Deck 1: International Economics Is Different

Question 1

"China is not a typical developing nation." Which of the following economic features is most likely to justify this claim?

A)China has a large trade deficit with the United States.
B)The Chinese government favors a freely floating exchange rate policy.
C)China has a high national saving rate.
D)The government of China spends a significant portion of its revenue on national defense.

Answer 1

C

Question 2

A law in the U.S. prohibits the export of natural gas unless such exports are in the "public interest." What does "public interest" mean in the context of that law?

A)The amount received for the exported natural gas is enough to cover the production and transportation costs plus a reasonable profit
B)The U.S.government is able to collect export taxes set by law on the exported natural gas
C)The exports leave an adequate supply of natural gas for domestic users and consumers of natural gas
D)The exported natural gas does not fall into the hands of groups or countries that the U.S.government has designated as terrorists

Answer 2

C

Question 3

The Chinese government's intervention in the foreign exchange market by buying U.S. dollars and selling yuan had the effect of

A)weakening the U.S dollar to increase the U.S.trade deficit with China.
B)strengthening the U.S dollar to increase the U.S.trade deficit with China.
C)strengthening the yuan to increase the U.S.trade deficit with China.
D)weakening the yuan to decrease the U.S.trade deficit with China.

Answer 3

B

Question 4

Since the late 1990s, to prevent the yuan from appreciating against the U.S. dollar, the Chinese central bank

A)has been trying to hold euros and British pounds as foreign assets.
B)has been buying dollars and selling yuan in the foreign exchange market.
C)has purchased Chinese government bonds.
D)has been selling foreign assets to replenish it dollar reserves.

Question 5

What is the effect on trade deficits of a country's saving rate?

A)A low savings rate means that consumers are buying more, and more buying leads to an increase in a country's trade deficit.
B)A low savings rate means that people are spending more than they earn and that results in increased financial difficulties for consumers, higher interest rate, and fewer international sales, resulting in a decrease in a country's trade deficit.
C)A high savings rate means that there is more money available for investment which results in greater production and increased international sales which lead to lower trade deficits.
D)A country's savings rate has no effect on the country's trade deficit.

Question 6

In 2004, China had a substantial trade surplus with

A)Russia
B)Japan
C)the United States
D)Brazil

Question 7

The unskilled wage rate in a country may decline if

A)the corporate taxes are lowered by the government.
B)there's increased immigration of low-skilled workers.
C)the aggregate demand for goods and services increases in the country.
D)the demand for unskilled workers increases.

Question 8

"Job-seeking immigration brings net economic benefits not only to the immigrants, but also to the receiving country overall." But there are winners and losers within the receiving country. Who among the following can be considered as a winner within the receiving country?

A)The workers who compete with the immigrants for jobs
B)The government of the receiving country
C)The consumers who buy the products that the immigrants help to produce
D)None of these options are correct.

Question 9

What is fracking?

A)A process that uses a combination of hydraulic pressure and horizontal drilling to allow the extraction of natural gas that cannot otherwise be extracted.
B)The difference between the cost of producing natural gas and transporting it to consumers and the price that consumers are willing to pay for the natural gas.
C)The sale of natural gas on the black market in foreign countries without approval of the U.S.government.
D)The imposition of import tariffs on natural gas exported from the U.S.to protect domestic producers in the importing country.

Question 10

After 2006, why did the cost of new natural gas wells in the U.S. and Canada increase?

A)The amount of natural gas being imported into the U.S.and Canada was increasing.
B)The lowest cost sources of natural gas using standard production technologies had been exhausted.
C)Government regulations on new natural gas production increased the cost of production.
D)Natural gas production in other parts of the world decreased thereby increasing world-wide demand for natural gas.

Question 11

Which of following is most likely to happen when the dollar appreciates against the euro?

A)There will be a huge inflow of "hot money" to the European nations.
B)The prices of American goods in the European countries will decline.
C)The prices of European goods in the U.S.markets will decline.
D)The rate of inflation in the United States will increase.

Question 12

If the U.S. allowed the export of significant amounts of natural gas, what would be the economic effect?

A)There would be no net economic effect on international trade because increased exports from the U.S.would be offset by increased imports to the U.S.of other goods.
B)The economic effect on international trade would be negative because increased amounts of natural gas in the importing countries would drive down the price of domestically produced natural gas in the importing countries.
C)The foreign demand for natural gas from the U.S.would increase the price of natural gas in the U.S., production of natural gas in the U.S.would increase, and consumption of natural gas in the U.S.would decrease slightly.
D)Increased demand for natural gas form the U.S.in foreign countries would increase the price of natural gas world-wide and result in many countries not being able to afford the price of natural gas.

Question 13

On July 21st, 2005, the Chinese government changed the value of the yuan from 8.28 yuan per U.S. dollar to 8.11 yuan per U.S. dollar. One effect of this change should have been

A)an increase in the prices of American goods in the Chinese market.
B)an increase in the dollar price of the Chinese goods.
C)a decline in the average price level in the United States
D)market pressure to return the rate to 8.28 yuan per dollar.

Question 14

What event in Japan increased demand for imported natural gas in Japan?

A)Deposits of natural gas in Japan have been exhausted.
B)The largest deposits of natural gas available to Japan are located in the islands in the South China Sea and Japan and China have a dispute about who owns those islands.
C)A tsunami in 2011 damaged the nuclear reactor in Fukushima causing Japan to shut down all of its nuclear generation of electricity.
D)Japan imposed strict environmental requirements for the generation of electricity that can only be met by using natural gas to produce electricity.

Question 15

Dow Chemical objected to the export of natural gas from the U.S. to foreign countries. What does the economic analysis of the export of natural gas from the U.S. suggest the effect of those exports will be for Dow Chemical?

A)The export of natural gas from the U.S.will decrease the supply of natural gas available to Dow Chemical and other users of large amounts of natural gas and increase the price of natural gas in the U.S.
B)Dow Chemical does not directly use natural gas, but does use electricity that can be generated by natural gas, so the effect on Dow Chemical will depends on alternative means of producing electricity.
C)The transportation costs of exporting natural gas from the U.S.to Asia and Europe will keep the price of natural gas in the U.S.relatively low, so Dow Chemical will benefit from that low price.
D)The export of natural gas from the U.S.will eventually deplete U.S.supplies of natural gas so Dow Chemical will have to find other sources of energy.

Question 16

What would be the effect in the U.S. of increased exports of natural gas from the U.S. to foreign countries?

A)Exports of natural gas from the U.S.would force the world-wide price of natural gas to an equilibrium and reduce the price of natural gas for consumers in the U.S.
B)Exports of natural gas from the U.S.would result in higher prices for natural gas, benefiting producers and exporters of natural gas in the U.S.and harming consumers of natural gas in the U.S.
C)Exports of natural gas from the U.S.would force the world-wide price of natural gas to an equilibrium which would mean that producers of natural gas in the U.S.could not charge more than the cost to produce the natural gas.
D)The U.S.government would eventually have to prohibit exports of natural gas to foreign countries in order to control the price of natural gas.

Question 17

If natural gas produced in the U.S. was exported to countries in Asia and Europe, what factor would likely increase the price of that natural gas in the importing countries?

A)The U.S.would impose export charges on each unit of natural gas exported and those charges would be passed along to the importing countries.
B)Exporters in the U.S.would arbitrarily inflate the costs of production so that the importing countries would pay higher prices.
C)Importing countries would impose tariffs on the imported natural gas and those tariffs be passed along by exporting companies to importing countries.
D)Natural gas from the U.S.would have to be liquefied and transported in specially- designed ships to Asia and Europe, so transportation costs would increase the price of the imported natural gas in Asia and Europe.

Question 18

Which of the following exchange rate policies was undertaken by the Chinese government in 1994?

A)The Chinese yuan was revalued against the U.S.dollar.
B)A free floating exchange rate regime was adopted.
C)The Chinese yuan was revalued against the euro.
D)The Chinese yuan was pegged to the U.S.dollar.

Question 19

Which of the following is an impact of increased illegal immigration on an economy?

A)The rate of inflation in the receiving country increases.
B)The demand for labor in the receiving country declines.
C)The demand for public goods like education and health care increases.
D)The real wage rate of workers increases.

Question 20

The value of a country's currency in terms of some other country's currency is called _____.

A)the stock exchange
B)the exchange rate
C)the nominal interest rate
D)dollarization

Question 21

A mortgage-backed security is a debt instrument based on a pool of mortgages, and payment of that debt depends on the mortgages in the pool being paid. Many European banks invested in mortgage-backed securities. What was the effect of the financial crisis that began in the U.S. on these European banks?

A)Since most of the mortgages in these mortgage pools were guaranteed by agencies of the U.S.government, these European banks did not suffer unexpected losses.
B)When the mortgages in the pools were not paid, the mortgage-backed securities lost value or became worthless and these European banks suffered significant losses.
C)These European banks might have suffered significant losses but the European central Bank bought the securities at face value.
D)These European banks hedged their investment in U.S.mortgage-backed securities with investments in European mortgage-backed securities, so losses on U.S.mortgage-backed securities were offset by gains on European mortgage-backed securities.

Question 22

_____ is considered to be the least mobile factor internationally.

A)Labor
B)Capital
C)Entrepreneurship
D)Land

Question 23

Which of the following factors is most likely to lead to a decline in a country's exports?

A)An decrease in corporate taxes
B)A decline in the nominal interest rate
C)A decline in the input prices
D)An appreciation of the domestic currency vis-à-vis foreign currencies

Question 24

The ECB is prohibited from

A)lending to national governments or purchasing government debt directly from the government.
B)owning government debt.
C)accepting deposits from EU countries.
D)paying interest on deposits.

Question 25

The primary objective of the European Central Bank is to

A)bailout EU countries in financial trouble.
B)assure full employment.
C)maintain price stability.
D)protect EU countries from unfair trade practices.

Question 26

How did the ECB's Security Market Program acquire Greek, Irish and Portuguese government bonds in 2010-2011?

A)By buying those bonds from those governments
B)By buying securities backed by those government bonds and foreclosing on the bonds when the securities were not paid
C)By buying the bonds on the secondary markets
D)By loaning money to private companies which bought the bonds and then used the government bonds to repay the loans

Question 27

U.S. firms could not make a profit on the export of natural gas to Asia and Europe because of increasing production costs and transportation costs.

Question 28

In November 2011, the interest rate on 10 year Spanish and Italian bonds were 4 to 5 percentage points higher than the interest rate on comparable German bonds. What did that difference indicate?

A)German bonds were considered to be safer investments than Spanish or Italian bonds.
B)There was a higher demand for Spanish and Italian bonds than for German bonds.
C)The integration of the markets in EU countries promised by the introduction of the euro worked.
D)The German economy was reducing the value of Spanish and Italian bonds.

Question 29

The Hong Kong dollar is pegged to the U.S. dollar at a rate of 7.8 Hong Kong dollars to 1 U.S. dollar. Suppose the central bank of Hong Kong changes the exchange value to 7.3 Hong Kong dollars to 1 U.S. dollar. Which of the following is most likely to be true in this context?

A)The Hong Kong dollar has been revalued by 0.5 percent.
B)The Hong Kong dollar has been devalued by 0.5 percent.
C)The Hong Kong dollar has been revalued by 6.4 percent.
D)The Hong Kong dollar has been devalued by 6.2 percent.

Question 30

In 2009, Greece's fiscal deficit was 16 percent of its GDP, and its debts were 130 percent of its GDP. What did Greece do in response to this situation?

A)Greece had to borrow money from the Federal Reserve System in the U.S.
B)Greece had to issue new bonds to raise money to pay its debts relying on the credit of the EU rather than on its own credit.
C)Greece decided that it could not afford to borrow money to pay its debts because the interest rate it would have to pay was so much more than other EU countries were paying.
D)Greece decided that it had to increase its GDP and adopted a series of measures that required the expenditure of the equivalent of billions of U.S.dollars to improve its production efficiency.

Question 31

Which of the following is NOT a fiscal policy?

A)Increasing tariffs to reduce imports
B)Offering subsidies to export firms
C)Increasing the money supply to expand aggregate demand
D)Lowering personal tax rates to influence labor supply

Question 32

A number of EU countries encountered financial difficulties during the euro crisis in the first decade of the 21st century, and some of those countries received bailouts from the EU. Spain encountered financial difficulties in this period, but Spain did not require a bailout. Why was Spain's situation different from the situations that required other EU countries to be bailed out?

A)Spain was not part of the EU, so the EU did not have the authority to bailout Spain.
B)Spain was bailed out by the U.S.
C)While other EU countries had government debt that exceed GDP, Spain's debt was less than GDP, so Spain's financial situation was not as dire as in other EU countries.
D)Spain refused a bailout by the EU and defaulted on its government debt.

Question 33

What is the proper characterization of the European Union (EU), and what is its primary accomplishment?

A)The EU is a regional trade bloc which controls the money supply in each member country.
B)The EU is a regional trade agreement that has eliminated most trade barriers between member countries.
C)The EU is a trade treaty that provides a forum where member countries can resolve their trade disputes.
D)The EU is a trading cooperative that protects member countries from unfair trade tactics by non-member countries.

Question 34

In 2010-2011, several EU countries received large bailouts from the EU. What were those countries?

A)Germany, Italy, and Greece
B)England, Greece, and Ireland
C)Germany, England, and France
D)Ireland, Portugal, and Greece

Question 35

The supply of money in a country like the United States is controlled by the

A)central bank of the country.
B)political party in charge of the government of the country.
C)International Monetary Fund.
D)commercial banks in the country.

Question 36

The central bank of Alanza, a developing economy, persistently intervenes in the foreign exchange market to prevent its currency from appreciating against the dollar. Which of the following is the most probable consequence of this intervention by the central bank?

A)The money supply in Alanza will decline.
B)Alanza's exports will decline in the near future.
C)The rate of inflation in Alanza will increase.
D)Alanza is most likely to have a trade deficit with the United States.

Question 37

Which of the following is a relevant monetary policy during an acute financial crisis in an economy?

A)Investment in foreign government bonds should be increased.
B)The domestic currency should be revalued.
C)The reserve requirements for the commercial banks should be increased.
D)The nominal interest rates should be lowered.

Question 38

As the recession in the euro area appeared to end on mid-2009, to address a perceived weakness in the Irish banking system, the Irish government did what?

A)It decreed that all debts of Irish banks were being canceled.
B)It decreed that Irish banks would thereafter pay not more than 3 percent per annum on deposits.
C)It decreed that it would loan Irish banks the equivalent of 3 billion U.S.dollars.
D)It decreed that the Irish government would guarantee all deposits and debts of the largest Irish banks.

Question 39

A computer programmer working in India relocates to the United States. This is an example of

A)international outsourcing.
B)factor mobility.
C)cross-border trade.
D)factor intensity reversal.

Question 40

The exchange rate policy of a "crawling peg" adopted by the Chinese government in 2005 means that the government

A)allowed small and controlled changes in the exchange-rate value over time.
B)pegged the Yuan to the U.S.dollar at the equilibrium exchange rate.
C)held a balanced portfolio of assets including a variety of foreign currencies.
D)caved in to pressures from foreign governments.

Question 41

By mid-2014, the U.S. government had approved multiple LNG export facilities so natural gas exports from the U.S. have increased significantly.

Question 42

National sovereignty means that no one person or group is in charge of the international economy.

Question 43

How did the global financial crisis that began in the U.S. in 2007 affect countries in Europe?

Question 44

Importation of natural gas into Japan would cause the price of natural gas in Japan to fall and consumption to increase.

Question 45

Banks open branches in countries where profits are taxed less and their books of accounts are less scrutinized.

Question 46

In mid-2010, the Chinese government ended its fixed exchange rate to the U.S. dollar and began to allow the yuan to appreciate gradually. How would this shift affect the Chinese economy?

Question 47

Relatively high costs of converting natural gas to LNG will increase the price of natural gas in the U.S. and reduce consumption of natural gas in the U.S.

Question 48

Evidence shows that the Chinese Yuan was substantially overvalued against the U.S. dollar in mid-2005.

Question 49

Monetary policies adopted by a country do not affect its trading partners as long as the partner countries use different currencies.

Question 50

If the dollar per pound exchange rate changes from $1.50 per pound to $2 per pound, it implies that the dollar has appreciated against the pound.

Question 51

During 2001-2004 the European Union had a large trade surplus with China.

Question 52

Although financial capital is relatively mobile as an input, it is subject to a "home bias" in which people prefer to invest within their own country.

Question 53

A country cannot set its own policies toward the international movement of productive resources.

Question 54

"Job-seeking immigration brings net economic benefits not only to the immigrants, but also to the receiving country overall." Justify the statement.

Question 55

Fracking has proven to have minimal environmental effects, so the environmental costs of fracking are insignificant.

Question 56

Most of the countries that would be customers for natural gas exported from the U.S. are countries that have free trade agreements with the U.S.

Question 57

What was the basis of the financial crisis that Greece suffered in the first decade of the 21st century?

Question 58

In September 2008 the investment bank Lehman Brothers lost its access to short-term funding and averted failure when it was purchased by J.P. Morgan Chase.

Question 59

Why does Dow Chemical object to exports of natural gas from the U.S., and what does economic analysis suggest about that objection?

Question 60

Under a fixed exchange rate system, the revaluation of the local currency against the dollar would result in an improvement in the country's trade balance with the United States.