1. The basis for international trade is
11. Which one of the following is not true?
a) Established trade patterns
a) An exchange rate is the price of one currency
in terms of another.
b) The size of gold holdings of two countries
c) Absolute advantage
d) Comparative advantage
2. Which of the following is not a reason for
international specialization?
a) Some countries have educated, trained
workers, while other countries have unskilled
workers
b) Tastes and preferences tend to be different in
different countries
c) Economies of scale can allow larger, specialized
producers to operate at lower average cost
d) The world price of a good is determined by the
world supply and demand for it
7. An import quota is a:
a) tax on imports
b) legal limit on the amount of a specific good
that can be imported into a particular country
c) tax on import quantities above the legal limit
d) legal incentive for members of GATT to
increase their exports of a particular good
b) An exchange rate is the means by which the
price of a good in one country is translated into
the price to the buyer in another country.
c) The exchange rate will affect the willingness of
foreign buyers and sellers to trade with each
other.
d) The exchange rate is the price of a currency in
terms of another currency for exchanges of goods
and services but not for financial transactions.
12. Which of the following observations about a
tariff is not true? A tariff:
a) is usually an ad valorem tax
b) can raise revenues for the imposing
government
c) usually benefits domestic producers more than
consumers
d) can be used to protect foreign industries
14. Intra industry trade is more likely to occur
between
a) rich and poor countries
b) countries with high and similar income levels
c) developing countries
9. A major U.S. motive for negotiating a freetrade agreement with Mexico was to
a) increase immigration into the United States
b) encourage Mexico's recent drive to achieve a
more market-oriented economy
c) keep Mexico from going Communist
d) help foster the study of the Spanish language
in the United States as a means to trading with all
Spanish-speaking countries
d) developed and developing countries
18. The characteristics of quotas and tariffs are
described correctly by which of the following:
a) tariffs assure a certain final price for imports,
but not as surely as a quota does.
b) quotas assure a certain limited quantity of
imports, but not as well as a tariff does.
c) quotas assure a certain final price for imports
better than a tariff does.
d) tariffs do not assure a certain limited quantity
of imports as a quota does.
23. A depreciation of the dollar refers to a (an):
a) Fall in the dollar price of foreign currency
b) Increase in the dollar price of foreign currency
c) Loss of foreign-exchange reserves for the U.S
d) Intervention in the international money
market
d) $8.00 per pound
32. Starting at the point of equilibrium between
the money supply and the money demand, an
increase in the domestic money supply causes
the value of the home currency to:
a) Depreciate relative to other currencies
b) Appreciate relative to other currencies
c) Not change relative to other currencies
d) None of the above
26. In the early 1980s, the Federal Reserve
pursued a tight monetary policy. All else being
equal, the impact of that policy was to
__________ interest rates in the United States
relative to those in Europe and cause the dollar
to __________ against European currencies.
a) Decrease, depreciate
b) Decrease, appreciate
c) Increase, depreciate
34. Under a system of floating exchange rates,
which of the following policies promotes internal
balance for a nation?
a) Fiscal policy
b) Monetary policy
c) Both fiscal policy and monetary policy
d) Neither fiscal policy nor monetary policy
d) Increase, appreciate
35. Under a fixed exchange-rate system, an
expansion in the domestic money supply leads to:
27. Under a system of floating exchange rates,
the Swiss franc would depreciate in value if which
of the following occurs?
a) Trade-account deficit and a capital-account
surplus
a) Price inflation in France
b) Trade-account deficit and a capital-account
deficit
b) An increase in U.S. real income
c) A decrease in the Swiss money supply
d) Falling interest rates in Switzerland
30. If wheat costs $4 per bushel in the United
States and 2 pounds per bushel in Great Britain,
then in the presence of purchasing-power parity
the exchange rate should be:
a) $.50 per pound
b) $1.00 per pound
c) $2.00 per pound
c) Trade-account surplus and a capital-account
surplus
d) Trade-account surplus and a capital-account
deficit
37. Under a floating exchange-rate system, an
expansionary fiscal policy leads to a:
a) Trade-account deficit, a capital-account surplus
and appreciation of domestic currency
b) Trade-account deficit, a capital-account surplus
and appreciation of foreign currency
c) Trade-account surplus, a capital-account
surplus and depreciation of domestic currency
d) Trade-account surplus, a capital-account deficit
and depreciation of domestic currency
38. Under a fixed exchange-rate system, an
contractionary fiscal policy leads to a:
a) Trade-account deficit and a capital-account
surplus
b) Trade-account deficit and a capital-account
deficit
c) Trade-account surplus and a capital-account
surplus
d) Trade-account surplus and a capital-account
deficit
Answer
3. (d)
4. (d)
7. (b)
9. (b)
11. (d)
12. (d)
14. (b)
18. (d)
23. (b)
26. (d)
27. (d)
30. (c)
32. (a)
34. (a)
35. (b)
40. Under a fixed exchange-rate system, an
expansionary fiscal policy leads to a worsening in
a nation’s balance-of-payments position if the
resulting:
a) Trade-account deficit more than offsets the
capital-account surplus
b) Trade-account deficit more than offsets the
capital-account deficit
c) Trade-account surplus more than offsets the
capital-account surplus
d) Trade-account surplus more than offsets the
capital-account deficit
37. (a)
38. (d)
40. (a)