Question 1

Specialization and trade allow an economy to expand its:

Accepted Answer

A)  production possibilities. 
B)  consumption possibilities. 
C)  technological advantage. 
D)  absolute advantage. 
A)  production possibilities. 
B)  consumption possibilities. 
C)  technological advantage. 
D)  absolute advantage.

Question 2

Exhibit 15-1 Production possibilities curves
 
In Exhibit 15-1, the production possibilities curves of wheat and corn for Nabia and Pada are presented. In Nabia the cost of producing one more unit of wheat is equal to:

Accepted Answer

A)  4 units of corn. 
B)  4 units of wheat. 
C)  1/4 unit of corn. 
D)  15 units of corn. 
A)  4 units of corn. 
B)  4 units of wheat. 
C)  1/4 unit of corn. 
D)  15 units of corn.

Question 3

If nation A has an absolute advantage over nation B in the production of a product, this implies that:

Accepted Answer

A)  it requires fewer resources in A to produce the good than in B. 
B)  the cost of producing the good in terms of some other good's production that must be sacrificed is lower in A than in B. 
C)  nation B could not benefit by engaging in trade with A. 
D)  nation A could not benefit by engaging in trade with B. 
A)  it requires fewer resources in A to produce the good than in B. 
B)  the cost of producing the good in terms of some other good's production that must be sacrificed is lower in A than in B. 
C)  nation B could not benefit by engaging in trade with A. 
D)  nation A could not benefit by engaging in trade with B.

Question 4

Which of the following is an infant-industry argument in favor of restrictions on foreign trade?

Accepted Answer

A)  Foreign producers must be stopped from selling their products in this country below cost of production. 
B)  Domestic workers must be protected from the lower wages paid in foreign countries. 
C)  The nation's security demands we ensure an adequate domestic supply capacity of certain products. 
D)  Industries in the early stages of development must be protected from more mature producers. 
A)  Foreign producers must be stopped from selling their products in this country below cost of production. 
B)  Domestic workers must be protected from the lower wages paid in foreign countries. 
C)  The nation's security demands we ensure an adequate domestic supply capacity of certain products. 
D)  Industries in the early stages of development must be protected from more mature producers.

Question 5

If Japan has a current account surplus, then it must:

Accepted Answer

A)  have an offsetting capital account deficit. 
B)  also have a surplus in its capital account. 
C)  import more goods than it exports. 
D)  have a positive balance of payments. 
A)  have an offsetting capital account deficit. 
B)  also have a surplus in its capital account. 
C)  import more goods than it exports. 
D)  have a positive balance of payments.

Question 6

Since World War II, tariff reductions have occurred in large part because of negotiations under the:

Accepted Answer

A)  Industry and Trade Administration Act. 
B)  Employment Act. 
C)  Monetary Control Act. 
D)  General Agreement on Tariffs and Trade. 
A)  Industry and Trade Administration Act. 
B)  Employment Act. 
C)  Monetary Control Act. 
D)  General Agreement on Tariffs and Trade.

Question 7

Which of the following transactions would be recorded as a credit in the U.S. current account?

Accepted Answer

A)  a Japanese bank's purchase of IBM stock 
B)  a Japanese consumer's purchase of an Apple computer 
C)  an American tourist's payment to a Japanese hotel 
D)  an American consumer's purchase of a Toshiba VCR 
A)  a Japanese bank's purchase of IBM stock 
B)  a Japanese consumer's purchase of an Apple computer 
C)  an American tourist's payment to a Japanese hotel 
D)  an American consumer's purchase of a Toshiba VCR

Question 8

If the opportunity cost of producing cheese is higher in Greece than it is in Italy, then:

Accepted Answer

A)  Greece should specialize in producing cheese. 
B)  Italy should specialize in producing cheese. 
C)  both Greece and Italy should produce cheese. 
D)  Greece gives up fewer goods to produce cheese than Italy does. 
A)  Greece should specialize in producing cheese. 
B)  Italy should specialize in producing cheese. 
C)  both Greece and Italy should produce cheese. 
D)  Greece gives up fewer goods to produce cheese than Italy does.

Question 9

Suppose a German bank purchases a U.S. Treasury bond. This transaction would be recorded in the:

Accepted Answer

A)  capital account. 
B)  current account. 
C)  goods trade balance. 
D)  unilateral transfers. 
A)  capital account. 
B)  current account. 
C)  goods trade balance. 
D)  unilateral transfers.

Question 10

The infant-industry argument about tariffs argues that:

Accepted Answer

A)  it is unfair to levy tariffs on items intended for use by infants. 
B)  tariffs should be levied on foreign products that compete with new domestic industries only in the short run. 
C)  if a newly established domestic industry can survive in the short run, a tariff should be levied to protect it from foreign competition in the long run. 
D)  permanent tariffs should be levied on foreign products that compete with those produced by newly established domestic industries. 
A)  it is unfair to levy tariffs on items intended for use by infants. 
B)  tariffs should be levied on foreign products that compete with new domestic industries only in the short run. 
C)  if a newly established domestic industry can survive in the short run, a tariff should be levied to protect it from foreign competition in the long run. 
D)  permanent tariffs should be levied on foreign products that compete with those produced by newly established domestic industries.

Question 11

An increase in demand for a nation's currency in the foreign exchange market will:

Accepted Answer

A)  cause the nation's currency to appreciate. 
B)  make it more expensive for the nation to import goods. 
C)  cause the nation's balance on current account to shift toward a surplus. 
D)  make it less expensive for foreigners to buy the nation's goods. 
A)  cause the nation's currency to appreciate. 
B)  make it more expensive for the nation to import goods. 
C)  cause the nation's balance on current account to shift toward a surplus. 
D)  make it less expensive for foreigners to buy the nation's goods.

Question 12

Suppose rice can be produced in country X at a lower cost than in country Y, while tuna can be produced in country Y at a lower cost than in country X. International competition will:

Accepted Answer

A)  destroy the rice market in both countries. 
B)  drive X to specialize in rice and Y to specialize in tuna. 
C)  drive Y to specialize in rice and X to specialize in tuna. 
D)  cause both X and Y to reject international specialization. 
A)  destroy the rice market in both countries. 
B)  drive X to specialize in rice and Y to specialize in tuna. 
C)  drive Y to specialize in rice and X to specialize in tuna. 
D)  cause both X and Y to reject international specialization.

Question 13

The main explanation for why the cheap foreign labor argument is a poor reason for restricting international trade is that:

Accepted Answer

A)  workers who get paid less tend to have lower productivity than those who get paid more. 
B)  all firms and workers gain when there are no restrictions on international trade. 
C)  infant industries such as steel and automobiles need to be protected. 
D)  specialization and free trade usually raise the prices of all the traded goods, so that the workers can get paid more. 
A)  workers who get paid less tend to have lower productivity than those who get paid more. 
B)  all firms and workers gain when there are no restrictions on international trade. 
C)  infant industries such as steel and automobiles need to be protected. 
D)  specialization and free trade usually raise the prices of all the traded goods, so that the workers can get paid more.

Question 14

Which of the following is not an argument used in favor of protectionism?

Accepted Answer

A)  to protect an "infant" industry 
B)  to reduce prices paid by domestic consumers 
C)  to preserve national security 
D)  to protect against "unfair" competition because of cheap foreign labor 
A)  to protect an "infant" industry 
B)  to reduce prices paid by domestic consumers 
C)  to preserve national security 
D)  to protect against "unfair" competition because of cheap foreign labor

Question 15

Comparative advantage indicates that:

Accepted Answer

A)  specialization and exchange will permit trading partners to maximize their joint consumption. 
B)  a nation can gain from trade only if it is not at an absolute disadvantage in producing all goods. 
C)  a nation can gain from trade only when its trading partners are not low-wage countries. 
D)  countries should export products for which they are high-opportunity cost producers. 
A)  specialization and exchange will permit trading partners to maximize their joint consumption. 
B)  a nation can gain from trade only if it is not at an absolute disadvantage in producing all goods. 
C)  a nation can gain from trade only when its trading partners are not low-wage countries. 
D)  countries should export products for which they are high-opportunity cost producers.

Question 16

Which of the following would not be counted in the U.S. BOP current account?

Accepted Answer

A)  Helen, an American oil engineer, is a paid adviser to Middle Eastern countries in the area of petroleum extraction. 
B)  General Motors Corporation owns buildings that are situated in Mexico. 
C)  France purchases a new jet fighter aircraft from the Boeing Company in the U.S. 
D)  Martha receives a $50 dividend check on stock she owns in a business in Germany. 
A)  Helen, an American oil engineer, is a paid adviser to Middle Eastern countries in the area of petroleum extraction. 
B)  General Motors Corporation owns buildings that are situated in Mexico. 
C)  France purchases a new jet fighter aircraft from the Boeing Company in the U.S. 
D)  Martha receives a $50 dividend check on stock she owns in a business in Germany.

Question 17

The current account in the BOP records:

Accepted Answer

A)  all money flowing between countries. 
B)  a nation's yearly exports and imports of goods and services. 
C)  only the transactions involving capital goods in international trade. 
D)  only the transactions involving consumer goods in international trade. 
A)  all money flowing between countries. 
B)  a nation's yearly exports and imports of goods and services. 
C)  only the transactions involving capital goods in international trade. 
D)  only the transactions involving consumer goods in international trade.

Question 18

Which of the following would cause the U.S. dollar to depreciate against the Japanese yen?

Accepted Answer

A)  greater popularity of U.S. exports in Japan 
B)  a higher price level in Japan 
C)  higher real interest rates in the United States 
D)  higher incomes in the United States 
A)  greater popularity of U.S. exports in Japan 
B)  a higher price level in Japan 
C)  higher real interest rates in the United States 
D)  higher incomes in the United States

Question 19

The rules of the WTO:

Accepted Answer

A)  apply only to domestic trade within a nation. 
B)  apply to both domestic trade within a nation and international trade with other nations. 
C)  apply only to trade among nations. 
D)  include a prohibition of tariffs. 
A)  apply only to domestic trade within a nation. 
B)  apply to both domestic trade within a nation and international trade with other nations. 
C)  apply only to trade among nations. 
D)  include a prohibition of tariffs.

Question 20

The main problem with using the infant industries argument to justify protecting an industry from foreign competition is that:

Accepted Answer

A)  all industries will claim that they are infant industries in order to gain protection. 
B)  the protected industry will become too efficient and drive out foreign competition. 
C)  once in place, it is difficult to remove protection even as the industry matures. 
D)  it causes the goods that are produced in the protected industry to have lower prices. 
A)  all industries will claim that they are infant industries in order to gain protection. 
B)  the protected industry will become too efficient and drive out foreign competition. 
C)  once in place, it is difficult to remove protection even as the industry matures. 
D)  it causes the goods that are produced in the protected industry to have lower prices.

Exam 28: International Trade and Finance

Specialization and trade allow an economy to expand its:

Exhibit 15-1 Production possibilities curves In Exhibit 15-1, the production possibilities curves of wheat and corn for Nabia and Pada are presented. In Nabia the cost of producing one more unit of wheat is equal to:

If nation A has an absolute advantage over nation B in the production of a product, this implies that:

Which of the following is an infant-industry argument in favor of restrictions on foreign trade?

If Japan has a current account surplus, then it must:

Since World War II, tariff reductions have occurred in large part because of negotiations under the:

Which of the following transactions would be recorded as a credit in the U.S. current account?

If the opportunity cost of producing cheese is higher in Greece than it is in Italy, then:

Suppose a German bank purchases a U.S. Treasury bond. This transaction would be recorded in the:

The infant-industry argument about tariffs argues that:

An increase in demand for a nation's currency in the foreign exchange market will:

Suppose rice can be produced in country X at a lower cost than in country Y, while tuna can be produced in country Y at a lower cost than in country X. International competition will:

The main explanation for why the cheap foreign labor argument is a poor reason for restricting international trade is that:

Which of the following is not an argument used in favor of protectionism?

Comparative advantage indicates that:

Which of the following would not be counted in the U.S. BOP current account?

The current account in the BOP records:

Which of the following would cause the U.S. dollar to depreciate against the Japanese yen?

The rules of the WTO:

The main problem with using the infant industries argument to justify protecting an industry from foreign competition is that:

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

Filters