rev_midterm_2011_1.2.3

Mr. Ashraf Amin 1

Revision midterm Ch. 1,2,3

MCQ – 1

1) In the study of international economics we use the tools of,

a) Microeconomic theory only

b) Macroeconomic theory only

c) Neither micro nor macro theory

d) Both micro and macro theory, but we also extend, adapt, and integrate them

2) With which of the following topics does international economics deal?

a) The pure theory of trade

b) The theory of commercial policy

c) Adjustment to disequilibria in the balance of payments

d) All of the above

3) One similarity between international and interregional trade is that

a) Differences in language

b) Differences in currencies and monetary systems

c) Distance or space

d) Tastes

4) To which of the following would the mercantilists have objected?

a) Free trade

b) Stimulating exports

c) Restricting imports

d) Accumulation of gold by their nation

5) We can best understand smith's view on trade if we regard them as a reaction to

a) The law of comparative advantage

b) The mercantilist view on trade

c) Ricardo's view on trade

d) All of the above

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6) What proportion of trade is based on absolute advantage?

a) All

b) Most

c) Some (very small)

d) None

7) The commodity in which a nation has the least absolute disadvantage represents its area

of

a) Comparative disadvantage

b) Comparative advantage

c) Absolute advantage

d) Cannot say without additional information

8) Ricardo's law of comparative advantage is based on

a) The opportunity cost theory

b) The labor theory of value

c) The law of diminishing returns

d) All of the above

U.S U.K

Wheat (bushels/man-hour) 6 1

Cloth (yards/man-hour) 3 2

9) With reference to the table, we can say that U.S has a comparative advantage over U.K

in the production of wheat because one labor hour in the U.S. is

a) Twice as productive in C than in W

b) Twice as productive in W than in C

c) 1.5 times more productive in W but 6 times more productive in C than U.K

d) 6 times more productive in W but only 1.5 times more productive in C than the

U.K

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10) With reference to the table indicates which of the following statements is correct

a) The rate at which W exchange for C in production in the U.S is 2:1

b) The rate at which W exchanges for C in production in the U.K is 1:2

c) The rate at which W exchanges for C in trade between the U.S and the U.K is 1:1

d) All of the above

11) With reference to the table indicates which of the following statements is correct

a) The U.S gain 3C by trading 6W for 6C with U.K

b) The U.K gains 6C by exchanging 6 of its 12C for 6W with the U.S

c) The increase in the combined output of the U.S and the U.K when 6W are

exchanged for 6C is 9C and 0W

d) All of the above

12) With respect to the production possibilities curve, we can say that

a) A point inside or below it implies that the economy is either not utilizing fully all

of its resources or not using the best technology available to it

b) A point on it involves the full employment of the economy's resources and the use

of the best technology available

c) A point above it cannot be reached with the resources and technology presently

available to the nation

d) All of the above

13) A straight-line production possibilities curve refers to

a) Constant cost

b) Increasing cost

c) Decreasing cost

d) Any of the above

14) With cloth measured along the horizontal axis and wheat along the vertical axis, the

absolute slope of a straight-line production possibilities curve gives,

a) The MRTcw

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b) The Pc/Ps

c) Both MRTcw and the Pc/Ps

d) Neither the MRTcw nor the Pc/Ps

15) If in the absence of trade the internal equilibrium Pc/Pw is lower in the U.K than in the

U.S., then

a) The U.K has a comparative advantage in cloth with respect to the U.S

b) The U.K has a comparative advantage in wheat

c) The U.S has a comparative advantage in wheat and the U.S has a comparative

disadvantage in cloth

d) All of the above

16) If a nation gains from trade, its consumption point is

a) On its production possibilities frontier

b) Inside its production possibilities frontier

c) Above its production possibilities frontier

d) Any of the above

17) Increasing opportunity cost to produce more and more units of a commodity is given by

a production possibilities curve that is

a) Concave to the origin

b) Convex to the origin

c) A straight line

d) Any of the above

18) With cloth measured along the horizontal axis and wheat along the vertical axis, the

absolute slope of the concave production possibilities curve gives

a) The MRTcw

b) The internal equilibrium Pc/Pw in isolation

c) Both the MRTcw and the internal equilibrium Pc/Pw

d) Neither MRTcw nor the internal equilibrium Pc/Pw

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19) With cloth measured along the horizontal axis and wheat along the vertical axis, a

movement down the production possibilities curve results in

a) A decrease in MRTcw

b) An increase in MRTcw

c) Any of the above

20) With trade, specialization in production is likely to be

a) Complete with increasing costs and incomplete with constant costs

b) Complete with constant costs and incomplete with increasing costs

c) Complete with constant costs and increasing costs

d) Incomplete with both constant costs and increasing costs

21) Community indifference curve introduces

a) The production condition in the nation

b) The taste or demand preference of the nation

c) Both the production conditions and the tastes of the nation

22) As we move down a community indifference curve MRS

a) Declines

b) Rises

c) Remain unchanged

23) For which of the following group of products does U.S. rely exclusively on imports?

a) Petroleum, coal, natural gas, wood

b) Coffee, tea, cocoa, tin

c) Copper, aluminum, iron, steel

d) Computers, typewriters, airplanes, cars

MCQ – 2

1. Which of the following products are not produced at all in the United States?

a. Coffee, tea, cocoa

b. steel, copper, aluminum

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c. petroleum, coal, natural gas

d. typewriters, computers, airplanes

2. International trade is most important to the standard of living of:

a. the United States

b. Switzerland

c. Germany

d. England

3. Over time, the economic interdependence of nations has:

a. grown

b. diminished

c. remained unchanged

d. cannot say

4. A rough measure of the degree of economic interdependence of a nation is given by:

a. the size of the nations' population

b. the percentage of its population to its GDP

c. the percentage of a nation's imports and exports to its GDP

d. all of the above

5. Economic interdependence is greater for:

a. small nations

b. large nations

c. developed nations

d. developing nations

6. The gravity model of international trade predicts that trade between two nations is larger

a. the larger the two nations

b. the closer the nations

c. the more open are the two nations

d. all of the above

7. International economics deals with:

a. the flow of goods, services, and payments among nations

b. policies directed at regulating the flow of goods, services, and payments

c. the effects of policies on the welfare of the nation

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d. all of the above

8. International trade theory refers to:

a. the microeconomic aspects of international trade

b. the macroeconomic aspects of international trade

c. open economy macroeconomics or international finance

d. all of the above

9. Which of the following is not the subject matter of international finance?

a. foreign exchange markets

b. the balance of payments

c. the basis and the gains from trade

d. policies to adjust balance of payments disequilibria

10. Economic theory:

a. seeks to explain economic events

b. seeks to predict economic events

c. abstracts from the many detail that surrounds an economic event

d. all of the above

11. Which of the following is not an assumption generally made in the study of international

economics?

a. two nations

b. two commodities

c. perfect international mobility of factors

d. two factors of production

12. In the study of international economics:

a. international trade policies are examined before the bases for trade

b. adjustment policies are discussed before the balance of payments

c. the case of many nations is discussed before the two-nations case

d. none of the above

13. International trade is similar to interregional trade in that both must overcome:

a. distance and space

b. trade restrictions

c. differences in currencies

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d. differences in monetary systems

14. The opening or expansion of international trade usually affects all members of society:

a. positively

b. negatively

c. most positively but some negatively

d. most negatively but some positively

15. An increase in the dollar price of a foreign currency usually:

a. benefit U.S. importers

b. benefits U.S. exporters

c. benefit both U.S. importers and U.S. exporters

d. harms both U.S. importers and U.S. exporters

16. Which of the following statements with regard to international economics is true?

a. It is a relatively new field

b. it is a relatively old field

c. most of its contributors were not economists

d. none of the above

MCQ – 3

1. The Mercantilists did not advocate:

a. free trade

b. stimulating the nation's exports

c. restricting the nations' imports

d. the accumulation of gold by the nation

2. According to Adam Smith, international trade was based on:

a. absolute advantage

b. comparative advantage

c. both absolute and comparative advantage

d. neither absolute nor comparative advantage

3. What proportion of international trade is based on absolute advantage?

a. All

b. most

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c. some

d. none

4. The commodity in which the nation has the smallest absolute disadvantage is the commodity

of its:

a. absolute disadvantage

b. absolute advantage

c. comparative disadvantage

d. comparative advantage

5. If in a two-nation (A and B), two-commodity (X and Y) world, it is established that nation A

has a comparative advantage in commodity X, then nation B must have:

a. an absolute advantage in commodity Y

b. an absolute disadvantage in commodity Y

c. a comparative disadvantage in commodity Y

d. a comparative advantage in commodity Y

6. If with one hour of labor time nation A can produce either 3X or 3Y while nation B can

produce either 1X or 3Y (and labor is the only input):

a. nation A has a comparative disadvantage in commodity X

b. nation B has a comparative disadvantage in commodity Y

c. nation A has a comparative advantage in commodity X

d. nation A has a comparative advantage in neither commodity

7. If with one hour of labor time nation A can produce either 3X or 3Y while nation B can

produce either 1X or 3Y (and labor is the only input):

a. Px/Py=1 in nation A

b. Px/Py=3 in nation B

c. Py/Px=1/3 in nation B

d. all of the above

8. With reference to the statement in Question 6, if 3X is exchanged for 3Y:

a. nation A gains 2X

b. nation B gains 6Y

c. nation A gains 3Y

d. nation B gains 3Y

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9. With reference to the statement of Question 6, the range of mutually beneficial trade between

nation A and B is:

a. 3Y < 3X < 5Y

b. 5Y < 3X < 9Y

c. 3Y < 3X < 9Y

d. 1Y < 3X < 3Y

10. If domestically 3X=3Y in nation A, while 1X=1Y domestically in nation B:

a. there will be no trade between the two nations

b. the relative price of X is the same in both nations

c. the relative price of Y is the same in both nations

d. all of the above

11. Ricardo explained the law of comparative advantage on the basis of:

a. the labor theory of value

b. the opportunity cost theory

c. the law of diminishing returns

d. all of the above

12. Which of the following statements is true?

a. The combined demand for each commodity by the two nations is negatively sloped

b. the combined supply for each commodity by the two nations is rising stepwise

c. the equilibrium relative commodity price for each commodity with trade is given by

the intersection of the demand and supply of each commodity by the two nations

d. all of the above

13. A difference in relative commodity prices between two nations can be based upon a

difference in:

a. factor endowments

b. technology

c. tastes

d. all of the above

14. In the trade between a small and a large nation:

a. the large nation is likely to receive all of the gains from trade

b. the small nation is likely to receive all of the gains from trade

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c. the gains from trade are likely to be equally shared

d. we cannot say

15. The Ricardian trade model has been empirically

a. verified

b. rejected

c. not tested

d. tested but the results were inconclusive

16. If nation A can produce 5 units of good X or 10 units of good Y and nation B can produce 4

units of good X or 12 units of good Y we can conclude that nation A has a

a. Comparative advantage in X and an absolute advantage in Y

b. Comparative advantage in X and an absolute advantage in X

c. Comparative advantage in Y and an absolute advantage in X

d. Comparative advantage in Y and an absolute advantage in Y

18. If nation A can produce 5 units of good X or 10 units of good Y and nation B can produce 4

units of good X or 12 units of good Y we can conclude that both nations would gain from trade

if nation A sold _____ units of good _____ for one unit of good _____

a. 0.4; Y; X

b. 2.5; Y; X

c. 2.5; X; Y

d. 0.4; X; Y

19. The Mercantilists believed in

a. running trade surpluses

b. balanced trade

c. the logic of Adam Smith

d. both (b) and (c) are correct

20. The theory of Comparative Advantage was first proposed by

a. Smith

b. Ricardo

c. Haberler

d. Krugman

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MCQ – 4

1. A production frontier that is concave from the origin indicates that the nation incurs

increasing opportunity costs in the production of:

a. commodity X only

b. commodity Y only

c. both commodities

d. neither commodity

2. The marginal rate of transformation (MRT) of X for Y refers to:

a. the amount of Y that a nation must give up to produce each additional unit of X

b. the opportunity cost of X

c. the absolute slope of the production frontier at the point of production

d. all of the above

3. Community indifference curves:

a. are negatively sloped

b. are convex to the origin

c. should not cross

d. all of the above

4. The marginal rate of substitution (MRS) of X for Y in consumption refers to the:

a. amount of X that a nation must give up for one extra unit of Y and still remain on the

same indifference curve

b. amount of Y that a nation must give up for one extra unit of X and still remain on the

same indifference curve

c. amount of X that a nation must give up for one extra unit of Y to reach a higher

indifference curve

d. amount of Y that a nation must give up for one extra unit of X to reach a higher

indifference curves

5. Which of the following statements is true with respect to the MRS of X for Y?

a. It is given by the absolute slope of the indifference curve

b. declines as the nation moves down an indifference curve

c. rises as the nation moves up an indifference curve

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d. all of the above

MCQ – 5

1) In many developing nations, _________ provide employment opportunities

and ____________ to pay for the many products that cannot be produced

in the home country.

A) imports, earnings

B) exports, earnings

C) exports, outputs

D) imports, outputs

Answer: B

2) The economic relationship and integration among nations is defined as:

A) microeconomics

B) economic interdependence

C) macroeconomics

D) open economies

Answer: B

3) The ratio between a country’s imports and exports of goods or services to

their gross domestic product (GDP) is a measure of that country’s:

A) microeconomics

B) openness as an economy

C) macroeconomics

D) economic interdependence

Answer: D

4) The total value of all goods and services produced within a nation’s

borders is called:

A) GDP

B) net exports

C) current account balance

D) GNP

Answer: A

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5) The economic interdependence among nations has ___________ over

recent history.

A) decreased

B) remained the same

C) increased

D) none of the above

Answer: C

6) In 2001, the world GDP ______________, while the world trade level

____________ by 1 percent.

A) decreased, increased

B) increased, decreased

C) decreased, decreased

D) increased, increased

Answer: B

7) Which of the following analyzes the basis for and gains from trade?

A) Balance of payments

B) Foreign exchange market

C) International trade policy

D) International trade theory

Answer: D

8) Which of the following examines the reasons for and effects of trade

restrictions?

A) Balance of payments

B) Foreign exchange market

C) International trade policy

D) International trade theory

Answer: C

9) International trade theory and policies as they relate to individual

nations are the _____________________ aspects of international economics.

A) International finance

B) microeconomic

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C) national income accounting

D) macroeconomic

Answer: B

10) _____________ has grown at a faster rate than ________________,

indicating an increase in economic interdependence among nations.

A) World trade, world production

B) US GDP, world GDP

C) World production, world trade

D) Output in the US, incomes in the US

Answer: A

11) What are the microeconomic aspects of international economies?

A) Balance of payments issues

B) International trade theory and polices

C) Adjustments in the balance of payments

D) GDP

Answer: B

12) A nation that has an open economy:

A) allows private ownership of capital

B) has flexible exchange rates

C) has fixed exchange rates

D) trades with other nations

Answer: D

13) The most effective trade policy would be _______________, which

allows each nation to specialize in efficient production of commodities.

A) free trade

B) protectionism

C) a closed economy

D) none of the above

Answer: A

14) Trade restrictions usually benefit a large majority of the

___________ in the nation at the expense of a silent majority of

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_________________.

A) consumers, producers

B) producers, consumers

C) importers, exporters

D) exporters, importers

Answer: B

15) The world usually breaks up into which three primary trading

blocs?

A) NAFTA, EU, and EFTA

B) North American, European, and Asian

C) NAFTA, EU and Benelux

D) North American, European, and South American

Answer: B

16) Which of the following countries are members of the North

American trading bloc?

A) United States, Mexico, and Brazil

B) United States, Canada, and Greenland

C) United States, Canada, and Mexico

D) United States, Mexico, and Central America

Answer: C

17) The field of international economics:

A) is a relatively new branch of economic study

B) includes contributions from distinguished economists like Adam

Smith, David Ricardo and Alfred Marshall

C) includes macroeconomics, but not microeconomics, issues.

D) includes microeconomics, but not macroeconomics, issues.

Answer: B

18) With respect to international trade in the real world:

A) most nations impose some restrictions limiting the free flow of

goods.

B) most nations have eliminated all barriers to free trade.

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C) most nations have a completely closed economy.

D) None of the above

Answer: A

19) Globalization ____________:

A) Is inevitable in a world with converging tastes for consumer goods.

B) increases efficiency

C) is often blamed for increasing inequalities in income distribution in

the world.

D) All of the above

Answer: D

MCQ – 6

1) The economic force giving rise to the existence and degree of trade

between two nations is referred to as:

A) basis for trade

B) losses from trade

C) gains from trade

D) pattern of trade

Answer: A

2) The increase in consumption in each nation resulting from specialization

in production and trading is referred to as:

A) basis for trade


C) gains from trade.

D) pattern of trade

Answer: C

3) The commodities exported and imported by each nation constitute the:

A) basis for trade


C) gains from trade

D) pattern of trade

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Answer: D

4) The school of thought during the seventeenth and eighteenth centuries

proposing that the way for a nation to become richer was to restrict

imports and stimulate exports was :

A) Mercantilist.

B) Classical School

C) Laissez Faire

D) Opportunity cost

Answer: A

5) _____________ explains how mutually beneficial trade can take place even

when one nation is less efficient than another nation in the production of

all commodities.

A) Mercantilism

B) The law of comparative advantage

C) The labor theory of value

D) The law of absolute advantage

Answer: B

6) ______________ states that the cost or price of a commodity is determined

by, or can be inferred exclusively from, its labor content.

A) Mercantilism



D) The opportunity cost theory

Answer: C

7) ______________ states that the true cost of a commodity is the amount of

a second commodity that must be given up to release just enough

resources to produce one more unit of the first commodity:

A) Mercantilism



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D) The opportunity cost theory

Answer: D

8) The ability of one nation to produce a commodity using fewer resources

than another nation is:

A) absolute advantage

B) comparative advantage

C) mercantilism

D) specialization

Answer: A

9) When the amount of a commodity that must be given up to produce each

additional unit of another commodity, regardless of the amount of the

commodity foregone, is the same at every level of production, which of

the following exists?

A) absolute advantage

B) comparative advantage

C) constant opportunity costs

D) increasing opportunity costs.

Answer: C

10) The mercantilists would have objected to:

A) the use of tariffs or quotas to restrict imports

B) international trade based on open markets

C) export promotion policies initiated by the government

D) trade policies designed to accumulate gold

Answer: B

11) ______________ is the utilization of all of a trading nation’s resources

in the production of only one commodity.

A) Laissez-faire policy

B) Complete specialization

C) Incomplete specialization

D) Mercantilism

Answer: B

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12) A laissez-faire policy is one in which:

A) The government regulates all aspects of economic activity

B) The government interferes with economic activity to a moderate

level

C) The government keeps regulation of economic activity to a minimum

D) The governments interference in economic activity is completely

non-existent

Answer: C

13) Which of these economists considered absolute advantage in

production to be the basis for trade between nations?

A) Adam Smith

B) Alfred Marshall

C) David Ricardo

D) David Hume

Answer: A

14) Which of these economists considered comparative advantage in

production to be the basis for trade between nations?

A) Adam Smith

B) Alfred Marshall

C) David Ricardo

D) David Hume

Answer: C

15) According to the mercantilists:

A) Only one nation can gain from trade, and it is at the expense of

other nations.

B) All nations can gain mutually from trade without any reduction in

welfare to any nation.

C) No nations gain from trade, as it is necessary for each country to

sacrifice more than they gain.

D) Trade has nothing to do with a nation’s wealth or well-being.

Answer: A

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16) Adam smith advocated a policy in which:


B) The government interferes with economic activity to a moderate

level


D) The governments interference in economic activity is completely

non-existent

Answer: C

17) The Wealth of Nations was published in 1776 by:

A) David Ricardo

B) Adam Smith

C) The Mercantilists

D) Alfred Marshall

Answer: B

18) Essays and pamphlets on international trade, maintaining that the

only way for a nation to become rich and powerful was to export more

than it imported, were written during the seventeenth and eighteenth

centuries by:

A) David Ricardo

B) Adam Smith

C) the Mercantilists

D) Alfred Marshall

Answer: C

19) According to mercantilism, the flow of _____________ would settle the

export surplus that results from trade.

A) Gold and diamonds

B) Diamonds and rubies

C) Silver and copper

D) Gold and silver

Answer: D

20) The mercantilists measure the wealth of a nation by its stock of:

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A) Gold and rubies

B) Gold and silver

C) Human and man-made capital

D) Natural resources available for producing goods and services

Answer: B

21) Mercantilists advocated a policy in which:


B) The government interferes with economic activity to a moderate level


D) The governments interference in economic activity is completely non-

existent

Answer: A

22) With respect to international trade, a zero-sum game is one in

which:

A) Only one nation can gain from trade, and it is at the expense of other

nations

B) All nations can gain from trade mutually without any reduction in

welfare to any nation

C) No nations gain from trade, as it is necessary for each country to

sacrifice more than they gain.

D) None of the above

Answer: A

23) The concept of absolute advantage provides that the resources of

trading partners are utilized most efficiently, and that the output of both

commodities will:

A) fall

B) rise

C) stay the same

D) increase initially, then decrease

Answer: B

24) Japan is more efficient in the production of rice, and the United

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States is more efficient in the production of oranges. In the production of

rice, Japan is said to have a(n):

A) comparative advantage

B) absolute disadvantage

C) absolute advantage

D) comparative disadvantage

Answer: C



rice, the United States is said to have a(n):





Answer: B



oranges, Japan is said to have a(n):





Answer: B



oranges, the United States is said to have a(n):





Answer: C

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28) According to the following table, if the US trades 9 bushels of wheat

to the UK for 9 yards of cloth, the US gains from trade will equal:

U.S. U.K.

Wheat (bushels/hr) 9 3

Cloth (yards/hr) 5 4

A) 4 bushels of wheat

B) 3 yards of cloth

C) 4 yards of cloth

D) 5 bushels of wheat

Answer: C

29) According to the following table, if the US trades 9 bushels of wheat

to the UK for 8 yards of cloth, the UK gains from trade equal:

U.S. U.K.



A) 4 bushels of wheat

B) 3 yards of cloth

C) 4 yards of cloth

D) 5 bushels of wheat

Answer: B

30) According to the following table, the UK can gain from trade with

the US by giving up how much cloth for 9 bushels of wheat?

U.S. U.K.



A) Anything less than 12 yards of cloth

B) Anything greater than 9 yards of cloth

C) Only less than 5 yards of cloth

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D) Only greater than 10 yards of cloth

Answer: A

31) According to the following table, the US can gain from trade with

the UK by getting how much cloth for 9 bushels of wheat?

U.S. U.K.



A) Only less than 12 yards of cloth

B) Only greater than 9 yards of cloth

C) Anything less than 5 yards of cloth

D) Anything greater than 5 yards of cloth

Answer: D

32) According to the following table, the US has a comparative

advantage in:

U.S. U.K.



A) Wheat.

B) Cloth

C) Both

D) Neither

Answer: A

33) According to the following table, the UK has a comparative

advantage in:

U.S. U.K.



A) Wheat

B) Cloth.

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C) Both

D) Neither

Answer: B

MCQ – 7

1) ______________________ cause a nation to give up more and more of one

commodity in order to produce each additional unit of another.

A) Increasing opportunity costs

B) Decreasing opportunity costs

C) Constant opportunity costs

D) Costs of production

Answer: A

2) Increasing opportunity costs result in a production possibilities frontier

that is ___________ from the origin.

A) convex

B) concave

C) linear

D) horizontal

Answer: B

3) _____________ is the amount of one commodity that a nation must give up

to produce each additional unit of another.

A) marginal cost

B) marginal rate of transformation (MRT)

C) production frontier

D) marginal rate of return

Answer: B

4) What is another name for the opportunity cost of a commodity?

A) marginal rate of substitution (MRS)

B) marginal rate of transformation (MRT)

C) revealed comparative advantage

D) marginal rate of return

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Answer: B

5. In the Mercantilist view of international trade (in a two-country world),

a) both countries could gain from trade at the same time, but the

distribution of the gains depended upon the terms of trade.

b) both countries could gain from trade at the same time, and the terms of

trade were of no sequence for the distribution of the gains.

c) neither country could ever gain from trade.

d) one country's gain from trade was associated with a loss for the other

country.

6. If the demand for traded goods is price-inelastic, the price-specie-flow

mechanism will result in

a) gold movements between countries that remove trade deficits and

surpluses.

b) gold movements between countries that worsen trade deficits and

surpluses.

c) negligible movements of gold between countries and hence little or no

adjustment of trade deficits and surpluses.

d) a removal of the basis for trade between countries.

7. According to the labor theory of value,

a) The value of labor is determined by its value in production.

b) The value of a good is determined by the amount of labor with which

each unit of capital in an industry works.

c) The price of a good A compared to the price of good B bears depends on

the relative amounts of labor used in producing each good.

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d) The values of two minerals such as coal and gold with similar production

costs may be very different.

8. In the price-specie-flow doctrine, a deficit country will _____ gold, and this

gold flow will ultimately lead to _____ in the deficit country's exports.

a) Lose, a decrease

b) lose, an increase

c) gain, a decrease

d) gain, an increase

9. Which of the following policies would NOT be consistent with the

Mercantilist balance-of -trade doctrine?

a) Payment of high wages to labor.

b) Import duties on final products.

c) Export subsidies.

d) Prohibition of imports of manufactured goods.

10. In Adam Smith's view, international trade,

a) Benefited both trading countries.

b) Was based on absolute cost differences.

c) Reflected the resource based of the countries in question.

d) all of the above.

11. The policy of minimum government interference in or regulation of

economic activity, advocated by Adam Smith and the Classic economists, was

known as,

a) The law of comparative advantage.

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b) laissez-faire.

c) The labor theory of value.

d) Mercantilism.

12. The price-specie-flow mechanism suggested that

a) a country could easily maintain a balance of payments surplus for a long

period of time.

b) a deficit country would experience an increase in its money supply and

its price level.

c) a surplus country would experience an increase in its money supply and

its price level.

d) a country's internal price level has no relation to the country's foreign

trade activities.

13. A Mercantilist policymaker would be in favor of which of the following

policies or events pertaining to his/her country?

a) A decrease in the size of the population.

b) A minimum wage bill to protect the standard of living of workers.

c) A prohibition on the export of manufactures goods.

d) A decrease in the percentage of factors of production devoted to raw

material extraction and an increase in the percentage devoted to

production of manufactured goods.

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14. Given the following Ricardo-type table showing the amount of labor input

needed to produce one unit of output of the two goods in the two countries.

Steel Cloth

United Kingdom 4 days 8 days

Germany 6 days 9 days

a) The UK has an absolute advantage in both goods and comparative

advantage in cloth.

b) The pre-trade price ratio in UK is 1 steel = 2 cloth.

c) The UK has an absolute advantage in neither good but comparative

advantage in steel.

d) The pre-trade price ratio in Germany is 1 cloth = 1.5 steel.

15. Given the following Ricardo-type table showing the amount of labor input

needed to produce one unit of output in each industry in each country:

wheat Chairs

Malaysia 3 days 2 days

India 10 days 8 days

a) A terms of trade of 1 wheat: 1.25 chairs is not a feasible equilibrium

terms of trade.

b) A terms of trade 1 wheat: 1.5 chairs would give all the gains from trade

to India.

c) Malaysia has an absolute advantage in both goods and a comparative

advantage in wheat.

d) India has an absolute advantage in both goods and a comparative

advantage in wheat.

16. In the Classical (Ricardo) analysis,

a) If a country has an advantage in a good, it also has a comparative

advantage in the good.

b) If a country has a comparative in a good, it cannot have an absolute

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advantage in the good.

c) A country can have a comparative advantage in a good at the same time

that it has an absolute advantage in that good.

d) A country with an absolute advantage in all goods cannot gain from

trade.

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