Introduction to International Economics: Master the Fundamentals

Question 1

Which of the following is NOT a component of the Balance of Payments?

Accepted Answer

Official foreign exchange reserves

Answer

Current account

Answer

Capital account

Answer

Financial account

Question 2

In a floating exchange rate system, what primarily determines the value of a currency?

Accepted Answer

Supply and demand forces

Answer

Government intervention

Answer

Interest rates

Answer

Inflation

Question 3

According to the Heckscher-Ohlin theory, countries generally export goods that:

Accepted Answer

Utilize factors of production they possess in abundance

Answer

Utilize factors of production they lack

Answer

Involve advanced technological processes

Answer

Are protected by high tariffs

Question 4

What is the main objective of imposing a tariff?

Accepted Answer

Protect domestic industries from foreign competition

Answer

Generate revenue for the government

Answer

Stimulate exports

Answer

Stabilize exchange rates

Question 5

What term describes the exchange of goods and services across borders?

Accepted Answer

International trade

Answer

Globalization

Answer

Foreign direct investment

Answer

Balance of payments

Question 6

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

Accepted Answer

Promote free and fair trade

Answer

Set global tariffs

Answer

Provide financial aid to developing countries

Answer

Regulate international investment

Question 7

A key component of the balance of payments is the:

Accepted Answer

Current account

Answer

Capital account

Answer

Financial account

Answer

Exports of goods and services

Question 8

The relationship between the exchange rate and the demand for imports is typically:

Accepted Answer

Negative

Answer

Positive

Answer

Non-existent

Answer

Uncertain

Question 9

According to the Heckscher-Ohlin model, countries should export goods that use their:

Accepted Answer

Abundant factors of production

Answer

Scarce factors of production

Answer

Technological advantages

Answer

Government subsidies

Question 10

The primary goal of the International Monetary Fund (IMF) is to:

Accepted Answer

Promote international economic cooperation

Answer

Provide loans to developed countries

Answer

Regulate international trade

Answer

Control global inflation

Question 11

The theory of comparative advantage suggests that countries should specialize in and export goods where they have:

Accepted Answer

A comparative advantage

Answer

The highest production costs

Answer

The most advanced technology

Answer

Government subsidies

Question 12

The primary mission of the World Bank is to:

Accepted Answer

Promote economic development in developing countries

Answer

Manage global financial crises

Answer

Enforce international economic sanctions

Answer

Regulate international trade

Question 13

Which exchange rate regime allows the value of the currency to be determined solely by market forces?

Accepted Answer

Floating exchange rate

Answer

Fixed exchange rate

Answer

Managed float

Answer

Adjustable peg

Question 14

The primary purpose of an export subsidy is to:

Accepted Answer

Increase exports.

Answer

Increase domestic production.

Answer

Lower domestic prices.

Answer

Reduce imports.

Question 15

Which of the following is **not** a primary component of the balance of payments?

Accepted Answer

Gross domestic product

Answer

Current account

Answer

Capital account

Answer

Financial account

Question 16

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

Accepted Answer

The exchange rate is determined by market forces of supply and demand

Answer

The government intervenes to maintain a fixed exchange rate

Answer

The exchange rate is pegged to a specific currency, such as the US dollar

Answer

The exchange rate is determined by a supranational organization, such as the IMF

Question 17

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

Accepted Answer

Trade account

Answer

Current account

Answer

Capital account

Answer

Financial account

Question 18

A country with a current account deficit is:

Accepted Answer

Importing more goods and services than it exports

Answer

Exporting more goods and services than it imports

Answer

In financial crisis

Answer

Experiencing economic growth

Question 19

Which of the following precisely measures the monetary value of goods, services, and investment income exchanged between a country and the rest of the world?

Accepted Answer

Balance of payments

Answer

Gross domestic product

Answer

Consumer price index

Answer

Purchasing power parity

Question 20

According to the concept of absolute advantage, countries should:

Accepted Answer

Specialize in producing goods where they have the lowest opportunity cost

Answer

Produce all goods domestically to avoid dependence on foreign markets

Answer

Protect domestic industries from foreign competition

Answer

Maximize their exports regardless of the cost

Question 21

Which of the following is not a category of international financial transactions?

Accepted Answer

Tourism

Answer

Foreign direct investment

Answer

Portfolio investment

Answer

Remittances

Question 22

The appreciation of a country's currency will typically cause which of the following effects on its exports?

Accepted Answer

Decrease in exports

Answer

Increase in exports

Answer

No change in exports

Answer

Unpredictable change in exports

Question 23

The primary goal of macroeconomic policies, such as monetary and fiscal policy, is to:

Accepted Answer

Stabilize the economy while promoting economic growth

Answer

Maximize government revenue

Answer

Control inflation exclusively

Answer

Reduce unemployment exclusively

Question 24

Which of the following is not a component of the current account in the balance of payments?

Accepted Answer

Capital inflows

Answer

Merchandise trade

Answer

Service trade

Answer

Income receipts

Question 25

The International Monetary Fund (IMF) is an international organization that:

Accepted Answer

Promotes international monetary cooperation and financial stability

Answer

Provides military assistance to developing countries

Answer

Negotiates trade agreements

Answer

Distributes humanitarian aid

Question 26

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

Accepted Answer

Current Account

Answer

Capital Account

Answer

Financial Account

Answer

Reserve Account

Question 27

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

Accepted Answer

In which they have a comparative advantage

Answer

In which they have an absolute advantage

Answer

In which their production costs are the lowest

Answer

For which there is the highest demand

Question 28

Which international financial institution provides loans and assistance to developing countries?

Accepted Answer

World Bank

Answer

International Monetary Fund

Answer

World Trade Organization

Answer

Bank for International Settlements

Question 29

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

Accepted Answer

Provide financial support during economic crises

Answer

Regulate international trade

Answer

Foster economic development

Answer

Resolve disputes between member countries

Question 30

Assess the effectiveness of the World Trade Organization (WTO) in resolving trade disputes among nations.

Accepted Answer

The WTO is most effective when disputes involve clear violations of trade regulations.

Answer

The WTO is highly effective in resolving all trade disputes.

Answer

The WTO is ineffective and should be replaced by bilateral agreements.

Answer

The WTO lacks enforcement mechanisms and relies solely on negotiation.

Question 31

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

Accepted Answer

Current account

Answer

Government spending

Answer

Gross domestic product (GDP)

Question 32

What is the primary force driving the determination of exchange rates?

Accepted Answer

Supply and demand for currencies in the foreign exchange market

Answer

Government regulations

Answer

Inflation rate differentials between countries

Answer

Interest rate differentials between countries

Question 33

Which of the following is NOT a potential benefit of international trade?

Accepted Answer

Increased domestic competition

Answer

Lower prices for consumers

Answer

Economic growth

Answer

Access to a wider range of goods and services

Question 34

What is the fundamental objective of the International Monetary Fund (IMF)?

Accepted Answer

To foster international monetary cooperation

Answer

To provide financial assistance to developing countries

Answer

To regulate global trade

Question 35

Which of the following is a key principle of the theory of comparative advantage?

Accepted Answer

Countries should specialize in producing and exporting goods and services that they can produce most efficiently relative to other countries

Answer

Countries should aim to achieve a balanced trade with all other countries

Answer

Countries should focus on producing only goods and services that they have an absolute advantage in producing

Answer

Countries should protect their domestic industries from foreign competition

Question 36

What is the impact of a depreciation of the domestic currency on the competitiveness of a country's exports?

Accepted Answer

Increased competitiveness

Answer

Decreased competitiveness

Answer

No change in competitiveness

Question 37

Which of the following is NOT an example of a non-tariff barrier to trade?

Accepted Answer

Tariffs

Answer

Quotas

Answer

Subsidies

Answer

Technical regulations

Question 38

What is the overarching objective of the World Trade Organization (WTO)?

Accepted Answer

To promote free and fair trade

Answer

To provide economic aid to developing countries

Answer

To set global exchange rates

Answer

To regulate international monetary systems

Question 39

What is the central tenet of the purchasing power parity (PPP) theory?

Accepted Answer

Exchange rates should adjust to equalize the purchasing power of currencies across countries

Answer

Exchange rates should be determined by the relative sizes of economies

Answer

Exchange rates should reflect the relative inflation rates of countries

Question 40

Which component of the balance of payments records transactions related to the buying and selling of goods and services?

Accepted Answer

Current account

Answer

Errors and omissions account

Answer

Capital account

Answer

Financial account

Question 41

According to the Heckscher-Ohlin theory, countries tend to specialize in producing and exporting goods that:

Accepted Answer

Intensively use their relatively abundant factors of production.

Answer

Intensively use their relatively scarce factors of production.

Answer

Are in high demand globally.

Answer

Have a comparative disadvantage in production.

Question 42

One of the key benefits of Foreign Direct Investment (FDI) is:

Accepted Answer

Increased capital flows to the recipient country.

Answer

Guaranteed economic growth for the recipient country.

Answer

Reduced government intervention in the economy.

Answer

Elimination of all trade barriers.

Question 43

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

Accepted Answer

Promote free and fair trade among its member countries.

Answer

Regulate international financial markets.

Answer

Control global currency exchange rates.

Answer

Provide humanitarian aid to developing countries.

Question 44

Which of these measures is commonly used to assess a country's openness to international trade?

Accepted Answer

Trade-to-GDP ratio

Answer

Balance of trade

Answer

Inflation rate

Answer

Exchange rate

Question 45

What is the key difference between currency appreciation and depreciation?

Accepted Answer

Appreciation increases the value of a currency compared to others, while depreciation decreases its value.

Answer

Appreciation decreases the value of a currency compared to others, while depreciation increases its value.

Question 46

What is the fundamental relationship between the current account and the financial account in the balance of payments?

Accepted Answer

They must always sum to zero.

Answer

They are completely independent of each other.

Answer

They must always be equal to each other.

Question 47

One of the potential economic consequences of international sanctions is:

Accepted Answer

Reduced economic growth in the targeted country.

Answer

Increased foreign investment in the targeted country.

Answer

No significant economic impact on the targeted country.

Answer

Improved living standards in the targeted country.

Question 48

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

Accepted Answer

Current Account

Answer

Capital Account

Answer

Statistical Discrepancy Account

Answer

Financial Account

Question 49

What is the anticipated effect of a depreciation of the domestic currency on exports from that country?

Accepted Answer

Exports become cheaper for foreign buyers.

Answer

Exports become more expensive for foreign buyers.

Answer

Exports decrease in quality.

Answer

Exports remain unchanged.

Question 50

Which of the following is a key assumption of the Heckscher-Ohlin model of international trade?

Accepted Answer

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

Answer

Countries have identical production functions.

Answer

Consumers have identical preferences.

Answer

There are no trade costs.

Question 51

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

Accepted Answer

To provide financial assistance and policy advice to member countries facing balance of payments difficulties.

Answer

To regulate international trade.

Answer

To set exchange rates.

Question 52

Which of the following is a potential benefit of globalization?

Accepted Answer

Increased economic growth and innovation.

Answer

Enhanced environmental protection.

Answer

Increased cultural diversity.

Answer

Reduced inequality.

Question 53

What is a primary purpose of a tariff?

Accepted Answer

To protect domestic industries from foreign competition and increase government revenue.

Answer

To reduce trade deficits.

Answer

To stabilize the exchange rate.

Answer

To promote economic growth.

Question 54

Which of the following factors is a major determinant of a country's trade balance?

Accepted Answer

Domestic demand relative to domestic production.

Answer

Government spending.

Answer

Interest rates.

Answer

Exchange rates.

Question 55

How does a fixed exchange rate regime differ from a floating exchange rate regime?

Accepted Answer

In a fixed exchange rate regime, the central bank intervenes to maintain a fixed exchange rate, while in a floating exchange rate regime, the exchange rate is determined by market forces.

Answer

In a fixed exchange rate regime, the exchange rate is pegged to a single currency, while in a floating exchange rate regime, the exchange rate can fluctuate against all currencies.

Question 56

Which of the following is a potential cost of foreign direct investment (FDI) by multinational corporations (MNCs)?

Accepted Answer

Job losses in the host country due to outsourcing.

Answer

Reduced environmental regulations in the host country.

Answer

Increased economic growth in the host country.

Answer

Improved access to new technologies in the host country.

Question 57

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

Accepted Answer

To promote free trade and reduce trade barriers among member countries.

Answer

To set exchange rates.

Answer

To regulate international investment.

Answer

To provide financial assistance to developing countries.