International Economics Unit 1 Set 1
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This set of International Economics Multiple Choice Questions & Answers (MCQs) focuses on International Economics Unit 1 Set 1
Q1 | How are international trade policies governed?
- By the IMF.
- They are not governed by anyone.
- By the GATT.
- By the U.N.
Q2 | Which of the following is NOT true regarding international capital markets?
- There are special regulations in many countries with respect to foreign investment.
- The volume of trade on capital markets is lower ever since the "debt crisis" of 1982.
- Nations can default on their debt and may not be brought to court.
- Currency fluctuations add instability.
Q3 | In his empirical test of comparative advantage, Wassily Leontief found that
- U.S. exports are capital intensive relative to U.S. imports
- U.S. imports are labor intensive relative to U.S. exports
- U.S. exports are neither labor nor capital intensive
- None of the above
Q4 | By adjusting the model of comparative advantage to include transportation costs along with production costs, we would expect
- the prices of traded goods to be lower than when there are no transportation costs
- specialization to stop when the production costs of the trading partners equalize
- the volume of trade to be less than when there are no transportation costs
- the gains from trade to be greater than when there are no transportation costs.
Q5 | Assume that Country A is relatively abundant in labor and Country B is relatively abundant in land. Note that wages are the returns to labor and rents are the returns to land. According to the factor price equalization theorem, once Country A begins specializing according to comparative advantage and trading with Country B.
- Wages and rents should fall in Country A
- Wages and rents should rise in Country A
- Wages should rise and rents should fall in Country A
- Wages should fall and rents should rise in Country A
Q6 | Trade between two countries can benefit both countries if
- Each country exports that good in which it has a comparative advantage.
- Each country enjoys superior terms of trade.
- Each country has a more elastic demand for the imported goods.
- Each country has a more elastic supply for the supplied goods.
Q7 | The Ricardian theory of comparative advantage states that a country has a comparative advantage in widgets if
- Output per worker of widgets is higher in that country.
- That country's exchange rate is low.
- Wage rates in that country are high.
- The output per worker of widgets as compared to the output of some other product ishigher in that country.
Q8 | In order to know whether a country has a comparative advantage in the production of one particular product we need information on at least ____unit labor requirements
- One
- Two
- Three
- Four
Q9 | As a result of trade, specialization in the Ricardian model tends to be
- Complete with constant costs and with increasing costs.
- Complete with constant costs and incomplete with increasing costs.
- Incomplete with constant costs and complete with increasing costs.
- Incomplete with constant costs and incomplete with increasing costs.
Q10 | A nation engaging in trade according to the Ricardian model will find its consumption bundle
- Inside its production possibilities frontier.
- On its production possibilities frontier.
- Outside its production possibilities frontier.
- Inside its trade-partner's production possibilities frontier.
Q11 | In the Ricardian model, if a country's trade is restricted, this will cause all except which?
- Limit specialization and the division of labor.
- Reduce the volume of trade and the gains from trade
- Cause nations to produce inside their production possibilities curves
- May result in a country producing some of the product of its comparative Disadvantage
Q12 | If a very small country trades with a very large country according to the Ricardianmodel, then
- The small country will suffer a decrease in economic welfare.
- The large country will suffer a decrease in economic welfare.
- The small country will enjoy gains from trade.
- The large country will enjoy gains from trade.
Q13 | The following are all assumptions that must be accepted in order to apply theHeckscher - Ohlin Theory, except for one:
- Countries differ in their endowments of factors of production.
- Countries differ in their technologies.
- There are two factors of production.
- Production is subject to constant returns to scale.
Q14 | In international-trade equilibrium in the Heckscher-Ohlin model,
- The capital rich country will charge less for the capital intensive good than the price paid by the capital poor country for the capital-intensive good.
- The capital rich country will charge the same price for the capital intensive good as that paid for it by the capital poor country.
- The capital rich country will charge more for the capital intensive good than the price paid by the capital poor country for the capital-intensive go
Q15 | The Heckscher-Ohlin model predicts all of the following except:
- Which country will export which product
- Which factor of production within each country will gain from trade.
- The volume of trade.
- That wages will tend to become equal in both trading countries.
Q16 | The Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage in that the former
- Has only two countries
- Has only two products.
- Has two factors of production.
- Has two production possibility frontiers (one for each country).
Q17 | In free trade between two countries in an H-O world:
- If both countries produce both goods, wages in the two countries will be the
- same.
- If one country does not produce both goods, wages in the two countries will be the same
- The world relative price is between the two-self-sufficiency relative Prices but the relative Price of a good would not be exactly the same in both countries
Q18 | The trade model of the Swedish economists Heckscher and Ohlin maintains that:
- Absolute advantage determines the distribution of the gains from trade
- Comparative advantage determines the distribution of the gains from trade.
- The division of labor is limited by the size of the world market
- A country exports goods for which its resource endowments are most suited.
Q19 | According to the factor endowment model of Heckscher and Ohlin, countries heavil y endowed with land will:
- Devote excessive amounts of resources to agricultural production.
- Devote insufficient amounts of resources to agricultural production
- Export products that are land-intensive.
- Import products that are land-intensive.
Q20 | According to the Heckscher-Ohlin model, the source of comparative advantage is a country’s:
- Technology
- Advertising
- Factor endowments
- Both (a) and (c)
Q21 | The Heckscher-Ohlin model rules out the classical model’s basis for trade by assuming that________ is (are) identical between countries.
- Factor endowments
- Factor intensities
- Technology
- Opportunity costs
Q22 | According to the Heckscher-Ohlin model
- Everyone automatically gains from trade
- The gainers from trade outnumber the losers from trade
- The scarce factor necessarily gains from trade
- None of the above
Q23 | Countries H and F operate in an H-O world. Each country produces two goods, A and B. Good A is relatively capital intensive and country F is relatively labor abundant. Suppose however, that the production technology is not the same in the two countries. That is, H has a superior technology of production compared to F.
- Free trade will equalize wages between the two countries
- In free trade, there will be no incentive for migration of labor from H to F.
- In free trade there will be some incentive for workers from F to migrate to H.
- Both b. and c.
Q24 | According to the Heckscher - Ohlin model, if the United States is richly endowed in human capital relative to Mexico, then as NAFTA increasingly leads to more bilateral free trade between the two countries,
- The United States will find its industrial base sucked into Mexico
- Mexico will find its relatively highly skilled workers drawn to the United States
- The wages of highly skilled U.S. workers will be drawn down to Mexican levels
- The wages of highly skilled Mexican workers will rise to those in the United States.
Q25 | In the 2-factor, 2 good Heckscher-Ohlin model, an influx of workers from across the border would
- Moves the point of production along the production possibility curve
- Shifts the production possibility curve outward, and increase the production of both good
- Shift the production possibility curve outward and decrease the production of the Labor-intensive product
- Shift the production possibility curve outward and decrease the production of the capital-intensive product.