According to the text, which of the following factors may make the theory of purchasing power parity unrealistic? A) Purchasing power parity works only with traded goods. B) Trading countries may stop exchanging goods once prices between them equalize. C) Shipping, insurance, and transaction costs may reduce the implication of purchasing power parity. D) Prices […]
If the dollar interest rate is 10 percent and the euro interest rate is 6 percent, then an investor should A) invest only in dollars. B) invest only in euros. C) be indifferent between dollars and euros. D) invest only in dollars if the exchange rate is expected to remain constant. E) invest only in […]
How can regional concentration of firms in an industry lead to external economies of scale? Give examples of these types of industrial clusters in the United States. Are they always beneficial? What will be an ideal response? ANSWER When an industry is highly concentrated in a specific location, this leads to a decrease in […]
How does the two-good, two-country version of the Ricardian model differ from the two-country, many-good model in terms of the determination which goods are produced and exported by each country? What will be an ideal response? ANSWER In the two-good-two-country version of the Ricardian model, comparative advantage is totally determined by physical productivity ratios. […]
While the Brady Plan did not end the debt crisis, it was a significant step toward greater stability in the Latin American region. Indicate whether the statement is true or false ANSWER TRUE
One of the leading alternative theories to the HO model of international trade is the Human Skills theory, which was developed by A) Donald Keesing. B) Adam Smith. C) David Ricardo. D) G. D. A. MacDougall. ANSWER A
Which of the following is not a factor which would be relevant to country risk analysis? A) political uncertainty B) external debt C) economic growth D) none of the above. ANSWER D
Assume that transportation costs are especially high for Widgets in the two-country, two-product Ricardian model, and Country A enjoys a comparative advantage in Widgets, then A) country B must also enjoy a comparative advantage in Widgets. B) country B may end up exporting Widgets. C) country A may switch to having a comparative advantage in […]
What is the expected dollar rate of return on dollar deposits if today’s exchange rate is $1.10 per euro, next year’s expected exchange rate is $1.165 per euro, the dollar interest rate is 10%, and the euro interest rate is 5%? A) 10% B) 11% C) -1% D) 0% E) 15% ANSWER A
Which of the following is not one of the theories that have emerged as alternatives to the HO model? A) The human skills theory. B) The product life cycle theory. C) The similarity of preferences theory. D) All of the above have been suggested as alternatives to the HO model. ANSWER D
