economic 3

Question 1 1 out of 1 points

If a PPP estimate of the dollar/pound exchange rate is $1.61/£ and the current spot rate is

observed to be $1.68/£, you should, viewing the long run,

Answer

Selected Answer: expect the dollar to appreciate against the pound.

Correct Answer: expect the dollar to appreciate against the pound.


Suppose that a speculator notes that the current 3-months forward rate on the euro is $1.26. The

speculator expects that, in 3 months, the euro will have a value of $1.30. In this situation, the

speculator would _____ euros on the forward market, and this activity _____ for the speculator.

Answer

Selected Answer: sell; involves risk

Correct Answer: buy; involves risk


In a setting of flexible exchange rates, suppose that the U.S. citizens decrease their import

purchases from the United Kingdom at the same time that British citizens increase their

purchases of stocks and bonds from the United States. The first action (the U.S. imports) by itself

would lead to _____ of the dollar against the pound; the second action by itself would _____ of

the dollar against the pound.

Answer

Selected Answer: an appreciation; also lead to an appreciation

Correct Answer: an appreciation; also lead to an appreciation


If the equilibrium value of the pound is $1.60 in time period 1, but U.K. prices double between

time periods 1 and 2 while U.S. prices rise by 60 percent, then the (relative) purchasing-power-

parity theory would say that the equilibrium value of the pound in time period 2 is

Answer

Selected Answer: $1.28.

Correct Answer: $1.28.


If a speculator observes that the current 3-months forward rate on Swiss francs is 20¢ = 1 franc,

but he/she expects that the spot rate in 3 months will be 30¢ = 1 franc, then this speculator would

now

Answer

Selected Answer: sell francs on the forward market.

Correct Answer: buy francs on the forward market.


In general, other things being equal, trade creation is more likely to outweigh trade diversion for

a home country forming a customs union with partner countries (i) if the total number of

countries forming the union is _____, and (ii) if the level of tariffs in the home country prior to

the formation of the union is _____.

Answer

Selected Answer: small rather than large; low rather than high

Correct Answer: large rather than small; high rather than low


The Big Mac Index

Answer

Selected Answer: is an absolute PPP index of the international value of the U.S. dollar based

on a single commodity.

Correct Answer: is an absolute PPP index of the international value of the U.S. dollar based on

a single commodity.


Suppose that Mexico trades only with Germany and the United States. Additionally, suppose

that in 1995 the spot rates were 0.2 euro = 1 peso and $0.10 = 1 peso, and that in 2005 the spot

rates were 0.15 euro = 1 peso and $0.12 = 1 peso. If Mexico's trade is 20 percent with Germany

and 80 percent with the United States, calculation of the effective exchange rate for Mexico

indicates that the peso

Answer

Selected Answer: appreciated from 1995 to 2005.

Correct Answer: appreciated from 1995 to 2005.


In the graph below pertaining to good X for country A (where DA is the demand for X by A's

consumers, SA is the supply curve of X from A's home producers, SB is the horizontal supply

curve of X to country A from country B, SC is the horizontal supply curve of X to country A

from country C, and S'B and S'C are the horizontal supply curves from B and C, respectively,

with a tariff in place), suppose that country A, from this initial situation, now forms a customs

union with country C.

If country A formed a customs union with country C rather than with country B, imports of good

X into country A would be the amount _____.

Answer

Selected Answer: Q3Q4

Correct Answer: Q1Q6


If Japan invests overseas because of its high saving rate (in excess of domestic investment

spending), then this investment can cause_____ of the Japanese yen and, thus, a consequent trade

_____ for Japan.

Answer

Selected Answer: a depreciation; deficit

Correct Answer: a depreciation; surplus


In which of the following relationships between the expected future spot rate (E[e]) of a foreign

currency and the current forward rate (efwd) of a foreign currency would a speculator have an

incentive to sell foreign currency in the forward market?

Answer

Selected Answer: E(e) < efwd

Correct Answer: E(e) < efwd


The graph below pertains to good X for country A, where DA is the demand for X by A's




with a tariff in place.

With the tariffs in place for both countries B and C, imports of good X into country A are

represented by distance

Answer




A simultaneous increase in U.S. demand for German products and decrease in the desire of

German investors to send funds to the United States would, under a flexible exchange rate

system and with other things being equal, lead to _____ of the U.S. dollar against the euro and to

_____ of the euro against the dollar.

Answer

Selected Answer: a depreciation; an appreciation

Correct Answer: a depreciation; an appreciation


A given exchange rate will be more or less the same in all of the world's financial markets

because of

Answer

Selected Answer: currency arbitrage.

Correct Answer: currency arbitrage.


An exporter who is to receive payment in foreign currency in 3 months and who wants to

engage in hedging would _____ the foreign currency on the 3-months forward market in order to

protect himself/herself from _____ of the foreign currency.

Answer

Selected Answer: buy; a depreciation

Correct Answer: sell; a depreciation


If good X from country C faces a 10 percent tariff in country A and a 20 percent tariff in country

B, but if A and B have free trade between each other, then A and B are part of which type of

grouping?

Answer

Selected Answer: economic union

Correct Answer: free-trade area


In considering trade creation and trade diversion in the formation of a customs union between

countries and whether membership in the customs union enhances welfare in a home country,

two general rules are that the customs union is more likely to enhance welfare, other things being

equal, (i) if the union contains a _____ number of countries and (ii) if costs of production in the

partner countries in the case of trade diversion differ _____ from costs of production in the

outside world (the nonmember countries).

Answer

Selected Answer: small rather than large; greatly

Correct Answer: large rather than small; only slightly


Other things being equal, if exchange rates are flexible, and if U.S. consumers increase their

demand for Japanese goods at the same time that Japanese consumers increase their demand for

U.S. goods, then we would expect the dollar to

Answer

Selected Answer: remain unchanged in value relative to the yen.

Correct Answer: The answer is impossible to determine without more information.







Suppose that, from the initial situation where country A's tariff was applied to both countries B

and C, country A now forms a customs union with country B. With this customs union in place,

imports into country A are represented by distance _____.

Answer

Selected Answer: Q3Q4, all of which constitute trade diversion from the noncustoms union

country.

Correct Answer: Q2Q5, only part of which constitute trade diversion from the noncustoms

union country.


In the graph below pertaining to good X for country A (where DA is the demand for X by A's





union with country B.

The net welfare effect on country A from the formation of the customs union with country B is

_____.

Answer

Selected Answer: areas (a + c) minus area f

Correct Answer: areas (a + c) minus area f


Which of the following is considered a positive dynamic effect of integration?

Answer

Selected Answer: economies-of-scale effects

Correct Answer: economies-of-scale effects


If U.K. interest rates are higher than Japanese interest rates, then the theory of covered interest

arbitrage would suggest that, in the £/yen exchange markets, the yen would be at a forward

_____ and the pound would _____.

Answer

Selected Answer: premium; be at a forward discount

Correct Answer: premium; be at a forward discount


If two countries remove all tariffs on each other's products and establish a common set of tariffs

against the rest of the world, but they take no further steps toward economic integration, these

two countries have formed

Answer

Selected Answer: a customs union.

Correct Answer: a customs union.


If country A forms a customs union with country B, then

Answer

Selected Answer: countries A and B may especially benefit from the union if substantial

economies of scale exist in some of the A and B industries.

Correct Answer: countries A and B may especially benefit from the union if substantial



In a production-possibilities/indifference curve diagram depicting the movement of a country

from a situation of a uniform tariff against all trading partners to a situation of a customs union

with one trading partner,

Answer

Selected Answer: home production of the country's export good will increase and home

production of the country's import good will also increase after the formation of the customs

union.

Correct Answer: home production of the country's export good will increase, and home

production of the country's import good will decrease after the formation of the customs union.


If relatively labor-abundant country A has a Leontief statistic greater than 1.0 and relatively

capital-abundant country B has a Leontief statistic less than 1.0, this suggests that

Answer

Selected Answer: both countries are conforming to the prediction of the Heckscher-Ohlin

theorem.

Correct Answer: both countries are conforming to the prediction of the Heckscher-Ohlin

theorem.


If two countries with increasing opportunity costs have identical PPFs but different tastes,

Answer

Selected Answer: the countries will have different relative commodity prices under autarky,

and each country can gain by exporting the good for which its consumers have the lower relative

preference.

Correct Answer: the countries will have different relative commodity prices under autarky, and

each country can gain by exporting the good for which its consumers have the lower relative

preference.


If increased Heckscher-Ohlin-type trade were the major factor leading to increased income

inequality in the United States, then one would expect that the relative prices of skilled labor-

intensive goods to unskilled labor-intensive goods would have _____ and that nontraded goods

industries would have _____ their use of unskilled labor relative to skilled labor.

Answer

Selected Answer: risen; increased

Correct Answer: risen; increased


Suppose that the 3-months interest rate in New York is 4 percent and the 3-months interest rate

in London is 3 percent, and that the spot rate is $2.00/£ and the 3-months forward rate is $2.10/£.

In this situation, there is an incentive for short-term interest arbitrage funds to flow

Answer

Selected Answer: from London to New York.

Correct Answer: from New York to London.


In the Bretton Woods international monetary system, a country's currency, unless its par value

or parity value were officially changed, could not deviate more than _____ from its par value or

parity value. If the country's currency depreciated to its low point in this range, central banks

needed to _____ the currency in the exchange markets in order to keep the currency's value

within the specified range.

Answer

Selected Answer: plus or minus 1 percent; buy

Correct Answer: plus or minus 1 percent; buy


A simultaneous increase in U.S. demand for German products and decrease in the desire of

German investors to send funds to the United States would, under a flexible exchange rate

system and with other things being equal, lead to _____ of the U.S. dollar against the euro and to

_____ of the euro against the dollar.

Answer

Selected Answer: an appreciation; an appreciation

Correct Answer: a depreciation; an appreciation


In Europe's Economic and Monetary Union (EMU), the member countries

Answer

Selected Answer: use a common currency (the euro).

Correct Answer: use a common currency (the euro).


Suppose that, in the context of the Edgeworth box diagram in production, there are constant

returns to scale in each of the two industries. One good is relatively labor-intensive in its

production process, and the other good is relatively capital-intensive in its production process. In

considering this Edgeworth box diagram and the PPF that can be derived from it,

Answer

Selected Answer: the PPF will show increasing opportunity costs.

Correct Answer: the PPF will show increasing opportunity costs.


The optimal size of international reserves occurs for a country at the point where the

Answer

Selected Answer: marginal benefit of holding the reserves equals the marginal cost of holding

the reserves.

Correct Answer: marginal benefit of holding the reserves equals the marginal cost of holding

the reserves.


Given the U.S. wage rate of $40 per day and the exchange rate of £1 = $1, what is the upper

limit to the wage rate in the United Kingdom that is consistent with two-way trade between the

countries? (Textbook Reference: 4-2)

Answer

Selected Answer: £40 per day

Correct Answer: £40 per day


A major advantage of the system of flexible exchange rates (as opposed to fixed exchange rates)

is commonly thought to be

Answer

Selected Answer: the enhanced effectiveness of monetary policy in influencing national

income under flexible exchange rates.

Correct Answer: the enhanced effectiveness of monetary policy in influencing national income

under flexible exchange rates.


In the current international monetary system, countries

Answer

Selected Answer: have considerable latitude in choosing an exchange rate arrangement.

Correct Answer: have considerable latitude in choosing an exchange rate arrangement.


Other things being equal, if exchange rates are flexible, and if U.S. consumers increase their

demand for Japanese goods at the same time that Japanese consumers increase their demand for

U.S. goods, then we would expect the dollar to

Answer

Selected Answer: The answer is impossible to determine without more information.

Correct Answer: The answer is impossible to determine without more information.


In the Edgeworth box diagram in production with two goods and two factors of production,

Answer

Selected Answer: a movement from any point on the production efficiency locus (contract

curve) to any point off the locus must involve less production of both goods.

Correct Answer: a movement from any point on the production efficiency locus (contract

curve) to another point on the locus must involve greater production of one good and less

production of the other good.


If, because of Japan's high saving rate (in excess of domestic investment spending), Japan

invests overseas, then this investment can cause _____ of the Japanese yen and, thus, a

consequent trade _____ for Japan.

Answer

Selected Answer: a depreciation; surplus

Correct Answer: a depreciation; surplus


In the price-specie-flow doctrine, a deficit country will _____ gold, and this gold flow will

ultimately lead to _____ in the deficit country's exports.

Answer

Selected Answer: lose; an increase

Correct Answer: lose; an increase


In Figure 1 pertaining to good X for country A (where DA is the demand for X by A's





union with country B.

The net welfare effect on country A from the formation of the customs union with country B is

_____.

Answer

Selected Answer: areas (a + c) minus area f

Correct Answer: areas (a + c) minus area f


If a country's PX/PY in autarky is less than the PX/PY on the world market, as the country

moves to trade, the relative price of good Y will _____ for home consumers. Thus, consumers

with a strong relative preference for good _____ would tend to oppose the movement to trade.

Answer

Selected Answer: decrease; X

Correct Answer: decrease; X


The post-Bretton Woods international monetary system is generally thought to have been

characterized by all except which of the following features?

Answer

Selected Answer: Real exchange rates have been relatively constant during the period, and so

the system's existence, per se, has not had real economic effects.

Correct Answer: Real exchange rates have been relatively constant during the period, and so

the system's existence, per se, has not had real economic effects.


If good X from country C faces a 10 percent tariff in country A and a 20 percent tariff in country

B, but if A and B have free trade between each other, then A and B are part of which type of

grouping?

Answer

Selected Answer: free-trade area

Correct Answer: free-trade area


In the case of economists' definition of dumping, an exporting firm is selling its product at a

_____ price in the importing country than in the exporter's home country, and this suggests that

demand for the exporter's product is _____ in the exporting country than in the importing

country.

Answer

Selected Answer: lower; less elastic

Correct Answer: lower; less elastic


If a speculator observes that the current 3-months forward rate on Swiss francs is 20¢ = 1 franc,

but he/she expects that the spot rate in 3 months will be 30¢ = 1 franc, then this speculator would

now

Answer

Selected Answer: buy francs on the forward market.

Correct Answer: buy francs on the forward market.


In Adam Smith's view, international trade

Answer

Selected Answer: all of the above

Correct Answer: all of the above


If a Big Mac costs $2.50 in the United States and 2 pesos in Argentina, then the implied

purchasing-power-parity exchange rate using the Big Mac is _____. If the actual exchange rate

in the market is 0.6 pesos = $1, then an economist would say that the Argentine peso is _____

compared with its purchasing-power-parity rate.

Answer

Selected Answer: 1.25 pesos = $1; overvalued

Correct Answer: 0.8 pesos = $1; overvalued


The _____ to testing Heckscher-Ohlin seeks to determine whether a country is a net exporter or

net importer of the services of the various factors of production; the expectation is that, if a

country has an excess _____ a factor's services, the country will be a net exporter of that factor's

services.

Answer

Selected Answer: factor-content approach; supply of

Correct Answer: factor-content approach; supply of


If the Heckscher-Ohlin theorem is valid in practice (and assuming that capital and labor are

treated as the only two factors in the real world), then the Leontief statistic for a labor-abundant

country would be

Answer

Selected Answer: greater than 1.0.

Correct Answer: greater than 1.0.


If two countries have identical production-possibilities frontiers but different tastes, it is possible

for each country to gain from trade with the other country

Answer

Selected Answer: in the neoclassical model but not in the Classical model.

Correct Answer: in the neoclassical model but not in the Classical model.


In considering trade creation and trade diversion in the formation of a customs union between

countries and whether membership in the customs union enhances welfare in a home country,

two general rules are that the customs union is more likely to enhance welfare, other things being

equal, (i) if the union contains a _____ number of countries and (ii) if costs of production in the

partner countries in the case of trade diversion differ _____ from costs of production in the

outside world (the nonmember countries).

Answer

Selected Answer: large rather than small; only slightly

Correct Answer: large rather than small; only slightly


If the U.S. trade pattern is as indicated by the Leontief test, this would suggest that participation

in trade rather than in autarky by the United States has _____ the real return to U.S. capital and

_____ the real wage of U.S. labor.

Answer

Selected Answer: decreased; has increased

Correct Answer: decreased; has increased


A tariff placed upon a product in order to offset a foreign export subsidy is called

Answer

Selected Answer: a countervailing duty.

Correct Answer: a countervailing duty.


The Krugman economies-of-scale strategic trade policy model stresses that protection given to a

home firm will, other things being equal, _____ the marginal cost of producing each level of

home output and will _____ the marginal cost of producing each level of foreign output.

Answer

Selected Answer: decrease; increase

Correct Answer: decrease; increase


If the U.K. worker's wage is £30 per day (and the fixed exchange rate is $2 = £1), what is the

upper limit to the U.S. worker's wage per day?

Answer

Selected Answer: $40

Correct Answer: $120


The optimum tariff rate for a country is that rate which, assuming no retaliation,

Answer

Selected Answer: maximizes the country's welfare.

Correct Answer: maximizes the country's welfare.


An early significant agreement in the negotiations of the Doha Development Agenda that is of

importance to developing countries occurred in

Answer

Selected Answer: pharmaceuticals pricing.

Correct Answer: pharmaceuticals pricing.







With the tariffs in place for both countries B and C, imports of good X into country A are

represented by distance _____.

Answer




If relatively capital-abundant country A opens trade with relatively labor-abundant country B,

and if the trade takes place in accordance with the Heckscher-Ohlin theorem, what would be the

consequence for factor prices (w/r) in the two countries?

Answer

Selected Answer: (w/r) falls in A and rises in B

Correct Answer: (w/r) falls in A and rises in B


In the current exchange rate arrangements of IMF members,

Answer

Selected Answer: a substantial number of countries do not have a freely floating exchange rate.

Correct Answer: a substantial number of countries do not have a freely floating exchange rate.


In a production-possibilities/indifference curve diagram depicting the movement of a country

from a situation of a uniform tariff against all trading partners to a situation of a customs union

with one trading partner,

Answer

Selected Answer: home production of the country's export good will increase and home


Correct Answer: home production of the country's export good will increase and home



The macroeconomic interpretation of a trade deficit for a country utilizes which one of the

following expressions (where Y = national income, C = consumption, I = investment, G =

government spending on goods and services, X = exports, and M = imports)?

Answer

Selected Answer: Y - (C + I + G) = (X - M)

Correct Answer: Y - (C + I + G) = (X - M)


Which one of the following is NOT an alleged disadvantage of a flexible exchange rate system?

Answer

Selected Answer: possibility of destabilizing speculation

Correct Answer: increased need for international reserves


According to the labor theory of value,

Answer

Selected Answer: the price of good A compared to the price of good B bears the same

relationship as the relative amounts of labor used in producing each good.

Correct Answer: the price of good A compared to the price of good B bears the same

relationship as the relative amounts of labor used in producing each good.


In the Edgeworth box diagram,

Answer

Selected Answer: a plotting of the output combinations along the diagonal results in the

production-possibilities frontier for this country.

Correct Answer: good B is the labor-intensive good, and good A is the capital-intensive good.


In a two-country world, the terms-of-trade impact of a tariff will definitely improve the welfare

of the tariff-imposing country (assuming no retaliation) if the tariff-imposing country

Answer

Selected Answer: is situated in the inelastic portion of its trading partner's offer curve.

Correct Answer: is situated in the inelastic portion of its trading partner's offer curve.


In a setting of flexible exchange rates, suppose that the U.S. citizens decrease their import

purchases from the United Kingdom at the same time that British citizens increase their

purchases of stocks and bonds from the United States. The first action (the U.S. imports) by itself

would lead to _____ of the dollar against the pound; the second action by itself would _____ of

the dollar against the pound.

Answer

Selected Answer: an appreciation; also lead to an appreciation

Correct Answer: an appreciation; also lead to an appreciation


The equilibrium condition for consumer behavior pertaining to goods A and B is

Answer

Selected Answer: (MUB/MUA) = (PB/PA).

Correct Answer: (MUB/MUA) = (PB/PA).


Which of the following sets of countries contains only members of the European Union?

Answer

Selected Answer: France, Spain, Switzerland, United Kingdom

Correct Answer: Belgium, Greece, Italy, Portugal


Under the Bretton Woods system (which was set up at the end of World War II), exchange rates

were

Answer

Selected Answer: permitted to vary 1 percent above or below parity.

Correct Answer: permitted to vary 1 percent above or below parity.


In the Uruguay Round of trade negotiations, the talks originally broke down in 1990 primarily

because of the strong disagreement between the United States and the European Community

with respect to

Answer

Selected Answer: subsidies and protection in agriculture.

Correct Answer: subsidies and protection in agriculture.


An implication of the Heckscher-Ohlin theorem is that

Answer

Selected Answer: two countries with identical tastes can still have a basis for trade if factor

endowments of the countries differ and if factor intensities of the commodities differ.

Correct Answer: two countries with identical tastes can still have a basis for trade if factor

endowments of the countries differ and if factor intensities of the commodities differ.


Other things being equal, a domestic monetary or financial shock (a shift in the LM curve) tends

to produce what relative degree of GDP change for the home country under a situation of flexible

exchange rates compared to a situation of fixed exchange rates?

Answer

Selected Answer: larger change with flexible rates

Correct Answer: larger change with flexible rates


Ignoring the negative sign, the slope of a consumer indifference curve at any given point on the

curve reflects

Answer

Selected Answer: the marginal rate of substitution (MRS) of the consumer between the two

goods.

Correct Answer: the marginal rate of substitution (MRS) of the consumer between the two

goods.


It is not uncommon to find a voting industry minority able to put in place trade policies that

benefit them at the expense of the majority because

Answer

Selected Answer: perceived consumer benefits are less than the cost of voting, leading to

consumer absenteeism at the polls.

Correct Answer: perceived consumer benefits are less than the cost of voting, leading to

consumer absenteeism at the polls.


In the Dornbusch-Fischer-Samuelson graph above, a uniform improvement in labor productivity

in all the home country's industries would shift the A schedule ____ and would lead to the export

of a ____ number of goods by the home country.

Answer

Selected Answer: upward; greater

Correct Answer: upward; greater


The macroeconomic view of a trade deficit implies that, other things being equal, the imposition

of a tariff will reduce the country's trade deficit

Answer

Selected Answer: only if the tariff leads to increased income in the country relative to the

country's spending.

Correct Answer: only if the tariff leads to increased income in the country relative to the

country's spending.


If a country has a currency board arrangement (with a 100-percent reserve system) in place, then

the country's money supply can be increased by a _____ by the country's central bank.

Answer

Selected Answer: purchase of foreign (external) assets from domestic citizens

Correct Answer: purchase of foreign (external) assets from domestic citizens


In the Williamson target zone plan, the major industrialized countries would negotiate mutually

consistent _____ target exchange rates, and there would be _____ deviation permitted from these

target rates.

Answer

Selected Answer: nominal effective; no

Correct Answer: real effective; some


The policy of minimum government interference in or regulation of economic activity,

advocated by Adam Smith and the Classical economists, was known as

Answer

Selected Answer: laissez-faire.

Correct Answer: laissez-faire.


In the United States, in approximately the last 2-3 decades, the supply of highly skilled (HS)

labor relative to less highly skilled (LS) labor has been rising. At the same time, the ratio of HS

labor wages relative to LS labor wages has been _____; therefore, the demand for HS labor

relative to LS labor must have been increasing _____ than the supply of HS labor relative to LS

labor.

Answer

Selected Answer: rising; more rapidly

Correct Answer: rising; more rapidly


Suppose that the wage rate in the United Kingdom is £30 per day, the wage rate in the United

States is $40 per day, and the exchange rate is £1 = $1. In this situation, the United Kingdom will

_____. (Textbook Reference: 4-2)

Answer

Selected Answer: export goods T and X and import good Y.

Correct Answer: export goods T and X and import good Y.


If the equilibrium value of the pound is $1.60 in time period 1, but U.K. prices double between

time periods 1 and 2 while U.S. prices rise by 60 percent, then the (relative) purchasing-power-

parity theory would say that the equilibrium value of the pound in time period 2 is

Answer

Selected Answer: $1.28.

Correct Answer: $1.28.


The view that inflation in a country can lead to depreciation of the country's currency and, in

turn, further inflation is known as

Answer

Selected Answer: the vicious circle hypothesis.

Correct Answer: the vicious circle hypothesis.


If two countries remove all tariffs on each other's products and establish a common set of tariffs

against the rest of the world, but they take no further steps toward economic integration, these

two countries have formed

Answer

Selected Answer: a customs union.

Correct Answer: a customs union.


In its lending to member countries, the International Monetary Fund (IMF)

Answer

Selected Answer: may increase the difficulty of obtaining loans and may insist on internal

policy changes by borrowing countries as the borrowers ask for additional loans.

Correct Answer: may increase the difficulty of obtaining loans and may insist on internal

policy changes by borrowing countries as the borrowers ask for additional loans.


If a commodity is classified as labor-intensive at one set of relative factor prices but capital-

intensive at another set of relative factor prices, this situation is known as

Answer

Selected Answer: factor-intensity reversal.

Correct Answer: factor-intensity reversal.


If country A forms a customs union with country B, then

Answer

Selected Answer: countries A and B may especially benefit from the union if substantial


Correct Answer: countries A and B may especially benefit from the union if substantial



A situation in which a country announces a parity value for its currency and permits small

variations around that value, but also adjusts the parity regularly by small amounts according to

various indicators is known as

Answer

Selected Answer: a managed float strategy of "leaning against the wind."

Correct Answer: a crawling peg.


In which of the following relationships between the expected future spot rate (E[e]) of a foreign

currency and the current forward rate (efwd) of a foreign currency would a speculator have an

incentive to sell foreign currency in the forward market?

Answer

Selected Answer: E(e) < efwd

Correct Answer: E(e) < efwd


If a PPP estimate of the dollar/pound exchange rate is $1.61/£ and the current spot rate is

observed to be $1.68/£, you should, viewing the long run,

Answer

Selected Answer: expect the dollar to appreciate against the pound.

Correct Answer: expect the dollar to appreciate against the pound.


If a country ties its currency to a specific foreign currency and allows its holdings of that

currency to govern the country's money supply, this arrangement is known as a

Answer

Selected Answer: floating exchange rate.

Correct Answer: currency board.


The first U.S. legislation to authorize adjustment assistance for workers displaced by tariff

reductions was the

Answer

Selected Answer: Trade Expansion Act of 1962.

Correct Answer: Trade Expansion Act of 1962.


The price-specie-flow mechanism suggested that

Answer

Selected Answer: a surplus country would experience an increase in its money supply and its

price level.

Correct Answer: a surplus country would experience an increase in its money supply and its

price level.


According to the theory of optimum currency areas, a country would be a good candidate for

membership in such an area if it had a _____ degree of factor mobility with other potential

member countries of the currency area and if the country were a relatively _____ economy.

Answer

Selected Answer: high; open

Correct Answer: high; open


An exporter who is to receive payment in foreign currency in 3 months and who wants to

engage in hedging would _____ the foreign currency on the 3-months forward market in order to

protect himself/herself from _____ of the foreign currency.

Answer

Selected Answer: sell; a depreciation

Correct Answer: sell; a depreciation


A Mercantilist policymaker would be in favor of which of the following policies or events

pertaining to his/her country?

Answer

Selected Answer: an increase in the percentage of factors of production devoted to adding

value to imported raw materials in order to later export the resulting manufactured goods

Correct Answer: an increase in the percentage of factors of production devoted to adding value

to imported raw materials in order to later export the resulting manufactured goods


In the Mercantilist view of international trade (in a two-country world),

Answer

Selected Answer: one country's gain from trade would be associated with a loss for the other

country.

Correct Answer: one country's gain from trade would be associated with a loss for the other

country.

economic 3

Documents

imported raw

edgeworth

vicious circle

absolute ppp

horizontal

dollarpound

fixed exchange

perceived