Question 1

Given the strength of the economy and a particularly strong performance of banks, the Canadian dollar's value has risen from $0.90 to $0.98 US dollars. What is the Canadian dollar appreciation value?
A)9)88%
B)8)89%
C)1)89%
D)1)98%

Accepted Answer

The Canadian dollar appreciation value is 8.89%.
Key Takeaway: To calculate currency appreciation, the following formula is used:
Currency appreciation = (new currency value - old currency value)/old currency value
= (0.98-0.90)/0.90 * 100%
= 8.89%

Question 2

The following factors affect the value of currency EXCEPT:
A)demand flow
B)normal inflation
C)current supply
D)current events

Accepted Answer

Normal inflation does not affect the value of currency
Key Takeaway: Currency values are affected by demand flow and current supplies. High demand and low supply lead to an increase in the value of currency while low demand and high supply lead to a decrease in value. Current events, whether political, economic or social, can also affect the value of currency. If a country is on the brink of civil war or feuding over trade with its neighbors, then the value of its country is less due to the instability.

Question 3

Although capital/labor ratios are higher in poor countries than in richer and more developed countries, it is less likely that capital investment flocks to these poor countries. The main reason behind the poor investment is:
A)low mechanisms of operations export
B)language barriers that threaten productivity
C)world interest rates that are likely to increase
D)geopolitical instability and less secure property rights

Accepted Answer

The main reason behind the poor investment is geopolitical instability and less secure property rights.
Key Takeaway: While poor countries promise high capital/labor ratios and the potential for marginally lower costs of production, investments often do not move flock to these countries. The main reason is that poor countries are more likely to be engaged in civil wars or other geopolitical strife that threaten their stability and the ability for investors to protect their operations. Furthermore, due to high corruption, these countries have less secure property rights.

Question 4

During the 1990s, many European countries joined forces by forming an economic and monetary union to compete against the large economy of the United States as well as the emerging economies of China and India. The following are advantages to the European Union EXCEPT:
A)removing conversion costs and exchange rate uncertainty
B)lower inflation and interest rates
C)political arguments and disharmony amongst member states
D)increased competition and efficiency of the market

Accepted Answer

Political arguments and disharmony amongst member states are not advantages to the European Union.
Key Takeaway: Towards the end of the 20th century, many European countries joined forces by forming an economic and monetary union. The union was designed to provide a competitive economic bloc against the large economy of the United States and the emerging economies of China and India. The resultant union had several advantages including the removal of currency conversion costs and exchange rate uncertainty. The union also lowered inflation and interest rates while increasing competition and efficiency.

Question 5

Governments provide Foreign Direct Investment (FDI) incentives to encourage the movement of capital into their countries. The following are examples of incentives EXCEPT:
A)lowered income and corporate taxes
B)special economic zones of trade
C)land and expatriation subsidies
D)higher and more restrictive tariffs

Accepted Answer

Higher and more restrictive tariffs are not examples of FDI incentives.
Key Takeaway: Governments like to attract foreign investment to raise the GDP of their countries and become more competitive. FDI incentives to attract this capital include lowered income and corporate taxes. Some countries such as the United Arab Emirates also offer special economic zones of trade. Other incentives include land and expatriation subsidies as well as lower tariffs.

Question 6

The International Monetary Fund (IMF) has come under strong criticism in recent years because of its ____________ which is(are) accused of delaying the economic growth of poorer countries.
A)structural adjustment programs
B)bretton woods system
C)millennium development goals
D)microloan programs

Accepted Answer

The International Monetary Fund has come under strong criticism in recent years because of its Structural Adjustment Programs which are accused of delaying the economic growth of poorer countries.
Key Takeaway: Structural Adjustment Programs (SAP) are IMF programs that are designed to help countries manage their debts to the World Bank and as conditions to getting new loans from the bank. Among its requirements are that countries cut spending and lift import/export restrictions. These requirements have shown to have a negative impact on the economic development and growth of many poor countries.

Question 7

After the Second World War, many countries have instituted measures that would prevent the entry and exit of large capital into the country. What are these measures referred to?
A)adjustment programs
B)foreign investment limits
C)capital subsidies
D)capital controls

Accepted Answer

These programs are referred to as capital controls.
Key Takeaway: Capital controls were measures designed to prevent the entry or exit of large capital into a country that would threaten its economic viability. Among the measures are transaction taxes and limits on the size of some international transactions.

Question 8

To calculate the depreciation, the following equation is used. The resulting figure is always: Currency depreciation = old currency value - new currency value
New currency va
A)negative
B)positive
C)multiple of old value
D)dependent on interest rates

Accepted Answer

The resulting figure of depreciation calculation is always negative.
Key Takeaway: Currency depreciation occurs when domestic currency becomes less valuable than foreign currency. The growing strength of dominant foreign currencies are one reason behind the depreciation of local currency and so are inflationary pressures on an economy.

Question 9

Greece has a high rate of inflation compared to the United States. This means that the American dollar will buy:
A)less of Greek currency in the short term
B)more of Greek currency in the short term
C)same of Greek currency in the short term
D)less of the Greek currency as dictated by the real exchange rate

Accepted Answer

This means that the American dollar will buy more of the Greek currency in the short term.
Key Takeaway: When a particular country has a high rate of inflation, its currency is significantly devalued against strong currencies. In the case of Greece, the American dollar is likely to buy more of Greek currency in the short term although the currency itself is depreciated which means it is likely to purchase less goods and services.

Question 10

During the 1990s and due to a civil war, Nigeria experienced capital flight especially by foreign investors. Capital flight is a significant and sudden reduction in the _____________ within a country.
A)insurance against fraud
B)loanable funds
C)supply assets
D)demand for assets

Accepted Answer

Capital flight is a significant and sudden reduction in the demand for assets
Key Takeaway: When investors become concerned about the safety and security of their investments, they remove their capital from the economy. Factors affecting the safety and security of investments are political unrest and nationalization of assets. Capital flights lead to an increase in interest rates and currency hyperinflation.

Question 11

Multinational Companies (MNCs) that have opened establishments and stores in smaller regions in the United States have led to individual-owned companies to struggle for business. The advantages of MNCs include the following EXCEPT:
A)greater R&D funding and capacity
B)possession of better technology
C)better access to local markets
D)accumulated global managerial experience

Accepted Answer

The advantages of MNCs do not include better access to local markets.
Key Takeaway: MNCs have proven themselves to be successful in penetrating markets in smaller regions in the United States. As a consequence, small, individual-owned companies struggled to compete against their establishments. Some of the advantages held by MNCs are greater R&D funding and capacity leading to improved products as well as the possession of better technology. As they operate in diverse markets, MNC management accumulate more effective managerial experience.

Question 12

The Netherlands is considered to have an open economy. In an open economy, government budget deficit results in the following EXCEPT:
A)increase in domestic investment
B)reduction of loanable funds supply
C)increase in interest rate
D)decrease in net foreign investment

Accepted Answer

In an open economy, government budget deficit does not result in an increase in domestic investment.
Key Takeaway: In an open economy, government budget deficits have a negative impact. Among the impact are an increase in interest rates which leads to a reduction in domestic investment. These deficits also lead to a decrease in net foreign investment and a reduction of loanable funds supplies.

Question 13

The United States enforces a strict trade policy on Asian oak imports. Manufacturers are only allowed a certain amount annually according to the size of their operations. What is this referred to:
A)export quota
B)import tariff
C)import quota
D)export tariff

Accepted Answer

This is referred to as an import quota.
Key Takeaway: Import quota are government trade policies designed to limit imports into a country. A quota system may be put in place that considers that size of the company and its current operations. A quota may also exist for political reasons with the government restricting goods and raw materials being imported from countries that are out of favor.

Question 14

The expansion of Multinational Companies (MNCs) such as Wal-Mart in the global market has occurred for the following reasons EXCEPT:
A)secure, unchanging interest rates
B)low cost access to local markets
C)economies of scale
D)international difference in productivity

Accepted Answer

The expansion of Multinational Companies (MNCs) such as Wal-Mart in the global market has not occurred due to secure, unchanging interest rates.
Key Takeaway: MNCs represent the globalization of trade and an expansion into large international markets. MNCs have developed to provide low cost access to local markets and to develop economies of scale. Additionally, due to international differences in productivity based on education, training and infrastructure has led to the expansion of these companies the world over.

Question 15

Which countries are included in NAFTA?
A)United States; Canada
B)United States; Canada; Mexico
C)United States; Britain; France
D)All NATO countries except Germany

Accepted Answer

United States, Canada, and Mexico are all included in NAFTA.
Key Takeaway: The North American Free Trade Agreement (NAFTA) is a trades agreement signed by the United States, Canada and Mexico and came into effect in 1994. The goal of NAFTA was to remove barriers to trade and investment between the three countries. Since the countries were already engaged in strong economic cooperation and trade, NAFTA was instituted to regulate that trade as well as introduce environmental measures on which they could collaborate.

Question 16

While competitive advantage means that an entity produces a product at a lower opportunity cost, absolute advantage means that an entity:
A)produces less of a product than its competitors
B)produces more of a product than its competitors
C)produces a better quality product than its competitors
D)produces a longer lasting product than its competitors

Accepted Answer

Absolute advantage means that an entity produces more of a product than its competitors.
Key Takeaway: An entity (firm or country) has absolute advantage if it produces more of a product than its competitors with the same resources. For example, if a Chinese chip manufacturing company produces 10 chips for every 2 employees per hour while an American company produces 7 chips for every 2 employees per hour, the Chinese company has absolute advantage. In this example, labor is the input unit but any other resource can also be used.

Question 17

Globalization of business and trade have the following distinct advantages EXCEPT:
A)rapid spread of technological advancement
B)exacerbation of environmental degradation
C)reduction in production cost
D)encouragement of competition between countries

Accepted Answer

Exacerbation of environmental degradation is not an advantage of the globalization of business and trade.
Key Takeaway: Globalization has opened the world for the exchange of goods, services, and technological knowledge. As companies and countries compete to dominate the world market in their niche, production costs have decreased while innovation has increase. However, environmental degradation has become a consequence of globalization and the widespread and mass use of natural resources to produce goods.

Question 18

Equilibrium exchange rate occurs when quantity supplied equals quantity demanded of:
A)a local currency at a specific local price
B)a local currency at a specific foreign price
C)a foreign currency at a specific local price
D)a foreign currency at a specific foreign price

Accepted Answer

Equilibrium exchange rate occurs when quantity supplied equals quantity demanded of a foreign currency at a specific local price.
Key Takeaway: Currency in a market is valued at a higher price when the demand for it exceeds the supply available. When an equilibrium exchange rate is achieved, quantity supplied and quantity demanded of a foreign currency are equal at a specific local price. For example, the US dollar is in an equilibrium exchange rate if the quantity requested and quantity available are equal at an exchange rate of 0.75Euros.

Question 19

In the Ricardian model of international trade, the following is true:
A)countries engage in manufacturing only
B)countries specialize in raw materials
C)countries specialize in their best productions
D)countries never experience trade deficits

Accepted Answer

In the Ricardian model of international trade, countries specialize in their best productions.
Key Takeaway: The Ricardian model of international trade is concerned with the concept of 'competitive advantage'. This means that countries specialize in producing what they produce best. For example, Germans specialize in producing long-lasting, highly efficient vehicles. The Japanese are known to specialize in high-quality electronics. Egypt is known for producing high-quality cotton. These countries follow their competitive advantage which allows them to specialize and have a strong presence in the world market.

Question 20

Country A has only recently begun exporting Gold. According to the figure below, what has the move from domestic consumption alone to export meant for prices paid by domestic consumers?
A)not enough information is available
B)prices remained the same
C)prices decreased
D)prices increased

Accepted Answer

Prices increased for domestic consumers.
Key Takeaway: When countries engage in trade, there is an expected change in prices on locally produced goods for domestic consumers. In the above example, domestic consumers paid more for Gold following trade. Domestic consumers are more likely to pay world prices for domestic goods once trade is initiated.

Quiz 3: Economics

Given the strength of the economy and a particularly strong performance of banks, the Canadian dollar's value has risen from $0.90 to $0.98 US dollars. What is the Canadian dollar appreciation value?

The following factors affect the value of currency EXCEPT:

Although capital/labor ratios are higher in poor countries than in richer and more developed countries, it is less likely that capital investment flocks to these poor countries. The main reason behind the poor investment is:

During the 1990s, many European countries joined forces by forming an economic and monetary union to compete against the large economy of the United States as well as the emerging economies of China and India. The following are advantages to the European Union EXCEPT:

Governments provide Foreign Direct Investment (FDI) incentives to encourage the movement of capital into their countries. The following are examples of incentives EXCEPT:

The International Monetary Fund (IMF) has come under strong criticism in recent years because of its ____________ which is(are) accused of delaying the economic growth of poorer countries.

After the Second World War, many countries have instituted measures that would prevent the entry and exit of large capital into the country. What are these measures referred to?

To calculate the depreciation, the following equation is used. The resulting figure is always: Currency depreciation = old currency value - new currency value New currency va

Greece has a high rate of inflation compared to the United States. This means that the American dollar will buy:

During the 1990s and due to a civil war, Nigeria experienced capital flight especially by foreign investors. Capital flight is a significant and sudden reduction in the _____________ within a country.

Multinational Companies (MNCs) that have opened establishments and stores in smaller regions in the United States have led to individual-owned companies to struggle for business. The advantages of MNCs include the following EXCEPT:

The Netherlands is considered to have an open economy. In an open economy, government budget deficit results in the following EXCEPT:

The United States enforces a strict trade policy on Asian oak imports. Manufacturers are only allowed a certain amount annually according to the size of their operations. What is this referred to:

The expansion of Multinational Companies (MNCs) such as Wal-Mart in the global market has occurred for the following reasons EXCEPT:

Which countries are included in NAFTA?

While competitive advantage means that an entity produces a product at a lower opportunity cost, absolute advantage means that an entity:

Globalization of business and trade have the following distinct advantages EXCEPT:

Equilibrium exchange rate occurs when quantity supplied equals quantity demanded of:

In the Ricardian model of international trade, the following is true:

Country A has only recently begun exporting Gold. According to the figure below, what has the move from domestic consumption alone to export meant for prices paid by domestic consumers?