Two countries engaged in trade in products with scale economies, produced under conditions of monopolistic competition, are likely to be engaged in A) intra-industry trade. B) price competition. C) inter-industry trade. D) Heckscher-Ohlinean trade. E) immiserizing trade. ANSWER A
Date: September 10th, 2020
An examination of the Ricardian model of comparative advantage yields the clear result that trade is (potentially) beneficial for each of the two trading partners since it allows for an expanded consumption choice for each. However, for the world as a whole the expansion of production of one product must involve a decrease in the […]
Date: September 10th, 2020
Why is it important to understand fixed exchange rates in the modern global economy? What will be an ideal response? ANSWER Fixed rates continue to be important for four reasons: 1. Managed floating: Central banks intervene in foreign exchange markets. 2. Regional currency arrangements: Some countries peg their currency to another currency. 3. Developing […]
Date: September 10th, 2020
Central banks often intervene in currency markets. This activity is called A) managed floating. B) fixing exchange rates. C) currency warfare. D) super-pegging. E) flexible floating. ANSWER A
Date: September 10th, 2020
A firm that buys foreign exchange in order to take advantage of higher foreign interest rates is A) speculating. B) demonstrating purchasing power parity. C) engaging in interest rate arbitrage. D) responding to fluctuations in the business cycle. E) ignoring the nominal rate of exchange. ANSWER C
Date: September 10th, 2020
Export-led growth tends to A) discourage competition in the global economy. B) exploit domestic comparative advantages. C) lead to unemployment among domestic workers. D) help firms benefit from diseconomies of large-scale production. E) lower the overall volume of imports. ANSWER B
Date: September 10th, 2020
Raul Prebisch was an Argentine economist who argued that A) the terms of trade would decline for primary commodity exports. B) the terms of trade would decline for manufactured goods exports. C) imports substitution policies were a solution to export pessimism. D) Both A and C. E) Both B and C. ANSWER D
Date: September 10th, 2020
Explain why Relative PPP is useful when comparing countries that base their price levels on different product baskets. What will be an ideal response? ANSWER For Example: If the U.S. price level rises by 10% over a year while Europe’s rises by only 5%, relative PPP predicts a 5% depreciation of the dollar against […]
Date: September 10th, 2020
An internal economies of scale is defined as A) one whose size or scale effects are not located in the firm, but in the industry. B) one with falling costs over a specific level of output. C) one with falling costs over a relatively large range of output. D) one with falling costs over a […]
Date: September 10th, 2020
In the year 2012, Shinzo Abe became prime minister of Japan, promising bold policies to improve Japan’s economy. What was the focus of his policies and how did they affect Japan’s trade position? What will be an ideal response? ANSWER What has been called “Abenomics” involved monetary policies designed to reduce the value of […]
Date: September 10th, 2020
