Question 1

A fixed exchange rate is:

Accepted Answer

A)  determined by the forces of supply and demand. 
B)  the value of a nation's money in gold. 
C)  the value of a nation's money determined by the World Bank. 
D)  none of the above. 
A)  determined by the forces of supply and demand. 
B)  the value of a nation's money in gold. 
C)  the value of a nation's money determined by the World Bank. 
D)  none of the above.

Question 2

When a nation totally bans trade with another country,it is imposing a(n):

Accepted Answer

A)  tariff. 
B)  embargo. 
C)  quota. 
D)  none of the above. 
A)  tariff. 
B)  embargo. 
C)  quota. 
D)  none of the above.

Question 3

Exhibit 21-1 Production possibilities curves
  
-In Exhibit 21-1,the production possibilities curves of wheat and corn for Nabia and Pada are presented.If these two nations trade,Nabia should specialize in the production of:

Accepted Answer

A)  corn. 
B)  corn and wheat. 
C)  neither product since Pada has the comparative advantage in the production of both. 
D)  neither product since Pada has the absolute advantage in the production of both. 
E)  wheat. 
A)  corn. 
B)  corn and wheat. 
C)  neither product since Pada has the comparative advantage in the production of both. 
D)  neither product since Pada has the absolute advantage in the production of both. 
E)  wheat.

Question 4

Exhibit 21-6 Dollars per British pound
  
-In Exhibit 21-6,when the exchange rate is 1 dollar per pound,

Accepted Answer

A)  the market is in equilibrium. 
B)  there is a surplus of 30 pounds. 
C)  there is a surplus of 60 pounds. 
D)  there is a shortage of 30 pounds. 
E)  there is a shortage of 60 pounds. 
A)  the market is in equilibrium. 
B)  there is a surplus of 30 pounds. 
C)  there is a surplus of 60 pounds. 
D)  there is a shortage of 30 pounds. 
E)  there is a shortage of 60 pounds.

Question 5

Borrowing from foreign banks by U.S.firms represents a capital inflow.

Accepted Answer

A) True 
 B)False

Question 6

When the value of our goods exports is less than the value of our goods imports,

Accepted Answer

A) d and e. 
B) the value of the dollar must fall. 
C) there will be domestic unemployment. 
D) there will be an unfavorable balance of trade. 
E) foreign currency reserves must fall. 
A) d and e. 
B) the value of the dollar must fall. 
C) there will be domestic unemployment. 
D) there will be an unfavorable balance of trade. 
E) foreign currency reserves must fall.

Question 7

An unfavorable balance of trade occurs when:

Accepted Answer

A)  exports equal imports. 
B)  the balance of payments balances. 
C)  the current and capital account in the BOP are equal. 
D)  the value of the exports of goods exceeds the value of the imports of goods. 
E)  the value of the exports of goods is less than the value of the imports of goods . 
A)  exports equal imports. 
B)  the balance of payments balances. 
C)  the current and capital account in the BOP are equal. 
D)  the value of the exports of goods exceeds the value of the imports of goods. 
E)  the value of the exports of goods is less than the value of the imports of goods .

Question 8

The demand curve for Japanese yen is downward sloping because when the exchange rate (measured in dollars per yen)falls,

Accepted Answer

A)  Japanese goods become relatively cheaper so foreigners buy more of them and need more yen to do so. 
B)  foreigners need more dollars to buy one yen so they can now afford more Japanese goods. 
C)  the yen demand curve shifts to the right as foreigners try to buy more Japanese goods. 
D)  the dollar becomes weaker and this reduces the strength of both economies. 
E)  everyone wants fewer yen because they have lost some of their underlying value. 
A)  Japanese goods become relatively cheaper so foreigners buy more of them and need more yen to do so. 
B)  foreigners need more dollars to buy one yen so they can now afford more Japanese goods. 
C)  the yen demand curve shifts to the right as foreigners try to buy more Japanese goods. 
D)  the dollar becomes weaker and this reduces the strength of both economies. 
E)  everyone wants fewer yen because they have lost some of their underlying value.

Question 9

Exhibit 21-3 Potatoes and wheat output (tons per day)
  
-In Exhibit 21-3,the United States has an absolute advantage in producing:

Accepted Answer

A)  potatoes. 
B)  wheat. 
C)  both. 
D)  neither. 
A)  potatoes. 
B)  wheat. 
C)  both. 
D)  neither.

Question 10

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 11

Exhibit 21-1 Production possibilities curves
  
-In Exhibit 21-1,the production possibilities curves of wheat and corn for Nabia and Pada are presented.If these two nations trade,Pada should specialize in the production of:

Accepted Answer

A)  corn. 
B)  corn and wheat. 
C)  neither product since Nabia has the comparative advantage in the production of both. 
D)  neither product since Nabia has the absolute advantage in the production of both. 
E)  wheat. 
A)  corn. 
B)  corn and wheat. 
C)  neither product since Nabia has the comparative advantage in the production of both. 
D)  neither product since Nabia has the absolute advantage in the production of both. 
E)  wheat.

Question 12

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.

Question 13

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. 
E)  Italy has a better economy than Greece. 
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. 
E)  Italy has a better economy than Greece.

Question 14

The balance of trade is the value of a nation's ____.

Accepted Answer

A)  goods and service exports times goods and service imports 
B)  goods exports subtracted from goods imports 
C)  goods imports subtracted from goods exports 
D)  net goods imports plus net capital inflows 
A)  goods and service exports times goods and service imports 
B)  goods exports subtracted from goods imports 
C)  goods imports subtracted from goods exports 
D)  net goods imports plus net capital inflows

Question 15

Comparative advantage explains why a nation will benefit from trade when:

Accepted Answer

A)  it exports more than it imports. 
B)  its trading partners are experiencing offsetting losses. 
C)  it exports goods for which it is a high-opportunity cost producer, while importing those for which it is a low-opportunity cost producer. 
D)  it exports goods for which it is a low-opportunity cost producer, while importing those for which it is a high-opportunity cost producer. 
A)  it exports more than it imports. 
B)  its trading partners are experiencing offsetting losses. 
C)  it exports goods for which it is a high-opportunity cost producer, while importing those for which it is a low-opportunity cost producer. 
D)  it exports goods for which it is a low-opportunity cost producer, while importing those for which it is a high-opportunity cost producer.

Question 16

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. 
E)  encourage high 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. 
E)  encourage high tariffs.

Question 17

Following the principle of comparative advantage,specialization:

Accepted Answer

A)  permits greater levels of total production than would be attained without it. 
B)  increases the dependency of countries on trade. 
C)  both of the above. 
D)  neither of the above. 
A)  permits greater levels of total production than would be attained without it. 
B)  increases the dependency of countries on trade. 
C)  both of the above. 
D)  neither of the above.

Question 18

If the Japanese price level falls relative to the price level in the United States,then:

Accepted Answer

A)  Japanese buy less U.S. exports. 
B)  the demand for dollars decreases. 
C)  the supply of dollars increases. 
D)  the value of the dollar falls. 
E)  all of the above are true. 
A)  Japanese buy less U.S. exports. 
B)  the demand for dollars decreases. 
C)  the supply of dollars increases. 
D)  the value of the dollar falls. 
E)  all of the above are true.

Question 19

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 20

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.

Exam 21: International Trade and Finance

A fixed exchange rate is:

When a nation totally bans trade with another country,it is imposing a(n):

Exhibit 21-1 Production possibilities curves -In Exhibit 21-1,the production possibilities curves of wheat and corn for Nabia and Pada are presented.If these two nations trade,Nabia should specialize in the production of:

Exhibit 21-6 Dollars per British pound -In Exhibit 21-6,when the exchange rate is 1 dollar per pound,

Borrowing from foreign banks by U.S.firms represents a capital inflow.

When the value of our goods exports is less than the value of our goods imports,

An unfavorable balance of trade occurs when:

The demand curve for Japanese yen is downward sloping because when the exchange rate (measured in dollars per yen)falls,

Exhibit 21-3 Potatoes and wheat output (tons per day) -In Exhibit 21-3,the United States has an absolute advantage in producing:

The exchange rate is the:

Exhibit 21-1 Production possibilities curves -In Exhibit 21-1,the production possibilities curves of wheat and corn for Nabia and Pada are presented.If these two nations trade,Pada should specialize in the production of:

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

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

The balance of trade is the value of a nation's ____.

Comparative advantage explains why a nation will benefit from trade when:

The rules of the WTO:

Following the principle of comparative advantage,specialization:

If the Japanese price level falls relative to the price level in the United States,then:

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

An import quota on a product protects domestic industries by:

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: 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

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Fiscal Policy

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

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

Economies in Transition

Growth and the Less-Developed Countries

Filters