Dr. Westerhold
Econ 170
Sample Packet for Exam II (non-tariff barriers Ch. 4, Ch. 5 Multilateralism, Ch. 6 Foreign
Exchange Markets) Remember, these are just practice questions. Anything we covered in class is
testable, so you must review all HW, all sample materials, AND your notes to fully cover everything.
1. A Voluntary Export Restraint is a
A) voluntary (absolute) quota.
B) valid exports subsidy.
C) type of countervailing duty.
D) tariff rate quota.
E) beggar-thy-neighbor policy.
2. Mercosur is a
A) free trade area.
B) common market.
C) customs union.
D) economic union.
E) none of the above
3. A trading arrangement that eliminates most or all barriers to trade among participating nations and
utilizes common barriers to trade with other countries outside the group is called a
A) preferential trade agreement.
B) free trade area.
C) customs union.
D) common market.
E) economic union.
4. An economic union
I. is one step beyond a common market.
II. requires a common currency.
III. entails close coordination of economic policies among member countries.
IV. requires political union to be feasible.
A)
B)
C)
D)
E)
I and II only
II and III only
I and III only
III and IV only
I, II, III and IV
5. A country has imports of $50 million and exports of $75 million at a time when global trade is $900
million. The country’s share of global trade is
A) 5.56%.
B) 8.33%.
C) 13.89%.
D) 2.78%.
E) 27.89%.
NARRBEGIN: Table 1, Trade Patterns
Country of
origin:
Country 1
Country 1
Country 2
Country 2
Country 3
Country 3
Amount
Exported:
$45
$55
$35
$25
$45
$15
Exported to:
Country 2
Country 3
Country 1
Country 3
Country 1
Country 2
These are the only three countries in the world.
6. Refer to Table 1 to answer the following question: According to the information given, Country 1 has
a __________ and Country 2 has a __________.
A) trade surplus; trade deficit
B) trade deficit; trade deficit
C) trade surplus, trade surplus
D) trade surplus; zero net trade balance
E) trade deficit; zero net trade balance
7. Refer to Table 1 to answer the following question: According to the information given, Country 1’s
share of global trade is
A) 40.91%.
B) 22.73%.
C) 18.18%.
D) 45.45%.
E) 36.36%.
8. Refer to Table 1 to answer the following question: Suppose that Country 2 and Country 3 together
constitute a regional trade bloc known as the Free Trade Area. What is the trade concentration
ratio of this trade bloc (expressed as a decimal instead of a percent)?
A) 0.5909
B) 0.3077
C) 0.2955
D) 0.5207
E) 0.3333
9. Free trade advocates generally favor __________ to other forms of trade rules.
A) customs unions
B) common markets
C) economic unions
D) multilateralism
E) protectionism
10. The multinational organization that oversees multilateral trade negotiations and rules on trade
disputes is
A) TRIPS
B) GATS.
C) WTO.
D) ITC.
Use the following table to answer questions 14-18: Small country with quota
Price
Qdemand
Qsupply domestically
$100
$80
$60
$40
$20
500
1000
1500
2000
2500
1200
1000
800
600
400
Qsupply (world
total)
11. What is the domestic equilibrium price and quantity?
12. Assume the world price is $40. How many units are produced domestically? How many units are
consumed? How many units must be imported?
13. Assume a quota of 700 units is implemented. Fill in the world supply in the table above.
Determine the new world price after the quota is implemented.
14. With the quota, how many units are produced domestically? Consumed? Imported?
15. What is the amount of the quota rent? Domestically which economic agents are better off?
Worse off?
16. The currency per U.S. dollar quote for the British pound is 1.55. If you wish to buy $1,000 worth of
pounds, how many pounds could you get?
A) 1,550
B) 645
C) 450
D) 1000
E) 550
17. The exchange rate for the euro changed from 0.9968 on December 2 to 0.9966 (U.S. dollar
equivalent) on December 3. If you used $1 million to buy euros on December 2 and sold them on
December third you made approximately
A) +$200
B) –$144
C) –$200.
D) +$144
E) none of the above
18. If you import $500,000 worth of goods from a Japanese supplier and the exchange rate is 1USD=75
YEN, then how many yen would you need?
A. 37,500,000
B. 3,750,000
C. 66,666.67
D. 6,666.67
E. 3,750.
19.
Suppose the exchange rate between the dollar and peso is 1USD=150 pesos. If you export goods
to Mexico and receive 185,250pesos in return, what is the value of your pesos in USD?
A. 27,787,500
B. 2,778, 750
C. 12,350
D. 1,235
E. 500
20.
Suppose IBM produces 120,000 computers for the French government to be delivered in three
months with a payment due of 800,000 Euros. The current exchange rate is 1USD=.80Euros. If in
three months the payment is received upon delivery and the exchange rate is now 1USD=.65
Euros then the US firm
A. will lose approximately $230,000 because of the change in the exchange rate
B. will gain approximately $230,000 because of the change in the exchange rate.
C. will gain approximately $120,000 because of the change in the exchange rate
D. will lose approximately $120,000 because of the change in the exchange rate.
E. will gain approximately $520,000 because of the change in the exchange rate.
21. Which of the following is not considered one of the “majors”
A. US dollar
B. Euro
C. Yen
D. Real
E. Pound
22. If the exchange rate between the US and South Africa was 1USD=7 Rand and now it is 1USD=8 Rand
then
A. the USD depreciated.
B. the USD appreciated.
C. the Rand depreciated.
D. Both A and C
E. Both B and C
23. If the USD depreciates relative to the Euro then
A. US imports of European goods will increase
B. US imports of European goods will decrease
C. US exports to Europe will increase
D. US exports to Europe will decrease
E. Both B and C
24. If the USD appreciates relative to the peso then the US trade balance with Mexico
A. will increase
B. will decrease
C. will be a surplus.
D. will be a deficit.
E. will not change.
25. If an export company selling coffee from Brazil increases its sales to new trading partners then
A. the Brazilian Real will appreciate as demand for the Real increases.
B. the Brazilian Real will depreciate as demand for the Real increases.
C. the Brazilian Real will appreciate as demand for the Real decreases.
D. the Brazilian Real will depreciate as demand for the Real decreases.
26. If the US central bank (the FED) wants to depreciate the USD relative to the Euro they should
A. buy USD on the forex market.
B. sell Euros on the forex market.
C. sell USD on the forex market.
D. buy Euros on the forex market.
E. Both C and D would depreciate the USD.
ANSWERS
1. A
2. C
3. C
4. C
5. C
6. D
7. A
8. A
9. D
10. C
11. Pe=$80 and Qe=1000 units (where Qd=Qs)
12. Qs domestically=600; Qd 2000; must import 1400 units from rest of world.
13. Add import of 700 to each Qs number (1900, 1700, 1500, 1300, 1100 in lefthand column). New
world price is where Qd=Qsworld or P=$60 and Qe=1500 units.
14. Qs domestically=800; consumed is 1500, and import must be 700 units (quota maximum)
15. $20*700=$14,000. Consumers are worse off as old world price was $40 now pay $60. Domestic
producers are better off (they receive a higher price and domestic production increases from
600 to 800 so they sell more units). Foreign producers receive quota rent but have their imports
reduced so they may be better or worse off.
16. A
17. A
18. A
19. D
20. B
21. D
22. E
23. E
24. B
25. A
26. E