International Trade Islamic University – Gaza

Date: 09/01/2014 Faculty of Commerce

End-Term Exam (2013/2014) Dep't of Economics

Name : ---------------------------------------------------------------- student No : -------------------

Q 1: MCQ
1- ________ analysis by economists refers to the attempt to answer questions
such as should a tax be imposed.
A) Positive B) Negative C) Normative D) Investigative

2- Economists use general equilibrium models of an economy to explain

A) consumption levels. B) production levels. C) relative prices.
D) All of the above.

3- If a country has a straight (downward sloping) production possibilities frontier,

then production is said to be subject to
A) constant opportunity costs. B) decreasing opportunity costs.
C) first increasing and then decreasing opportunity costs.
D) increasing opportunity costs.

4- Given constant returns to scale between labor and output, if it takes 10 hours to
make 1 yard of cloth, then 100 yards of cloth can be made in
A) 10 hours. B) 100 hours. C) 1000 hours.
D) Can't tell without knowing how much capital is used.

5- The gains from international trade are closely related to

A) the labor theory of value.
B) how much the autarky price differs from the international price.
C) the fact that one country must lose from trade. D) All of the above.

6- According to the classical theory of international trade

A) only countries with low wages will export.
B) only countries with high wages will import.
C) countries with high wages will have higher relative prices of all goods.
D) All the above are false.
7- In the classical model, the direction of trade is determined by
A) absolute advantage. B) comparative advantage.
C) physical advantage. D) which way the wind blows.

8- Absolute advantage is determined by

A) actual differences in labor productivity between countries.
B) relative differences in labor productivity between countries.
C) Both A and B. D) Neither A nor B.

9- According to the Heckscher-Ohlin (HO) model the source of comparative

advantage is a country's
A) technology. B) advertising. C) factor endowments. D) Both A and C.

10- The HO model assumes that ________ are identical between countries.
A) tastes B) technology sets C) factor endowments D) Both A and B

11- According to the factor price equalization theorem, the ________ factor
should oppose free trade policies in any given country.
A) abundant B) scarce C) neither D) Can't tell without more information

12- In the HO model, the production possibility frontier is bowed out due to the
assumption of
A) identical tastes. B) different factor intensities in the production of the two
goods. C) increasing returns to scale. D) Two of the above.

13- Leontief found that

A) U.S. exports are capital intensive relative to U.S. imports.
B) U.S. imports are labor intensive relative to U.S. exports.
C) U.S. exports are neither labor nor capital intensive.
D) None of the above.

14- Most theories of comparative advantage explain trade patterns due to

international differences in
A) demand conditions. B) supply conditions.
C) demand and supply conditions. D) tariffs.

15- Linder's hypothesis says that countries with ________ of preferences will
trade intensively with each other.
A) differences B) utility C) similarity D) elasticity

16- A country gains from international trade if its post-trade ________ point lies
outside its production possibility frontier.
A) production B) autarky C) consumption D) All of the above

17- ________ gains from trade refer to the situation where, over time,
international trade leads to an outward shift in a country's production possibility
frontier. A) Static B) Dynamic C) Political D) Outward

18- A tariff can ________ raise a country's welfare.

A) never B) sometimes C) always d) none of the above

19- Tariff levels in developing countries tend to be ________ tariff levels in

developed countries.
A) lower than B) about equal to C) higher than D) there is no general pattern

20- Quotas are government imposed limits on the ________ of goods traded
between countries. A) prices B) quantity C) value D) Either B or C

21- ________ are profits that accrue to whoever has the right to import the quota
restricted good.
A) Quota licenses B) Quota rents C) Quota prices D) None of the above.

22- Countries like the United States use ________ to offset foreign export
subsidies.
A) quotas B) the escape clause C) countervailing duties D) government
procurement
23- The ________ is an international organization that sets rules of conduct for
international commerce.
A) International Trade Commission (ITC) B) World Trade Organization
(WTO) C) International Trade Agreement (ITA) D) World Bank

24- ________ is defined in U.S. law as selling a product in a foreign country at a

price that is less than fair value.
A) Subsidizing B) Countervailing C) Exporting D) Dumping
25- The European Union (EU) is an example of a
A) customs union. B) free trade area. C) reciprocal trade agreement.
D) None of the above.

26- A nation's transactions with the rest of the world are recorded in the
A) national income accounts B) balance of trade C) balance of payments
D) income statement

27- The euro is now the official currency of all of the following countries except
A) France. B) Germany. C) Great Britain. D) Spain.

29- The price of one money in terms of another is called

A) the "just" price. B) the trade price. C) the exchange rate.
D) foreign exchange.

30- In the BOP, travel and tourism are included in the category of
A) unilateral transfers. B) capital account. C) merchandise account.
D) services account.

31- Current account deficits are offset by

A) the liquidity balances. B) capital account surpluses. C) the basic balance. D)
balance of trade surpluses.

32- Merchandise exports minus imports equal the

A) basic balance. B) liquidity balance. C) official settlements balance.
D) balance of trade.

33- Which of the following transactions is a debit in the current account?

A) export of merchandise B) export of services C) gift to foreigners
D) foreign bond purchase

34- ________ indicates whether a country is a net borrower from or lender to the
rest of the world. A) The basic balance B) The liquidity balance C) The capital
account D) The current account

35- Direct investment and security purchases are included in

A) current account items. B) capital account items.
C) basic balance account items. D) unilateral transfers.

36- The most common type of transaction in the foreign exchange market is a
A) forward transaction. B) spot transaction.
C) swap transaction. D) None of the above.

37- If the bank is selling euros for $0.89, then what is the implied euro price of
the dollar? A) 2.0 B) 1.999 C) 2.323 D) 1.123

38- The difference between buying rates and selling rates is called the
A) profit. B) arbitrage. C) spread. D) forward transaction.

39- The reduction or covering of a foreign exchange risk is called

A) hedging. B) speculation. C) intervention. D) arbitrage.

40- An increase in the exchange rate from $2.00 = 1 to $2.20 = 1 is a

A) 10% depreciation of the euro with respect to the dollar.
B) 10% depreciation of the dollar with respect to the euro.
C) 10% appreciation of the dollar with respect to the euro.
D) None of the above.

Q 2: Answer the following questions.

1- Are tariffs and quotas equivalent in their economic effects? Use graph.

2- Explain by using graphs how and why Central banks buy and sell foreign
exchange to influence the values of their currencies.

3- Reducing the current account deficit requires.

4- Given the input-output relationships in the table below:

Countries
A B
Goods
X 8 4
 Y 4 1

(a) Which country has absolute advantage in which good and why?
(b) Which country has comparative advantage in which good and why?
(c) If A is endowed with 8000 hours of labor, how much X will it produce after
trade begins? How much Y? Explain.
(d) What is the allowable range on A's wages relative to B's if trade is flowing
between these two countries according to comparative advantage?

Q 3: Define any four from the following terms.

Common Market
Tariff Margin
Swaps
Forward Market
Government Procurement policy.
Financial crises

Good Luck