Macro Economics Test
Chapter 34 International Trade & Chapter 35 Foreign Exchange
1) If you buy a DVD player produced in Japan, a
A) good was exported by Japan and imported by the United States.
B) good was imported by Japan and by the United States.
C) service was imported by Japan and exported by the United States.
D) service was exported by Japan and imported by the United States.
E) good was exported by Japan and by the United States.
2) How can a nation export vacation services?
A) It cannot.
B) by sending citizens to vacation in other nations
C) using the nation as a subject of a documentary film and selling it to other countries
D) by having people from other countries vacation in the nation
E) by moving hotels from other nations into itself.
3) If a country has ____, then it is ____ other countries.
A) a balance of trade deficit; borrowing from
B) a balance of trade surplus; borrowing from
C) balanced trade; lending to
D) balanced trade; borrowing from
E) a balance of trade deficit; lending to
4) How can a domestic producer determine whether or not it has a comparative advantage in the production of
a good or service?
A) It cannot.
B) by comparing its costs of production to those of other domestic producers
C) by comparing its costs of production to the world price
D) by comparing the quantity it produces to the quantity produced in the world
E) by comparing the total domestic quantity to the total world quantity
5) A country will export a good if it
A) can sell the good to a foreigner at a higher price than the no-trade price.
B) can sell the good to a foreigner at a lower price than the no-trade price.
C) can dump the good on the world market.
D) has a high opportunity cost of production.
E) is impossible to import the good.
6) As a result of importing a good, domestic consumers ____ the quantity consumed and the price of the good
____.
A) increase; rises
B) increase; falls
C) decrease; rises
D) decrease; falls
E) increase; does not change
7) The United States can use all its resources to produce 100 videos or 500 shoes. China can use all of its
resources to produce 25 videos or 200 shoes. The opportunity cost of producing a shoe in China is
A) 1/8 of a video.
B) 1/4 of a video.
C) 1/5 of a video.
D) 1/2 of a video.
E) 1 shoe.
8) Which of the following is offshoring? When a U.S. firm
i. hires foreign labor and produces in other countries
ii. buys finished goods from other firms in the United States
iii. buys finished goods from other firms in other countries
A) i only.
B) ii only.
C) iii only.
D) ii and iii.
E) i and iii.
9) The fundamental force that drives trade between nations is
A) the government.
B) NAFTA.
C) absolute advantage.
D) comparative advantage.
E) legal treaties.
10) A tariff is a tax
A) on an exported good.
B) on an imported good.
C) imposed on all traded goods.
D) imposed on people's income.
E) imposed on the difference between the value of the goods a firm imports and the value of the goods it
exports.
11) Of the following, who gains with a tariff?
A) domestic buyers of the good or service
B) the importer of the good or service
C) the foreign exporter of the good or service
D) the government of the importing nation
E) the government of the exporting nation
12) What is the dumping argument for protection from international trade?
A) Domestic firms must be protected until they gain a comparative advantage.
B) Any firm necessary in wartime must be protected.
C) Foreign producers selling below cost to drive domestic firms bankrupt must be stopped.
D) Domestic jobs must be protected from competition from low-paid foreign workers.
E) Foreigners selling products in the economy limit the nation's diversity and stability.
13) What is rent seeking with respect to restricting international trade?
A) The rent on factory buildings increases if trade is restricted.
B) The government avoids paying rent on buildings when importers pay the tariff.
C) An attempt to capture the gains from trade by imposing a tariff.
D) The government's efforts to capture tariff rents.
E) The attempt by importers to avoid paying a tariff.
14) Why do governments in less-developed nations impose tariffs on imported goods and services?
A) The government gains revenue from the tariff.
B) The government's low-paid workers are protected from high-paid foreign workers.
C) The nation's total income will be increased.
D) The national security of the country definitely is improved.
E) The government protects its national culture.
15) When a U.S. company purchases $1 million worth of French cheese, the value of that transaction is recorded
in the
A) capital account.
B) investment account.
C) current account.
D) transfer account.
E) goods account.
16) The capital account records
A) all the purchases and sales of capital goods in the United States.
B) the current value of the balance of payments in U.S. dollars.
C) transactions involving trade, interest payments, and net transfers.
D) transactions involving foreign investment in the United States and U.S. investment abroad.
E) imports and exports of capital goods.
17) When U.S. official reserves ____, the official settlements account balance becomes negative and when U.S.
official reserves ____, the official settlements account balance becomes positive.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase
E) More information is needed about the balances on the current account and the capital account in order
to answer this question.
18) The table above gives data for the nation of Syldavia. The current account has a
A) $40 billion deficit.
B) $30 billion deficit.
C) $40 billion surplus.
D) $50 billion deficit.
E) balance of $320 billion.
19) If the U.S. capital account balance has a $30 million surplus and there was no change in official reserves
during that year, we know that
A) U.S. net foreign lending must equal $30 million.
B) the United States has a $30 million current account deficit.
C) the United States is a net lender.
D) U.S. official reserves have increased by $30 million.
E) the United States has a $30 million current account surplus.
20) Which of the following is true?
A) Most countries are net lenders.
B) Most countries are net borrowers.
C) A net borrower must be a debtor country.
D) A net lender must be a debtor nation.
E) A net lender must be a creditor nation.
21) If the United States receives $200 billion of foreign investment and at the same time invests a total of $160
billion abroad, then the U.S.
A) capital account balance increases by $40 billion.
B) current account must be in surplus.
C) balance of payments must be negative.
D) capital account balance decreases by $40 billion.
E) official settlements account balance increases by $40 billion.
22) When a Mexican company purchases a U.S.-made computer, the Mexican company pays for it with
A) U.S. dollars.
B) Mexican pesos.
C) gold.
D) Mexican goods and services.
E) Euros or yen.
23) If the exchange rate changes from 110 yen per dollar to 100 yen per dollar, the yen has
A) depreciated against the dollar.
B) appreciated against the dollar.
C) fallen inversely in value.
D) depreciated against the yen.
E) appreciated against the yen.
24) Which of the following appreciates the U.S. dollar in the foreign exchange market?
A) An increase in U.S. demand for U.S.-made goods and services.
B) An increase in the supply of dollars on the foreign exchange market.
C) An increase in foreign demand for U.S.-made products.
D) An increase in U.S. demand for foreign-made goods and services.
E) A decrease in the demand for dollars on the foreign exchange market.
25) If the exchange rate rises, then the quantity of dollars demanded ____ because with the higher U.S. exchange
rate, U.S. exports ____.
A) increases; increase
B) increases; decrease
C) decreases; increase
D) decreases; decrease
E) does not change; do not change
26) Suppose interest rates in foreign countries increase relative to the U.S. interest rate. As a result, there is ____
the demand curve for dollars.
A) an upward movement along
B) a downward movement along
C) a leftward shift of
D) a rightward shift of
E) neither a movement along nor a shift of
27)
If the U.S. interest rate rises relative to the interest rate in other countries, then the supply of dollars ____ and
the demand for dollars ____.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
28) When the U.S. interest rate rises, the demand for U.S. dollars ____ and the exchange rate ____.
A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
E) does not change; rises
29) As the exchange rate ____ the quantity supplied of U.S. dollars ____.
A) rises; increases
B) falls; increases
C) falls; remains the same
D) rises; decreases
E) rises; remains the same
30) In the foreign exchange market, when the U.S. interest rate rises, the supply of dollars ____ and the foreign
exchange rate ____.
A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
E) increases; does not change
31) A situation in which money buys the same amount of goods and services in different currencies is called
A) exchange rate equilibrium.
B) purchasing power parity.
C) exchange rate surplus.
D) exchange rate balance.
E) a fixed exchange rate.
1. Assume that the real interest rates in both Canada and India have been 5 percent. Now the real interest rate in
India increases to 8 percent.
(a) Using a correctly labeled graph of the foreign exchange market for the Canadian dollar, show the effect of
the higher real interest rate in India on each of the following.
(i) Supply of the Canadian dollar. Explain.
(ii) The value of the Canadian dollar, assuming flexible exchange rates
(b) Using a correctly labeled graph of the loanable funds market in Canada, show how the increase in the real
interest rate in India affects the real interest rate in Canada.
2. Suppose that Mexico decreases its tariff rates on all of its imports of automobiles from abroad.
(a) Will each of the following groups benefit from the decrease in the tariff rate?
(i) Mexican consumers
(ii) Mexican automobile manufacturers. Explain.
(b) How would the decrease in the tariff rates affect each of the following in Mexico?
(i) Current account balance. Explain.
(ii) Capital account balance
(c) Given the change in Mexico’s current account in part (b)(i), what will happen to the aggregate demand in
Mexico?
3. The diagram above shows the production possibilities curves for two countries: Artland and Rayland. Using
equal amounts of resources, Artland can produce 600 hats or 300 bicycles, whereas Rayland can produce
1,200 hats or 300 bicycles.
(a) Calculate the opportunity cost of a bicycle in Artland.
(b) If the two countries specialize and trade, which country will import bicycles? Explain.
(c) If the terms of trade are 5 hats for 1 bicycle, would trade be advantageous for each of the following?
(i) Artland
(ii) Rayland
(d) If productivity in Artland triples, which country has the comparative advantage in the production of hats?