The Ricardian proposition that international trade will benefit any country (“gains from trade”) as long as the world terms of trade do not equal its autarkic relative prices is a straightforward and powerful concept. Nevertheless, it is impossible to demonstrate empirically. Why? ANSWER This is because there is no way of knowing exactly what […]
Overvalued exchange rates were a persistent problem under ISI policies. In part, this was a deliberate policy in order to A) increase imports. B) discourage exports. C) help targeted industries sell their exports. D) help targeted industries buy imports. E) increase the competition for targeted industries. ANSWER D
Which of the following type of funds cater to wealthy individuals, are not bound by government regulations, and are actively traded in foreign exchange markets? A) pension funds B) mutual funds C) hedge funds D) exchange funds ANSWER C
An input-output table A) details the flows of goods and services between various sectors of the economy. B) shows purchases by certain industries from other industries. C) shows sales by certain industries to other industries. D) All of the above. ANSWER D
Which of the following would cause the LM curve to shift to the right? A) increased money supply B) a larger U.S. capital account deficit C) a depreciation of the dollar D) lower level of U.S. income ANSWER D
The liabilities side of a central bank’s accounts consists of A) deposits held by private banks. B) currency in circulation. C) deposits held by private banks and currency in circulation. D) deposits held by foreign banks, domestic assets, and currency in circulation. E) foreign assets and domestic assets. ANSWER C
In order for the condition E$/HK$ = PUS/PHK to hold, what assumptions does the principle of purchasing power parity make? A) Only that there are no transportation costs and restrictions on trade. B) Only that the markets are perfectly competitive, i.e., P = MC. C) The factors of production are identical between countries. D) No […]
According to Prebisch and other ISI theoreticians, countries should begin to shift their comparative advantage away from primary commodity production by first producing A) industrial goods such as pumps and generators. B) complex consumer goods such as autos and appliances. C) advanced industrial goods such as chemical and electronics. D) simple consumer goods such as […]
An efficient economy would set the marginal product in the traditional sector A) lower than that in the modern non-traditional sector. B) higher than that in the modern sophisticated sector. C) equal to that in the modern sophisticated sector. D) lower in the relatively capital intensive sector. E) higher in the relatively capital intensive sector. […]
Based on the case study, “Exchange Rates, Auto Prices, and Currency Wars,” explain why exchange rates are of critical importance to firms in the automobile industry, and how Japan has benefited from changes in the value of the Yen. What will be an ideal response? ANSWER See the discussion at the beginning of the […]
