CEE

International Test

For each of the following questions, select the choice that BEST corresponds with the answer. You will receive 10 points for each correct answer; 5 points will be deducted for each incorrect answer. Points will be neither awarded or taken away if you do not attempt to answer a question.

1. According to the principle of comparative advantage, worldwide output and consumption levels will be highest when goods are produced in nations where which of the following is true?

	Opportunity costs are lowest.
	Absolute advantages are highest.
	The balance of trade is in a surplus position.
	The exchange rate is falling.
	The exchange rate is rising.

2. A barrier to trade in the form of laws forbidding trade in certain goods is called

	a tariff
	an embargo
	a quota
	an import tax
	a voluntary restraint agreement

3. An increase in U.S. tariffs on foreign-produced steel would probably benefit all the following groups EXCEPT

	domestic steel producers
	U.S. steelworkers
	users of domestic steel
	domestic iron ore producers
	businesses in steel-producing areas

4. The table below gives the number of tons of widgets and cogs than can be produced in Country X and Country Y by using the exact same amount of productive resources:

Widgets Cogs

Country X 10 5

Country Y 8 2
The theory of comparative advantage suggests that under these conditions, Country Y would find it advantageous to

	export widgets and import cogs
	export cogs and import widgets
	export both widgets and cogs and import nothing
	import both widgets and cogs and export nothing
	neither export nor import either widgets or cogs

5. What does a balance-of-trade surplus imply?

	Merchandise exports exceed merchandise imports.
	Merchandise imports exceed merchandise exports.
	Exports of services exceed imports of services.
	Imports of services exceed exports of services.
	Investment by foreigners exceeds domestic investment in other countries.

6. In Adam Smith's view of capitalism,

	having a few large corporations would be more efficient than having many smaller firms
	a country should emphasize exports over imports to enhance its wealth
	people, acting in their own self-interest, unwittingly do good for others
	the government should play a major role in allocating resources
	specialization would lead to worker alienation, not increased productivity

7. Trade between countries leads to

	reduced labor productivity
	increased interdependence
	higher product prices
	job losses in at least one of the countries
	decreased amounts of products in at least one of the countries

8. If Americans decide to buy less Japanese automobiles,

	the demand for Japanese yen will shift to the right
	the demand for U.S. dollars will shift to the left
	the supply of Japanese yen will shift to the left
	the demand for Japanese yen will shift to the left
	the supply of U.S. dollars will shift to the right

9. When does the law of comparative advantage indicate that mutually beneficial international trade can take place?

	When tariffs are eliminated
	When transportation costs are almost zero
	When relative costs of production differ between nations
	When a country can produce more of some product than other nations can
	When a country can produce a product in less time than another nation can

10. Does Cuba, a non-capitalist nation, produce capital?

	No, it must import it from capitalistic nations.
	No, it doesn't have a stock market.
	No, it is not needed in a planned economy.
	Yes, but it is owned and controlled by the state.
	Yes, but it is used only to trade for natural resources which Cuba doesn't have.

11. Which of the following economic questions must all societies deal with?

	What goods will be produced and in what quantities?
	How can markets be kept competitive?
	How can the problem of scarcity best be eliminated?
	What will ensure income is distributed equally to all members of society?
	All of the above

12. What can an increase in U.S. interest rates be expected to do?

	Adversely affect U.S. importers
	Encourage investment spending by U.S. firms
	Decrease the international value of the dollar
	Cause a net outflow of foreign capital from the United States
	Increase the international value of the dollar

13. Which of the following would contribute to a U.S. balance-of-trade deficit?

	Brazil pays interest on its debt to a U.S. bank.
	A Saudi Arabian builds a mansion in Beverly Hills.
	U.S. tourists travel in large numbers to China.
	Kawasaki builds a motorcycle manufacturing plant in Ohio.
	Grain sales to Russia are increased.

14. With freely floating exchange rates, a decrease in the value of a nation's currency will

	cause an international shortage of its currency
	contribute to disequilibrium in its balance of payments
	cause its imports to fall
	cause gold to flow out of that nation
	cause the value of other nations' currencies to also decrease

15. Barriers to trade

	increase the number of jobs worldwide
	decrease consumer prices
	increase the amount of global production
	benefit some groups at the expense of others
	are necessary to maintain international competition