Deck 30: Net Exports and International Finance

Question 1

A country has a comparative advantage if it can produce a good or service

A)at a higher opportunity cost than can other nations.
B)at a lower opportunity cost than can other nations.
C)by using less resources than other nations.
D)that lies outside its production possibilities curve.

Answer 1

B

Question 2

Comparative advantage in production of a good occurs

A)when a country can produce that good using fewer resources than could other countries.
B)when a country can produce that good at a greater opportunity cost than could other countries.
C)when a country can produce that good at a lower opportunity cost than could other countries.
D)when a country has a greater supply of natural resources required to produce that good, compared to other countries.

Answer 2

C

Question 3

Which of the following is an example of a tariff?

A)a limit on the total number of Hondas that can be imported from Japan.
B)a regulation specifying that each imported Honda must meet certain emission exhaust guidelines
C)a tax of $500 on each Honda imported from Japan
D)a tax of 10% of the value of each Honda purchased in Japan

Answer 3

C

Question 4

If each nation specializes and produces those goods in which it has a(n)_______ advantage
And trades with other countries, global production will be _______.

A)absolute; increased
B)comparative; reduced
C)money; increased
D)comparative; increased

Question 5

What is a quota?

A)a restriction on exports
B)a unit tax imposed on a product
C)a ceiling on the amount of a good or service that can be exported
D)a ceiling on the amount of a good or service that can be imported

Question 6

Which of the following statements is true about international trade?

A)In the long-run, trade not only reduces employment in some sectors but also reduces employment in the economy as a whole.
B)In the short-run, trade can reduces employment in some sectors and also in the economy as a whole.
C)Owners of factors of production used in industries in which a nation lacks a comparative advantage are more likely to gain from trade than those owners of resources used in industries in which a country has a comparative advantage.
D)Countries with relatively higher wage rates are more likely to be hurt by international trade.

Question 7

Suppose the U.S.imposes an import quota on lamb meat from New Zealand.Which of the following individuals is most likely to oppose this quota?

A)Iceland's lamb exporters
B)the U.S.lamb industry
C)buyers of lambs' wool
D)restaurants that specialize in lamb dishes

Question 8

Which of the following is not a trade barrier?

A)tariffs
B)quota
C)an embargo
D)a growing sentiment in favor of "buying local"

Question 9

Given that countries A and B each specialize in the production of one good and voluntarily
Trade it for the other country's good, then

A)only country A experiences positive gains from trade.
B)only country B experiences positive gains from trade.
C)both countries experience positive gains from trade.
D)both countries experience negative gains from trade.

Question 10

Which of the following statements is false?

A)Owners of factors of production used in industries in which a nation lacks a comparative advantage may be hurt by free trade.
B)Trade based on comparative advantage enables a country to produce outside its production possibilities curve.
C)Trade based on comparative advantage enables a country to consume outside its production possibilities curve.
D)Generally, trade between two countries tends to be mutually beneficial.

Question 11

What is a tariff?

A)a restriction on exports
B)a unit tax placed on a product
C)a ceiling on the amount of a good or service that can be exported
D)a ceiling on the amount of a good or service that can be imported

Question 12

How will a recession in Japan affect the Singapore's economy, given that Singapore is an
Important trading partner?

A)Singapore's net exports are likely to fall because Japan's recession will reduce Singapore's imports.
B)Singapore's net exports are likely to fall because Japan's recession will reduce Japan's imports.
C)Singapore's net exports are likely to rise because Japan's recession will discourage its other trading partners from buying Japanese purchase products.
D)Singapore's net exports are likely to rise because shortages in Japan due to its recession will discourage Singapore's exports to Japan.

Question 13

A tax imposed by a country on an imported good or service is called a

A)quota.
B)tariff.
C)non-tariff barrier.
D)trade embargo.

Question 14

International trade has the potential to

A)increase the availability of goods and services to those nations that export more than they import.
B)increase the availability of goods and services to those nations that have an absolute advantage in the production of a good or service.
C)increase the availability of goods and services to all nations.
D)decrease the availability of goods and services to all nations.

Question 15

Suppose economic agents are increasingly concerned about the stability of Thailand's banking system.What is likely to happen in the Thai currency market?

A)The demand for bahts (Thailand' currency)will decrease.
B)The supply of bahts will decrease.
C)Both the demand and supply of bahts will decrease.
D)Both the demand and supply of bahts will increase.

Question 16

Which of the following is an example of a quota?

A)limit on the total number of Hondas that can be imported from Japan
B)regulation specifying that each imported Honda must meet certain emission exhaust guidelines
C)tax of $500 on each Honda imported from Japan
D)tax of 10% of the value of each Honda imported from Japan

Question 17

A ceiling imposed by a country on the quantity of a good or service it will import is called a

A)quota.
B)tariff.
C)non-tariff barrier.
D)trade embargo.

Question 18

Which of the following is possible with international trade?
I.Countries that engage in trade can consume at a point outside their respective production
Possibilities curve.
II.Global production will be increased.
III.World resources will be used more efficiently.

A)I, II, and III
B)I and II only
C)I and III only
D)II and III only

Question 19

If compared to Akerji, Bunyan can produce palm oil by giving up less of an alternative good
Then, Bunyan has

A)a higher foreign-trade multiplier than Akerji.
B)a lower foreign-trade multiplier than Akerji.
C)an absolute advantage in palm oil production.
D)a comparative advantage in palm oil production.

Question 20

Which of the following statements is true about foreign demand for U.S.exports?

A)Lower costs of production in developing countries have led to falling demand for U.S.exports.
B)Although foreign demand for U.S.exports has generally been falling, it has grown in one area, namely, technology intensive products.
C)The demand for U.S.exports is almost as large as investment and government purchases component of aggregate demand.
D)Rising prices in the U.S.relative to prices in foreign countries have led to falling demand for U.S.exports.

Question 21

Between 1965 and 2007, world exports have

A)declined relative to world output.
B)increased, but at a slower rate than the growth of world output.
C)remained relatively constant despite growing world output.
D)increased at a faster rate than the growth of world output.

Question 22

Which of the following has contributed most to the significant increase in world trade since 1960?

A)removal of trade barriers
B)increase in world population
C)increases in income levels
D)increase in the quantity of natural resources

Question 23

If the U.S.exchange rate increases relative to currencies in other countries, then

A)imports and exports of the United States will both increase.
B)imports and exports of the United States will both decrease.
C)imports of the United States will decrease and exports of the United States will increase.
D)imports of the United States will increase and exports of the United States will decrease.

Question 24

Net exports equal

A)imports − exports.
B)domestic consumption − foreign consumption.
C)exports − imports.
D)foreign consumption − domestic consumption.

Question 25

A _______ price level in the United States will result in U.S.exports being _______
Expensive for foreign buyers.

A)lower; more
B)higher; more
C)higher; less
D)lower; no more or less

Question 26

If the price level in the United States decreases relative to prices in foreign countries, then

A)imports and exports of the United States will increase.
B)imports and exports of the United States will decrease.
C)imports of the United States will decrease and exports of the United States will increase.
D)imports of the United States will increase and exports of the United States will decrease.

Question 27

If income increases in other countries, then U.S.

A)imports will increase.
B)exports will increase.
C)imports will decrease.
D)exports will decrease.

Question 28

The purchase of U.S.goods and services by foreigners

A)requires the purchase of dollar-denominated bonds.
B)increases the demand for U.S.dollars.
C)increases the demand for foreign currencies.
D)requires the purchase of U.S.financial assets as collateral.

Question 29

As the incomes in foreign nations rise, their imports from the United States will

A)fall as they become less dependent on other countries.
B)rise.
C)not be affected.
D)rise and the U.S.dollar exchange rate will fall.

Question 30

The _______ relationship between the price level and _____ is one reason that the _______
Curve slopes downward.

A)positive; net exports; aggregate supply
B)negative; net exports; aggregate demand
C)positive; imports; aggregate supply
D)negative; imports; aggregate demand

Question 31

In the long run, international trade

A)affects the economy's natural level of employment.
B)affects the economy's real wage.
C)does not affect the natural level of employment or the real wage.
D)increases real wages because it increases a country's standard of living.

Question 32

In the United States since 1960

A)the export share of GDP has increased while the import share of GDP has not changed.
B)the import share of GDP has increased while the export share of GDP has not changed.
C)both the export share of GDP and the import share of GDP have increased.
D)both the export share of GDP and the import share of GDP have decreased.

Question 33

A lower price level in the United States _______ U.S.exports and _______ U.S.imports.

A)discourages; increases
B)encourages; reduces
C)discourages; reduces
D)encourages; increases

Question 34

If the U.S.exchange rate decreases relative to foreign currencies, then

A)imports and exports of the United States will both increase.
B)imports and exports of the United States will both decrease.
C)imports of the United States will decrease and exports of the United States will increase.
D)imports of the United States will increase and exports of the United States will decrease.

Question 35

Prosperity in the United States will

A)increase imports of the United States.
B)increase exports of the United States.
C)increase imports and exports of the United States.
D)eventually lead to prosperity in foreign countries too.

Question 36

A recession in foreign countries will

A)decrease imports of the United States.
B)decrease exports of the United States.
C)have no effect on the aggregate demand of the United States.
D)shift the aggregate supply curve of the United States.

Question 37

A recession in the United States will

A)increase imports and decrease exports of the United States.
B)decrease imports and decrease exports of the United States.
C)decrease imports of the United States but not affect exports of the United States.
D)decrease exports of the United States but not affect imports of the United States.

Question 38

If the price level in the United States increases relative to prices in foreign countries, then

A)imports and exports of the United States will increase.
B)imports and exports of the United States will decrease.
C)imports of the United States will decrease and exports of the United States will increase.
D)imports of the United States will increase and exports of the United States will decrease.

Question 39

Which of the following has contributed most to the significant increase in world trade since
1960?

A)increase in world population
B)advances in communication and transportation that have lowered transportation costs
C)increases in military spending in every nation
D)consumers' changing tastes and preferences

Question 40

An increase in the U.S.GDP will result in

A)an increase in exports of the United States.
B)an increase in imports of the United States.
C)an increase in the dollar exchange rate and a decrease in imports of the United States.
D)an increase in the dollar exchange rate and a rise in imports of the United States.

Question 41

An increase in net exports due to a change in the exchange rate will shift aggregate demand

A)left by the amount of the initial increase in net exports x the multiplier.
B)right by the amount of the initial increase in net exports.
C)left by the amount of the initial change in net exports x the multiplier.
D)right by the amount of the initial increase in net exports x the multiplier.

Question 42

Changes in net exports caused by changes in the domestic price

A)shift the aggregate demand curve in the same direction as the price change.
B)shift the aggregate demand curve in the opposite direction of the price change.
C)do not shift the aggregate demand curve.
D)will not affect aggregate demand.

Question 43

Suppose that a change in trade policies leads to a $20 billion increase in net exports.If the value of the multiplier is 2, what is the size of the shift in the aggregate demand after
The multiplier process works through the economy?

A)$40 billion
B)less than $20 billion
C)more than $40 billion
D)cannot be determined without information on the trade policies in question

Question 44

An increase in a country's exchange rate will

A)reduce its net exports.
B)increase its net exports.
C)reduce its imports and increase its exports.
D)leave its net exports unchanged.

Question 45

Suppose that a change in consumer preferences leads to a $50 billion decrease in net exports.
If the value of the multiplier is 3, what is the size of the shift in the aggregate demand after
The multiplier process works through the economy?

A)$150 billion
B)$100 billion
C)less than $50 billion
D)cannot be determined without information on exports

Question 46

Suppose the U.S.is a major importer of Japanese automobiles.All other things unchanged, a
Decrease in subsidies granted by the Japanese governments to its auto manufacturers will

A)increase U.S.net exports and shift the aggregate demand curve to the right.
B)decrease U.S.net exports and shift the aggregate demand curve to the right.
C)increase U.S.net exports and shift the short-run aggregate supply curve to the left.
D)decrease U.S.net exports and shift the short-run aggregate supply curve to the left.

Question 47

The international trade effect results in

A)a shift to the right in the aggregate demand curve.
B)a shift to the left in the aggregate demand curve.
C)a movement along the aggregate demand curve.
D)a shift in the aggregate demand curve equal to the change in net exports times the multiplier.

Question 48

An increase in the U.S.dollar exchange rate means foreigners must pay

A)more for dollars and more for U.S.exports.
B)less for dollars and more for U.S.imports.
C)more for dollars and less for U.S.exports.
D)less for dollars and less for U.S.exports.

Question 49

In the short run, a decrease in net exports causes

A)an increase in real GDP and the price level.
B)increase in real GDP and a decrease in the price level.
C)decrease in real GDP and an increase in the price level.
D)a decrease in real GDP and the price level.

Question 50

A reduction in net exports, all other things unchanged

A)results in a movement up along the aggregate demand curve.
B)reduces aggregate supply.
C)reduces aggregate demand.
D)does not change aggregate demand or aggregate supply in the domestic economy.

Question 51

All other things unchanged, what happens if the U.S.reduces its quota on sugar imports?

A)Net exports increases and shifts the short-run aggregate supply curve to the right.
B)Net exports decreases and shifts the short-run aggregate supply curve to the right.
C)Net exports increases and shifts the aggregate demand curve to the right.
D)Net exports decreases and shifts the aggregate demand curve to the left.

Question 52

Technological changes have changed production worldwide toward the application of
Computers to manufacturing processes.How does this affect countries that have a
Comparative advantage in the production of high-tech equipment, such as the United States?

A)U.S.high-tech equipment manufacturers will face increased competition.
B)U.S.exports will rise because of an increased demand for high-tech equipment.
C)In the U.S., the cost of producing high-tech equipment will rise because of greater demand.
D)U.S.imports will rise because the increased demand for high-tech equipment will require an increase in raw materials and other inputs.

Question 53

A higher exchange rate for the U.S.dollar means that a dollar buys

A)more foreign currency and more foreign goods and services.
B)less foreign currency and fewer goods and services.
C)more foreign currency, and that U.S.exports will rise.
D)less foreign currency and more foreign goods and services.

Question 54

All other things unchanged, an increase in the value of the dollar against the euro

A)increases U.S.net exports and shifts the investment demand curve to the right.
B)decreases U.S.net exports and shifts the investment demand curve to the left.
C)increases U.S.net exports and shifts the aggregate demand curve to the right.
D)decreases U.S.net exports and shifts the aggregate demand curve to the left.

Question 55

The government of France, claiming a threat to its cultural heritage, has restricted the showing of films produced in the United States.French radio stations are fined if more than 40% of the music they play is from "foreign" rock groups.These restrictions

A)are essentially barriers to trade.
B)cannot be considered trade barriers; rather they are essential for culture preservation.
C)are necessary for economic growth because they promote employment in the French film and music industries.
D)are necessary if the French film and music industries are to acquire a comparative advantage in the future.

Question 56

In the short run, an increase in net exports causes

A)an increase in real GDP and the price level.
B)an increase in real GDP and a decrease in the price level.
C)adecrease in real GDP and an increase in the price level.
D)a decrease in real GDP and the price level.

Question 57

All other things unchanged, a recession in Japan

A)increases U.S.net exports and shifts the U.S.aggregate demand curve to the right.
B)decreases U.S.net exports and shifts the U.S.aggregate demand curve to the right.
C)increases U.S.net exports and shifts the U.S.aggregate demand curve to the left.
D)decreases U.S.net exports and shifts the U.S.aggregate demand curve to the left.

Question 58

An increase in net exports, all other things unchanged

A)results in a movement downward along the aggregate demand curve.
B)increases aggregate demand.
C)increases aggregate supply.
D)does not change aggregate demand or aggregate supply in the domestic economy.

Question 59

All of the following are determinants of net exports except

A)domestic and foreign incomes.
B)relative price levels.
C)domestic and foreign trade policies.
D)producers' expectations about future prices.

Question 60

All other things unchanged, an decrease in the value of the dollar against the euro

A)increases U.S.net exports and shifts the investment demand curve to the right.
B)decreases U.S.net exports and shifts the investment demand curve to the right.
C)increases U.S.net exports and shifts the aggregate demand curve to the right.
D)decreases U.S.net exports and shifts the aggregate demand curve to the left.

Question 61

Which of the following affects the quantity of U.S.dollars demanded in the currency market?

A)U.S.purchases of foreign goods and services
B)payments to foreign owners of U.S.assets
C)transfer payments from foreign individuals, firms, or governments to U.S.residents
D)domestic purchases of U.S.goods and services

Question 62

Which of the following affects the quantity of U.S.dollars demanded in the currency market?

A)foreign purchases of U.S.goods and services
B)payments to foreign owners of U.S.assets
C)domestic purchases of U.S.goods and services
D)U.S.purchases of foreign assets

Question 63

The U.S.and Canada are major trading partners.Suppose the Canadian dollar rises sharply in
Value against the U.S.dollar.At the same time, strong income growth in the U.S.increased the
Demand for Canadian exports.What happens to Canada's net exports as a result of these two
Events?

A)Net exports must necessarily rise.
B)Net exports must necessarily fall.
C)Net exports will remain constant.
D)The effect on net exports is indeterminate.

Question 64

Which of the following generates a supply of U.S.dollars in the currency market?

A)Japanese tourists shop in Barney's of New York.
B)A Japanese businesswoman sells her U.S.government bonds.
C)An American citizen buys Japanese Yen for her trip to Japan.
D)An American firm exports Sonoma wines to Japan.

Question 65

Figure 15-1

Refer to Figure 15-1.Which of the following is true of the equilibrium quantity, Q₁?

A)It represents the quantity of U.S.dollars demanded by foreigners who purchase U.S.goods and services and U.S.assets.
B)It represents the quantity of U.S.dollars supplied by the Federal Reserve.
C)It represents the quantity of U.S.dollars supplied and demanded by foreign nationals.
D)It represents the total amount foreigners spent in the United States during a given perios

Question 66

Figure 15-1

Refer to Figure 15-1.An increase in purchases of U.S.goods and services by foreigners
Would shift the

A)supply of dollars curve to the right
B)demand for dollars curve to the right
C)supply of dollars curve to the left
D)demand for dollars curve to the left

Question 67

Which of the following is not an example of an international transfer payment?

A)Myrna, a U.S.citizen, remits a gift of $300 to her aunt in Albania.
B)The U.S.government has pledged $100 million in foreign aid to Ethiopia.
C)The Melinda and Bill gates Foundation make a donation of $50 million dollars to an orphanage in Lithuania.
D)The Red Cross purchases $50 million dollars of equipment for its operations abroad.

Question 68

International finance is the study of economics that deals with

A)the balance of trade
B)the macroeconomic consequences of financial flows associated with international trade.
C)international investment opportunities for American multinational corporations.
D)the relationships among world currency dealers.

Question 69

Which of the following affects the quantity of U.S.dollars supplied in the currency market?

A)foreign purchases of U.S.goods and services
B)payments to U.S.owners of foreign assets
C)domestic purchases of U.S.goods and services
D)U.S.purchases of foreign assets

Question 70

Figure 15-1

Refer to Figure 15-1.The supply curve of dollars in the foreign exchange market represents
I.U.S.purchases of imported goods and services.
II.payments to foreign owners of U.S.assets.
III.demand for U.S.Treasury bonds by U.S.residents.
IV.foreigners' purchases of U.S.assets.

A)I and II.
B)I, II and III
C)I, II and IV.
D)I, II, III and IV.

Question 71

Figure 15-1

Refer to Figure 15-1.The demand curve of dollars represents
I.U.S.purchases of imported goods and services.
II.payments to U.S.owners of foreign assets.
III.demand for U.S.Treasury bonds by U.S.residents.
IV.foreigners' purchases of U.S.assets.

A)I, II and IV.
B)II and IV
C)II and IV
D)I, II, III and IV.

Question 72

The textbook analysis of international finance makes some simplifying assumptions.What are they?
I.International transfer payments are ignored because they account for a relatively small portion of international transactions.
II.International transfer payments are ignored because they account for a relatively small portion of international transactions but inter-government transfer payments, such as foreign aid, are included.
III.Payments to foreign owners of factors of production used in the domestic country are treated as imports and payments received by domestic owners of factors of production used in foreign countries are treated as exports.
IV.Payments to foreign owners of factors of production used in the domestic country are treated as foreign purchases of domestic assets, and payments received by domestic owners of factors of production used in foreign countries are treated as domestic purchases of foreign assets.

A)I, II and III.
B)I, II and IV.
C)I and III.
D)II and III.

Question 73

The U.S.and Canada are major trading partners.Suppose the Canadian dollar rises sharply in
Value against the U.S.dollar.At the same time, strong income growth in the U.S.increased the
Demand for Canadian exports.What happens to Canada's net exports if the effect of Canadian dollar appreciation dominates that of strong income growth in the U.S.?

A)Net exports must necessarily rise.
B)Net exports must necessarily fall.
C)Net exports will remain constant.
D)The effect on net exports is indeterminate.

Question 74

Which of the following generates a demand for U.S.dollars in the currency market?

A)Japanese tourists shop in Barney's of New York
B)A Japanese businesswoman sells her U.S.government bonds.
C)An American citizen buys Japanese Yen for her trip to Japan.
D)A restaurant in Kansas imports Kobe beef from Japan.

Question 75

The balance between spending flows into a country and spending flows out of that country is
Called a country's

A)current account.
B)capital account.
C)foreign exchange.
D)balance of payments.

Question 76

Figure 15-1

Refer to Figure 15-1.The equilibrium quantity, Q₁ represents

A)the quantity of U.S.dollars supplied by the Federal Reserve in foreign markets.
B)the quantity of U.S.dollars supplied and demanded by foreign nationals.
C)It represents the quantity of U.S.dollars supplied by U.S.importers and U.S.nationals who purchased foreign assets.
D)It represents the total amount foreigners spent in the United States during a given period.

Question 77

The U.S.and Canada are major trading partners.Suppose the Canadian dollar rises sharply in
Value against the U.S.dollar.At the same time, strong income growth in the U.S.increased the
Demand for Canadian exports.What happens to Canada's net exports if strong income growth in the U.S.has a stronger effect than that of the Canadian dollar appreciation?

A)Net exports must necessarily rise.
B)Net exports must necessarily fall.
C)Net exports will remain constant.
D)The effect on net exports is indeterminate.

Question 78

In general, exchange rates

A)are determined by the planning agencies of governments.
B)are determined by demand and supply.
C)adjust slowly to equilibrium.
D)are determined by central banks.

Question 79

Figure 15-1

Refer to Figure 15-1.An increase in U.S.imports would shift the

A)supply of dollars curve to the right
B)demand for dollars curve to the right
C)supply of dollars curve to the left
D)demand for dollars curve to the left

Question 80

Which of the following affects the quantity of U.S.dollars supplied in the currency market?

A)U.S.purchases of foreign goods and services
B)payments to U.S.owners of foreign assets
C)domestic purchases of U.S.goods and services
D)foreign purchases of U.S.assets