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

Which of the following are benefits of free trade?

Accepted Answer

A)  Households pay higher prices for many goods and services. 
B)  It relies on an overseas market. 
C)  It increases input costs for many firms. 
D)  Resources are allocated more efficiently. 
A)  Households pay higher prices for many goods and services. 
B)  It relies on an overseas market. 
C)  It increases input costs for many firms. 
D)  Resources are allocated more efficiently.

Question 3

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 4

A current account deficit is a problem if it is only used to fund new investment, not consumption.

Accepted Answer

A) True 
 B)False

Question 5

Without trade, the consumption possibilities for two nations are (assuming full-employment):

Accepted Answer

A)  outside their production possibilities curve. 
B)  inside their production possibilities curve. 
C)  along their production possibilities curves. 
D)  at a point equal to the world production possibilities curve. 
A)  outside their production possibilities curve. 
B)  inside their production possibilities curve. 
C)  along their production possibilities curves. 
D)  at a point equal to the world production possibilities curve.

Question 6

According to the infant industry argument, a new domestic industry needs protection because it has lower costs than established foreign competitors.

Accepted Answer

A) True 
 B)False

Question 7

Which statement best reflects the political problems associated with free trade?

Accepted Answer

A)  The costs are spread wide to many, but the benefits accrue heavily on a few. 
B)  The benefits are spread to the rich, but the costs accrue to the poor. 
C)  The benefits are spread wide to many, but the costs accrue heavily on a few. 
D)  The costs are spread to the rich, but the benefits accrue to the poor. 
A)  The costs are spread wide to many, but the benefits accrue heavily on a few. 
B)  The benefits are spread to the rich, but the costs accrue to the poor. 
C)  The benefits are spread wide to many, but the costs accrue heavily on a few. 
D)  The costs are spread to the rich, but the benefits accrue to the poor.

Question 8

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 9

Suppose a perfume sells for NZ$100 in Christchurch and the exchange rate is NZ$1.1 per Australian dollar. The perfume costs:

Accepted Answer

A)  NZ$90. 
B)  A$110. 
C)  A$100. 
D)  A$90. 
A)  NZ$90. 
B)  A$110. 
C)  A$100. 
D)  A$90.

Question 10

A country is said to have an absolute advantage in the production of a good when:

Accepted Answer

A)  its opportunity cost of producing the good is lower than another country. 
B)  it can produce the good using less resources than another country. 
C)  it specialises in the production of the good. 
D)  its opportunity cost of producing the good is higher than another country. 
A)  its opportunity cost of producing the good is lower than another country. 
B)  it can produce the good using less resources than another country. 
C)  it specialises in the production of the good. 
D)  its opportunity cost of producing the good is higher than another country.

Question 11

Which of the following would not be counted in the Australian BOP current account?

Accepted Answer

A)  Helen, an Australian oil engineer, is a paid adviser to Middle Eastern countries in the area of petroleum extraction. 
B)  BHP owns buildings that are situated in Mexico. 
C)  France purchases a new ferry from a company in Tasmania. 
D)  John receives a $50 dividend cheque on stock he owns in a business in Germany. 
A)  Helen, an Australian oil engineer, is a paid adviser to Middle Eastern countries in the area of petroleum extraction. 
B)  BHP owns buildings that are situated in Mexico. 
C)  France purchases a new ferry from a company in Tasmania. 
D)  John receives a $50 dividend cheque on stock he owns in a business in Germany.

Question 12

Assume that the opportunity cost of producing wheat is lower in Australia compared with Malaysia. Further assume that the opportunity cost of producing cars is higher in Australia compared with Malaysia. Which country should specialise in producing wheat?

Accepted Answer

A)  Australia and Malaysia. 
B)  Australia. 
C)  Malaysia. 
D)  Both countries have to specialise in producing cars. 
A)  Australia and Malaysia. 
B)  Australia. 
C)  Malaysia. 
D)  Both countries have to specialise in producing cars.

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

Which of the following statements is true?

Accepted Answer

A)  Comparative advantage is the ability of a country to produce goods and services at lower opportunity costs than another country. 
B)  Free trade theory suggests that when trade takes place any gains made by one nation come at the expense of another. 
C)  According to the theory of comparative advantage, a nation should specialise in the production of those goods for which it has an absolute advantage. 
D)  Countries should only trade in goods and services they have an absolute advantage
Producing. 
A)  Comparative advantage is the ability of a country to produce goods and services at lower opportunity costs than another country. 
B)  Free trade theory suggests that when trade takes place any gains made by one nation come at the expense of another. 
C)  According to the theory of comparative advantage, a nation should specialise in the production of those goods for which it has an absolute advantage. 
D)  Countries should only trade in goods and services they have an absolute advantage
Producing.

Question 15

A flexible exchange rate system is one in which countries:

Accepted Answer

A)  allow their currencies to adjust continuously according to the demand and supply. 
B)  do not allow their currencies to adjust continuously according to the demand and supply. 
C)  allow their currencies to adjust according to the foreign policy. 
D)  allow their currencies to adjust by fixing an exchange rate regular. 
A)  allow their currencies to adjust continuously according to the demand and supply. 
B)  do not allow their currencies to adjust continuously according to the demand and supply. 
C)  allow their currencies to adjust according to the foreign policy. 
D)  allow their currencies to adjust by fixing an exchange rate regular.

Question 16

The net foreign income share of GDP represents:

Accepted Answer

A)  the amount of Australian assets owned by foreign interests as a proportion of GDP. 
B)  the proportion of GDP needed to pay the interest, rent and dividends owed on assets owned by foreign interests. 
C)  a problem at its current level of 55 per cent of GDP. 
D)  the proportion of GDP needed purely to service foreign debt. 
A)  the amount of Australian assets owned by foreign interests as a proportion of GDP. 
B)  the proportion of GDP needed to pay the interest, rent and dividends owed on assets owned by foreign interests. 
C)  a problem at its current level of 55 per cent of GDP. 
D)  the proportion of GDP needed purely to service foreign debt.

Question 17

Suppose a quota on foreign-made cars is proposed in parliament. Which of the following groups is most likely to oppose the legislation?

Accepted Answer

A)  Car manufacturers. 
B)  Consumers. 
C)  Australian steel workers. 
D)  Union officials. 
A)  Car manufacturers. 
B)  Consumers. 
C)  Australian steel workers. 
D)  Union officials.

Question 18

Which of the following arguments is used to justify tariff protection?

Accepted Answer

A)  It increases international competition. 
B)  It allows more goods and services in the country. 
C)  It protects industries needed for comparative advantage. 
D)  It protects key industries needed for national security. 
A)  It increases international competition. 
B)  It allows more goods and services in the country. 
C)  It protects industries needed for comparative advantage. 
D)  It protects key industries needed for national security.

Question 19

The current account balance on goods and services is:

Accepted Answer

A)  the (G - M) component of GDP. 
B)  the (C + I) component of GDP. 
C)  the (M - X) component of GDP. 
D)  the (X - M) component of GDP. 
A)  the (G - M) component of GDP. 
B)  the (C + I) component of GDP. 
C)  the (M - X) component of GDP. 
D)  the (X - M) component of GDP.

Question 20

Suppose real interest rates in Canada rise, while those in Australia remain constant. Then:

Accepted Answer

A)  Australian investors should sell an increased amount of bonds issued by borrowers in Australia. 
B)  Australian investors should buy an increased amount of bonds issued by borrowers in Canada. 
C)  Australian investors should buy less bonds issued by borrowers in Canada. 
D)  Canadian investors should buy an increased amount of bonds issued by borrowers in Australia. 
A)  Australian investors should sell an increased amount of bonds issued by borrowers in Australia. 
B)  Australian investors should buy an increased amount of bonds issued by borrowers in Canada. 
C)  Australian investors should buy less bonds issued by borrowers in Canada. 
D)  Canadian investors should buy an increased amount of bonds issued by borrowers in Australia.

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

Which of the following are benefits of free trade?

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

A current account deficit is a problem if it is only used to fund new investment, not consumption.

Without trade, the consumption possibilities for two nations are (assuming full-employment):

According to the infant industry argument, a new domestic industry needs protection because it has lower costs than established foreign competitors.

Which statement best reflects the political problems associated with free trade?

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

Suppose a perfume sells for NZ$100 in Christchurch and the exchange rate is NZ$1.1 per Australian dollar. The perfume costs:

A country is said to have an absolute advantage in the production of a good when:

Which of the following would not be counted in the Australian BOP current account?

Assume that the opportunity cost of producing wheat is lower in Australia compared with Malaysia. Further assume that the opportunity cost of producing cars is higher in Australia compared with Malaysia. Which country should specialise in producing wheat?

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

Which of the following statements is true?

A flexible exchange rate system is one in which countries:

The net foreign income share of GDP represents:

Suppose a quota on foreign-made cars is proposed in parliament. Which of the following groups is most likely to oppose the legislation?

Which of the following arguments is used to justify tariff protection?

The current account balance on goods and services is:

Suppose real interest rates in Canada rise, while those in Australia remain constant. Then:

Thinking Like an Economist

Applying Graphs to Economics

Production Possibilities and Opportunity Cost

Market Demand and Supply

Markets in Action

Elasticity of Demand and Supply

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Policy Issues: Housing Affordability and Climate Change

Measuring the Size of the Economy

Business Cycles and Economic Growth

Inflation and Unemployment

A Simple Model of the Macro Economy

The Monetary and Financial System

Macroeconomic Policy I: Monetary Policy

Macroeconomic Policy II: Fiscal Policy

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Exam 19: 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.

Which of the following are benefits of free trade?

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

A current account deficit is a problem if it is only used to fund new investment, not consumption.

Without trade, the consumption possibilities for two nations are (assuming full-employment):

According to the infant industry argument, a new domestic industry needs protection because it has lower costs than established foreign competitors.

Which statement best reflects the political problems associated with free trade?

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

Suppose a perfume sells for NZ$100 in Christchurch and the exchange rate is NZ$1.1 per Australian dollar. The perfume costs:

A country is said to have an absolute advantage in the production of a good when:

Which of the following would not be counted in the Australian BOP current account?

Assume that the opportunity cost of producing wheat is lower in Australia compared with Malaysia. Further assume that the opportunity cost of producing cars is higher in Australia compared with Malaysia. Which country should specialise in producing wheat?

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

Which of the following statements is true?

A flexible exchange rate system is one in which countries:

The net foreign income share of GDP represents:

Suppose a quota on foreign-made cars is proposed in parliament. Which of the following groups is most likely to oppose the legislation?

Which of the following arguments is used to justify tariff protection?

The current account balance on goods and services is:

Suppose real interest rates in Canada rise, while those in Australia remain constant. Then:

Thinking Like an Economist

Applying Graphs to Economics

Production Possibilities and Opportunity Cost

Market Demand and Supply

Markets in Action

Elasticity of Demand and Supply

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Policy Issues: Housing Affordability and Climate Change

Measuring the Size of the Economy

Business Cycles and Economic Growth

Inflation and Unemployment

A Simple Model of the Macro Economy

The Monetary and Financial System

Macroeconomic Policy I: Monetary Policy

Macroeconomic Policy II: Fiscal Policy

Filters