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WorksheetsExcercises of IPE
Total questions: 120
Worksheet time: 1hrs 5mins
Which country played a fundamental role in the establishment of the liberal trading system after WWII?
The Soviet Union
China
The United States
Germany
Economists define an "efficient" choice as one that
costs the least, regardless of benefits.
gives you the most benefit with the least cost.
uses all your available resources with none left over.
gives you the most benefit, regardless of cost.
International political economy can be defined as
the international organizations such as the International Monetary Fund and the World Bank that direct international investments
the comparative advantage industrialized nations have over agriculturally- based nations
the mutual relationship between the international politics and national economy
the domestic fiscal and monetary policies developed by sovereign states
What, according to Classical economic theory, was the purpose of Mercantilism in the 18th century?
A means by which to strengthen the sovereign state, and inherently linked to international conflict.
A means by which to promote societal security for the populations of states.
A route to increasing imports and transnational trade.
Not a significant economic theory until after the 18th century.
Mercantilism
sees one state's gain as the other state's loss
aims to maximize sources of wealth within one's borders
is the economic doctrine of the strong
a and b are both correct
Which of the following statements would a mercantilist NOT agree with?
Imports are desirable
Trade is a zero-sum activity.
The purpose of trade is to amass revenues from exports.
Policies should promote exports and discourage imports.
Alexander Hamilton, the United States' first secretary of treasury, advocated protectionist policies to achieve what objective?
protect American farmers
protect American jobs
prevent unfair competition with China
protect the new nation's manufacturers
prevent offshoring to Mexicore
Which country was NOT included in the construction of the postwar liberal economic order after 1945?
Canada
France
Soviet Union
West Germany
Which of the following is referred to as a predecessor to WTO?
IMF
World Bank
GATT
OPEC
Which of the following is NOT among the three theoretical approaches to IPE?
social democracy
economic liberalism
mercantilism, economic nationalism
Marxism
Mercantilist arguments are based on the idea that ____.
free trade between nations is always beneficial to all.
merchants should not be allowed to influence politics.
only merchants should be allowed to influence politics.
national wealth and military power are fostered most effectively by protecting domestic producers from overseas competition.
In contrast to the liberal emphasis on cooperation, mercantilism/realism highlights the situation in which one side can gain only at the expense of another. This relationship is called ____
rational action
comparative advantage
zero-sum game
positive-sum game
Adam Smith's theory of absolute advantage explains:
How the market ensures that everyone profits by invisible means
Why nations will profit from specialization in what they produce cheaper than others
How nations can acquire a competitive edge over others
How firms prefer absolute over relative advantages.
Comparative advantage occurs when:
A country can produce more goods than anyone else
A country has a lower opportunity cost in the production of a good than other countries
A country has more product lines than other countries
The exchange rate appreciates
The theory of comparative advantage has been closely associated with which theory of international relations?
Realism
Economic structuralism
Liberalism
Marxism
The theory of comparative advantage illustrates that specialization can lead to
a rise in poverty among many groups of people
an increase in overall consumption and efficiency
greater equality among all people
the rise of powerful international organizations
In Marxist theory, those who own property and the means of production are the___
wealthy
proletariat
bourgeoisie
nihilists
Laissez-faire economics characterizes which of these political economic systems?
liberalism
social democracy
communism
mercantilism
monetarism
In economics, what does laissez-faire mean?
People should be left alone to do whatever they want.
Life should be made as fair as possible.
The state should exercise detailed control over the economy.
The state should not interfere in the detailed operations of the economy.
Why do liberals favor the free market economy?
They feel that individuals are rational enough to be left to pursue their own economic interests.
Most of them are closely connected to big business.
They think that poverty is a good way of ensuring social control.
They regard human existence as taking place in a 'state of nature', in which cut-throat competition is perfectly justified.
For Marx, the system of government that would emerge in socialism would be
a centralized state with a command economy.
a democracy.
one global nation.
a loose confederation of city-states.
a stateless anarchy.
Marxism argues that the exploitation of underdeveloped countries will only end through social revolution led by the working class.
True
False
In Marxist theory, the ___ is the working class.
proletariat
left
the law of retaliation
bourgeoisie
___ exemplify the interaction between the forces of supply and demand.
Political economies
Markets
Public goods
Regulations
Social expenditures
___ seeks to replace the free market with a centrally planned economy and an extensive welfare state.
Liberalism
Social democracy
Communism
Mercantilism
Which best describes a command economy?
It uses the free market to determine prices.
It uses central planning to determine the economy.
Which best describes a command economy?
It uses the free market to determine prices.
It uses central planning to determine the economy.
It is usually associated with monarchies.
It produces tremendous economic growth.
A tariff levied as a fixed charge for each unit of a good imported is a(n)
Fixed tariff
Specific tariff
Ad valorem tariff
Transit tariff
A quota on trade imposed from the exporting country's side is a(n)
Voluntary export restraint
Quota rent
Local content requirement
Administrative trade policy
Dumping refers to:
buying goods at low prices abroad and selling at higher prices locally
expensive goods selling for low prices.
reducing tariffs.
sale of goods abroad at a low price, below their cost and price in home market.
It is drawback of free trade:
Prices of local goods rise.
Government loses income from custom duties.
National resources are underutilized.
(a) and (b) of above.
Which argument for government intervention suggests that an industry should be protected until it can develop and be viable and competitive internationally?
Strategic trade policy
National security
Retaliation
Infant industry
Who benefits from tariff protection?
Domestic consumers on the good produced
Domestic producers of the good produced
Foreign producers of the good produced
Foreign consumers of the good produced.
A country's workers union attempted to win the approval of legislation that would moderate the practice of foreign sourcing on the part of auto manufacturers. Which of the following best represents this legislation?
Voluntary export quotas
Export subsidies
Tariff quotas
Local content requirement
A tariff is:
A restriction on the number of export firms
Limit on the amount of exported goods
Tax on imports
(b) and (c) of above
Which of the following was a key opponent of mercantilism?
David Rizzio.
David Bacardi.
Adam Smith.
John M. Keynes.
Which of the following trade policies limits specified quantity of goods to be imported at one tariff rate.
Quota
Import tariff
Specific tariff
All of the above
A tariff:
increases the volume of trade
reduces the volume of trade
has no effect on volume of trade
(a) and (c) of above
According to the Ricardo's principle, specialisation and trade increase a nation's total output since:
Resources are directed to their highest productivity
The output of the nation's trading partner declines
The nation can produce outside of its production possibilities curve.
The problem of unemployment is eliminated.
Which of the following is a reason for recent governmental decreases in restrictions on cross-border trade or resource movements?
Most countries face shortages of workers, thus by allowing entry of foreign workers they can produce more.
Governments hope to induce other nations to reduce their barriers in return.
Consumers increasingly want to buy goods and services produced in their own countries, thus making restrictions less necessary.
Governments believe that domestic producers will become more efficient as a result of foreign competition.
Regional trade agreements are NOT
an obstacle to trade liberalization
forbidden by GATT
against National Treatment and Most Favored Nations
a and b are correct
The Theory of Relative Factor Endowments is given by
David Ricardo
Adam Smith
Paul Krugman
Heckscher and Ohlin
In a world of two countries (Brazil and Chile), two goods can be produced (timber and computers) with two production factors (capital and natural resources). Suppose that Brazil is relatively capital abundant and Chile is relatively natural resource abundant. If timber is natural resource intensive and computers are capital intensive, then following the Heckscher-Ohlin Theory
Chile will produce more computers after trade begins with Brazil
Brazil will produce more timber after trade begins with Chile
Chile will produce more timber after trade begins with Brazil
Brazil will completely specialize in computers and Chile in timber after trade
In the 2-factor, 2-good Heckscher-Ohlin model, the two countries differ in
military capabilities
labour productivities
relative abundance of factors of production
tastes
Which of the following is one of the implications of New Trade Theory (NTT)?
Countries as a whole must gain from trade.
A country can only hurt itself by using government policies to promote exports.
Consumers gain from the increased variety of goods that trade makes available
A country may export a good or import it, but not both.
The Asia-Pacific Economic Cooperation (APEC) forum...
is part of a more general trend towards regional blocs.
accounts for over half of the world's GDP.
has member states which include authoritarian regimes as well as democracies.
All of the above are true.
The rate at which one currency is traded for another is called ____.
Interest rate
Exchange rate
Currency rate
Currency exchange
A state's central bank
controls the state's flow of money and sets interest rates.
redistributes wealth between the rich and poor.
collects taxes.
distributes property.
The bretton woods system is referred to as the "gold exchange standard" because
Gold was the fundamental standard of value based on the ability of the US to maintain the parity of $35 per ounce.
It replaced sterling which had been the silver exchange standard.
All central banks exchanged their foreign exchange reserves for gold to become members of the system.
Gold could be exchanged between countries, all other capital was controlled.
The balance of payments equals:
The difference between household spending and income
The difference between government spending and income
A measure of the value of economic transactions between a country and the rest of the world
The difference between inflation and unemployment
What was the desire behind the Bretton Woods Agreement?
A desire to put an end to the Second World War
A desire to eradicate the causes that led to the Second World War
A desire for creating a system of fluctuating currencies
A desire for the abolition of different currencies
What was the ultimate goal of the Bretton Woods Agreement?
The creation of a global alliance of states
The creation of an economic trade block
The creation of a new world economic order
The creation of a military allience
What was the agreement for Bretton Woods System?
Fixed Exchange Rate
US Dollar as reserve currency
US dollar was pegged to gold at $35 an ounce
All of the above
What is monetary policy?
Controlling the amount of money in the economy
Raising taxes to fund road-building
A tax that is higher for rich people than for poor people
The ability to print money
The following three aspects of a monetary system are jointly incompatible: monetary policy independence; (A) ____ exchange rates; and (B) ____.
(A) floating; (B) capital controls
(A) floating; (B) free capital mobility
(A) fixed; (B) capital controls
(A) fixed; (B) free capital mobility
How do the international monetary reserves refer to under the Bretton Woods system?
gold, U.S. dollars, and British pounds
U.S. dollars
gold and U.S. dollars
Gold
Special drawing rights (SDRs) are not
a credit line allocated by the IMF to member countries according to each country's quota.
backed by US dollars.
the IMF's unit of account.
a basket of five currencies.
What does the term "Floating" the dollar refer to?
the value of the dollar is determined by the demand for and the supply of the dollar
the price of the dollar has been allowed to crawl upward at the ate of one-fourth of 1% a month
the IMF decreased the value of the dollar by 10%
the dollar price of gold has been increased
Which were the two institutions that were instituted during the Bretton Woods System era?
World Trade Organisation and World Bank
International Monetary Fund and World Trade Organisation
World Trade Organisation and United Nations
International Monetary Fund and World Bank
The present international monetary system is best described as
the Bretton Woods system set up after World War II.
fixed exchange rates with periodic adjustment.
a perfectly floating exchange-rate system.
a managed floating exchange rate system with IMF surveillance.
Who is a well known proponent of market-based approaches to the economy?
Milton Friedman
Milton Bradley
John Maynard Keynes
Like Esping-Andersen
Under a gold standard,
A nation's currency can be traded for gold at a fixed rate
A nation's central bank or monetary authority has absolute control over its money supply
New discoveries of gold have no effect on money supply or prices
a & b
What is the requirement for a country to be under the gold standard?
define its monetary unit in terms of a fixed quantity of dollars
use only gold as a medium of exchange
allow gold to be freely exported from and imported into the nation
maintain a flexible relationship between its gold stock and its currency supply
By definition, currency appreciation occurs when
the value of all currencies fall relative to gold.
the value of all currencies rise relative to gold.
the value of one currency rises relative to another currency.
the value of one currency falls relative to another currency
WTO aims at:
establishing rules for domestic trade
restricting trade practices
liberalizing international trade
none of these
The functions of the International Monetary Fund (IMF) include all of the following except
Provides emergency loans to countries facing balance of payments problems.
Monitors macroeconomic developments continuously in member countries.
Serves as the world central bank.
Provides a line of credit for each member country.
If a country has a floating exchange rate system, the value of the currency is determined freely by the forces of demand and supply with no ______ intervention.
Government
Private sector
Foreign
Individual
In a ___ exchange rate system, a country pegs the local currency to a foreign currency or a basket of currencies.
fixed
floating
A rise in the sterling exchange rate against the euro would have two of the following impacts?
UK exports to France become cheaper (in euros)
UK exports to France become dearer (in euros)
UK imports from France become cheaper (in sterling)
UK imports from France become dearer (in sterling)
If the American dollar appreciates relative to the German mark
German bicycles will become cheaper in the United States.
American wheat will become cheaper in Germany.
German bicycles will become more expensive in the United States.
British Mercedes-Benz will become cheaper in the United States.
The financial crisis of 2007-08 originated in the following country?
Russia
China
United States
Thailand
The fourth biggest U.S. investment bank that collapsed during the financial crisis of 2007-08 and filed the largest bankruptcy in U.S.
wing country?
Russia
China
United States
Thailand
The fourth biggest U.S. investment bank that collapsed during the financial crisis of 2007-08 and filed the largest bankruptcy in U.S. history was:
Bank of America
Morgan Stanley
Lehman Brothers
AIG
Which one of the following best describes subprime mortgage lending:
A bank lending to someone who is not one of their customers
Lending to people to buy houses who are at greater risk of being unable to meet the repayments
Lending on overvalued properties
Lending to people who do not have a bank account
The global insurance company that was effectively bailed out by U.S. taxpayers' money during the financial crisis of 2007-08 was:
Geico
State Farm Insurance
Prudential
AIG
Asymmetric information means that
all parties to a transaction have the same amount of information on the other party.
information is expensive to obtain.
one party to a transaction has relatively more information than another party.
information is readily available for most parties concerned in a transaction.
During the financial crisis of 2007-08, which financial instruments commonly came to be called "Toxic Assets"?
S&P stocks
Mortgage-backed securities
Treasury Bills
Government bonds
The Federal Reserve chairman who admitted that the Fed under-regulated the financial markets in the 1990s (which resulted in a housing bubble that later burst and led to the financial crisis) was:
Alan Greenspan
Stanley Fisher
Ben Bernanke
Janet Yellen
The money market is for the trading of____ instruments are traded. instruments while the capital market is where ___ instruments are traded.
bonds, Treasury-bills.
long-term, short-term
cash, tangible
short-term, long-term
Moral hazard
results from the incentive for some people to engage in a transaction that is undesirable to everyone else.
A situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost
is when a party to a transaction has relatively more information than another party.
is when the actions of a group of individuals have undesirable effects on a given individual.
___ institutions are ___ likely to fail, reducing the impact of a financial crisis.
Larger, less
Smaller, less
Larger, more
Larger, equally
A primary market is one in which
newly printed money is transferred to the banks.
money market dealers make their most important trades.
the central bank conducts its monetary policy.
financial assets are traded for the first time.
______ is an example of southern efforts to promote an international economic system more favorable to developing states.
NATO
NIEO
WTO
APEC
NAFTA
A central debate about the causes of development in the 19th century was between which of the following perspectives?
States and markets
Equity and reciprocity perspectives
GDP and GNI
North versus South
Although economic structuralists do agree with parts of the liberal analysis, they tend to focus more on
the impact of trade on currency exchange
the role of the WTO and the IMF on trade
the gains in efficiency produced by trade
the distribution of the gains of trade
The theory that underdevelopment comes only from the domination by rich countries is ___.
dependency theory
mercantilism
liberalism
modernization theory
Marxists criticize the liberal view on international trade by asserting that if a state becomes too dependent on other states, that state will
no longer be self-sufficient
become economically poorer
end up with a balance of trade surplus
become less economically efficient
What kind of a foreign exchange condition occurs when the domestic producer benefits, but the foreign exporter is hurt?
a strong currency
a fluctuating currency
a weak currency
a mixed currency
Unequal distribution of resources between countries are called
Global stratification
Global inequality
Global feminization
Global gap
According to the world-systems theory, which of the following countries would be considered a semi-periphery country?
Brazil
Canada
Japan
Germany
According to this theory, the success of developed countries was dependent upon the underdevelopment of the lesser-developed countries
Inter-dependency theory
Modernization theory
Dependency theory
Liberal theory (Liberalism)
Which of the following international organizations is now responsible for developing and maintaining the system of international trade rules and dealing with trade disputes?
The IMF
The World Bank
The UN
The WTO
Immanuel Wallerstein argues:
There are two types of world systems: world-empires and world-economies.
The modern world system is a world economy.
The world system has a core, semi-periphery and periphery.
All of the options given are correct.
The "world systems theory" was developed by ___.
Paul Prebisch
David Ricardo
Adam Smith
Immanuel Wallerstein
Certain kinds of tropical fruits are impossible to grow outdoors in the US. Suppose, however, that in order to create jobs in Wyoming, the US government offered extensive subsidies to firms to produce bananas. With the subsidies, firms could build greenhouses and offer the fruit at world prices.
The United States now has a comparative advantage in bananas
The United States now has a comparative advantage in bananas, but is not competitive.
The United States is competitive, but does not have a comparative advantage in bananas.
The United States has a comparative advantage and is competitive.
World Bank data show that in Niger in 1995, the poorest 20% of households accounted for 7.5% of household income, the next 20% of households accounted for 11.8% of income, the middle 20% accounted for 15.5% of income, the second richest 20% accounted for 21.1% of income, and the top 20% accounted for 44.1% of income.
What was the cumulative income share of the bottom 60% of households in Niger?
15.5%
34.8%
48.1%
65.2%
The pre-trade relative price of a computer in Mexico is
One-third pair of shoes
One-half pair of shoes
One pair of shoes
Three pairs of shoes
Based on the example in the previous question, trade between the USA and Mexico will occur as long as the international relative price of shoes is between:
three computers and one computer
three computers and two computers
one-half computer and one-third computer
six computers and three computers
Product cycle theory explains:
why countries attract foreign direct investment
why firms chose for production abroad
why the Kuznets curve applies to certain products
a and b are correct
Which of the following is a definition of MNCs?
A company headquartered in one country but having operations in other countries.
A company employing foreign nationals.
A company operating in emerging economies.
None of the above.
Which of the following constitutes Foreign Direct Investment?
A speculator trying to make a profit by buying company shares on a foreign stock exchange.
A UK energy company invests in territory abroad where it expects to find oil reserves.
A tourist purchasing foreign currency to spend on a holiday abroad.
A company signing an agreement with a wholesaler to distribute its products in foreign markets.
Why do multinational corporations (MNCs) participate in international markets?
decrease transportation expenses
avoid trade barriers
get incentives from the host government
both a and b
all of the above
If a German manufacturer of household appliances wants to take advantage of the cheaper labor available in the Czech Republic, which of the following actions will NOT serve that purpose?
Build a manufacturing subsidiary there and employ Czech workers.
Build a plant in the Czech Republic and send all German workers to operate it.
License a Czech firm to produce its products under its own label.
Contract for a Czech firm to do some of the processing for it.
Removing import barriers or restrictions set by the government is called:
liberalization
investment
favorable trade
free trade
A vertical foreign direct investment (FDI) is:
breaking up the production chain and parts being transferred to the affiliated location
Mainly driven by production cost differences between countries.
both a and b
none of the above
The Eclectic Paradigm theory which includes three types of advantages: ownership advantages, location advantages, and internalization advantages can be known as
Product Life Cycle Theory
OLI framework
Ownership Advantage Theory
All of these
If each country engages in trade, using the comparative advantage model, each state gains by specialization and minimizes its ___.
relative gain
resource depletion
opportunity costs
investment costs
political risk
It is a form of FDI where the organization creates new facilities in the host country:
Greenfield FDI
Brownfield FDI
Merger and Acquisition
None of these
An advantage that an international company may have over a purely domestic one is that it can ___
save transportation costs
more easily control its operating units
acquire cheaper resources to use in production
deal with a less complex external environment
When an MNC or its affiliate merges with or acquires an existing firm in the host country, resulting in a new MNC affiliate, it is called:
Greenfield FDI
Brownfield FDI
Conglomerate FDI
None of these
A horizontal foreign direct investment (FDI) is
Starting a similar production process (by the parent firm) elsewhere in the world
Locating a production near a firm's large customer bases.
Both a and b.
None of the above.
Geographical diversification is related to:
Horizontal FDI
Vertical FDI
Both a and b
None of the above.
In the 1950s, the World Bank changed its emphasis from reconstruction to development. What types of projects does the World Bank currently support?
environmental protection
infrastructure projects
help forge regional alliances
military development
promote democratic reform
The ______ problem arises when states are rescued from the consequences of their reckless behavior, providing little incentive to change that behavior.
moral hazard
portfolio investment
sustainable development
feckless traveler
honest services
_____ developed a theory known as comparative advantage that argued states should produce and export those goods, which they can do efficiently.
Adam Smith
David Ricardo
Norman Angell
Mohammad Yunus
Thomas Friedman
Which of these traits is typical of a liberal political economic system?
high social expenditures
strong tariffs and trade regulations
state-owned or parastatal industries
high taxes
low taxes
If the value of the pound in other currencies is strong, then other things being equal:
The price of UK products abroad in foreign currency will fall
The price of UK products abroad in foreign currency will rise
The price of UK products in the UK will rise
The price of UK products in the UK will fall
Which out of the following is an example of a trade barrier?
Foreign investment
Delay or damage of goods
