Deck 6: The Standard Trade Model

Question 1

An increase in a country's net commodity terms of trade will

A)always increase the country's real income.
B)not always guarantee positive changes in the country's economy.
C)always increase the country's economic welfare.
D)never increase the country's quantity of exports.
E)always increase the country's production of its import competing good.

Answer 1

B

Question 2

If a small country were to levy a tariff on its imports then this would

A)change the terms of trade.
B)decrease the country's economic welfare.
C)increase the country's economic welfare.
D)raise prices on its exports in other countries.
E)have no effect on that country's economic welfare.

Answer 2

B

Question 3

Terms of trade refers to

A)the tariffs applied to trade.
B)what goods are exported.
C)the volume of trade.
D)the relative price at which trade occurs.
E)what goods are imported.

Answer 3

D

Question 4

Suppose that a country experiences growth strongly biased toward its export,cloth,

A)this will increase the price of cloth relative to the imported good.
B)this will tend to worsen the country's terms of trade.
C)this will tend to improve the country's terms of trade.
D)this will tend to leave the country's terms of trade unchanged.
E)this will tend to worsen the terms of trade for the country's trading partner.

Question 5

If the ratio of price of cloth (PC)divided by the price of food (PF)increases in the international marketplace,then

A)world relative quantity of cloth supplied and demanded will decrease.
B)world relative quantity of food will increase.
C)world relative quantity of cloth supplied will increase.
D)world relative quantity of cloth demanded will decrease.
E)world relative quantity of cloth supplied and demanded will increase.

Question 6

If the economy is producing at point a on its production possibility frontier,then

A)all of the country's exports are produced in equal amounts.
B)all of the country's workers are specialized in one product.
C)all of the country's workers are employed.
D)all of the country's capital is used for one product.
E)all of its capital is used,but not efficiently.

Question 7

When the production possibility frontier shifts out relatively more in one direction,we have

A)balanced growth.
B)biased growth.
C)imbalanced growth.
D)immiserizing growth.
E)unbiased growth.

Question 8

If Slovenia were a large country in world trade,then if it imposes a large set of tariffs on its imports,this must

A)improve the real income of its trade partners.
B)improve Slovenia's real income.
C)decrease the internal price of imports below the world market rate.
D)cause retaliation on the part of its trade partners.
E)harm Slovenia's real income.

Question 9

A country cannot produce a mix of products with a higher value than where

A)the isovalue line is tangent with the indifference curve.
B)the isovalue line is below the production possibility frontier.
C)the isovalue line is above the production possibility frontier.
D)the isovalue line intersects the production possibility frontier.
E)the isovalue line is tangent to the production possibility frontier.

Question 10

If the U.S.(a large country)imposes a tariff on its imported good,this will tend to

A)improve the terms of trade of all countries.
B)have no effect on terms of trade.
C)raise the world price of the good imported by the United States.
D)improve the terms of trade of the United States.
E)cause a deterioration of U.S.terms of trade.

Question 11

If Slovenia were a large country in world trade,then if it instituted a large set of subsidies for its exports,this must

A)improve Slovenia's real income.
B)improve the real income of its trade partners.
C)cause retaliation on the part of its trade partners.
D)increase internal prices above the world market rate.
E)harm Slovenia's real income.

Question 12

If the ratio of price of cloth (PC)divided by the price of food (PF)increases in the international marketplace,then

A)the cloth exporter will increase the quantity of cloth produced.
B)the cloth exporter will decrease the quantity of cloth exported.
C)the food exporter will increase the quantity of food exported.
D)the cloth exporter will increase the quantity of cloth exported.
E)the country would import more cloth.

Question 13

If the ratio of price of cloth (PC)divided by the price of food (PF)increases in the international marketplace,then

A)the terms of trade of cloth exporters will improve.
B)the terms of trade of all countries will improve.
C)all countries would be better off.
D)the terms of trade of food exporters will improve.
E)the terms of trade of cloth exporters will worsen.

Question 14

If points A and B are two locations on a country's production possibility frontier,then

A)both bundles must have the same relative cost.
B)consumers are indifferent between the two bundles.
C)at any point in time,the country could produce both.
D)the country could produce either of the two bundles.
E)producers are indifferent between the two bundles.

Question 15

A country will be able to consume a combination of goods that is NOT attainable solely from domestic production if

A)the country avoids international trade.
B)the world terms of trade differ from its domestic relative costs.
C)the country specializes in one product.
D)the world terms of trade equal the domestic relative costs.
E)the country's domestic production value equals world relative value.

Question 16

If Slovenia is a large country in world trade,then if it imposes a large set of tariffs on many of its imports,this would

A)decrease its marginal propensity to consume.
B)have no effect on its terms of trade.
C)harm its terms of trade.
D)increase its exports.
E)improve its terms of trade.

Question 17

If Slovenia were a large country in world trade,then if it instituted a large set of subsidies for its exports,this must

A)have no effect on its terms of trade.
B)decrease its marginal propensity to consume.
C)harm world terms of trade.
D)harm its terms of trade.
E)improve its terms of trade.

Question 18

The meaning of "terms of trade" is

A)the quantities of imports received in free trade.
B)the price of a country's exports divided by the price of its imports.
C)the price conditions bargained for in international markets.
D)the tariffs in place between two trading countries.
E)the amount of exports sold by a country.

Question 19

Tastes of individuals are represented by

A)production possibility frontiers.
B)the terms of trade.
C)production functions.
D)indifference curves.
E)isovalue lines.

Question 20

If Slovenia is a small country in world trade terms,then if it imposes a large series of tariffs on many of its imports,this would

A)increase its exports.
B)decrease its marginal propensity to consume.
C)improve its terms of trade.
D)deteriorate its terms of trade.
E)have no effect on its terms of trade.

Question 21

An export subsidy will cause the terms of trade of the country to and will the country.

A)importing; suffer; benefit
B)exporting; improve; benefit
C)importing; improve; harm
D)importing; suffer; harm
E)exporting; suffer; harm

Question 22

The price of consumption in terms of _ consumption is .

A)future; current; 1 + r
B)future; current; r
C)present; future; 1/(1 + r)
D)present; future; r
E)future; current; 1/(1 + r)

Question 23

An import tariff will cause the terms of trade of the country to and will the country.

A)exporting; improve; benefit
B)importing; improve; benefit
C)exporting; improve; harm
D)importing; suffer; harm
E)importing; improve; harm

Question 24

International borrowing and lending may be interpreted as one form of

A)trade in services.
B)intertemporal trade.
C)unrequited international transfers.
D)intermediate trade.
E)aid to offset trade advantages.

Question 25

The intertemporal tradeoff between present and future consumption is measured by the

A)nominal interest rate.
B)rate of economic growth.
C)real interest rate.
D)inflation rate.
E)terms of trade.

Question 26

An import tariff will cause the relative demand for to and the relative supply for to .

A)imports; decrease; imports; increase
B)exports; increase; imports; decrease
C)exports; decrease; exports; increase
D)exports; increase; exports; decrease
E)imports; increase; imports; decrease

Question 27

Rapidly growing developing countries tend to be borrowers on the international capital markets.From this information we may surmise that they have a comparative advantage in

A)future income.
B)present income.
C)disposable income.
D)capital goods.
E)consumer goods.

Question 28

If one observes that Japan was traditionally a net foreign lender,one could conclude that relative to its international trade and financial partners

A)Japan's intertemporal production possibilities are not biased.
B)Japan preferred to consume beyond its production in the present.
C)Japan's intertemporal production possibilities are biased toward future consumption.
D)Japan's intertemporal production possibilities are biased toward present consumption.
E)Japan's intertemporal production possibilities are larger than that of the other countries.

Question 29

An export subsidy will cause the relative demand for _ to and the relative supply for to .

A)imports; decrease; imports; increase
B)exports; decrease; exports; increase
C)exports; increase; exports; decrease
D)exports; increase; imports; decrease
E)imports; increase; imports; decrease

Question 30

A fall in the real interest rate,all other things held constant,will cause a country's to .

A)terms of trade; improve
B)terms of trade; worsen
C)current consumption: increase
D)welfare level; improve
E)current consumption: decrease

Question 31

The intertemporal budget constraint is defined as:

A)V = QP + QF/(1 + r)
B)V = DP + DF/(1 + r)
C)D_F + D_P/(1 + r)= Q_F + Q_P/(1 + r)
D)D_P + D_F(1 + r)= Q_P + Q_F(1 + r)
E)D_P + D_F/(1 + r)= Q_P + Q_F/(1 + r)

Question 32

It may be argued that theoretically,international capital movements

A)tend to hurt labor in donor countries.
B)increase future production in donor countries.
C)tend to hurt the recipient countries.
D)tend to hurt the donor countries.
E)tend to hurt labor in recipient countries.