Question 1

In international trade, an infant industry is one:

Accepted Answer

A)  that protects firms that produce products for infants. 
B)  with a large number of very small firms. 
C)  in which the firms are experiencing very small profits. 
D)  in the early stages of its development. 
A)  that protects firms that produce products for infants. 
B)  with a large number of very small firms. 
C)  in which the firms are experiencing very small profits. 
D)  in the early stages of its development.

Question 2

If a box of Swiss chocolate priced at 100 francs can be purchased for $50, the exchange rate is:

Accepted Answer

A)  0.50 francs per dollar. 
B)  4.00 francs per dollar. 
C)  0.50 dollars per franc. 
D)  none of the above. 
A)  0.50 francs per dollar. 
B)  4.00 francs per dollar. 
C)  0.50 dollars per franc. 
D)  none of the above.

Question 3

A nation's trade deficit will expand when its:

Accepted Answer

A)  currency appreciates. 
B)  economy is shrinking. 
C)  investment environment is less attractive to foreigners. 
D)  all of the above are true. 
A)  currency appreciates. 
B)  economy is shrinking. 
C)  investment environment is less attractive to foreigners. 
D)  all of the above are true.

Question 4

Absolute advantage governs the potential for gains from trade.

Accepted Answer

A) True 
 B)False

Question 5

A depreciation of one's currency means that:

Accepted Answer

A)  the country's exports will become more expensive. 
B)  it now requires less of this currency in exchange for one unit of another currency. 
C)  the country's imports will become less expensive. 
D)  it now requires more of this currency in exchange for one unit of another currency. 
E)  it now requires more units of other currencies in exchange for one unit of this currency. 
A)  the country's exports will become more expensive. 
B)  it now requires less of this currency in exchange for one unit of another currency. 
C)  the country's imports will become less expensive. 
D)  it now requires more of this currency in exchange for one unit of another currency. 
E)  it now requires more units of other currencies in exchange for one unit of this currency.

Question 6

Suppose there are two countries, X and Y. If the exchange rate, as measured in X's currency, is currently 9, what do citizens of the nation of Y see when they read their newspapers?

Accepted Answer

A)  The exchange rate for X's currency is 9. 
B)  The exchange rate for X's currency is more than 9. 
C)  The exchange rate for X's currency is 3. 
D)  The exchange rate for X's currency is 0.11. 
E)  Knowing one exchange rate does not mean we can tell the other exchange rate. 
A)  The exchange rate for X's currency is 9. 
B)  The exchange rate for X's currency is more than 9. 
C)  The exchange rate for X's currency is 3. 
D)  The exchange rate for X's currency is 0.11. 
E)  Knowing one exchange rate does not mean we can tell the other exchange rate.

Question 7

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 corn is equal to:

Accepted Answer

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

Question 8

Exhibit 21-4  Coffee and tea output (pounds per hour)   If specialization were carried out by each country in Exhibit 21-4 on the basis of comparative advantage, then:

Accepted Answer

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

Question 9

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

Accepted Answer

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

Question 10

An import quota on a product protects domestic industries by:

Accepted Answer

A)  reducing the foreign supply to the domestic market and, thereby, raising the domestic price. 
B)  increasing the foreign supply to the domestic market and, thereby, lowering the domestic price. 
C)  increasing the domestic demand for the product and, thereby, increasing its price. 
D)  providing the incentive for domestic producers to improve the efficiency of their operation and, thereby, reduce their per-unit costs of production. 
A)  reducing the foreign supply to the domestic market and, thereby, raising the domestic price. 
B)  increasing the foreign supply to the domestic market and, thereby, lowering the domestic price. 
C)  increasing the domestic demand for the product and, thereby, increasing its price. 
D)  providing the incentive for domestic producers to improve the efficiency of their operation and, thereby, reduce their per-unit costs of production.

Question 11

A restriction on the quantity of a good that can be imported into a country is a(n):

Accepted Answer

A)  tariff. 
B)  quota. 
C)  embargo. 
D)  restricted exchange rate. 
A)  tariff. 
B)  quota. 
C)  embargo. 
D)  restricted exchange rate.

Question 12

Comparative advantage is the ability of a country to produce a good at a(n) ____ opportunity cost relative to other countries.

Accepted Answer

A)  higher 
B)  lower 
C)  equivalent 
D)  none of the above 
A)  higher 
B)  lower 
C)  equivalent 
D)  none of the above

Question 13

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 14

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. 
E)  labor costs tend to be the same worldwide in the long run because of worker mobility. 
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. 
E)  labor costs tend to be the same worldwide in the long run because of worker mobility.

Question 15

It is possible for a nation to have an absolute advantage in the production of a product, but not a comparative advantage in the production of the same product.

Accepted Answer

A) True 
 B)False

Question 16

The theory of comparative advantage suggests that a(n):

Accepted Answer

A)  industrialized country should not import. 
B)  country that is not competitive should import everything. 
C)  country specialize in producing goods or services for which it has a lower opportunity cost. 
D)  none of the above. 
A)  industrialized country should not import. 
B)  country that is not competitive should import everything. 
C)  country specialize in producing goods or services for which it has a lower opportunity cost. 
D)  none of the above.

Question 17

A nation benefits from international trade if it:

Accepted Answer

A)  exports more than it imports. 
B)  imports more than it exports. 
C)  imports goods for which it is a low opportunity cost producer. 
D)  exports goods for which it is a low opportunity cost producer. 
A)  exports more than it imports. 
B)  imports more than it exports. 
C)  imports goods for which it is a low opportunity cost producer. 
D)  exports goods for which it is a low opportunity cost producer.

Question 18

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. 
E)  this policy compromises national security if the infant industry produces military goods. 
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. 
E)  this policy compromises national security if the infant industry produces military goods.

Question 19

Which of the following does not result in a change in the demand for foreign currency?

Accepted Answer

A)  c and d. 
B)  changes in income. 
C)  changes in foreign currency supply. 
D)  changes in the foreign exchange rate. 
E)  changes in the interest rate. 
A)  c and d. 
B)  changes in income. 
C)  changes in foreign currency supply. 
D)  changes in the foreign exchange rate. 
E)  changes in the interest rate.

Question 20

The theory of comparative advantage suggests that nations should produce a good if they:

Accepted Answer

A)  have the lowest opportunity cost. 
B)  have the lowest wages. 
C)  have the most resources. 
D)  can produce more of the good than any other nation. 
A)  have the lowest opportunity cost. 
B)  have the lowest wages. 
C)  have the most resources. 
D)  can produce more of the good than any other nation.

Exam 21: International Trade and Finance

In international trade, an infant industry is one:

If a box of Swiss chocolate priced at 100 francs can be purchased for $50, the exchange rate is:

A nation's trade deficit will expand when its:

Absolute advantage governs the potential for gains from trade.

A depreciation of one's currency means that:

Suppose there are two countries, X and Y. If the exchange rate, as measured in X's currency, is currently 9, what do citizens of the nation of Y see when they read their newspapers?

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 corn is equal to:

Exhibit 21-4 Coffee and tea output (pounds per hour) If specialization were carried out by each country in Exhibit 21-4 on the basis of comparative advantage, then:

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

An import quota on a product protects domestic industries by:

A restriction on the quantity of a good that can be imported into a country is a(n):

Comparative advantage is the ability of a country to produce a good at a(n) ____ opportunity cost relative to other countries.

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

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

It is possible for a nation to have an absolute advantage in the production of a product, but not a comparative advantage in the production of the same product.

The theory of comparative advantage suggests that a(n):

A nation benefits from international trade if it:

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

Which of the following does not result in a change in the demand for foreign currency?

The theory of comparative advantage suggests that nations should produce a good if they:

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