Girls vs Boys Battle

1.  (Figure: Foreign Trade) Refer to the figure. What quantity would be traded in a free- trade environment?

• 600

• 1,400

• 1,000

• 800

2.      Which of the following statements is false?

• An exchange rate is the price of one currency expressed in terms of another currency.

• In a freely floating exchange rate system, exchange rates are freely determined by demand and supply for the currency.

• In a fixed exchange rate system, a currency’s exchange rate is fixed against the value of another currency.

• In a managed exchange rate system, the central bank does not intervene as the government manages the exchange rate.

3.  Two countries A and B produce wheat and cloth. In one day country A can produce either
12 units of wheat or 3 units of cloth, while country B can produce 4 units of wheat or 2 units
of cloth. If country A and country B trade, according to the theory of comparative advantage

• country A should export wheat because it has a lower opportunity cost of producing wheat

• country B should export wheat because it has a lower opportunity cost of producing wheat

• country A should export cloth because it has a lower opportunity cost of producing cloth

• country B should export cloth because it has a higher opportunity cost of producing cloth

4. Refer to the figure. The solution for a country without trade restrictions is where the equilibrium price and quantity are, respectively.

• $20 and 4

• $40 and 11

• $20 and 11

• $20 and 20

5. Over the short term, which of the following is not an advantage to free trade?

• greater choice of products for consumers and lower prices

• higher wages for domestic workers and greater employment

• greater competition and more efficiency in production

• benefits for producers of economies of scale arising from the ability to sell in other markets

6.      Which of the following will not lead to an appreciation of the currency of country X?

• an increase in demand for exports of country X

• an increase in demand for imports in country X

• an increase in foreign investment in country X

• an increase in interest rates in country X

7. An export subsidy is likely to result in which of the following?

• Decrease in domestic production

• Increase in domestic prices of the subsidized good

• Increase in the competitiveness of domestic goods abroad

• Decrease in government spending

8.  Refer to the figure. An imposition of extreme trade restrictions that eliminated all trade in that market, would generate wasted resources of:

• $70.

• $530.

• $90.

• $160.

9      Which of the statements below does not accurately describe the theory of comparative advantage?

• it rests on some unrealistic assumptions

• it allows an economy to diversify its economic activities

• it may lead to too much specialisation

• it ignores transportation costs

10.  Which of the following will lead to a depreciation of the currency of country X?

• expectations of currency appreciation in country X

• a lower inflation rate in country X, which makes its exports more competitive

• a fall in interest rates in country X

• a decrease in demand for imports in country X