Globalization and the World Economy Study Guide Questions
Course Introduction
This course examines the processes and impacts of globalization on the world economy, exploring how the increasing interconnectedness of countries and markets shapes economic growth, inequality, development, and cultural exchange. Students will analyze key drivers such as international trade, investment, technology transfer, and the role of multinational corporations in fostering global integration. The course also addresses the challenges and opportunities of globalization, including policy responses, labor mobility, and the effects on the environment, while considering the experiences of both developed and developing nations within the global economic system.
Recommended Textbook
Introduction to International Economics 3rd Edition by Dominick Salvatore
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Page 2
Chapter 1: Introduction to the Global Economy
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Q1) Rapid technological changes and increased competition from the manufactured exports of emerging market economies are causing _________________ in the United States.
A)downsizing and job insecurity
B)industrial growth and job security
C)increased wages in competing industries
D)exchange rate fluctuations
Answer: A
Q2) Though each nation's economic collapse in the 1990s was different,most were precipitated by a massive and sudden _________________.
A)inflow of short-term capital
B)withdrawal of short-term capital
C)inflow of illegal immigrants
D)volatility of short-term interest rates
Answer: B
Q3) Exchange rates can remain in disequilibria for long periods of time.
A)True
B)False
Answer: True
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Chapter 2: Comparative Advantage
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Q1) Japan is more efficient in the production of rice,and the United States is more efficient in the production of oranges.In the production of oranges,Japan is said to have a(n):
A)comparative advantage
B)absolute disadvantage
C)absolute advantage
D)comparative disadvantage
Answer: B
Q2) Essays and pamphlets on international trade,maintaining that the only way for a nation to become rich and powerful was to export more than it imported,were written during the seventeenth and eighteenth centuries by:
A)David Ricardo
B)Adam Smith
C)the Mercantilists
D)Alfred Marshall
Answer: C
Q3) Adam Smith strongly advocated a policy of laissez-faire.
A)True
B)False
Answer: True
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Chapter 3: The Standard Trade Model
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Q1) The point of tangency between the production possibilities frontier and community indifference curve reflects:
A)the nation's comparative advantage
B)internal equilibrium relative to commodity price in the nation
C)external equilibrium relative to commodity price in the nation
D)Both A and B
Answer: D
Q2) The tastes or demand preferences of a nation are given by:
A)production frontiers
B)community indifference curves
C)marginal rate of transformation(MRT)
D)consumption possibilities curves
Answer: B
Q3) A nation may consume _____________ only with specialization in production and trade.
A)inside its production frontier
B)outside its production frontier
C)on its consumption frontier
D)tangent to its consumption frontier
Answer: B
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Chapter 4: The Heckscher-Ohlin and Other Trade Theories
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Q1) Assume that Country A is relatively abundant in capital and relatively scarce in land.According to the factor endowment theory,with free trade,the internal distribution of income in Country A will change in favor of:
A)capital.
B)land.
C)both capital and land.
D)neither capital nor land.
Q2) Discuss the major points of the Heckscher-Ohlin theory,the objection to this theory posed by the Leontief paradox,and the counterargument to this objection.
Q3) The product cycle model was introduced by:
A)Wassily Leontief
B)Alfred Marshall
C)Eli Heckscher
D)Raymond Vernon
Q4) The Heckscher-Ohlin theory is often referred to as the factor-endowment theory.
A)True
B)False
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Chapter 5: Trade Restrictions: Tariffs
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Q1) The revenue collected by the government as a result of an imposed tariff is attributed to the:
A)production effect of a tariff
B)trade effect of a tariff
C)revenue effect of a tariff
D)consumption effect of a tariff
Q2) In a small nation,the revenue effect of a tariff accrues to the foreign producer of the imported good.
A)True
B)False
Q3) The difference between what consumers would be willing to pay for each unit of commodity and what they actually pay for that unit is called ____________.
A)producer surplus
B)consumer surplus
C)reservation price
D)import tariff
Q4) "Using international trade theory,we can unambiguously state that the imposition of a tariff imposes net losses to the imposing nation." Is this statement true or false? Explain.
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Chapter 6: Nontariff Trade Barriers and the Political
Economy of Protectionism
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Q1) The Smoot-Hawley Tariff Act of 1930 has often been associated with:
A)tariff reductions
B)increasing volume of trade for the US
C)decreasing exports and imports in the US
D)reduction of non-tariff barriers
Q2) The US government introduced the trigger-price mechanism in the 1970's in response to dumping in what industry?
A)Steel
B)Cotton
C)Automobiles
D)Consumer Electronics
Q3) Under which act was the President first given authority to negotiate bilateral tariff reductions?
A)The Smoot-Hawley Tariff Act of 1930
B)The U.S.Tariff Assignment Act of 1954
C)The Trade Agreements Act of 1934
D)The Sarbanes-Oxley Act
Q4) Non-tariff barriers are also known as "new protectionism".
A)True
B)False
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Chapter 7: Economic Integration
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Q1) A(n)________________ is a group of nations with common monetary and fiscal policies in addition to the characteristics of a common market.
A)Preferential trade arrangement
B)Economic union
C)Common market
D)Free trade area
Q2) A ____________________ is the form of economic integration wherein all barriers are removed on trade among members,but each nation retains its own barriers to trade with nonmembers.
A)preferential trade arrangements
B)customs union
C)common market
D)free trade area
Q3) An agreement between two nations regarding quantities and terms of specific trade transactions is known as:
A)A preferential trade agreement
B)A voluntary export restraint
C)A free trade area
D)a bilateral agreement
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Chapter 8: Growth and Development With International Trade
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Q1) Which of the following is one of the disadvantages of export-oriented industrialization?
A)It may be very difficult for developing nations to set up export industries because of the competition from the more established and efficient industries in developed nations
B)Domestic industries can grow accustomed to protection from foreign competition and have no incentive to become more efficient
C)Import substitution can lead to inefficient industries because of the smallness of the domestic market in many developing nations
D)Domestic industries can grow accustomed to protection from foreign competition and have no incentive to become more efficient.
Q2) Briefly discuss the three most serious problems facing developing countries today.
Q3) Which of the following is not a characteristic of a developing country?
A)A high proportion of the labor force in agriculture
B)A high illiteracy rate
C)Low life expectancy
D)Low population growth rate
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Chapter 9: International Resource Movements and Multinational Corporations
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Q1) When an investor purchases __________,then he/she is purchasing a claim on the net worth of the firm.
A)a bond
B)stock
C)a mutual fund
D)real estate
Q2) How is risk measured?
A)by the median value of the returns
B)by the variance of returns about the average
C)by the mean value of returns
D)by the average number of stocks and bonds sold international
Q3) In general,_________________ on all types of investment.
A)the greater the risk,the greater the return
B)the lower the risk,the greater the return
C)the lower the interest rates,the lower the return
D)there is no relationship between risk and return
Q4) What are the basic reasons for a multinational corporations (MNCs)existence?
Q5) Why does a multinational firm have to go for direct foreign investment instead of licensing a local firm to carry out production on its behalf?
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Chapter 10: Balance of Payments
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Q1) Which of the following is an example of a capital inflow for the US?
A)A domestic increase of assets held by foreign investors
B)A domestic decrease of assets held by foreign investors
C)An increase in US foreign asset holdings
D)Importing of goods and services
Q2) If a US resident were to visit Japan and spend $500 on food and shelter,what entries would be made into the US balance of payments?
A)Travel services - credit of $500; Capital inflow - debit of $500
B)Accounts Payable - debit of $500; Goods imports - credit of $500
C)Travel services - debit of $500; Capital inflow - credit of $500
D)Accounts Payable - credit of $500; Inventory - debit of $500
Q3) If the US government sells military hardware to Egypt,the transaction would be recorded on the US balance of payments as a:
A)Current account debit
B)Current account credit
C)Capital account debit
D)Capital account credit
Q4) What is the difference between a nation's balance of payment account and its international investment position?
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Chapter 11: The Foreign Exchange Market and Exchange Rates
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Q1) If the sport rate for Euro is $1.32/ and the 90 day forward rate is $1.44/ then the forward rate carries how much forward premium or discount?
A)33.32% premium
B)9)09% discount
C)36.36% premium
D)8)33% discount
Q2) _____________ are commercial bank deposits in one nation denominated in the currency of another nation.
A)Eurobonds
B)Eurocurrencies
C)Euronotes
D)Offshore deposits
Q3) The percentage per year by which the forward rate on the foreign currency is below its spot rate is the:
A)forward increase
B)forward discount
C)forward transaction
D)forward premium
Q4) Please explain what is meant by Covered Interest Arbitrage.
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Chapter 12: Exchange Rate Determination
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Q1) What type of relationship does the demand for money and interest rates exhibit?
A)A constant positive relationship
B)An inverse relationship
C)A stochastic relationship
D)An increasingly positive relationship
Q2) Which of the following countries has experienced a higher rate of inflation than the US from 1973-2010?
A)Switzerland
B)Italy
C)Belgium
D)Austria
Q3) The nominal exchange rate is the exchange rate or the domestic currency price of the foreign currency.
A)True
B)False
Q4) The real exchange rate is the observed exchange rate or the domestic currency price of the foreign currency.
A)True
B)False
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Chapter 13: Automatic Adjustments With Flexible and Fixed Exchange Rates
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Q1) The marginal propensity to save is the amount of additional savings associated with each one-dollar increase in income multiplied by the increase in income.
A)True
B)False
Q2) How does the adjustment mechanism operate under a gold standard?
Q3) If the US currency pass-through is 60 percent,what will occur as a result of a 15 percent depreciation in the value of the dollar?
A)import prices to fall by 9 percent
B)import prices to rise by 15 percent
C)export prices to fall by 9 percent
D)export prices to rise by 15 percent
Q4) ___________ account(s)for the impact a change in a large nation's income and trade has on the rest of the world and which the rest of the world in turn has on a nation.
A)Foreign repercussions
B)Absorption
C)The synthesis of automatic adjustments
D)The foreign multiplier
Q5) Please explain the J-Curve effect in exchange rate determination.
Page 15
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Chapter 14: Adjustment Policies
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Q1) Which of the following is not one of the most important economic goals or objectives of nations?
A)External balance
B)An adequate protection of the environment
C)An equitable distribution of income
D)They are all equally important
Q2) What are the effects of running a high budget deficit,as the US does?
A)Low interest rates,compared to those abroad
B)Large capital outflows
C)Overvaluation of the dollar
D)Small trade deficits
Q3) In terms of their effect,how are the direct controls like tariffs and export subsidies different from say currency devaluation or depreciation?
Q4) The longest boom on record for the US took place during which decade?
A)1990s
B)1980s
C)1970s
D)1960s
Q5) Describe why monetary policy under a fixed exchange rate system is impotent.
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Chapter 15: Flexible Versus Fixed Exchange Rates,european
Monetary Systems,and Macroeconomic Policy
Coordination
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Q1) Advocates of fixed exchange rates claim that flexible exchange rates reduce the volume of international trade and investment,are more likely to lead to destabilizing speculation and are inflationary.
A)True
B)False
Q2) Under the ________________,the creation of the European Monetary Institute was created as a forerunner of the European Central Bank and monetary union.
A)Maastricht Treaty
B)European Monetary Union
C)European Currency Unit
D)European Monetary System
Q3) Advocates of fixed exchange rates claim that flexible exchange rates:
A)increase the volume of international trade and investment
B)lead to stabilizing speculation
C)are inflationary
D)makes internal balance of the economy more difficult to attain
Q4) What is dollarization? What are some of the benefits and cost that go along with it?
17
Q5) What are the advantages of International Macroeconomic Policy Coordination?
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Chapter
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Q1) What are the arrangements under which national central banks negotiate to exchange each other's currency to be used to intervene in foreign exchange markets to combat international hot money flows?
A)General Arrangements to Borrow
B)Diminutive arrangements
C)Standby arrangements
D)Swap arrangements
Q2) ______________ is a convertible currency used by monetary authorities in foreign exchange markets to keep the exchange rate from moving outside some predefined range.
A)Revaluation currency
B)Intervention currency
C)Devaluation currency
D)Both A & B
Q3) Which agreement,ratified in 1978,recognized the managed float and abolished the official price of gold?
A)The Jamaica Accords
B)The Smithsonian Agreement
C)The European Cooperation Agreements
D)General Agreement to Borrow
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