International Economics
Question Bank
Course Introduction
International Economics explores the principles and dynamics that govern economic interactions among countries. The course covers key topics such as international trade theories, balance of payments, exchange rate determination, trade policy, globalization, and the impact of international institutions like the IMF and WTO. Students analyze how goods, services, and capital flow across borders, examine the effects of trade barriers and agreements, and study real-world issues such as currency crises, economic integration, and the challenges of global economic policy-making. Through theoretical models and case studies, learners gain a comprehensive understanding of how global markets operate and affect economic development at both national and international levels.
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) What is the most important factor which contributes to competitiveness?
Answer: Key to the concept of competitiveness is productivity, or output per worker hour.
Q2) Recent pressures for protectionism in the United States have been motivated by all of the following \(\underline {\text { except }}\):
A) U.S. firms shipping component production overseas
B) High profit levels for American corporations
C) Sluggish rates of productivity growth in the United States
D) High unemployment rates among American workers
Answer: B
Q3) For a nation to maximize its productivity in a global economy:
A) Only imports are necessary
B) Only exports are necessary
C) Both imports and exports are necessary
D) Neither imports nor exports are necessary
Answer: C
Q4) What are the challenges of the international trading system?
Answer: Among the challenges that the international trading system faces are dealing with fair labor standards and concerns about the environment.
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3
Chapter 2: Foundations of Modern Trade Theory:
Comparative Advantage
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Sample Questions
Q1) According to Adam Smith, international trade was a "win-win" situation since all nations could enjoy gains from trade.
A)True
B)False
Answer: True
Q2) Referring to Table 2.1, the United Kingdom gains most from trade if:
A) 1 ton of steel trades for 2 televisions
B) 1 ton of steel trades for 3 televisions
C) 2 tons of steel trade for 4 televisions
D) 2 tons of steel trade for 5 televisions
Answer: B
Q3) If two nations of approximately the same size and with similar taste patterns participate in international trade, the gains from trade tend to be shared about equally between them.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Sources of Comparative Advantage
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Sample Questions
Q1) The imposition of pollution-control regulations on domestic steel manufacturers leads to decreases in production costs and an improvement in the steel manufacturers' competitiveness.
A)True
B)False
Answer: False
Q2) The Heckscher-Ohlin theory suggests that land-abundant nations will export land-intensive goods while labor-abundant nations will export labor-intensive goods. A)True
B)False Answer: True
Q3) Does factor price equalization occur in the real world?
Answer: In the real world, differences in factor prices tend to exist. Different technologies, imperfect markets, transportation costs, and trade barriers may prevent factor prices from equalizing among nations.
Q4) The theory of overlapping demands applies best to trade in manufactured goods. A)True
B)False Answer: True
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Chapter 4: Tariffs
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Sample Questions
Q1) Unlike a specific tariff, an ad valorem tariff differentiates between commodities with different values.
A)True
B)False
Q2) A tariff on steel imports tends to improve the competitiveness of domestic automobile companies.
A)True
B)False
Q3) According to Figure 4.2, the tariff's terms-of-trade effect equals:
A) $300
B) $400
C) $500
D) $600
Q4) Under the Offshore Assembly Provision of U.S. tariff policy, U.S. import duties apply only to the value added in the foreign assembly process, provided that U.S.-made components are used by overseas companies in their assembly operations.
A)True
B)False
Q5) Can import duties have unintended side effects?
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Chapter 5: Nontariff Trade Barriers
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Sample Questions
Q1) Consider Figure 5.3. The quota leads to a deadweight welfare loss for Sweden of an amount equaling:
A) $0.80
B) $1.60
C) $2.40
D) $3.20
Q2) Referring to Figure 5.1, suppose the Mexican government imposes an import quota equal to 2 tons of steel. If Mexican steel importers behave as monopoly buyers and foreign exporters behave as competitive sellers, the overall welfare loss of the quota to Mexico equals:
A) $200
B) $400
C) $600
D) $800
Q3) Consider Figure 5.1. With free trade, the quantity of steel imported by Mexico equals:
A) 2 tons
B) 4 tons
C) 6 tons
D) 8 tons
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Page 7
Chapter 6: Trade Regulations and Industrial Policies
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Sample Questions
Q1) It is widely recognized that the economic sanctions levied against Iraq in 1990 were a major factor causing Iraq to withdraw its military forces from Kuwait.
A)True
B)False
Q2) Economic sanctions are most effective in causing the target nation to modify its behavior when the:
A) Target nation had negligible economic relationships with the imposing nation prior to the sanctions
B) People of the target nation have weak cultural ties to the people of the imposing nation
C) Sanctions are levied by a large number of nations
D) Target government is supported by the majority of its people
Q3) Economic sanctions are most effective in pressuring the target country to modify its behavior when the sanctions are imposed by a small number of countries and when the target country had weak economic ties to the imposing countries before the sanctions were initiated.
A)True
B)False
Q4) Has industrial policy contributed significantly to Japan's economic growth?
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Chapter 7: Trade Policies for the Developing Nations
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Q1) Prior to the formation of the Organization of Petroleum Exporting Countries, individual oil producing nations,
A) Operated like sellers in a competitive market
B) Behaved like individual sellers in a monopoly market
C) Had considerable control over the price of oil
D) Both b and
Q2) During the late 1980s and early 1990s, China dismantled much of its centrally-planned economy and permitted free enterprise to replace it.
A)True
B)False
Q3) East Asian economies have performed well by
A) Obtaining foreign technology
B) Remaining open to international trade
C) Investing in their people
D) All of the above
Q4) The purpose of a cartel is to support prices higher than would occur under more competitive conditions, thus increasing the profits of cartel members.
A)True
B)False
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Chapter 8: Regional Trading Arrangements
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Sample Questions
Q1) The European Union is primarily intended to permit:
A) Countries to adopt scientific tariffs on imports
B) An agricultural commodity cartel within the group
C) The adoption of export tariffs for revenue purposes
D) Free movement of resources and products among member nations
Q2) In a centrally-planned economy:
A) Commercial decisions are made by independent buyers and sellers acting in their own interest
B) Market-determined prices are used for allocating scarce resources
C) Prices play a rationing role so that the availability of goods is made consistent with buyer preferences and income
D) Government controls prices and output of goods bought and sold, with minimal recognition given to considerations of efficiency
Q3) According to Figure 8.1, the formation of a Greece/Germany customs union would result in:
A) $20 of trade diversion
B) $40 of trade diversion
C) $20 of trade creation
D) $40 of trade creation
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Chapter 9: International Factor Movements and Multinational Enterprises
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Sample Questions
Q1) Multinational corporations often locate manufacturing operations abroad in order to take advantage of foreign resource endowments or wage scales.
A)True
B)False
Q2) The effect of workers migrating from low-wage Mexico to high-wage United States is to redistribute income from capital to labor in the United States and from labor to capital in Mexico.
A)True
B)False
Q3) The source (home) location of most of the world's leading multinational enterprises is:
A) North America and Europe
B) North America and Asia
C) Europe and South America
D) Europe and Asia
Q4) Mergers differ from joint ventures in that they involve the creation of a new business firm, rather than the union of two existing companies.
A)True
B)False
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Chapter 10: The Balance of Payments
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Sample Questions
Q1) The role of ____ is to direct one nation's savings into another nation's investments:
A) Merchandise trade flows
B) Services flows
C) Current account flows
D) Capital flows
Q2) What are the components of the current account of the balance of payments?
Q3) All of the following are credit items in the balance of payments, except:
A) Investment inflows
B) Merchandise exports
C) Payments for American services to foreigners
D) Private gifts to foreign residents
Q4) In the balance-of-payments statement, statistical discrepancy is treated as part of the merchandise trade account because merchandise transactions are generally the most frequent source of error.
A)True
B)False
Q5) Refer to Table 10.3. The services balance registered a surplus of $100 billion.
A)True
B)False
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Chapter 11: Foreign Exchange
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Sample Questions
Q1) Suppose the exchange rate between the Japanese yen and the U.S. dollar is 100 yen per dollar. A Japanese stereo with a price of 60,000 yen will cost:
A) $60
B) $600
C) $6000
D) None of the above
Q2) The most important (in terms of dollar value) type of foreign exchange transaction by U.S. banks is the:
A) Spot transaction
B) Forward transaction
C) Swap transaction
D) Option transaction
Q3) Refer to Table 11.4. Comparing the franc's forward rates against the franc's spot rate, the exchange market's consensus is that over the period of a forward contract, the franc's spot rate will:
A) Depreciate against the dollar
B) Appreciate against the dollar
C) Remain constant against the dollar
D) None of the above
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Chapter 12: Exchange-Rate Determination
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Sample Questions
Q1) If Mexico applies tariffs to imports of manufactured goods, Mexico's demand for foreign exchange will rise and the peso will depreciate under a system of floating exchange rates.
A)True
B)False
Q2) If it is widely expected that the British economy will experience more rapid inflation than the Australian economy, the pound will depreciate against the dollar under a system of floating exchange rates.
A)True
B)False
Q3) Refer to Figure 12.2. If Swiss manufacturing costs increase relative to those of the United States, there would occur an increase in the supply of francs and an appreciation in the dollar's exchange value.
A)True
B)False
Q4) In a free market, exchange rates are determined by market fundamentals and market expectations.
A)True
B)False
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Chapter 13: Mechanisms of International Adjustment
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Sample Questions
Q1) Refer to Table 13.1. If weak economic conditions abroad result in Canada's exports falling from $3000 billion to $2500 billion, Canada's equilibrium income falls by approximately:
A) $888 billion
B) $990 billion
C) $1110 billion
D) $1220 billion
Q2) Under a fixed exchange rate system, adjustment mechanisms work for the automatic return to current-account balance after the initial balance has been disrupted.
A)True
B)False
Q3) The "rules of the game" served to reinforce and speed up the interest-rate-adjustment mechanism under a system of fixed exchange rates.
A)True
B)False
Q4) What is the foreign repercussion effect?
Q5) Explain David Hume's theory of automatic adjustment for balance of payments disequilibria.
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Chapter 14: Exchange-Rate Adjustments and the Balance of Payments
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Sample Questions
Q1) Assume that Ford Motor Company obtains all of its inputs in the United States and all of its costs are denominated in dollars. An appreciation of the dollar's exchange value:
A) Enhances its international competitiveness
B) Worsens its international competitiveness
C) Does not affect its international competitiveness
D) None of the above
Q2) 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
Q3) When manufacturing automobiles, suppose that General Motors uses labor and materials whose costs are denominated in dollars and pounds respectively. If the dollar's exchange value appreciates by 15 percent against the pound, the pound-denominated cost of a GM vehicle rises by 15 percent.
A)True
B)False
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Chapter 15: Exchange-Rate Systems and Currency Crises
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Sample Questions
Q1) Refer to Figure 15.1. Suppose the United States decreases investment spending in Switzerland, thus reducing the demand for francs from D<sub>0</sub> to D<sub>2</sub>. Under a floating exchange rate system, the new equilibrium exchange rate would be:
A) $0.40 per franc
B) $0.50 per franc
C) $0.60 per franc
D) $0.70 per franc
Q2) Under a floating exchange-rate system, if American exports \(\underline { \text { decrease } }\) and American imports rise, the value of the dollar will:
A) Appreciate
B) Depreciate
C) Be officially revalued
D) Be officially devalued
Q3) Since 1974, the major industrial countries have operated under a system of fixed exchange rates based on the gold standard.
A)True
B)False
Q4) Which nations use multiple exchange rates the most and why?
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Chapter 16: Macroeconomic Policy in an Open Economy
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Sample Questions
Q1) Suppose the United States faces domestic recession and a current account deficit. Should the United States devalue the dollar, one would expect the:
A) Recession to become less severe--deficit to become less severe
B) Recession to become more severe--deficit to become less severe
C) Recession to become less severe--deficit to become more severe
D) Recession to become more severe--deficit to become more severe
Q2) International policy coordination is plagued by differing national economic objectives, institutions, political climates, and phases in the business cycle.
A)True
B)False
Q3) A nation realizes external balance when its current account is in equilibrium.
A)True
B)False
Q4) Expenditure-switching policies alter the level of total spending (aggregate demand) for goods and services produced domestically and those imported.
A)True
B)False
Q5) Was the Plaza Agreement of 1985 a success?
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Chapter 17: International Banking: Reserves, Debt, and Risk
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Sample Questions
Q1) Describe the eurocurrency market.
Q2) "Country risk" analysis is concerned with all of the following \(\underline { \text { except: } }\):
A) Depreciation of the borrowing country's currency
B) Political instability in the borrowing country
C) Economic growth in the borrowing country
D) External debt of the borrowing country
Q3) Which indicator of international debt burden schedules interest and principal payments on long-term debt as a percent of export earnings?
A) Debt service ratio
B) Debt-to-export ratio
C) Ratio of external debt to gross domestic product
D) Ratio of external debt to gross national product
Q4) Are international reserve needs different for different exchange rate regimes?
Q5) With floating exchange rates, payments imbalances tend to be corrected by market-induced fluctuations in the exchange rate, and the need for exchange-rate stabilization and international reserves disappears.
A)True
B)False
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