Exam Name___________________________________ MULTIPLECHOICE.Choosetheonealternativethatbestcompletesthestatementoranswers thequestion. 1) ecauseoftheexistenceofcomparativeadvantage,thetotaloutputofgoodsis B higherwheneachproducer A) pecializesintheproductionofaparticulargood. s B) roducesatthemidpointofitsPPF. p C) akesbothintermediateandfinalgoods. m D) roducesseveraldifferentgoods. p 2) personhasacomparativeadvantageinproducingaparticulargoodifthatperson A A) aslessdesiretoconsumethatgoodthananyoneelsehas. h B) asmorehumancapitalrelatedtothatgoodthananyoneelsehas. h C) ashigherproductivityinproducingitthananyoneelsehas. h D) anproduceitatloweropportunitycostthananyoneelsecan.

n. c 3) henanationhasacomparativeadvantageintheproductionofaparticulargood, W A) hecomparativeadvantageencouragesself-sufficiency. t B) heopportunitycostofproducingthatgoodishigherthanthatofothergoods. t C) henationcangainfromtrade. t D) henationtendstoavoidspecialization. t 4) oobtainthegainsavailablefromcomparativeadvantage,individualsorcountries T mustdomorethanspecialize;theymustalso A) ngageinresearchanddevelopment. e B) rade. t C) nvest. i D) ave. s 5) fapersoncanproducemoreofallgoodsthananyoneelse,thatperson I A) asanabsoluteadvantage. h B) snolongeraffectedbyscarcity. i C) asacomparativeadvantageintheproductionofallgoods. h D) illbeunabletogainfromspecializationandexchange. w 6) personwhohasanabsoluteadvantagewill A A) aveacomparativeadvantageineverything. h B) othaveacomparativeadvantageineverything. n C) ottrade. n D) otspecialize. n 7) ynamiccomparativeadvantagearisesfrom D A) ecreasingmarginalbenefit. d B) earning-by-doing. l C) bsoluteadvantage. a D) ncreasingopportunitycost. i 8) nordertoachievethemaximumgainsfromtrade,peopleshouldspecialize I accordingto A) bsoluteadvantage. a B) PF. P C) ropertyrights. p D) omparativeadvantage. c

9) oodsandservicesthatwebuyfrompeopleinothercountriesarecalledour G A) alanceofpayments. b B) xports. e C) ermsoftrade. t D) mports. i 10) hegoodsandservicesthatacountrysellstopeopleinothercountriesarecalledits T A) ariffs. t B) mports. i C) uotas. q D) xports. e 11) etexportsis N A) hevolumeoftrademinusthevalueoftrade. t B) otalU.S.trademinusthetotaltradeoftherestoftheworld. t C) hevolumeofexportsminusthevolumeofimports. t D) hevalueofexportsminusthevalueofimports. t 12) ince1960,thevolumeofU.S.internationaltradeasapercentageoftotaloutputhas S ________. A) teadilydecreased s B) orethandoubled m C) allenbyhalf f D) emainedconstant r 13) hefundamentalforcethatgeneratesinternationaltradeis T A) awofdiminishingreturns. l B) bsoluteadvantage. a C) omparativeadvantage. c D) awofincreasingcosts. l 14) countryhasacomparativeadvantageinproducingagoodifincomparisontoany A othercountry,itcanproducethatgood A) taloweropportunitycost. a B) tloweraveragecost. a C) ithlesslabor. w D) ithasmallerweightedaverageofinputs. w 15) ationscanincreaseconsumptionofallgoodsifthey N A) inimizeexportsandmaximizeimports. m B) roducethegoodsinwhichtheyhaveacomparativeadvantageandtrade p withothernations. C) aximizeexportsandminimizeimports. m D) ricetheirgoodsbelowtheworldprice. p 16) tariffisa A A) ubsidyonanimportedgood. s B) ubsidyonanexportedgood. s C) axonanexportedgoodor t D) axonanimportedgoodor t service. service. 17) heWTOisthe T A) orldTariffsOrganization. W B) orldTaxationOrders. W C) orldTradeOrganization. W D) orldTradeOrders. W 18) nderwhichagreementwillbarrierstointernationaltradeamongtheUnitedStates, U Canada,andMexicobevirtuallyeliminatedaftera15-yearphasing-inperiodwhich beganin1994? A) moot-HawleyAct S B) eneralAgreementonTariffsandTrade(GATT) G C) ennedyRound K D) orthAmericanFreeTradeAgreement(NAFTA) N

 19) ftheUnitedStatesimposesatariffonimportedsteel,thetariffwill I A) ecreasetheU.S.productionofsteel. d B) ncreasethetotalU.S.consumptionofsteel. i C) aisetheU.S.priceofimportedsteel. r D) ecreaseemploymentintheU.S.steelindustry. d 20) heeffectsoftariffsincludeallofthefollowingEXCEPT T A) ariffscanhelpspecificgroupsinimport-competingindustries. t B) ariffsreducethevolumeoftradebetweencountries. t C) ariffsgeneraterevenuesforthegovernment. t D) ariffsincreasethebalanceoftradeinfavoroftheimportingcountry. t 21) quotais A A) nagreeduponpriceforagoodtobeimportedataspecifiedfuturedate. a B) restrictionthatspecifiesthemaximumamountofagoodthatmaybe a imported. C) tariffthatisafixedpercentageofthepriceofagood. a D) tariffthatisafixeddollaramountperunitofagood. a 22) heestablishmentofGATThasresultedin________. T A) reductionintariffsbutonlysince1970 a B) reductionintariffssinceWorldWarII a C) nincreaseintariffssincethe1950s a D) reductioninnontariffbarrierssinceWorldWarII a 23) conomistsusuallyagreewithwhichofthefollowingargumentsthatfavor E protectionism? A) henationalsecuritydefense t B) hedumpingdefense t C) hejobprotectiondefense t D) oneoftheabove.Economistsgenerallyagreethatargumentsinfavorof N protectionareflawed. 24) llofthefollowingareargumentsforprotectionfrominternationalfreetrade A EXCEPT A) rotectionpenalizeslaxenvironmentalstandards. p B) rotectionpreservesdomesticculture. p C) rotectionstrengthenstheefficiencygainsfromacomparativeadvantage. p D) rotectionpromotesdiversityandstability. p 25) _______occurswhenaforeignfirmsellsitsexportsatalowerpricethanitcoststo _ producethegoods. A) earning-by-doing L B) tariff A C) omparativeadvantage C D) umping D 26) omeobserversopposingfreetradearguethatwhenwebuyshoesfromBrazilor S shirtsfromTaiwan,U.S.workerslosetheirjobs.Thefactofthematteristhat A) ostjobslostbecauseoffreetradepaylessthanthepovertylevel. m B) reetradecreatesexportjobs,manyofwhichpaymorethanthejobslost. f C) hejobslostareconcentratedinrestrictedgeographicareas. t D) oU.S.workerhasactuallylostajobbecauseoffreetrade. n

 27) heargumentthatprotection________. T A) enalizespoorenvironmentalstandardsistrue p B) avesjobsisflawed s C) snecessaryforinfantindustriesistrue i D) llowsustocompetewithcheapforeignwagesistrue a 28) hichofthefollowingisanexplanationfortheexistenceoftraderestrictions? W A) ariffsgeneraterevenueforthegovernment. T B) entseeking r C) nefficientquotas i D) othanswersAandBarekeyexplanations. B 29) heexchangerateisthepriceatwhichthe________ofonecountryexchangesfor T the________ofanothercountry. A) urrency;currency c B) oods;goods g C) urrency;goods c D) urrency;financialinstruments c 30) ntheforeignexchangemarket,the________ofonecountryistradedforthe I ________ofanothercountry. A) oods;goods g B) urrency;financialinstruments c C) urrency;currency c D) urrency;goods c 31) hentheU.S.dollardepreciatesagainsttheyen,theyenbecomes________ W expensiveandtheexchangerate________. A) ore;falls m B) ore;rises m C) ess;falls l D) ess;rises l 32) hichofthefollowingexamplesdefinitelyillustratesadepreciationoftheU.S. W dollar? A) hedollarexchangesfor250yenandthenexchangesfor200euros. T B) hedollarexchangesfor2,000pesosandthenexchangesfor3,400pesos. T C) hedollarexchangesfor120yenandthenexchangesfor100yen. T D) hedollarexchangesfor200yenandthenexchangesfor250yen. T 33) hentheU.S.exchangeratefalls,U.S.goodsbecome________toforeignresidents W andU.S.exports________. A)lessexpensive;decrease B)moreexpensive;decrease C)lessexpensive;increase D)moreexpensive;increase 34) hegreaterthedemandforU.S.exports,the T A) malleristhedemandforU.S.dollars. s B) argeristhedemandfornon-U.S.currencies. l C) argeristhecurrentaccountdeficit. l D) argeristhedemandforU.S.dollars. l 35)Intheforeignexchangemarket,anincreaseintheworlddemandforU.S.exports shifts A)demandcurveforU.S.dollarsrightward B)supplycurveforU.S.dollarsrightward C)supplycurveforU.S.dollarsleftward D)demandcurveforU.S.dollarsleftward

36) ftheU.S.interestraterises,the I A) hereisamovementdownwardalongthedemandcurvefordollars. t B) emandcurvefordollarsshiftsleftward. d C) emandcurvefordollarsshiftsrightward. d D) oneoftheaboveanswersarecorrect. N 37) heideathatthevalueofmoneytendstobeequalacrosscountriesintheLONG T RUNisknownas A) urchasingpowerparity. p B) heexpectedprofitparityeffect. t C) nterestrateparity. i D) xchangerateparity. e 38) fthepricesintheUnitedStatesrisefasterthanthoseinothercountries,inthe I LONGRUN A) heinterestrateintheUnitedStatesfalls. t B) heexchangeraterises. t C) heninterestrateparitymustnothold. t D) heexchangeratefalls. t 39) xchangeratesintheSHORTRUNformostmajorcurrenciesareexplainedby E A) urchasingpowerparity. p B) upplyanddemandforcurrencies s C) xchangerateparity. e D) ggregatesupplyanddemand a 40) xchangeratesintheLONGRUNformostmajorcurrenciesareexplainedby E A) xchangerateparity. e B) upplyanddemandforcurrencies s C) ggregatesupplyanddemand a D) urchasingpowerparity. p 41)Accordingtopurchasingpowerparity,iftheexchangeratebetweenthedollarand theBrazilianrealis2realsperdollar,andaBigMaccosts$3.10intheU.S.,then theBrazilianpricewillbe A) .55reals. 1 B)6.20reals. C)3.10reals. D)2.00reals. 42) countryrecordsitsinternationalfinanceaccountsinits A A) mport/exportlogaccounts. i B) radepaymentsaccounts. t C) etexportspaymentsaccount. n D) alanceofpaymentsaccounts. b 43) hebalanceofpaymentsaccountusedtorecordpaymentsforimportedgoodsand T servicesisthe A) apitalaccount. c B) mportaccount. i C) urrentaccount. c D) ximaccount. e 44) heU.S.capitalaccountmeasures T A) oreigninvestmentintheUnitedStatesminusU.S.investmentabroad. f B) ettransferpaymentsbetweenU.S.residentsandforeigners. n C) eceiptsfromgoodsandservicessoldandtransferstoandfromforeigners. r D) etincreasesanddecreasesintheU.S.holdingsofforeigncurrency. n 45)Anegativebalanceinthecapitalaccountmeanstheeconomyis A)lendingtotherestoftheworld B)borrowingfromtherestoftheworld C)runningacapitalaccountsurplus D)importingmorethanitisexporting

46)Anegativebalanceinthecurrentaccountmeanstheeconomyis A)importingmorethanitisexporting B)runningagovernmentbudgetdeficit C)lendingtotherestoftheworld D)runningacapitalaccountdeficit 47) uringmostofthe1980s,1990s,and2000stheU.S.hashad D A) positivecurrentaccountandanegativecapitalaccount. a B) negativecurrentaccountandanegativecapitalaccount. a C) negativecurrentaccountandapositivecapitalaccount. a D) positivecurrentaccountandapositivecapitalaccount. a 48) WINDEFICITPROBLEMSupposeX-M=netexports;T-G=government T sectorsurplusordeficit;andS-I=privatesectorsurplusordeficit.Whichofthe followingrelationshipsiscorrect? A) -M=T-G+S-I X B) -I=X-M+T-G S C) -G=X-M+S-I T D) oneoftheaboveanswersarecorrect. N 49)AstrongU.S.$will A)increaseaggregatedemand,reducethecurrentaccountdeficitandincreasethe capitalaccountsurplus B) educeaggregatedemand,increasethecurrentaccountdeficitandincreasethe r capitalaccountsurplus C)havenoaffectonaggregatedemandorcurrentorcapitalaccounts D)isgoodfortheU.S.economy 50)AccoordingtotheTRI-LEMMAacountrycanhave A)fixedexchangerates,capitalmobilityandcontrolovermonetarypolicy B)fixedexchangerates,capitalmobilitybutnocontrolovermonetarypolicy C)floatingexchangerates,capitalcontrolsandcontrolovermonetarypolicy D)alloftheabove

 1) A 2) D 3) C 4) B 5) A 6) B 7) B 8) D 9) D 10) D 11) D 12) B 13) C 14) A 15) B 16) D 17) C 18) D 19) C 20) D 21) B 22) B 23) D 24) C 25) D 26) B 27) B 28) D 29) A 30) C 31) A 32) C 33) C 34) D 35) A 36) C 37) A 38) D 39) B 40) D 41) B 42) D 43) C 44) A 45) A 46) A 47) C 48) A 49) B 50) B