2. Free traders maintain that an open economy is advantageous in that it provides all of the
following except:
Correct : A. Increased competition for world producers
3. Recent pressures for protectionism in the United States have been motivated by all of
the following except:
Correct : C. Sluggish rates of productivity growth in the United States
4. A sudden shift from import tariffs to free trade may induce short-term unemployment
in:
Correct : B. Industries that are only exporters
5. Which of the following statements is correct?
Correct : C. within a customs union there is unrestricted factor movement
6. A customs union that allows for the free movement of labor and capital among its member nations is called a:
Correct : C. common market
7. A trade-creating customs union is one where:
Correct : D. trade among members decreases while trade with nonmembers increases
8. A trade-diverting customs union:
Correct : B. reduces trade among union members and with nonmember nations
9. A trade-diverting customs union results in:
Correct : C. both trade creation and trade diversion
10. A trade-diverting customs union:
Correct : D. reduces the welfare of nonmembers and may increase or reduce that of members
11. A tariff:
Correct : C. Has no effect on volume of trade
12. A tariff is:
Correct : C. Tax and imports
13. What would encourage trade between two countries:
Correct : D. Reduced tariffs
14. In a free trade world in which no restrictions exist, international trade will lead to:
Correct : C. Increased efficiency
15. Govt. policy about exports and imports is called:
Correct : D. Finance policy
16. International trade and domestic trade differ because of:
Correct : B. Immobility of factors
17. What would encourage trade between two countries?
Correct : A. Different tax system
18. In the European Union:
Correct : C. There is a common tariff against non-members
19. On the 1st January 1958, six countries signed the treaty establishing the European Economic Community (EEC), in turn establishing the foundations for the European Union. In which European capital was it signed in from which it also takes its name?
Correct : C. Rome
20. The European Union has grown to be one of the world's largest trading blocs and markets. What is the approximate size of the population of the EU?
Correct : A. 500 million people
21. Which two institutions decide the Union's budget?
Correct : C. The Council of Ministers and the European Parliament
22. The European Union is one powerful global economic bloc. ASEAN is best described as being:
Correct : A. A free trade zone
23. Which of the following EU countries are sometimes referred to as the PIGS countries?
Correct : A. Portugal, Ireland. Greece, Spain
24. What is the main reason behind the introduction of the euro?
Correct : B. It can protect business trading from currency fluctuations
25. Which of the following are exclusive EU competencies in relation to Member States?
Correct : A. Conservation of marine biological resources (common fisheries policies), common market policies, the customs union and monetary policy for Member States belonging to the Eurozone.
26. A common or single market will have all of the following features except:
Correct : D. A common currency
27. Which of the options below is the only characteristic of a free trade area?
Correct : C. No internal trade barriers
28. On the balance-of-payments statements, merchandise imports are classified in the:
Correct : A. Current account
29. The balance of international indebtedness is a record of a country’s international:
Correct : B. Investment position at a fixed point in time
30. Which balance-of-payments item does not directly enter into the calculation of the U.S.gross domestic product?
Correct : C. Direct foreign investment
31. Which of the following is considered a capital inflow?
Correct : A. A sale of U.S. financial assets to a foreign buyer
32. Which of the following would call for inpayments to the United States?
Correct : D. American firms selling insurance to British shipping companies
33. In a country’s balance of payments, which of the following transactions are debits?
Correct : A. Domestic bank balances owned by foreigners are decreased
34. Which of the following is classified as a credit in the U.S. balance of payments?
Correct : A. U.S. exports
35. What is "immiserizing growth"?
Correct : A. Export-biased growth that worsens terms of trade so that a country is worse off as a result.
36. What is the "transfer problem"?
Correct : A. The fact that international transfers affect terms of trade when they are not taken into account.
37. Unlike the balance of payments, the balance of international indebtedness
indicates the international:
Correct : A. Investment position of a country at a given moment in time
38. Which of the following indicates the international investment position of a country at a given moment in time?
Correct : D. The balance of international indebtedness
39. Concerning the U.S. balance of payments, which account is defined in essentially the same way as the net export of goods and services, which comprises part of the country’s gross domestic product?
Correct : B. Goods and services account
40. If an American receives dividends from the shares of stock she or he owns in Toyota, Inc., a Japanese firm, the transaction would be recorded on the U.S. balance of payments as a:
Correct : D. Current account credit
41. If the United States government sells military hardware to Saudi Arabia, the transaction
would be recorded on the U.S. balance of payments as a:
Correct : B. Current account credit
42. The U.S. balance of trade is determined by:
Correct : D. All of the above
43. U.S. military aid granted to foreign countries is entered in the:
Correct : C. Current account
44. If the U.S. faces a balance-of-payments deficit on the current account, it must run a surplus on:
Correct : C. Either the official settlements account or the capital account
45. The current account of the U.S. balance of payments does not include:
Correct : C. The sale of securities to foreigners
46. The U.S. has a balance of trade deficit when its:
Correct : B. Merchandise imports exceed its merchandise exports
47. The value to American residents of income earned from overseas investments shows up in which account in the U.S. balance of payments?
Correct : A. Current account
48. What would be the effects of an export subsidy on oil imposed by Russia?
Correct : A. Relative world supply of oil rises and relative world demand falls.
49. What is the Metzler paradox?
Correct : C. A tariff on imports can lead to a decline in the internal price of the go
50. A country that is a net international debtor initially experiences:
Correct : A. An augmented savings pool available to finance domestic spending
51. Credit (+) items in the balance of payments correspond to anything that:
Correct : A. Involves receipts from foreigners
52. Debt (–) items in the balance of payments correspond to anything that:
Correct : B. Involves payments to foreigners
53. When all of the debit or credit items in the balance of payments are combined:
Correct : D. The total surplus or deficit equals zero
54. In the balance of payments, the statistical discrepancy is used to:
Correct : A. Ensure that the sum of all debits matches the sum of all credits
55. All of the following are credit items in the balance of payments, except:
Correct : D. Private gifts to foreign residents
56. All of the following are debit items in the balance of payments, except:
Correct : B. Merchandise exports
57. If the central bank purchases assets, it will result in:
Correct : C. An increase in the money supply.
58. If there is a decline in output, to keep the exchange rate fixed, the central bank has to:
Correct : C. Sell foreign assets.
59. What is the effect of an increase in taxes under fixed exchange rates and perfect asset substitutability in the short run?
Correct : C. An increase in output and no change in interest rates.
60. What is the effect of a currency devaluation under fixed exchange rates in the
short run?
Correct : C. An increase in exports.
61. Reducing a current account deficit requires a country to:
Correct : D. Decrease the government’s deficit and decrease private investment relative to saving
62. Reducing a current account surplus requires a country to:
Correct : A. Increase the government’s deficit and increase private investment relative to saving
63. Concerning a country’s business cycle, rapid growth of production and employment is
commonly associated with:
Correct : A. Large or growing trade deficits and current account deficits
64. The burden of a current account deficit would be the least if a nation uses what it
borrows to finance:
Correct : D. Investment on plant and equipment
65. A major difference between the spot market and the forward market is that the spot
market deals with:
Correct : A. The immediate delivery of currencies
66. The relationship between the exchange rate and the prices of tradable goods is known as
the:
Correct : A. Purchasing-power-parity theory
67. Low real interest rates in the United States tend to:
Correct : A. Decrease the demand for dollars, causing the dollar to depreciate
68. Assume that the United States faces an 8 percent inflation rate while no (zero) inflation existsin Japan. According to the purchasing-power-parity theory, the dollar would be expected to:
Correct : B. Depreciate by 8 percent against the yen
69. Suppose Mexico and the United States were the only two countries in the world. There exists anexcess supply of pesos on the foreign exchange market. This suggests that:
Correct : B. Mexico’s current account is in deficit
70. If Canada runs a current account surplus and exchange rates are floating:
Correct : C. The price of foreign goods will become cheaper for Canadians
71. Gold standard means:
Correct : D. (a) & (c) of above
72. If a country decreases the external value of its currency, it will affect:
Correct : D. All of the above
73. Rich countries have deficit in their balance of payments:
Correct : A. Sometimes
74. Balance of payments means:
Correct : C. The balance of receipts and payments of foreign exchange by a country
75. Assume a two-country world: Country A and Country B. Which of the following is correct
about purchasing power parity (PPP) as related to these two countries?
Correct : A. If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will weaken.
76. The international Fisher effect (IFE) suggests that:
Correct : A. a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate.
77. According to the IFE, if British interest rates exceed U.S. interest rates:
Correct : B. the British pound will depreciate against the dollar.
78. If interest rates on the euro are consistently below U.S. interest rates, then for the international Fisher effect (IFE) to hold:
Correct : A. the value of the euro would often appreciate against the dollar.
79. If interest rate parity holds, then the one-year forward rate of a currency will ______ the predicted spot rate of the currency in one year according to the international Fisher effect.
Correct : C. equal to
80. You have an opportunity to invest in Australia at an interest rate of 8%. Moreover, you expect the Australian dollar (A$) to appreciate by 2%. Your effective return from this investment is:
Correct : B. 10.16%.
81. The balance of payments equals:
Correct : C. A measure of the value of economic transactions between residents of a country and the rest of the world
82. If there were a balance of payments deficit then in a floating exchange rate system:
Correct : A. The external value of the currency would tend to fall
83. If the value of the pound in other currencies is strong, then other things being equal:
Correct : B. The price of UK products abroad in foreign currency will rise
84. If the value of the pound in terms of other currencies rises:
Correct : D. The spending on UK exports in foreign currency will fall if demand for UK exports is price elastic
85. The supply of pounds to the currency market will be upward sloping if:
Correct : C. The demand for imports into the UK is price elastic
86. A fall in the value of the pound is likely to decrease spending on imports if:
Correct : A. The price elasticity of demand for imports is price elastic
87. If the exchange rate is above the equilibrium level then in a floating exchange rate system:
Correct : B. There is excess supply and the exchange rate should fall
88. If the exchange rate is below the equilibrium level then in a floating exchange rate system:
Correct : C. There is excess demand and the exchange rate should rise
89. A depreciation of a currency occurs when:
Correct : A. The value of the currency falls
90. An appreciation of the currency is likely to occur if:
Correct : C. There is an increase in demand for exports
91. If the central bank purchases assets, it will result in:
Correct : A. An increase in the money supply.
92. If there is a decline in output, to keep the exchange rate fixed, the central bank has to:
Correct : D. Sell foreign assets.
93. What is the effect of an increase in taxes under fixed exchange rates and perfect asset
substitutability in the short run?
Correct : A. An increase in output and no change in interest rates.
94. What is the effect of a currency devaluation under fixed exchange rates in the short run?
Correct : D. An increase in exports.
95. If a respectable source speculates that there is a possibility of devaluation:
Correct : B. There will be a net private capital outflow.
96. Under imperfect asset substitutability:
Correct : D. Sterilized intervention affects money supply.
97. Which of the following is NOT true about the reserve currency standard?
Correct : C. The reserve center can use monetary policy to keep exchange rates fix
98. Which of the following is NOT true about the gold standard?
Correct : B. It does not lead to monetary policy spillovers.
99. Which of the following is NOT a motive for international asset trade?
Correct : A. Capital controls
100. Which of the following is NOT a part of a "policy trilemma"?