Introduction to International Economics: Quizzes and Practice Questions

Question 1

According to the Heckscher-Ohlin model, countries tend to export products that require:

Accepted Answer

Their abundant and inexpensive factors of production

Answer

Their scarce and expensive factors of production

Answer

Factors of production that are not used in domestic production

Answer

Factors of production that are equally abundant in all countries

Question 2

The International Monetary Fund (IMF) has multiple primary goals. Which of the following is NOT one of them?

Accepted Answer

Promote economic growth and development

Answer

Promote international monetary cooperation

Answer

Facilitate international trade and payments

Answer

Provide loans and financial assistance to member countries

Question 3

In international trade, how does comparative advantage contribute to economic benefits for participating countries?

Accepted Answer

It enables specialization, leading to enhanced production efficiency.

Answer

It ensures equitable distribution of resources among nations.

Answer

It eliminates competition in global markets.

Answer

It minimizes the necessity for international trade.

Question 4

How do exchange rates influence the flow of goods and services between countries?

Accepted Answer

Exchange rates determine the relative prices of goods and services across countries, affecting the competitiveness of exports and the attractiveness of imports.

Answer

Exchange rates have no impact on international trade as goods and services are priced in local currencies.

Answer

Exchange rates only affect the value of financial assets traded in international markets.

Answer

Exchange rates are determined solely by the supply and demand for currencies in the foreign exchange market.

Question 5

What is a potential risk of international trade for developing countries?

Accepted Answer

Increased reliance on foreign markets

Answer

Increased consumer choice

Answer

Job creation

Question 6

What is the term for the monetary value of a country's exports exceeding the value of its imports?

Accepted Answer

Trade surplus

Answer

Trade deficit

Answer

Balance of trade

Answer

Net exports

Question 7

Which theory of international trade suggests that countries should specialize in producing and exporting goods for which they have a lower opportunity cost of production?

Accepted Answer

Comparative advantage

Answer

Mercantilism

Answer

Absolute advantage

Answer

Neoclassical trade theory

Question 8

What is the term for a country that consistently experiences a trade deficit?

Accepted Answer

Trade deficit country

Answer

Trade surplus country

Answer

Debtor country

Answer

Creditor country

Question 9

What is the term for an economic bloc where member countries have eliminated trade barriers among themselves?

Accepted Answer

Free trade area

Answer

Customs union

Answer

Common market

Answer

Economic union

Question 10

How does the global economy in the 21st century differ from earlier economic eras?

Accepted Answer

Rapid technological advancements

Accepted Answer

Growth of multinational corporations

Accepted Answer

Increased global competition

Answer

Stable economic growth

Question 11

Which of the following is NOT a primary reason countries participate in international trade?

Accepted Answer

To settle political conflicts

Answer

To obtain goods and services not available domestically

Answer

To take advantage of variations in factor endowments

Answer

To increase economic efficiency

Question 12

A trade deficit occurs when:

Accepted Answer

Imports exceed exports

Answer

Exports exceed imports

Answer

The current account is in surplus

Answer

The capital account is in deficit

Question 13

The elasticity of demand for a product measures:

Accepted Answer

The responsiveness of quantity demanded to a change in price

Answer

The responsiveness of price to a change in quantity demanded

Answer

The total revenue generated from selling a good

Answer

The marginal cost of producing a good

Question 14

Which component of the balance of payments encompasses transactions involving the sale and purchase of goods and services?

Accepted Answer

Current account

Answer

Capital account

Answer

Financial account

Answer

Reserve account

Question 15

Which of the following constitutes a fundamental assumption of the Heckscher-Ohlin model?

Accepted Answer

Factors of production are mobile within countries but immobile between countries.

Answer

Factors of production are immobile within countries but mobile between countries.

Answer

Factors of production are both mobile within and between countries.

Answer

Factors of production are neither mobile within nor between countries.

Question 16

A country with a comparative advantage in producing a particular good will:

Accepted Answer

Produce that good at a lower opportunity cost than other countries.

Answer

Produce that good at a higher opportunity cost than other countries.

Answer

Be unable to produce that good efficiently.

Answer

Have no need to import that good.

Question 17

Tariffs and quotas are examples of:

Accepted Answer

Protectionist policies

Answer

Free trade policies

Answer

Monetary policies

Answer

Fiscal policies

Question 18

Which component of the balance of payments records transactions that involve the purchase and sale of goods and services?

Accepted Answer

Current account

Answer

Reserve account

Answer

Financial account

Answer

Capital account

Question 19

The most significant factor determining the value of a currency is:

Accepted Answer

Demand and supply

Answer

Government intervention

Answer

Central bank policy

Answer

Interest rates

Question 20

Which theory emphasizes the importance of comparative advantages in international trade?

Accepted Answer

Ricardo's theory of comparative advantage

Answer

Heckscher-Ohlin model

Answer

New trade theory

Answer

Mercantilist theory

Question 21

The effect of a devaluation on the exchange rate is a(n):

Accepted Answer

Decrease in value of domestic currency

Answer

Increase in foreign currency

Answer

Increase in value of domestic currency

Answer

No change in exchange rate

Question 22

Which of the following is not a barrier to international trade?

Accepted Answer

Improved transportation and communication

Answer

Quotas

Answer

Subsidies

Answer

Tariffs

Question 23

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

Accepted Answer

Facilitate international trade through agreements and dispute resolution

Answer

Provide aid to developing countries

Answer

Regulate financial markets

Question 24

One of the main impacts of globalization on domestic industries is:

Accepted Answer

Increased competition and specialization

Answer

Higher prices for consumers

Answer

Reduced innovation

Answer

Reduced job opportunities

Question 25

A floating exchange rate system is characterized by:

Accepted Answer

Exchange rate is determined by market forces

Answer

Exchange rate is pegged to another currency

Answer

Exchange rate is fixed by the government

Answer

Exchange rate is only adjusted in response to large imbalances

Question 26

The International Monetary Fund (IMF) is primarily responsible for:

Accepted Answer

Promoting international monetary cooperation and financial stability

Answer

Providing political asylum to refugees

Answer

Negotiating trade agreements

Question 27

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

Accepted Answer

Gross Domestic Product

Answer

Financial account

Answer

Capital account

Answer

Current account

Question 28

What is a key assumption of the Heckscher-Ohlin theory of international trade?

Accepted Answer

Countries differ in their factor endowments

Answer

There are no trade barriers

Answer

All countries have identical production technologies

Answer

Transportation costs are insignificant

Question 29

According to the specific factors model of trade, which industries is a capital-rich country likely to specialize in?

Accepted Answer

Capital-intensive industries

Answer

Both capital-intensive and labor-intensive industries

Answer

Labor-intensive industries

Answer

Neither capital-intensive nor labor-intensive industries

Question 30

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

Accepted Answer

Increased economic growth

Answer

Increased job losses

Answer

Increased social inequality

Answer

Environmental degradation

Question 31

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

Accepted Answer

Facilitate negotiations and resolve trade disputes between member countries

Answer

Impose tariffs and quotas on international trade

Answer

Provide financial aid to developing countries

Question 32

Which of the following represents a significant barrier to international trade?

Accepted Answer

Trade restrictions

Answer

Economic growth

Answer

Globalization

Answer

Free trade agreements

Question 33

The concept of 'comparative advantage' in international trade suggests that:

Accepted Answer

A country should specialize in producing goods where it has a lower opportunity cost than other countries

Answer

A country must trade with all other countries

Answer

A country must produce more goods than it consumes

Question 34

What is a primary benefit of economic integration?

Accepted Answer

Elimination of trade barriers among member countries

Answer

Loss of sovereignty for member countries

Answer

Increased competition within member countries

Question 35

Which of the following is an example of a free trade area?

Accepted Answer

North American Free Trade Agreement (NAFTA)

Answer

Common Market of the South (MERCOSUR)

Answer

European Union (EU)

Answer

Association of Southeast Asian Nations (ASEAN)

Question 36

Which component of the balance of payments records the value of goods and services exported and imported?

Accepted Answer

Current Account

Answer

Capital Account

Answer

Financial Account

Question 37

What is the purpose of a fixed exchange rate system?

Accepted Answer

To maintain a stable value of a country's currency relative to another currency or a basket of currencies.

Answer

To allow the value of a currency to fluctuate freely based on market forces.

Answer

To promote international trade by reducing exchange rate uncertainty.

Question 38

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

Accepted Answer

Increased economic efficiency and consumer choice.

Answer

Reduced environmental sustainability

Answer

Increased unemployment

Answer

Reduced cultural diversity

Question 39

What is the key difference between a tariff and a quota?

Accepted Answer

A tariff is a tax on imported goods, while a quota is a quantitative restriction on the amount of goods that can be imported.

Answer

Both a tariff and a quota are quantitative restrictions on imported goods.

Answer

Both a tariff and a quota are taxes on imported goods.

Question 40

Which of the following is a potential negative consequence of international trade?

Accepted Answer

Job losses in specific sectors of the economy in some countries.

Answer

Increased economic growth

Answer

Reduced inflation

Answer

Improved living standards for consumers

Question 41

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

Accepted Answer

To promote free trade and resolve trade disputes among member countries.

Answer

To regulate the international monetary system.

Answer

To provide financial assistance to developing countries.

Question 42

What is the concept of comparative advantage?

Accepted Answer

A country should specialize in producing and exporting goods where it has the lowest opportunity cost compared to other countries.

Answer

A country should specialize in producing goods that it can produce in the greatest quantity.

Question 43

Which of the following is a key factor affecting the demand for imports?

Accepted Answer

Domestic income

Answer

Interest rates

Answer

Government spending

Question 44

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

Accepted Answer

Current account

Answer

National debt

Answer

Government budget

Answer

Consumer price index

Question 45

What is the term for the value of one currency expressed in terms of another currency?

Accepted Answer

Exchange rate

Answer

Purchasing power parity

Answer

Balance of trade

Question 46

According to which international trade theory should countries specialize in producing and exporting goods where they have a lower opportunity cost?

Accepted Answer

Theory of Comparative Advantage

Answer

Monetarism

Answer

Keynesianism

Answer

Mercantilism

Question 47

What is the primary function of the International Monetary Fund (IMF)?

Accepted Answer

To provide financial aid to countries facing balance of payments challenges

Answer

To promote economic development

Answer

To establish global trade regulations

Answer

To manage global reserve currencies

Question 48

What is the term for the exchange of physical goods and services across borders?

Accepted Answer

International trade

Answer

Foreign direct investment

Answer

Globalization

Answer

Balance of payments

Question 49

The balance of payments records all economic transactions between a country's residents and the rest of the world. Which of the following transactions is **NOT** included in the balance of payments?

Accepted Answer

Government spending on domestic infrastructure projects

Answer

Imports of goods and services

Answer

Exports of goods and services

Question 50

If a country's currency appreciates, what is the likely effect on its exports?

Accepted Answer

Exports become more expensive for foreign buyers, potentially decreasing demand.

Answer

Exports become cheaper for foreign buyers, increasing demand.

Answer

Exports remain unaffected as price changes are offset by other factors.

Question 51

The theory of comparative advantage suggests that countries should specialize in producing and exporting goods where they have a lower opportunity cost. Which of the following statements accurately reflects the concept of comparative advantage?

Accepted Answer

Countries can benefit from trade even if they are more efficient in producing all goods.

Answer

Countries should only trade with nations that have absolute advantages in production.

Answer

Comparative advantage is based solely on the absolute cost of production.

Question 52

Which of the following is **NOT** a potential barrier to international trade?

Accepted Answer

Increased consumer demand for imported goods

Answer

Quotas limiting the quantity of imported goods

Answer

Non-tariff barriers like product standards and regulations

Answer

Tariffs imposed by importing countries

Question 53

The International Monetary Fund (IMF) plays a significant role in the global economy. Which of the following is a primary function of the IMF?

Accepted Answer

Providing loans to countries experiencing balance of payments difficulties

Answer

Setting exchange rates for all member countries

Answer

Regulating international trade agreements

Question 54

A floating exchange rate system allows the value of a currency to fluctuate freely based on market forces. Which of the following is a potential advantage of a floating exchange rate system?

Accepted Answer

Greater flexibility to respond to changing economic conditions

Answer

Reduced volatility in currency values, providing stability for businesses

Answer

Simplified management of exchange rates for governments

Question 55

Which of the following scenarios would likely lead to a depreciation of a country's currency?

Accepted Answer

A decrease in interest rates, making investments less attractive to foreign investors

Answer

A strong economic growth outlook, attracting foreign investment

Answer

A surge in exports, increasing demand for the domestic currency

Question 56

The 'terms of trade' refers to the ratio of:

Accepted Answer

A country's export prices to its import prices

Answer

The difference between a country's exports and imports

Answer

The total value of a country's trade with its major trading partners

Answer

The value of a country's exports to its imports

Question 57

Protectionist policies aim to restrict international trade to protect domestic industries. Which of the following is **NOT** a typical protectionist measure?

Accepted Answer

Promoting free trade agreements with other countries

Answer

Imposing tariffs on imported goods

Answer

Implementing quotas on imported goods

Question 58

The World Trade Organization (WTO) plays a crucial role in regulating international trade. Which of the following is a key objective of the WTO?

Accepted Answer

Reducing trade barriers and promoting free trade among member countries

Answer

Providing loans to countries facing economic difficulties

Answer

Setting exchange rates for all member countries