Economic Development and Globalization
Textbook Exam Questions
Course Introduction
This course explores the complex relationship between economic development and globalization, analyzing how global integration influences growth, poverty reduction, and inequality in both developing and developed nations. Students will examine key theories and concepts, the role of international institutions, trade, investment flows, and the impact of policy decisions on economic outcomes. The course also addresses challenges such as sustainable development, technological change, and the political and social dimensions of globalization, encouraging critical analysis of real-world case studies and policy debates.
Recommended Textbook
International Economics 14th Edition by Robert Carbaugh
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Page 2
Chapter 1: The International Economy and Globalization
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Sample Questions
Q1) The United States exports a larger percentage of its gross domestic product than Japan, Germany, and Canada.
A)True
B)False
Answer: False
Q2) Opening the economy to international trade tends to lessen inflationary pressures at home.
A)True
B)False
Answer: True
Q3) International trade tends to cause welfare losses to at least some groups in a country:
A) The less mobile the country's resources
B) The more mobile the country's resources
C) The lower the country's initial living standard
D) The higher the country's initial living standard
Answer: A
Q4) What is the most important factor which contributes to competitiveness?
Answer: Key to the concept of competitiveness is productivity, or output per worker hour.
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Chapter 2: Foundations of Modern Trade Theory: Comparative Advantage
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Sample Questions
Q1) According to Ricardo, a country will have a comparative advantage in the product in which its:
A) Labor productivity is relatively low
B) Labor productivity is relatively high
C) Labor mobility is relatively low
D) Labor mobility is relatively high
Answer: B
Q2) If Canada has a higher wage level and higher labor productivity than Mexico, Canada will necessarily produce a good at a higher labor cost than Mexico.
A)True
B)False
Answer: False
Q3) Assume 1990 to be the base year. If by the end of 2004 a country's export price index rose from 100 to 125 while its import price index rose from 100 to 125, its terms of trade would equal 100.
A)True
B)False
Answer: True
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Chapter 3: Sources of Comparative Advantage
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Q1) According to Ricardian theory, comparative advantage depends on relative differences in labor productivity.
A)True
B)False
Answer: True
Q2) The factor-endowment theory asserts that with specialization and trade there tends to occur an equalization in the relative resource prices of trading partners.
A)True
B)False
Answer: True
Q3) In explaining international trade, the product life cycle theory focuses on A) Tastes and preferences
B) The role of technological innovation
C) Per-capita income levels of nations
D) Both b and c
Answer: B
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Chapter 4: Tariffs
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Sample Questions
Q1) If we consider the impact on both consumers and producers, then protection of the steel industry is:
A) In the interest of the United States as a whole, but not in the interest of the state of Pennsylvania
B) In the interest of the United States as a whole and in the interest of the state of Pennsylvania
C) Not in the interest of the United States as a whole, but it might be in the interest of the state of Pennsylvania
D) Not in the interest of the United States as a whole, nor in the interest of the state of Pennsylvania
Q2) Refer to Exhibit 4.2. The tariff's revenue effect equals $6,000.
A)True
B)False
Q3) Consider Figure 4.1. With a per-unit tariff of $3, the quantity of imports decreases to:
A) 20 calculators
B) 40 calculators
C) 50 calculators
D) 70 calculators
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Chapter 5: Nontariff Trade Barriers
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Sample Questions
Q1) If a tariff and an import quota lead to equivalent increases in the domestic price of steel, then:
A) The quota results in efficiency reductions but the tariff does not
B) The tariff results in efficiency reductions but the quota does not
C) They have different impacts on how much is produced and consumed
D) They have different impacts on how income is distributed
Q2) What is an OMA?
Q3) Compared to an import quota, an equivalent tariff may provide a \(\underline { \text { less } }\) certain amount of protection for home producers since:
A) A tariff has no deadweight loss in terms of production and consumption
B) Foreign firms may absorb the tariff by offering exports at lower prices
C) Tariffs are effective only if home demand is perfectly elastic
D) Quotas do not result in increases in the price of the imported good
Q4) Domestic content legislation applied to autos would tend to:
A) Support wage levels of American autoworkers
B) Lower auto prices for American autoworkers
C) Encourage American automakers to locate production overseas
D) Increase profits of American auto companies
Q5) Is a tariff-rate quota a two-tier tariff? Why?
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Chapter 6: Trade Regulations and Industrial Policies
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Sample Questions
Q1) The World Trade Organization was established by the ____ of multilateral trade negotiations:
A) Kennedy Round
B) Tokyo Round
C) Uruguay Round
D) Clinton Round
Q2) It is generally agreed that the Smoot-Hawley Act of 1930 led to improvements in U.S. exports and an overall increase in U.S. output and employment.
A)True
B)False
Q3) The Uruguay Round of trade negotiations lowered:
A) Trade sanctions levied against South Africa
B) Trade sanctions levied against the Soviet Union
C) Tariffs, but not nontariff trade barriers
D) Tariffs as well as nontariff trade barriers
Q4) What is the essential idea behind strategic trade policy?
Q5) Has industrial policy contributed significantly to Japan's economic growth?
Q6) Explain how advocates of strategic trade policy differ from the classical free traders in their treatment of externalities?
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Chapter 7: Trade Policies for the Developing Nations
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Sample Questions
Q1) Which trade strategy have developing countries used to restrict imports of manufactured goods so that the domestic market is preserved for home producers, who thus can take over markets already established in the country?
A) International commodity agreement
B) Export promotion
C) Multilateral contract
D) Import substitution
Q2) What are some of the growth strategies that have been employed by the developing nations? How successful are these strategies?
Q3) The developing nations are most of those in Africa, Asia, North America, and Western Europe.
A)True
B)False
Q4) Consider Figure 7.3. Under competitive conditions, the price of a barrel of oil equals:
A) $7
B) $11
C) $12
D) $16
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Chapter 8: Regional Trading Arrangements
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Sample Questions
Q1) Concerning transition economies, what do the advocates of shock therapy propose?
Q2) The failure of the centrally-planned economies was exemplified by all of the following\(\underline { \text { except } }\)
A) Interest rates that were below free-market levels
B) Consumer and producer goods of inferior quality
C) Declining rates of economic growth
D) Shortages of essential goods and services
Q3) Which economic integration scheme is solely intended to abolish trade restrictions among member countries, while setting up common tariffs against nonmembers?
A) Economic union
B) Common market
C) Free trade area
D) Customs union
Q4) For countries forming a customs union, the trade-creation effect represents a welfare loss and the trade-diversion effect represents a welfare gain.
A)True
B)False
Q5) Explain the theory of optimum currency areas.
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Chapter 9: International Factor Movements and
Multinational Enterprises
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Sample Questions
Q1) All of the following are potential advantages of an international joint venture \(\underline { \text { except } }\)
A) Sharing research and development costs among corporations
B) Forestalling protectionism against imports
C) Establishing work rules promoting higher labor productivity
D) Operating at diseconomy-of-scale output levels
Q2) Consider Figure 9.1. Assume Venture Company's formation yields new cost reductions, indicated by MC<sub>1</sub>=AC<sub>1</sub>, which result from \(\underline { \text { wage concessions } }\) accepted by Venture Company employees. The net effect of Venture Company's formation on the welfare of the domestic economy is:
A) No change
B) Gain of $2
C) Loss of $2
D) Loss of $4
Q3) What are the disadvantages of forming joint ventures?
Q4) Forward vertical integration would occur if a U.S. automobile manufacturer acquired a German subsidiary.
A)True
B)False
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Chapter 10: The Balance of Payments
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Sample Questions
Q1) Concerning the balance of payments, a current-account deficit results in a worsening of a country's net foreign investment position.
A)True
B)False
Q2) If Bank of America receives repayment for a loan it made to a Mexican firm, the U.S. capital account would register an inflow.
A)True
B)False
Q3) For the first time since World War I, in 1985 the United States became a net international:
A) Exporter
B) Importer
C) Debtor
D) Creditor
Q4) Current-account transactions include direct foreign investment, purchases of foreign government securities, and commercial bank loans made abroad.
A)True
B)False
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Page 12
Chapter 11: Foreign Exchange
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Sample Questions
Q1) Given an upward-sloping supply schedule of pounds and a downward-sloping demand schedule for pounds, a decrease in the supply schedule causes an appreciation of the dollar against the pound.
A)True
B)False
Q2) In the forward market, the exchange rate is agreed on at the time of the currency contract, but payment is not made until the future delivery of the currency actually takes place.
A)True
B)False
Q3) Concerning the foreign exchange market, one can best say that:
A) There is a spot market for virtually every currency in the world
B) The market is highly centralized like the stock exchange
C) Most foreign exchange payments are made with bank notes
D) The values of the forward and spot rates are always in agreement
Q4) The supply schedule of pesos has a negative-sloping region corresponding to the inelastic region on the Mexican demand schedule for foreign currency.
A)True
B)False
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Chapter 12: Exchange-Rate Determination
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Sample Questions
Q1) Which of the following is likely to result in long-run depreciation of the U.S. dollar relative to the euro?
A) Relatively low interest rates in the United States
B) Relatively high labor productivity in the United States
C) Tariffs levied by the United States on steel imports from Europe
D) Stronger American preferences for goods produced in Europe
Q2) If consumer tastes in the United States change in favor of goods produced in France, the demand for francs will increase which causes an appreciation of the dollar against the franc under a floating exchange rate system.
A)True
B)False
Q3) The demand in the United States for yen will increase if, other things remaining equal:
A) Labor costs rise in Japan
B) Income rises in Japan
C) Prices rise in Japan
D) Interest rates rise in Japan
Q4) In a free market, what determines exchange rates in the long run and the short run?
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Chapter 13: Mechanisms of International Adjustment
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Sample Questions
Q1) The value of the foreign trade multiplier equals the reciprocal of the sum of the marginal propensities to:
A) Save plus import
B) Import plus invest.
C) Consume plus export,
D) Save plus import,.
Q2) Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)<sub>0</sub> intersects (X-M)<sub>0</sub>, suppose that dwindling thriftiness leads to an autonomous decrease in Australian saving to $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.
A) Rises to $60 billion, deficit of $2.5 billion
B) Rises to $60 billion, deficit of $5 billion
C) Falls to $40 billion, surplus of $2.5 billion
D) Falls to $40 billion, surplus of $5 billion
Q3) Under the gold standard of the 1800s, exchange rates were allowed to float freely in the currency markets.
A)True
B)False
Q4) What is the foreign repercussion effect?
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Chapter 14: Exchange-Rate Adjustments and the Balance of Payments
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Sample Questions
Q1) Complete currency pass-through arises when a 10 percent depreciation in the value of the dollar causes U.S.:
A) Import prices to fall by 10 percent
B) Import prices to rise by 10 percent
C) Export prices to rise by 10 percent
D) Export prices to rise by 20 percent
Q2) Which analysis considers the extent by which foreign and domestic prices adjust to a change in the exchange rate in the short run:
A) Monetary analysis
B) Absorption analysis
C) Expenditures analysis
D) Pass-through analysis
Q3) The effect of currency depreciation on the purchasing power of money balances and the resulting impact on domestic expenditures is emphasized by the:
A) Absorption approach
B) Monetary approach
C) Fiscal approach
D) Elasticity approach
Q4) What is a pass-through relationship?
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Chapter 15: Exchange-Rate Systems and Currency Crises
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Sample Questions
Q1) A primary objective of dual exchange rates is to allow a country the ability to insulate its balance of payments from net:
A) Current account transactions
B) Unilateral transfers
C) Merchandise trade transactions
D) Capital account transactions
Q2) To temporarily offset an \(\underline { \text { appreciation } }\) in the dollar's exchange value, the Federal Reserve could ____ the U.S. money supply which would promote a (an) ____ in U.S. interest rates and a ____ in investment flows to the United States.
A) Increase, decrease, decrease
B) Increase, increase, decrease
C) Decrease, decrease, decrease
D) Decrease, increase, decrease
Q3) Today, fixed exchange rates are used primarily by small, developing countries that tie their currencies to a key currency such as the U.S. dollar.
A)True
B)False
Q4) What is an SDR?
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Chapter 16: Macroeconomic Policy in an Open Economy
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Sample Questions
Q1) The Group of five (G-5) nations include Japan, Germany, China, and Australia.
A)True
B)False
Q2) Suppose that Brazil faces domestic inflation and a current account deficit. Should Brazil \(\underline { \text { devalue } }\) its currency, one would expect the:
A) Inflation to become more severe--deficit to become less severe
B) Inflation to become more severe--deficit to become more severe
C) Inflation to become less severe--deficit to become less severe
D) Inflation to become less severe--deficit to become more severe
Q3) The goals of the Plaza Agreement of 1985 were to combat protectionism in the U.S. Congress, promote world economic expansion by stimulating demand in Germany and Japan, and to ease the burden of the U.S. debt service.
A)True
B)False
Q4) A nation realizes internal balance if economy achieves full employment and price stability.
A)True
B)False
Q5) What policy instrument should be used when demand-pull inflation exists?
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Chapter 17: International Banking: Reserves, Debt, and Risk
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Q1) Concerning international lending risk, country risk refers to the risk that part or all of the interest or principal of a loan will not be repaid.
A)True
B)False
Q2) Why do countries hold international reserves?
Q3) A debt buyback is a debt-reduction technique in which a government of a debtor nation buys loans from commercial banks at a discount.
A)True
B)False
Q4) In response to the international debt problem, the United States set up a special fund in 1986 to help make up for lost oil revenues. Under the plan, the United States would make more money available as world oil prices fell. This plan was designed to help:
A) Argentina
B) Saudi Arabia
C) Mexico
D) Brazil
Q5) Are international reserve needs different for different exchange rate regimes?
Q6) Describe the eurocurrency market.
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