Question 1

If the current account and capital account are both in surplus, the official reserve account does not have to be in deficit.

Accepted Answer

A) True 
 B)False

Question 2

Assume the United States can use a given amount of its resources to produce either 20 airplanes or 8 automobiles and Japan can employ the same amount of its resources to produce either 20 airplanes or 10 automobiles. The U.S. should specialize in:

Accepted Answer

A)  airplanes. 
B)  automobiles. 
C)  both goods. 
D)  neither good. 
A)  airplanes. 
B)  automobiles. 
C)  both goods. 
D)  neither good.

Question 3

Exhibit 21-4  Coffee and tea output (pounds per hour)   As shown in Exhibit 21-4, compared to Brazil, China has a comparative advantage in the production of:

Accepted Answer

A)  coffee. 
B)  tea. 
C)  both coffee and tea. 
D)  neither coffee nor tea. 
A)  coffee. 
B)  tea. 
C)  both coffee and tea. 
D)  neither coffee nor tea.

Question 4

What are the benefits and costs to a nation that participates in international trade? Do the benefits outweigh the costs or do the costs outweigh the benefits?

Accepted Answer

The benefits to a nation of specializing

Question 5

Protectionist policies such as tariffs and quotas are beneficial to the nation imposing those trade barriers.

Accepted Answer

A) True 
 B)False

Question 6

If people's incomes decrease, their demand for other currencies shifts to the right.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is the best example of a quota?

Accepted Answer

A)  a tax placed on all small cars sold in the domestic market 
B)  a limit imposed on the number of men's suits that can be imported from a foreign country 
C)  a subsidy from the U.S. government to domestic manufacturers of men's suits so they can compete more effectively with foreign producers of men's suits 
D)  a $100-per-car fee imposed on all small imported cars 
A)  a tax placed on all small cars sold in the domestic market 
B)  a limit imposed on the number of men's suits that can be imported from a foreign country 
C)  a subsidy from the U.S. government to domestic manufacturers of men's suits so they can compete more effectively with foreign producers of men's suits 
D)  a $100-per-car fee imposed on all small imported cars

Question 8

Suppose you are traveling from the United States to Djibouti on vacation. You would be better off on your vacation if:

Accepted Answer

A)  exchange rates did not change after you bought Djiboutian francs. 
B)  you had purchased Djiboutian francs in Djibouti and not in New York. 
C)  the Djiboutian franc became more powerful with respect to the U.S. dollar. 
D)  the exchange rate increased. 
E)  the exchange rate decreased. 
A)  exchange rates did not change after you bought Djiboutian francs. 
B)  you had purchased Djiboutian francs in Djibouti and not in New York. 
C)  the Djiboutian franc became more powerful with respect to the U.S. dollar. 
D)  the exchange rate increased. 
E)  the exchange rate decreased.

Question 9

When an exchange rate is determined strictly by the demands and supplies for a nation's currency, it is called:

Accepted Answer

A)  fixed. 
B)  arbitrage. 
C)  floating. 
D)  unilateral. 
E)  balance of payments. 
A)  fixed. 
B)  arbitrage. 
C)  floating. 
D)  unilateral. 
E)  balance of payments.

Question 10

Suppose the exchange rate changes so that more Japanese yen are required to buy a dollar. We could conclude that:

Accepted Answer

A)  the Japanese yen has appreciated in value. 
B)  U.S. citizens will buy more Japanese imports. 
C)  Japanese will demand more U.S. exports. 
D)  U.S. citizens will buy less Japanese imports. 
A)  the Japanese yen has appreciated in value. 
B)  U.S. citizens will buy more Japanese imports. 
C)  Japanese will demand more U.S. exports. 
D)  U.S. citizens will buy less Japanese imports.

Question 11

Suppose that country X can produce 1,000 pounds of flour per hour, or catch 500 pounds of fish per hour.   In contrast, country Y can produce 1,800 pounds of flour per hour, or catch 300 pounds of fish per hour. If both countries specialize in their comparative advantage and trade, by how much combined output of fish and flour per hour be greater than if there were no trade and the countries divide an hour of time equally between each output? ​

Accepted Answer

A)  ​200 pounds of flour and 200 pounds of fish. 
B)  ​400 pounds of flour and 100 pounds of fish. 
C)  ​50 pounds of flour and 50 pounds of fish. 
D)  ​160 pounds of flour and 200 pounds of fish. 
A)  ​200 pounds of flour and 200 pounds of fish. 
B)  ​400 pounds of flour and 100 pounds of fish. 
C)  ​50 pounds of flour and 50 pounds of fish. 
D)  ​160 pounds of flour and 200 pounds of fish.

Question 12

A tariff has the effect of granting ____ a larger share of the domestic market.

Accepted Answer

A)  domestic consumers 
B)  foreign consumers 
C)  domestic producers 
D)  foreign producers 
E)  no producers or consumers 
A)  domestic consumers 
B)  foreign consumers 
C)  domestic producers 
D)  foreign producers 
E)  no producers or consumers

Question 13

The argument that foreign trade should be restricted to protect domestic employment and output is based on the idea that:

Accepted Answer

A)  consumers are willing to pay higher prices for domestic goods. 
B)  producers will not exploit reduced foreign competition by charging higher prices. 
C)  foreign companies are more costly to deal with than domestic companies. 
D)  sales of imports come at the expense of domestic goods and jobs. 
A)  consumers are willing to pay higher prices for domestic goods. 
B)  producers will not exploit reduced foreign competition by charging higher prices. 
C)  foreign companies are more costly to deal with than domestic companies. 
D)  sales of imports come at the expense of domestic goods and jobs.

Question 14

Exhibit 21-1  Production possibilities curves   In Exhibit 21-1, the production possibilities curves of wheat and corn for Nabia and Pada are presented. In Pada the cost of producing one more unit of wheat is equal to:

Accepted Answer

A)  3 units of corn. 
B)  1/3 unit of corn. 
C)  1/3 unit of wheat. 
D)  15 units of corn. 
E)  30 units of corn. 
A)  3 units of corn. 
B)  1/3 unit of corn. 
C)  1/3 unit of wheat. 
D)  15 units of corn. 
E)  30 units of corn.

Question 15

The exchange rate is the:

Accepted Answer

A)  value of money. 
B)  quantity of dollars, yen, etc. that are traded. 
C)  amount of a foreign currency that is brought back to the United States by tourists. 
D)  number of units of your currency that it takes to buy one unit of a foreign currency. 
E)  number of units of a foreign currency that can be bought with one unit of your own currency. 
A)  value of money. 
B)  quantity of dollars, yen, etc. that are traded. 
C)  amount of a foreign currency that is brought back to the United States by tourists. 
D)  number of units of your currency that it takes to buy one unit of a foreign currency. 
E)  number of units of a foreign currency that can be bought with one unit of your own currency.

Question 16

The purchase of U.S. assets by foreigners is a:

Accepted Answer

A)  capital inflow. 
B)  capital outflow. 
C)  current account deficit. 
D)  unilateral transfer. 
A)  capital inflow. 
B)  capital outflow. 
C)  current account deficit. 
D)  unilateral transfer.

Question 17

Exhibit 21-4  Coffee and tea output (pounds per hour)   As shown in Exhibit 21-4, If each country produced according to its comparative advantage, Brazil would produce:

Accepted Answer

A)  tea and China would produce coffee. 
B)  coffee and China would produce tea. 
C)  both coffee and tea. 
D)  neither coffee nor tea. 
A)  tea and China would produce coffee. 
B)  coffee and China would produce tea. 
C)  both coffee and tea. 
D)  neither coffee nor tea.

Question 18

Exchange rates are for currency what:

Accepted Answer

A)  c, d and e. 
B)  discounts are for sales. 
C)  interest is for capital. 
D)  prices are for apples. 
E)  wages are for labor. 
A)  c, d and e. 
B)  discounts are for sales. 
C)  interest is for capital. 
D)  prices are for apples. 
E)  wages are for labor.

Question 19

If the yen price of dollars falls, then the dollar price of yen rises.

Accepted Answer

A) True 
 B)False

Question 20

When countries specialize, total world output increases, and, therefore, the potential for greater total world consumption also increases.

Accepted Answer

A) True 
 B)False

Exam 21: International Trade and Finance

If the current account and capital account are both in surplus, the official reserve account does not have to be in deficit.

Assume the United States can use a given amount of its resources to produce either 20 airplanes or 8 automobiles and Japan can employ the same amount of its resources to produce either 20 airplanes or 10 automobiles. The U.S. should specialize in:

Exhibit 21-4 Coffee and tea output (pounds per hour) As shown in Exhibit 21-4, compared to Brazil, China has a comparative advantage in the production of:

What are the benefits and costs to a nation that participates in international trade? Do the benefits outweigh the costs or do the costs outweigh the benefits?

Protectionist policies such as tariffs and quotas are beneficial to the nation imposing those trade barriers.

If people's incomes decrease, their demand for other currencies shifts to the right.

Which of the following is the best example of a quota?

Suppose you are traveling from the United States to Djibouti on vacation. You would be better off on your vacation if:

When an exchange rate is determined strictly by the demands and supplies for a nation's currency, it is called:

Suppose the exchange rate changes so that more Japanese yen are required to buy a dollar. We could conclude that:

A tariff has the effect of granting ____ a larger share of the domestic market.

The argument that foreign trade should be restricted to protect domestic employment and output is based on the idea that:

Exhibit 21-1 Production possibilities curves In Exhibit 21-1, the production possibilities curves of wheat and corn for Nabia and Pada are presented. In Pada the cost of producing one more unit of wheat is equal to:

The exchange rate is the:

The purchase of U.S. assets by foreigners is a:

Exhibit 21-4 Coffee and tea output (pounds per hour) As shown in Exhibit 21-4, If each country produced according to its comparative advantage, Brazil would produce:

Exchange rates are for currency what:

If the yen price of dollars falls, then the dollar price of yen rises.

When countries specialize, total world output increases, and, therefore, the potential for greater total world consumption also increases.

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Economies in Transition

Growth and the Less-Developed Countries

Filters