Introduction to International Economics: Master Global Economic Principles

Question 1

The Heckscher-Ohlin model suggests a country rich in natural resources will export resource-intensive goods and import manufactured goods. Why?

Accepted Answer

It's more cost-effective for them to produce resource-intensive goods.

Answer

Their labor costs are lower compared to other countries.

Answer

They have access to advanced technology unavailable elsewhere.

Answer

Their currency holds greater value than other countries' currencies.

Question 2

In developing countries, free trade can have both benefits and drawbacks. Analyze how trade liberalization can affect economic growth, poverty reduction, and domestic industries.

Accepted Answer

Trade liberalization can create jobs and boost economic growth in developing countries.

Accepted Answer

Free trade can harm domestic industries in developing countries due to increased competition.

Answer

Free trade always leads to economic growth and poverty reduction in developing countries.

Answer

Developing countries should avoid free trade at all costs.

Question 3

In the foreign exchange market, what primarily influences the value of a currency?

Accepted Answer

Supply and demand

Answer

Interest rates

Answer

Economic growth

Answer

Political stability

Question 4

The theory of comparative advantage suggests that countries should:

Accepted Answer

Focus on producing goods that they can produce most efficiently

Answer

Produce only goods that require a high level of resources

Answer

Produce all goods that they are capable of producing

Answer

Avoid international trade altogether

Question 5

Define a tariff.

Accepted Answer

A tax levied on goods and services imported from other countries

Answer

A subsidy granted to domestic producers of goods and services

Answer

A quota imposed on the quantity of goods that can be imported

Answer

An exchange rate policy employed to stabilize the value of the currency

Question 6

Explain the difference between a fixed and a floating exchange rate regime. Discuss the advantages and disadvantages of each system for a country's economy.

Accepted Answer

Fixed

Accepted Answer

Floating

Question 7

What is the implication of a current account deficit?

Accepted Answer

The country is importing more goods and services than it is exporting.

Answer

The country is exporting more goods and services than it is importing.

Answer

The country's currency is appreciating in value.

Question 8

Which of the following is the most widely used measure of international trade?

Accepted Answer

Exports minus Imports

Answer

Gross Domestic Product (GDP)

Answer

Gross National Income (GNI)

Answer

Balance of Payments

Question 9

According to international trade theory, countries tend to specialize in producing and exporting goods where they have:

Accepted Answer

Comparative advantage

Answer

Absolute advantage

Answer

Both absolute and comparative advantage

Answer

Neither absolute nor comparative advantage

Question 10

The process of increasing interdependence and integration among the world's economies and cultures is termed:

Accepted Answer

Globalization

Answer

Internationalism

Answer

Globalism

Answer

Interconnectedness

Question 11

Which of the following transactions adds to the credit side of the current account in the balance of payments?

Accepted Answer

Exports of goods and services

Answer

Imports of goods and services

Answer

Foreign direct investment

Answer

Payment of interest on foreign debt

Question 12

Which of the following is not considered a potential benefit of free trade?

Accepted Answer

Protection of specific domestic industries

Answer

Lower consumer prices

Answer

Increased economic growth

Answer

Creation of employment opportunities

Question 13

According to David Ricardo's theory of comparative advantage, countries should focus on producing and exporting goods and services where they have a:

Accepted Answer

Comparative advantage

Answer

Absolute advantage

Answer

Natural monopoly

Answer

Economies of scale

Question 14

Which of the following is not a potential consequence of persistent trade deficits?

Accepted Answer

Expansion of employment opportunities

Answer

Accumulation of foreign debt

Answer

Depreciation of domestic currency

Answer

Increased inflation

Question 15

Define international factor mobility. Explain the different types of production factors and how their movement across borders affects international trade patterns.

Accepted Answer

The movement of production factors, such as capital and labor, across borders

Answer

The movement of goods and services across borders

Answer

The movement of currency across borders

Question 16

The Heckscher-Ohlin model suggests that a country's trade patterns are primarily influenced by what factor?

Accepted Answer

Differences in resources like labor and capital

Answer

Natural resource abundance

Answer

Technological progress

Question 17

Which of the following is NOT a direct factor that influences a country's balance of payments?

Accepted Answer

Domestic government spending

Answer

Exports and imports of goods and services

Answer

Foreign aid

Answer

Capital inflows and outflows

Question 18

Which factor is NOT a determinant of a country's comparative advantage, according to the Heckscher-Ohlin model?

Accepted Answer

Government policies

Answer

Labor force size

Answer

Natural resource endowment

Answer

Technological advancement

Question 19

According to the Heckscher-Ohlin model, what is the primary determinant of international trade patterns?

Accepted Answer

Differences in factor endowments between countries

Answer

Differences in the costs of production across countries

Answer

Government trade regulations

Answer

Cultural preferences

Question 20

Which measure provides the most comprehensive overview of a country's international economic activity?

Accepted Answer

Balance of payments

Answer

Current account

Answer

Capital account

Question 21

What is a primary benefit associated with international trade?

Accepted Answer

Access to a broader range of goods and services

Answer

Increased environmental pollution

Answer

Reduced technological innovation

Answer

Job losses

Question 22

Protectionist trade policies are primarily implemented with the aim of:

Accepted Answer

Shielding domestic industries from foreign competition

Answer

Boosting exports

Answer

Promoting free trade

Question 23

Globalization can have both positive and negative effects on the labor market. Which of the following is a potential outcome of globalization in this context?

Accepted Answer

Simultaneous job creation and job loss

Answer

Solely job creation

Answer

No impact on the labor market

Answer

Exclusively job losses

Question 24

A floating exchange rate system is characterized by:

Accepted Answer

Market forces determining the exchange rate

Answer

Exchange rates pegged to a basket of currencies

Answer

Fixed exchange rates

Answer

Government-set exchange rates

Question 25

The primary purpose of the World Trade Organization (WTO) is to:

Accepted Answer

Foster free trade and resolve trade disputes

Answer

Provide financial assistance to developing nations

Answer

Impose tariffs and quotas

Answer

Regulate international investment

Question 26

Which economic indicator is used to measure a country's overall economic output?

Accepted Answer

Gross domestic product (GDP)

Answer

Balance of payments

Answer

Exchange rate

Question 27

Which of the following is a MAIN component of the balance of payments?

Accepted Answer

Current account

Answer

Stock market index

Answer

Government budget

Question 28

What is the concept of comparative advantage based on?

Accepted Answer

Opportunity cost, as it focuses on the relative efficiency of producing different goods and services in different countries, considering the costs of production and the relative scarcity of resources.

Answer

Total cost, as it considers the total cost of producing a good or service.

Answer

Marginal cost, as it considers the additional cost of producing one more unit of a good or service.

Answer

Absolute advantage, as it considers the ability of a country to produce more of a good or service than another country, regardless of the cost.

Question 29

Which of the following is a major factor influencing globalization?

Accepted Answer

Technological advancements, such as improvements in transportation, communication, and information technology, have facilitated the movement of goods, services, and capital across borders.

Answer

Cultural barriers, as differences in language, customs, and values can make it difficult for businesses to operate internationally.

Answer

Economic stagnation, as a lack of economic growth can hinder the ability of countries to engage in international trade and investment.

Answer

Political isolationism, as policies that restrict trade and investment can limit the benefits of globalization.

Question 30

What is the term for a country that has a deficit in its current account?

Accepted Answer

Borrowing country, as it implies that the country is importing more goods and services than it is exporting, and is therefore borrowing from abroad to finance this deficit.

Answer

Underdeveloped country, as this term is typically used to describe countries with low levels of economic development and industrialization.

Answer

Developed country, as this term is typically used to describe countries with high levels of economic development and industrialization.

Answer

Lending country, as it implies that the country is exporting more goods and services than it is importing, and is therefore lending to other countries.

Question 31

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

Accepted Answer

The exchange rate is determined by the forces of supply and demand in the foreign exchange market, without government intervention.

Answer

The exchange rate is pegged to a specific currency, such as the U.S. dollar, and fluctuates within a narrow range.

Answer

The exchange rate is fixed by the government at a predetermined level.

Answer

The exchange rate is adjusted regularly by the central bank to maintain a stable value.

Question 32

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

Accepted Answer

To promote free trade and reduce trade barriers by establishing and enforcing rules and regulations that govern international trade.

Answer

To resolve international trade disputes and mediate between countries.

Answer

To provide financial aid to developing countries and promote economic development.

Answer

To regulate the international monetary system and ensure the stability of currencies.

Question 33

Which of the following is NOT a major component of the balance of payments?

Accepted Answer

Gross National Product (GNP)

Answer

Capital account

Answer

Current account

Answer

Financial account

Question 34

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

Accepted Answer

Lower opportunity cost

Answer

More skilled labor

Answer

Higher demand

Answer

Higher revenue

Question 35

Globalization has led to which of the following economic impacts?

Accepted Answer

Increased global interdependence and economic growth

Answer

Reduced economic growth and increased inequality

Answer

Increased economic stability and reduced poverty

Answer

Decreased economic interdependence and trade

Question 36

Which international organization is primarily responsible for promoting international monetary cooperation and financial stability?

Accepted Answer

International Monetary Fund (IMF)

Answer

World Trade Organization (WTO)

Answer

World Bank

Answer

United Nations

Question 37

The main purpose of a trade deficit is to:

Accepted Answer

Facilitate the purchase of imports and outward investments

Answer

Increase domestic exports

Answer

Reduce overall economic growth

Answer

Control domestic inflation

Question 38

Which of the following is a characteristic commonly associated with developing countries?

Accepted Answer

Low per capita income

Answer

High level of industrialization

Answer

A strong and stable currency

Answer

Well-developed political systems

Question 39

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

Accepted Answer

Job displacement in the host country

Answer

Increased economic growth

Answer

Greater capital inflows

Answer

Technology transfer

Question 40

Which of the following is NOT a component of the balance of payments?

Accepted Answer

Gross Domestic Product (GDP)

Answer

Financial account

Answer

Capital account

Answer

Current account

Question 41

What type of exchange rate system involves pegging a country's currency to the value of another country's currency?

Accepted Answer

Fixed exchange rate system

Answer

Managed floating exchange rate system

Answer

Floating exchange rate system

Answer

Flexible exchange rate system

Question 42

What is the term for the process of reducing trade and investment barriers between countries?

Accepted Answer

Globalization

Answer

Isolationism

Answer

Protectionism

Answer

Mercantilism

Question 43

Which of the following is a potential benefit of globalization?

Accepted Answer

Increased economic growth

Answer

Decreased inequality

Answer

Environmental degradation

Question 44

What is the term for the difference between a country's exports and its imports?

Accepted Answer

Trade balance

Answer

Current account

Answer

Balance of payments

Answer

Capital account

Question 45

What is the term for government policies that restrict the import or export of goods and services?

Accepted Answer

Trade barriers

Answer

Trade liberalization

Answer

Globalization

Answer

Free trade

Question 46

What is the primary purpose of the balance of payments?

Accepted Answer

To track the flow of money between a country and the rest of the world

Answer

To calculate the budget deficit or surplus

Answer

To determine the inflation rate

Question 47

Which of the following is a benefit of globalization?

Accepted Answer

Increased competition

Answer

Higher unemployment

Answer

Reduced cultural diversity

Answer

Lower standards of living

Question 48

What is the term for a trade deficit where the value of imports exceeds the value of exports?

Accepted Answer

Negative balance of trade

Answer

Positive balance of trade

Answer

Trade surplus

Answer

Trade equilibrium

Question 49

What is the role of the International Monetary Fund (IMF)?

Accepted Answer

To provide financial assistance to countries facing balance of payments problems

Answer

To set interest rates

Answer

To regulate international trade

Question 50

What is the term for a barrier to trade that restricts the quantity of goods that can be imported or exported?

Accepted Answer

Quota

Answer

Sanction

Answer

Embargo

Answer

Tariff