P.S: This is just a study guide. The questions may not appear exactly like this.
1. An excise tax on imported items is known as a(n)
c. export restriction.
d. price ceiling.
a. may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs).
b. are also called import quotas.
c. are excise taxes on goods exported abroad.
d. are per-unit subsidies designed to promote exports.
3. Assume that by devoting all of its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all of its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. We can conclude that
a. the terms of trade will be 3X equals 1Y.
b. Alpha should specialize in Y and Beta in X.
c. Alpha should specialize in X and Beta in Y.
d. there is no basis for mutually beneficial specialization and trade.
4. In a two-nation, two-good world, which of the following statements is true?
a. One nation cannot possibly have an absolute advantage over the other nation in both products.
b. If one nation has the comparative advantage in one product, then the other nation would have the comparative advantage in the other product.
c. One nation will always have the comparative advantage over the other nation in one of the products.
d. If one nation has the absolute advantage in one product, then the other nation would have the absolute advantage in the other product.
5. Refer to the diagram, which shows the domestic demand and supply curves for a specific standardized product in a particular nation. If the world price of this product is $1, this nation will
a. export all of the product.
b. import all of the product.
c. import some of the product and produce some of the product domestically.
d. neither export nor import the product.
6. In terms of absolute dollar volume, the top 3 leaders in world exports are
a. Japan, China, and the European Union.
b. the United States, England, and Canada.
c. Germany, England, and the United States.
d. China, the United States, and Germany.
7. An excise tax that is applied to an imported product that is not at all produced domestically is called a(n)
a. protective tariff.
b. revenue tariff.
c. import quota.
d. nontariff barrier.
8. An example of a nontariff barrier would be
a. a minimum limit on the quantity of imports.
b. excessive licensing requirements.
c. a tax on an imported product.
d. voluntary export restraints.
9. Differences in production efficiencies among nations in producing a particular good result from
a. different endowments of fertile soil.
b. different amounts of skilled labor.
c. different levels of technological knowledge.
d. all of these
10. Which country is the United States’ largest trading partner in terms of volume of trade?
11. The current account section in a nation’s balance of payments includes
a. its goods exports and imports and its services exports and imports.
b. foreign purchases of domestic assets.
c. purchases of foreign assets.
d. all of these.
12. It may be misleading to label a trade deficit as unfavorable or adverse, because
a. the multiplier does not apply to a trade deficit.
b. a trade deficit increases a nation’s aggregate output and employment.
c. a nation’s consumers benefit from a trade deficit during the period it occurs.
d. a trade deficit precludes inflation.
13. In international financial transactions, what are the only two things that individuals and firms can exchange?
a. currency and real assets
b. services and manufactured goods
c. assets and currently produced goods and services
d. currency and currently produced goods and services
14. In recent years, the United States has had large
a. current account surpluses.
b. capital and financial account deficits.
c. balance of trade deficits.
d. balance of payments surpluses.
15. A currency depreciation in the foreign exchange market will
a. encourage imports into the country whose currency has depreciated.
b. discourage imports into the country whose currency has depreciated.
c. discourage exports from the country whose currency has depreciated.
d. encourage foreign travel by the citizens of the country whose currency has depreciated.
16. If the rate of exchange for a pound is $4, the rate of exchange for the dollar is
a. ¼ pound.
b. 4 pounds.
17. If currency speculators believe South Korea will have much lower inflation in the future than the United States, then this event is most likely to cause the South Korean won to
a. depreciate and the U.S. dollar to depreciate.
b. depreciate and the U.S. dollar to appreciate.
c. appreciate and the U.S. dollar to appreciate.
d. appreciate and the U.S. dollar to depreciate.
18. Which of the following is not a major disadvantages of a flexible exchange-rate system?
a. It is susceptible to wild swings in rates, causing high uncertainty and reduced trade.
b. It could drain the foreign-exchange reserves of a nation.
c. A depreciation of a nation’s currency would worsen its terms of trade.
d. Wild swings in exchange rates may destabilize the domestic economy through the effects on the traded-goods sectors.
19. “International trade” refers to
a. purchasing or selling currently produced goods or services across an international border.
b. any transaction across an international border.
c. any financial transaction across an international border.
d. buying or selling of preexisting assets across an international border.
20. In considering euros and dollars, the rates of exchange for the euro and the dollar
a. are directly related.
b. are inversely related.
c. are unrelated.
d. move in the same direction.