Question 1

According to classical trade theory, a country will export an item

Accepted Answer

Classical trade theory, particularly the principle of comparative advantage, suggests that a country will export goods in which it has a comparative advantage. This means it can produce these goods at a lower opportunity cost compared to other countries.

Question 2

Who of the following did not argue that the value of what is produced is a function of the labor put into its production?

Accepted Answer

John Maynard Keynes did not argue that the value of what is produced is primarily a function of the labor put into its production. Instead, Keynes focused on aggregate demand as the primary driver of economic activity and value, differing from the labor theories of value proposed by Marx, Smith, and Ricardo.

Question 3

That countries tend to export products in which their combination of production factors gives them a comparative advantage is

Accepted Answer

The Heckscher-Ohlin theorem posits that countries export products that utilize their abundant and cheap factors of production and import products that require factors of production that are scarce and expensive domestically. This principle explains how countries gain from trade by specializing in the production of goods for which they have a comparative advantage.

Question 4

The average Third World country is most likely to have an economy dominated by

Accepted Answer

Many Third World countries have economies that are primarily based on agriculture, due to factors like the availability of arable land, the stage of economic development, and the reliance on agriculture for employment and livelihood for a significant portion of the population.

Question 5

The balance of trade

Accepted Answer

The balance of trade is defined as the difference between the value of a country's exports and the value of its imports. A positive balance indicates a trade surplus, while a negative balance indicates a trade deficit.

Question 6

The idea of a tradeoff is best captured by the term

Accepted Answer

Opportunity cost represents the idea of a tradeoff by defining the cost of forgoing the next best alternative when making a decision.

Question 7

Examples of commodities are

Accepted Answer

Commodities typically refer to raw materials or primary agricultural products that can be bought and sold, such as minerals or agricultural products. Manufactured goods, factor endowments, and free trade are not examples of commodities.

Question 8

This country or region has granted the most extensive set of trade preferences to African, Caribbean, and Pacific (ACP) countries-many of them former colonies

Accepted Answer

The European Union (EU) has granted the most extensive set of trade preferences to African, Caribbean, and Pacific (ACP) countries, many of which are former colonies of European countries. This is part of the EU's effort to support development in these regions through preferential trade agreements.

Question 9

For neoclassical economists, this is the LEAST important factor in determining the value of a good

Accepted Answer

Neoclassical economists focus on supply, demand, and marginal utility to determine the value of a good, rather than the labor theory of value, which is more associated with classical economists like Adam Smith and Karl Marx.

Question 10

Macroeconomics deals with understanding

Accepted Answer

Macroeconomics focuses on the behavior of the economy as a whole, including issues like inflation, unemployment, and economic growth, rather than individual markets or sectors.

Question 11

Who of the following was an intellectual light in what was to become neoclassical economic theory?

Accepted Answer

Alfred Marshall was a key figure in the development of neoclassical economic theory, known for his work on supply and demand, marginal utility, and costs of production.

Question 12

John Maynard Keynes

Accepted Answer

John Maynard Keynes is best known for his work in macroeconomics, particularly for his theory that government intervention through fiscal policy (taxing and spending) can be used to manage economic cycles, stimulate economic growth, and reduce unemployment. This was a significant departure from the classical economics prevailing before him, which often emphasized minimal government intervention.

Question 13

Regarding exchange rates, it is true that

Accepted Answer

Increased demand for a currency, coupled with decreased demand for another currency, will indeed cause the first currency to appreciate in value relative to the second currency. This is a fundamental principle of how exchange rates work in the foreign exchange market, reflecting the dynamics of supply and demand.

Question 14

High price-elasticity of demand

Accepted Answer

High price elasticity of demand means that consumers are very responsive to price changes. If the price of a product with high price elasticity is increased, consumers are likely to reduce their purchases significantly, which can lead to a decrease in total revenue for the seller.

Question 15

In the mid-1980s, U.S. monetary authorities

Accepted Answer

In the mid-1980s, U.S. monetary authorities sought to reduce the value of the dollar to make U.S. exports more competitive internationally, thereby addressing the country's trade deficit. This was part of the Plaza Accord of 1985, where major countries agreed to intervene in currency markets to devalue the U.S. dollar.

Question 16

In 1900 this country had the most important worldwide currency

Accepted Answer

In 1900, the British Pound Sterling was the world's dominant currency due to the extensive reach of the British Empire and its global trade networks. The United Kingdom's financial system and the London financial markets were the center of the international financial system.

Question 17

Currency-exchange controls were implemented in the 1930s for all of the following reasons EXCEPT

Accepted Answer

Currency-exchange controls in the 1930s were primarily aimed at protecting domestic economies, managing the balance of payments, and dealing with the absence of a global central bank role by Britain or the US. Encouraging imports and reducing exports was not a goal; rather, many countries aimed to reduce imports and protect domestic industries.

Question 18

In order to promote domestic industries in the 1930s, countries

Accepted Answer

In the 1930s, to promote domestic industries, countries devalued their currencies to make their exports cheaper and imports more expensive, thus encouraging domestic consumption and production. This was part of the competitive devaluation strategies during the Great Depression, not directly related to tariffs or the establishment of international organizations like the WTO or the World Bank, which were formed much later.

Question 19

Exchange rates began floating in the early 1970s because

Accepted Answer

The United States unpegged the dollar from gold due to a trade imbalance, leading to the adoption of floating exchange rates in the early 1970s. This move was part of the Nixon Shock policies.

Question 20

The International Monetary Fund (IMF)

Accepted Answer

The IMF is primarily involved with providing financial support and advice to countries facing economic difficulties, which can include financing trade imbalances.

Quiz 12: The Political Economy of International Trade,finance, and Regional Integration