade between similar industrialized countries should: (A)be bidirectional with one country exporting products to the other countries and simultaneously importing very similar products from them. (B)be much greater than trade between developed and developing countries. (C)be rather limited in volume. (D)consist mainly of highly sophisticated manufactured goods.

(C)be rather limited in volume.

Assume a two-country, two-good, and two-input model. Let the two countries in this model be the United States and the Rest of the World and the two goods being produced by each of the countries be steel and wheat. The two factors of production used in producing the goods in each country are capital and land. If the United States is capital-abundant and steel production is capital-intensive, the Heckscher-Ohlin model would predict that the United States would: (A)import both the goods from the rest of the world. (B)export wheat and import steel. (C)export steel and import wheat. (D) export both the goods to the rest of the world.

(C)export steel and import wheat.

In a "second-best" world: (A)tariffs are economically optimal. (B)social marginal cost of a transaction equals social marginal benefit. (C)private actions do not lead to the best possible outcomes for society. (D)private actions are dictated by government agencies

(C)private actions do not lead to the best possible outcomes for society.

A large country can gain from imposing a tariff on the import of a good if: (A)the tariff drives the quantity imported to zero. (B)the part of the tariff paid by the foreign exporters is greater than the losses arising from the production and consumption effects of the tariff in the domestic market (C)the tariff is high enough that the country becomes an exporter of the product. (D)the tariff revenue collected by the domestic government is less than the losses caused by the production and consumption effects of the tariff.

(C)the tariff is high enough that the country becomes an exporter of the product.

"China is not a typical developing nation." Which of the following economic features is most likely to justify this claim? (A)The government of China spends a significant portion of its revenue on national defense. (B)China has a large trade deficit with the United States. (C)The Chinese government favors a freely floating exchange rate policy. (D) China has a high national saving rate.

(D) China has a high national saving rate.

Suppose the domestic supply (QS) and demand (QD) for skateboards in the United States are given by the following set of equations: QS = -60 + 3P QD = 390 - 2P In the absence of international trade in skateboards, what will be the equilibrium price of skateboards in the United States? (A)$150 (B)$45 (C)$66 (D)$90

(D)$90

Which of the following factors can lead to an increase in demand for coffee at Starbucks? (A)An increase in the price of coffee beans (B)An increase in the price of sugar (C)10 percent decline in local population (D)An increase in household income

(D)An increase in household income

Which of the following asserts that temporary protection from international competition is needed for a nascent industry that initially has high costs? (A)The dying industry argument (B)The developing government argument (C)The optimal tariff argument (D)The infant industry argument

(D)The infant industry argument

Which of the following correctly identifies the impact of tariffs on the producers of import-competing products in the imposing country? (A)They can price their products higher than the imported goods. (B)They are forced to go out of business in the long run. (C)They are forced to charge a price equal to the average cost of production. (D)They can expand their production and sales.

(D)They can expand their production and sales.

Which of the following is NOT true of nontariff barriers to imports? (A)Like tariffs, nontariff barriers also result in a net welfare loss in a small country. (B)Nontariff barriers can limit imports with greater certainty than tariffs. (C)Some nontariff barriers create uncertainty about the conditions under which imports will be permitted. (D)Unlike tariffs, the nontariff barriers do not increase the price of the imported goods in the domestic markets.

(D)Unlike tariffs, the nontariff barriers do not increase the price of the imported goods in the domestic markets.

A credit item in the balance of payments is: (A)any imported item. (B)an item that creates a monetary claim owed to a foreigner. (C)any loan given out by the country. (D)an item for which the country must be paid.

(D)an item for which the country must be paid.

The supply of money in a country like the United States is controlled by the (A)International Monetary Fund. (B)political party in charge of the government of the country. (C)commercial banks in the country. (D)central bank of the country.

(D)central bank of the country.

The IS curve has a: (A)positive slope because a higher interest rate leads to an increase in aggregate savings and thus an increase in domestic real investment. (B)negative slope because a higher interest rate leads to a decrease in government spending which reduces domestic output level. (C)positive slope because a higher interest rate leads to an increase in foreign investment and thus raises the level of aggregate income. (D)negative slope because a higher interest rate leads to a decrease in aggregate demand that results in lowering of domestic production level.

(D)negative slope because a higher interest rate leads to a decrease in aggregate demand that results in lowering of domestic production level.

The table given below shows the number of labor hours required to produce 1 umbrella and 1 bushel of corn in the U.K. and the Rest of the World. The United Kingdom has an absolute advantage in the production of _____. Labor hours to make: In the United Kingdom In the Rest of the World 1 umbrella 3.00 2.00 1 bushel of corn 1.00 0.25 (A)both corn and umbrella (B) only corn (C)only umbrella (D)neither corn nor umbrella

(D)neither corn nor umbrella

The table given below shows the units of land and labor required to produce a unit of bread and cheese respectively in country X. If country X is a relatively land-abundant country, the opening up of free trade would cause the price of bread relative to cheese to: bread cheese Labor Input 5 20 Land Input 4 10 (A)initially rise but fall afterward. (B)fall. (C)stay the same. (D)rise.

(D)rise.

In the case of a small country, the effects of a quota and a tariff are (almost) identical if: (A)the government allocates import licenses directly to the public using a free lottery system. (B)the government allocates licenses for free to importers using a rule or process that involves (almost) no resource cost. (C)the government allocates licenses to importers through application and selection procedures that require the use of substantial resources. (D)the government auctions off import licenses to the highest bidder.

(D)the government auctions off import licenses to the highest bidder.

The unskilled wage rate in a country may decline if (A)the corporate taxes are lowered by the government (B)the demand for unskilled workers increases. (C)the aggregate demand for goods and services increases in the country. (D)there's increased immigration of low-skilled workers.

(D)there's increased immigration of low-skilled workers.

The law of one price works better if: (A) there is incomplete information. (B)the governments of the trading countries implement adequate trade barriers. (C)there are few buyers and sellers. (D)transportation costs for the product are close to zero.

(D)transportation costs for the product are close to zero.

If natural gas produced in the U.S. was exported to countries in Asia and Europe, what factor would likely increase the price of that natural gas in the importing countries? (a) The U.S. would impose export charges on each unit of natural gas exported and those charges would be passed along to the importing countries. (b)Natural gas from the U.S. would have to be liquefied and transported in specially-designed ships to Asia and Europe, so transportation costs would increase the price of the imported natural gas in Asia and Europe. (c)Exporters in the U.S. would arbitrarily inflate the costs of production so that the importing countries would pay higher prices. (d)Importing countries would impose tariffs on the imported natural gas and those tariffs be passed along by exporting companies to importing countries.

(b)Natural gas from the U.S. would have to be liquefied and transported in specially-designed ships to Asia and Europe, so transportation costs would increase the price of the imported natural gas in Asia and Europe.