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. 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.

2. 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

3. 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

4. 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.

5. 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

6. 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

7. 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

8. 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:

Country X105
Country Y82

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

9. 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

10. 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

11. 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.

12. 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.

13. 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

14. 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

15. 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

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