a. selling a good abroad at prices below the costs of the firms in the foreign countries
b. exporting goods that are of inferior quality
c. selling a good abroad at prices below its cost of production or below the price charged in the home market
d. exporting goods that are sources of pollution
_____ 2. A quota is
a. a tax imposed on goods that are dumped in the country
b. a law that prevents ecologically damaging goods to be imported into a country
c. a market-imposed balancing factor that keeps prices of imports and exports in equilibrium
d. a government-imposed restriction on the quantity of a specific good that can be imported
_____ 3. A tariff is
a. a subsidy on domestically produced goods
b. the difference between the world market price and the domestic price when a group of firms in an industry collude successfully
c. a tax on imported goods
d. a government imposed restriction on the quantity of a specific good that can be imported into the country and sold
_____ 4. The General Agreement on Tariffs and Trade is an international agreement
a. to establish the North American continent as a free trade area
b. to encourage peaceful settlements of trade disputes, but has no particular point of view about the desirability of higher or lower tariffs
c. to encourage world trade by lowering tariffs and other trade barriers
d. to make all tariffs illegal
_____ 5. According to economic historians, one characteristic of international trade is that it
a. aids in the international transmission of ideas
b. reduces the world-wide output of goods
c. reduces the world-wide consumption of goods
d. causes persistent world-wide inflation
_____ 6. One economic truism is that any nation's restriction of imports ultimately leads to
a. an increase in exports
b. a reduction in exports
c. an economic upswing
d. an increase in GDP
_____ 7. Quotas and tariffs both serve the purpose of
a. increasing foreign trade
b. restricting foreign trade
c. causing domestic producers to lose revenues
d. lowering prices on imported goods
_____ 8. The foreign exchange rate describes the
a. balance of trade
b. balance of payments
c. law of comparative advantage
d. price of foreign currency in terms of domestic currency
_____ 9. Flexible exchange rates are determined by the
a. government of the exporting country
b. government of the importing country
c. forces of supply and demand
d. IMF
_____ 10. Which of the following would NOT increase German exports to the United States?
a. appreciation of the U.S. dollar
b. depreciation of the German mark
c. appreciation of the German mark
d. increase in German demand for U.S. exports
_____ 11. The demand for foreign currency in the United States is a
a. direct demand
b. derived demand based on the demand for U.S. products
c. derived demand based on the demand for foreign products
d. direct demand based on the demand for U.S. dollars
_____ 12. Which of the following is a deficit item on the International Accounts?
a. Exports of merchandise
b. Foreign tourist dollars spent domestically
c. Sales of gold to foreigners
d. Purchases of foreign assets
_____ 13. Other things being constant, if the U.S. real rate of interest exceeds that of our trading partners, we expect
a. political instability in the United States
b. an improvement in U.S. balance of payments
c. an appreciation of U.S. currency
d. a "dirty float" will emerge
_____ 14. The exchange rate system in use since the early 1970s is best described as a
a. dollar standard
b. adjustable peg system
c. fixed exchange system
d. freely floating or managed "dirty" floating exchange rate system
_____ 15. Under a flexible exchange rate system, an increase in the value of a domestic currency in terms of other currencies is referred to as
a. an appreciation
b. a depreciation
c. a devaluation
d. a revaluation
_____ 16. Which of the following would contribute to a positive trade balance for a country?
a. Having tourists visit the country
b. Importing textiles
c. Having foreigners buy the government bonds of the country
d. Importing financial services
_____ 17. Special drawing rights (SDRs) are
a. a reserve asset created by the International Monetary Fund that countries can use to settle international payments
b. a liability payment from a branch bank to a nation's central bank
c. a country's surpluses in their fiscal budgets
d. exchanges of gold between nations
_____ 18. An increase in a country's rate of inflation is apt to
a. reduce its imports and improve its trade balance
b. lower its nominal rate of interest and encourage an inflow of capital
c. worsen its balance of trade and payments
d. decrease demand for the country's currency
_____ 19. When the balance of trade is in balance, then
a. the value of capital exports equals the value of capital imports
b. the value of exports equals the value of imports
c. the accounting identity does not hold
d. the value of all debit transactions equals the value of all credit transactions
_____ 20. The balance of payments is
a. the value of goods and services bought and sold in the world market
b. a summary record of a country's economic transactions with foreign residents and governments
c. a summary record of a country's purchases and sales of goods and services in the world
d. the value of merchandise goods bought and sold in the world market
Economics 1A Answers
1. C
2. D
3. C
4. C
5. A
6. B
7. B
8. D
9. C
10. C
11. C
12. D
13. C
14. D
15. A
16. A
17. A
18. C
19. B
20. B