MacAP VII- Open Economy: International Trade and Finance

Which of the following is likely to occur

following the depreciation of the United States

dollar?

• United States imports will increase.

• United States exports will increase.

• Demand for the United States dollar

  will decrease.

• United States demand for foreign

  currencies will increase.

• United States goods will become more

  expensive in foreign markets.

The table below shows the production alternatives of Country A and Country B for producing computers and cars with equal amounts of resources that are fully and efficiently employed.

Country ......Computers.........Cars

A----------------->24---------------->12

B----------------> 45----------------> 15

• Country A has an absolute and comparative

  advantage in the production of computers.

• Country B has an absolute and comparative

  advantage in the production of computers.

• Country B should import computers and

  export cars.

• Since Country B has an absolute advantage

  in the production of both goods, it will not

  trade with Country A.

• Neither country can benefit from trade.

If Country Alpha has been experiencing a higher

inflation rate than Country Beta over the past

decade, which of the following is true?

• Alpha’s currency will have appreciated

  relative to Beta’s currency.

• Alpha’s currency will have depreciated

  relative to Beta’s currency.

• Alpha will have had lower nominal interest

  rates than Beta.

• Alpha will have had slower growth in the

  money supply than Beta.

• Alpha’s economy will have grown at a faster

  rate than Beta’s.

A country can have an increased surplus in its

balance of trade as a result of

• an increase in domestic inflation

• declining imports and rising exports

• higher tariffs imposed by its trading partners

• an increase in capital inflow

• an appreciating currency

Under a flexible exchange-rate system, the Indian

rupee will appreciate against the Japanese yen

when

• India’s inflation rate exceeds Japan’s

• India has a trade deficit with Japan

• Japan’s economy enters a recession,

  but India’s does not

• Japan’s money supply decreases while

  India’s money supply increases

• real interest rates in India increase relative

  to those in Japan

If two nations specialize according to the law of

comparative advantage and then trade with each

other, which of the following would be true?

• A smaller number of goods would be avail-

  able in each trading nation.

• Total world production of goods would

  decrease.

• Everyone within each nation would be

  better off.

• Each nation would increase its consumption

  possibilities.

• One nation would gain at the expense of the

  other nation.

Tariffs are different from assigned import quotas

in that tariffs will

• restrict imports

• increase the price of imported goods

• benefit domestic consumers of imported

  goods

• hurt domestic producers of goods facing

  import competition

• generate additional revenue for the domestic

  government

Assume that there is an increase in United States consumers’ preference for European cars. Which of the following changes will most likely take place in the market for dollars?

• It will take more Euros to purchase the same amount of dollars.

• The demand for dollars will increase.

• The supply of dollars will increase.

• Both the demand for and the supply of dollars will decrease.

• There will be no change in the foreign exchange market.

Which of the following transactions would increase the current account surplus in Japan’s balance of payments accounts?

• A Japan-based company sells automobiles to Canada.

• Marta, a Japanese investor, buys stocks in a Japanese company.

• Dana, a Canadian, buys stocks in a Japanese company.

• A Japan-based company buys a piece of equipment from Germany.

• Leah, a French citizen, works at a Japanese company in Paris.

An exchange rate is

• the price of one currency in terms of another currency

• the price of goods around the world

• the price of a good in terms of another good

• the discount that companies take when goods are returned

• the quantity of a good to be traded for a unit of another good