International Economics: Master the Fundamentals of Global Trade and Finance

Question 1

Which factor does NOT directly affect the exchange rate between two currencies?

Accepted Answer

Price of gold

Answer

Interest rate differential

Answer

Inflation rate

Answer

Government policies

Question 2

According to the theory of comparative advantage, nations should focus on producing and exporting goods that they can produce:

Accepted Answer

At a lower opportunity cost

Answer

With an absolute advantage

Answer

That are in high demand domestically

Answer

In large quantities

Question 3

Which of the following is NOT a primary factor influencing exchange rate fluctuations?

Accepted Answer

Earth's position relative to the Sun

Answer

Interest rate differentials between countries

Answer

Inflation rate variations across economies

Answer

Government interventions to manage currency value

Question 4

Which factor does NOT directly impact exchange rate fluctuations?

Accepted Answer

Inflation

Answer

Interest rate differentials between countries

Answer

Government intervention in currency markets

Answer

Trade flows between countries

Question 5

Which core assumption of the Heckscher-Ohlin model states that technology is the same in all countries?

Accepted Answer

Technology is uniform across countries.

Answer

Production factors move freely across borders.

Answer

Consumer preferences for goods and services are similar.

Answer

There are no transportation costs in international trade.

Question 6

In the Heckscher-Ohlin model, what factor primarily determines a country's comparative advantage in international trade?

Accepted Answer

Availability of production factors

Answer

Abundance of natural resources

Answer

Size of domestic consumer market

Answer

Government trade policies

Question 7

Which of the following is NOT a factor that can influence a country's balance of payments?

Accepted Answer

Weather conditions

Answer

Fluctuations in exchange rates

Answer

Variations in economic activity

Answer

Changes in government spending

Question 8

Which of the following are potential benefits of international trade?

Accepted Answer

Lower prices for consumers due to increased competition

Accepted Answer

Higher productivity due to increased specialization

Accepted Answer

Higher incomes due to increased economic growth

Answer

Lower wages for workers due to increased inequality

Question 9

In a floating exchange rate system, what is the primary factor that determines the value of a currency relative to other currencies?

Accepted Answer

Interest rate differences

Answer

Government interventions

Answer

Trade balance

Answer

Inflation

Question 10

Which of the following factors has no direct influence on the determination of exchange rates?

Accepted Answer

Global political events

Answer

Interest rate differentials

Answer

Inflation rate differentials

Answer

Government intervention

Question 11

Under the Ricardian model of international trade, countries should:

Accepted Answer

Specialize in exporting goods where they have a lower opportunity cost.

Answer

Protect domestic industries from foreign competition through protectionist policies.

Answer

Restrict imports to safeguard domestic producers, even at the expense of higher consumer prices.

Answer

Import all goods from countries with lower production costs, regardless of the impact on domestic industries.

Question 12

According to the Heckscher-Ohlin model, which country is likely to export goods that require a lot of capital to produce?

Accepted Answer

Country with abundant capital and scarce labor

Answer

Country with abundant labor and scarce capital

Answer

Country with equal endowments of labor and capital

Question 13

Which international trade policy protects domestic industries from foreign competition by taxing or limiting imported goods?

Accepted Answer

Tariffs

Answer

Free trade

Answer

Export subsidies

Answer

Currency devaluation

Question 14

According to the purchasing power parity theory, which of the following does NOT directly influence exchange rate determination?

Accepted Answer

Growth rate differential

Answer

Price levels in the home country

Answer

Price levels in the foreign country

Answer

Inflation rate differential

Question 15

Which country would have a lower opportunity cost of producing and exporting agricultural products, according to the theory of comparative advantage?

Accepted Answer

Country with abundant unskilled labor and limited capital

Answer

Country with abundant capital and limited skilled labor

Answer

Country with a large domestic market and limited export opportunities

Question 16

Which part of a country's balance of payments tracks the buying and selling of goods and services between its residents and people in other countries?

Accepted Answer

Current account

Answer

Capital account

Answer

Financial account

Question 17

In international trade theory, which theory highlights the advantages of specialization due to variations in production opportunity costs?

Accepted Answer

Heckscher-Ohlin theory

Answer

Absolute advantage theory

Answer

Mercantilism

Question 18

Evaluate the potential economic consequences of protectionist trade policies. Which of the following is a likely outcome?

Accepted Answer

Reduced consumer choice

Answer

Increased consumer choice

Answer

Lower consumer prices

Answer

Enhanced economic efficiency

Question 19

Globalization has resulted in:

Accepted Answer

Increased global interconnectedness

Answer

Reduced government involvement in international trade

Answer

Diminished significance of comparative advantage

Answer

Reduced global economic disparities

Question 20

According to the Heckscher-Ohlin model, which nation is likely to have a comparative advantage in exporting capital-intensive goods?

Accepted Answer

A nation with abundant capital resources

Answer

A nation with a large pool of skilled workers

Answer

A nation with extensive natural resources

Question 21

In the Heckscher-Ohlin model, which country is likely to have a comparative advantage in exporting labor-intensive goods?

Accepted Answer

Country with scarce capital and abundant labor

Answer

Country with abundant capital and scarce labor

Answer

Country with abundant labor and capital

Answer

Country with scarce labor and capital

Question 22

What is a potential advantage of international trade for developing nations?

Accepted Answer

Accelerated economic growth and development

Answer

Widened income disparity

Answer

Diminished government income

Question 23

What is a potential negative outcome of protectionist trade policies?

Accepted Answer

Higher prices for consumers and lower economic efficiency

Answer

More exports and a stronger domestic currency

Answer

Greater innovation and technological advancements

Answer

Improved income distribution and lower unemployment

Question 24

Which trade policy limits the amount of imported goods or services to shield domestic industries from global competition?

Accepted Answer

Import quota

Answer

Tariff

Answer

Embargo

Answer

Free trade

Question 25

In the Ricardian model of international trade, countries with different factor endowments will:

Accepted Answer

Specialize in producing goods where they have a comparative advantage.

Answer

Have the same comparative advantage in producing all goods.

Answer

Import skilled labor-intensive goods.

Answer

Not trade with each other.

Question 26

Explain the key roles of international financial institutions like the World Bank and the International Monetary Fund in promoting global economic stability.

Accepted Answer

Offer financial aid to developing nations to stimulate economic growth and reduce poverty.

Accepted Answer

Monitor global economic conditions and provide policy advice to member countries.

Answer

Establish global trade rules and regulations.

Question 27

Which type of exchange rate regime allows for the exchange rate to be set by market forces?

Accepted Answer

Floating exchange rate

Answer

Fixed exchange rate

Answer

Managed exchange rate

Answer

Target exchange rate

Question 28

Which of the following is NOT a type of international investment?

Accepted Answer

Foreign aid

Answer

Foreign direct investment

Answer

Portfolio investment

Answer

Private equity investment

Question 29

Which trade policy aims to shield domestic industries from foreign competition while fostering long-term economic growth?

Accepted Answer

Infant industry protection

Answer

Free trade

Answer

Export subsidies

Answer

Tariffs

Question 30

How have technological advancements impacted the patterns and trends of international trade?

Accepted Answer

Increased specialization and global outsourcing

Answer

Protectionist policies to safeguard domestic industries

Answer

Decline in global trade due to reduced transportation costs

Answer

Minimal impact on the nature of international trade

Question 31

Which of the following is a primary determinant of international trade?

Accepted Answer

Comparative advantage

Answer

Government policies

Answer

Cultural differences

Answer

Language barriers

Question 32

Which of the following is a potential benefit of international trade for consumers?

Accepted Answer

Increased consumer choice

Answer

Higher prices for domestic firms

Answer

Reduced economic growth

Answer

Increased unemployment

Question 33

What is the term for the difference in price between the same good sold in different countries?

Accepted Answer

Price differential

Answer

Tariff

Answer

Quota

Answer

Exchange rate

Question 34

Which of the following is a type of trade barrier?

Accepted Answer

Ad valorem tariff

Answer

Free trade agreement

Answer

Export subsidy

Answer

Import substitution

Question 35

Which of the following is NOT a potential benefit of foreign direct investment (FDI)?

Accepted Answer

Reduced environmental standards

Answer

Increased capital inflows

Answer

Job creation

Answer

Improved technology transfer

Question 36

What is the primary goal of the World Trade Organization (WTO)?

Accepted Answer

Promote free trade and reduce trade barriers

Answer

Provide financial aid to developing nations

Answer

Resolve conflicts between member states

Answer

Enforce labor standards in international trade

Question 37

How does exchange rate volatility affect international investment decisions, and what strategies can firms use to reduce currency risks?

Accepted Answer

Exchange rate volatility increases uncertainty in investment returns, making firms less likely to invest internationally.

Answer

Exchange rate volatility provides opportunities for firms to profit through currency speculation.

Answer

Exchange rate volatility has no impact on international investment decisions.

Answer

Firms can only mitigate currency risks by hedging their foreign exchange exposure.

Question 38

[Improved] According to the Ricardian model of trade, what is a primary benefit of free trade?

Accepted Answer

[Improved] It allows countries to specialize in their areas of comparative advantage.

Answer

[Dropped] Increases competition and innovation.

Answer

[Dropped] Leads to lower consumer prices.

Answer

[Dropped] Protects domestic industries from foreign competition.

Question 39

[Improved] What is the primary factor that determines the exchange rate between two currencies?

Accepted Answer

[Improved] The relative demand and supply for the two currencies.

Answer

[Dropped] Government intervention.

Answer

[Dropped] The balance of trade between the two countries.

Answer

[Dropped] The inflation rate in the two countries.

Question 40

[Improved] What is the term 'globalization' used to describe?

Accepted Answer

[Improved] The increasing interconnectedness of the world economy.

Answer

[Dropped] The spread of Western culture and values.

Answer

[Dropped] The decline of nation-states.

Answer

[Dropped] The emergence of a global government.

Question 41

Which of the following factors does NOT influence the volume of international trade?

Accepted Answer

Personal preferences

Answer

Comparative advantage

Answer

Transportation costs

Answer

Government policies

Question 42

According to the theory of comparative advantage, countries should specialize in producing and exporting goods:

Accepted Answer

Where they have a comparative advantage

Answer

Where they have an absolute advantage

Answer

That they can produce domestically at the lowest cost

Answer

That they can import from other countries at the lowest price

Question 43

The balance of payments encompasses which of the following accounts?

Accepted Answer

Current account, capital account, and financial account

Answer

Trade account, financial account, and balance on goods and services

Answer

Central bank reserves, foreign exchange reserves, and international debt

Answer

Exports minus imports, net foreign investment, and official reserves

Question 44

The exchange rate between two currencies is primarily determined by:

Accepted Answer

Demand and supply in the foreign exchange market

Answer

Government intervention

Answer

Inflation rate differentials between the two countries

Answer

Interest rate differentials between the two countries

Question 45

Multinational corporations are companies that:

Accepted Answer

Operate in multiple countries

Answer

Are owned by multiple governments

Answer

Specialize in international trade

Answer

Are listed on multiple stock exchanges

Question 46

Which of the following is NOT a characteristic of a globalized economy?

Accepted Answer

Strengthening of national borders

Answer

Increased interdependence of countries

Answer

Growing importance of digital technologies

Answer

Reduced barriers to trade and capital flows

Question 47

In international trade, which factors determine a country's comparative advantage?

Accepted Answer

Variations in labor costs

Accepted Answer

Availability of natural resources

Answer

Government regulations

Question 48

Which theory proposes that countries should concentrate on producing and exporting goods for which they possess a comparative advantage?

Accepted Answer

Comparative Advantage Theory

Answer

Absolute Advantage Theory

Answer

Heckscher-Ohlin Model

Answer

Mercantilism

Question 49

In a floating exchange rate system, what primarily determines a country's exchange rate?

Accepted Answer

Market forces

Answer

Governmental intervention

Answer

Central bank decisions

Answer

Inflation rate

Question 50

Which of the following is not considered an advantage of international trade?

Accepted Answer

Reduced economic progress

Answer

Increased product selection for consumers

Answer

Lower production costs

Answer

Access to novel technologies

Question 51

According to the Heckscher-Ohlin model, what should countries with a relative abundance of capital do?

Accepted Answer

Export capital-intensive products

Answer

Import capital-intensive products

Answer

Export labor-intensive products

Answer

Import labor-intensive products

Question 52

What is the term used to describe a nation's total foreign income?

Accepted Answer

Gross national product

Answer

Gross domestic product

Answer

Net foreign investment

Answer

Balance of payments

Question 53

What is the International Monetary Fund's (IMF) primary function in the global economy?

Accepted Answer

Providing short-term loans to countries experiencing balance of payments issues

Answer

Regulating international commerce

Answer

Establishing exchange rates

Answer

Supervising the global monetary system

Question 54

What is the primary objective of a multilateral trade agreement?

Accepted Answer

To lower trade barriers among member countries

Answer

To establish a common currency

Answer

To facilitate technology transfer

Answer

To settle trade disputes

Question 55

How does international migration influence global trade patterns and labor markets in both sending and receiving countries?

Accepted Answer

Facilitates trade by reducing transportation costs and increasing labor mobility.

Answer

Primarily benefits receiving countries by expanding their workforce.

Answer

Has no significant impact on global trade patterns.

Answer

Leads to wage stagnation for workers in receiving countries.

Question 56

How have technological advancements transformed the landscape of international trade?

Accepted Answer

Empowered small businesses to participate in global markets

Accepted Answer

Reduced the importance of physical distance in trade

Answer

Centralized control within multinational corporations

Answer

Eliminated the role of intermediaries in international trade

Question 57

Evaluate the effectiveness of trade policies designed to nurture emerging industries in developing economies, considering both their potential advantages and disadvantages.

Accepted Answer

Infant industry policies can foster economic growth if implemented judiciously.

Answer

Infant industry policies consistently promote industrial growth.

Answer

Infant industry policies should be implemented indefinitely to protect domestic industries.

Answer

Infant industry policies are unnecessary in developing countries as market forces drive industrial development.

Question 58

Which of the following is a significant ethical concern related to global supply chains?

Accepted Answer

Exploitation of workers

Accepted Answer

Environmental degradation

Answer

Loss of cultural diversity

Answer

Increased consumer choices

Question 59

What is the primary goal of the World Trade Organization (WTO) in relation to international trade?

Accepted Answer

Promote fair and free trade

Answer

Set tariffs and quotas

Answer

Offer financial aid to developing countries

Answer

Regulate the global financial system

Question 60

Which of the following is a key determinant of a country's comparative advantage in producing a good?

Accepted Answer

Factor endowments and technological advancement

Answer

Government subsidies and cultural preferences

Answer

Transportation costs and exchange rates

Answer

Climate and geography

Question 61

According to the Heckscher-Ohlin model, a country should export goods that are intensive in:

Accepted Answer

Abundant factors of production

Answer

Scarce factors of production

Answer

Mobile factors of production

Answer

Specialized factors of production

Question 62

What is the primary purpose of imposing a tariff?

Accepted Answer

To protect domestic industries from foreign competition

Answer

To generate revenue for the government

Answer

To correct for market failures

Answer

To stimulate free trade

Question 63

Which of the following is a characteristic of a floating exchange rate regime?

Accepted Answer

The exchange rate is determined by market forces

Answer

The exchange rate is fixed by the government

Answer

The exchange rate is pegged to a basket of currencies

Answer

The exchange rate is pegged to a single currency

Question 64

What is the key difference between a balance of trade deficit and a balance of payments deficit?

Accepted Answer

A balance of trade deficit only includes trade in goods, while a balance of payments deficit includes all international transactions

Answer

A balance of payments deficit only includes trade in services, while a balance of trade deficit includes all international transactions

Answer

There is no difference between the two

Answer

A balance of payments deficit only includes financial transactions, while a balance of trade deficit includes all international transactions