International trade Arguments for free trade are sometimes disregarded by politicians, because: a. b. c.

Maximizing domestic efficiency is not considered important . Pleasing blocs of voters is vital to political success. There exist sound economic reasons for keeping ones economy. isolated from other economies. Economists tend to favor highly protected domestic markets.

d.

Free traders maintain that an open economy is advantageous in that it provides all of the following EXCEPT: a. b. c. Increased competition for world producers A wider selection of products for consumers. The utilization of the most efficient production methods

d. Relatively high wages levels for all domestic workers

When the relative prices of American made goods go up, the result is a. an increase in exports. b. a decrease in exports. c. A decrease in imports. a. No net change in imports or exports.

Given free trade, small nations tend to benefit the most from trade since they: a. b. c. Are more productive than their large trading partners. Are less productive than their large trading partners. Have demand preferences and income levels lower than their large trading partners.

d. Enjoy terms of trade lying near the opportunity costs of their large trading partners.

In a given year, a country's exports total $25 billion and its imports are $27 billion. Its net exports are:

a. $52 billion b. $2 billion c. -$2 billion d. $26 billion

In long run, imports are paid for by_______. a. investment b. dollars c. exports d. gold or other universally excepted monies. Comparative advantage Country A Product X Product Y Country A has an absolute advantage in a. Product X b. Product Y c. Neither X nor Y d. Both X and Y 3 4 B 9 2

Country B has an absolute advantage in a. Product X

b. c. d.

Product Y Neither X nor Y Both X and Y

If the countries were to trade along the lines of absolute advantage: a. b. c. A would export X to B. B would import Y from A. Neither country would want to trade.

If countries were to trade along the lines of comparative advantage: a. A would export X to B. b. A would export Y to B. c. Neither country would want to trade.

NAFTA The NAFTA is a: a. monetary union b. free trade area c. common market d. customs union

One objective that the European Union AND NAFTA all share in common is a commitment to a. human rights and environmental regulation. b. removing political barriers between member states. c. democratic governments d. removing barriers to trade between member states e. All of the above are common objectives to these associations

G-8 Which of the following countries is not a member of the G 8 a. Canada b. Italy c. Germany d. China e. Russia

The purpose of the G 8 is a. World domination. b. To promote world stability and safety. c. To control world exchange rates. d. To encourage the borrowing of money by LDCs.

Market changes and exchange rates

Higher inflation in the United States relative to that in Canada, ceteris paribus, is predicted to cause which of the following?

a. A decrease in the supply of U.S. dollars. b. An increase in the demand for US dollars. c. A decrease in the price of the US dollar in terms of the Canadian dollar. d. An increase in the price of the US dollar in terms of the Canadian dollar.

An increase in US interest rates relative to the rest of the world can be expected to a. Encourage investment spending by US firms in the United states. b. Decrease the capital flow into the united states. c. Cause an outflow of foreign capital in the US d. Increase the international value of the dollar. (exchange rate) e. Improve the situation of exporters.

Assume a contractionary monetary policy causes the United States interest rates to increase relative to Japan. In the short run, the value of the US dollar will______, the value of the yen will______, and the US trade balance will ______. a. Appreciate, Appreciate, Move towards deficit. b. Appreciate, Depreciate, move towards deficit. c. Appreciate, Depreciate, move towards surplus. d. Depreciate, depreciate, move towards surplus. e. No change, appreciate, move towards deficit.

If the US dollar appreciates in the foreign exchange market, US imports and exports are most likely to change in which of the following ways?

US Imports a. Increase b. Increase c. Increase d. Decrease e. Decrease

US exports Remain unchanged. Increase. Decrease. Remain unchanged. decrease.

Suppose that a Swiss television set that costs 400 francs in Switzerland costs $200 in the United States. The exchange rate between the franc and the dollar is: a. b. c. d. 2 francs per dollar 1 franc per dollar $2 per franc $3 per franc

In the early eighties, 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. b. c. d. decreases, depreciate. decreases, appreciate. increases, depreciate. increases, appreciate.

Under a system of floating exchange rates, the pound would depreciate in value if there occurs: a. price inflation in the United States b. an increase in U.S. real income c. a decrease in the British money supply d. falling interest rates in Britain

What does a balance of trade deficit imply? a. Exports of goods and services exceed imports of goods and services. b. Imports of goods and services exceed exports of goods and services. c. The balance of trade is in surplus. d. The exchange rate is falling. e. The exchange rate is rising.

Which of the following will tend to increase U.S. exports and reduce Mexican exports? a. A decrease in the dollar price of the peso b. An appreciation of the dollar relative to the peso c. A depreciation of the peso relative to the dollar d. An increase in the dollar price of the peso.

If net exports decrease by $10 billion and the MPC is 0.9, what is the ultimate change in GDP? a. $100 billion b. -$10 billion c. $10 billion d. -$100 billion

A system in which central banks occasionally intervene in free market exchange of currencies is called a. Exchange rate. b. Dirty float c. Special draw. d. Par value e. Fixed exchange rate.
Panel C Panel A Panel B Aggregate Aggregate Aggregate Supply Supply Supply Panel D

Ag.Dem.

Ag.Dem.

Unemployment Rate

Real Output

Real Output

Real Output

In Figure 1, which Panel refers to the monetarist's view of the effect of an increase in the quantity of money on the economy? (a) Panel A

(b) (c) (d)

Panel B Panel C Panel D

In Figure 1, which Panel refers to a Phillips curve? (a) (b) (c) (d) Panel A Panel B Panel C Panel D

In Figure 1, choose the Panel that Keynesians would use to illustrate the effects of stimulative fiscal policy on the economy? (a) (b) (c) (d) Panel A Panel B Panel C Panel D

Flow 3 might represent: A) federal government bond purchases. B)wages paid to chemists at the Environmental Protection Agency. C)tax refunds from filing federal income taxes.

D) federal disability payments.