International Economics Exam 2

220:300:07 International Economics – Spring 2013 Daijiro Okada
Exam 1 – Version A
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1. A Czech student pays her tuition at Rutgers. How does the U.S. government classify this transaction?
A) a goods import
B) a service export
C) a service import
D) a goods export
2. The bilateral trade balance may overstate the trade deficit of country A to country B if:
A) country B exports goods or services that uses inputs imported from country A
B) country B imports goods or services that uses inputs exported to country A
C) country A exports goods or services to a company in country B that employs a citizen of country A
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D) country A imports goods or services from a company in country B that employs a citizen of country A
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3. What is “value added”?
A) the total value of an export minus the total value of imported raw and semi-finished materials used in its
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production
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B) the total value of an export plus the cost of its transportation to the export market
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C) the total value of a country's exports minus total value of its imports
D) the total value of a product minus the total value of all raw and semi-finished materials used in its
production
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4. One way to measure the importance of international trade on a nation's overall economy is to compute:
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A) how many jobs are lost due to international trade.

B) the share of imports and exports in the nation's GDP.
C) shipping costs of the nation's imports and exports.
D) increase in the nations GDP due to international trade.
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5. Which of the following correctly ranks countries according to the trade-to-GDP ratio from highest to lowest?
A) the United States, Japan, Malaysia
B) Japan, Singapore, Germany
C) Singapore, Malaysia, Canada
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D) France, Singapore, Belgium

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6. Why do larger countries tend to have lower trade-to-GDP ratios than smaller countries?
A) Larger countries tend to have more trade within their borders than smaller countries.
B) Larger countries tend to have higher tariffs than smaller countries.
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C) Larger countries tend to trade with other larger countries.

D) Larger countries tend to have larger trade deficits than smaller countries.
Exam 1 – Version A Page 1 of 6
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7. The decline in the volume of world trade during 2008–2009 could be due to
A) rising house prices, which took up more consumer income
B) decreased demand during the recession
C) greater productivity in the developing countries
D) expansion of informal sectors ("black markets") in Africa
8. In some countries, the value of trade exceeds their GDP, that is, their trade-to-GDP ratios exceed one. How
could this be?
A) They import most of inputs and sell their products in domestic markets
B) They engage mostly in shipping of goods to and from other countries
C) They are large developed economies with high volume of domestic trades
D) They make and export mostly intermediate inputs that are assembled into final products in other
countries.
9. Why should bilateral trade balances be viewed with some caution?

A) Bilateral trade balances do not account for inputs that countries import from third countries
B) Bilateral trade balances do not account for inputs produced and profits earned by home country
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subsidiaries operating in the other country
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C) Bilateral trade balances do not represent GDP in either country if value added is small
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D) Bilateral trade balances do not account for jobs or wage lost due to imports from third countries.
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10. The focus of the Ricardian model is on:
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A) how countries' productivity measured by MPL explain the patterns of international trade.
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B) how countries' productivity measured by opportunity cost of production explain the patterns of
international trade.
C) how countries productivity measured by number of hours worked explain the patterns of international
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trade.
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D) how countries productivity measured by GDP per capita explain inter explain the patterns of international
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trade.
11. In the Ricardian model of trade, it is assumed that

A) Labor is the only input of production and they can freely migrate to the other country.
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B) Labor is the only input of production and an additional unit of labor produces the same additional unit of
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output regardless of how much labor is currently employed

C) Labor is the only input of production and each unit of labor can be employed simultaneously in the two
industries.
D) Labor and capital are inputs of production and their MPLs are constant.
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12. The Ricardian model of trade, opportunity cost of producing one more unit of wheat is measured by
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A) the slope of production possibilities frontier (PPF).

B) the difference between marginal products of labor in the two industries (wheat and cloth).
C) ratio of wage in wheat industry to wage in cloth industry in no-trade equilibrium
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D) the slope of the production function for wheat
13. Suppose that in the Ricardian model of trade, Home MPLcorn = 5. If output combinations of (wheat,cloth),
(600,0) and (400, 300), are on Home PPF, what is Home MPLcloth?
A) 4.25
B) 5.75
C) 6.00
D) 7.50
Use the following to answer questions 14-15:
Figure: Home Equilibrium with No Trade
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14. (Figure: Home Equilibrium with No Trade) What is the opportunity cost of producing wheat in Home?
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A) $2.00
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B) $0.50
C) 2 yards of cloth
D) 0.5 yards of cloth
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15. (Figure: Home Equilibrium with No Trade) At the no-trade equilibrium, what is the relative price of cloth?
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A) 0.5 bushels of wheat

B) 2 bushels of wheat
C) $0.50
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D) $2.00
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16. (Figure: Home Equilibrium with No Trade) If the marginal product of labor in wheat production is 2.50 , how
many units of labor are employed in the two industries at the no-trade equilibrium?
A) Employment in wheat industry = 25, Employment in cloth industry = 35
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B) Employment in wheat industry = 20, Employment in cloth industry =20

C) Employment in wheat industry = 40, Employment in cloth industry = 20
D) Employment in wheat industry = 50, Employment in cloth industry = 50
Use the following to answer question 17:
Consider the Ricardian model with the following data
Output in Home and Foreign

Home Output per Worker Foreign Output per Worker
Apparel $100,000 $40,000
Wheat $80,000 $90,000
17. (Table: Output in Home and Foreign) Using the data in the table, what will happen to Home labor force at the
trade equilibrium when the countries open up to trade?
A) Entire labor force is employed in wheat production
B) Entire labor force is employed in apparel production
C) Half of labor force is employed in wheat production and other half in apparel production
D) There is not enough information to decide.
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18. (Table: Output in Home and Foreign) Using the data in the table, what is the world relative price of wheat at
the trade equilibrium?
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A) 0.8 units of apparel
B) 1.25 units of wheat
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C) We need to know MPL in wheat production in the two countries.
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D) We need to know consumers' preferences in the two countries.
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19. Which group of primary commodities has price movements (relative to average price of manufacturing goods)
consistent with the Prebisch-Singer hypothesis in the last century?
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A) Timber, Tobacco, Beef

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B) Rubber, Wool, Almimum

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C) Zinc, Banana, Copper

D) All of the above
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Use the following to answer questions 20-21:
SCENARIO: RELATIVE PRICES AND TRADE LEVELS

Home has a comparative advantage in wheat, and Foreign has a comparative advantage in cloth. At the trade
equilibrium, Home produces 1,000 bushels of wheat, and Foreign produces 1,000 yards of cloth. The table supplied gives
the amount of wheat that Home is willing to supply and Foreign is willing to buy at various international prices.
Relative Price of Wheat Home's Wheat Exports Foreign's Wheat Imports

0.50 0 bushels 900 bushels
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20. (Scenario: Relative Prices and Trade Levels) If the relative price of wheat is 1.25, what are Home consumers'
demands for wheat and cloth?
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A) 700 bushels of wheat and 375 yards of cloth
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B) 700 bushels of wheat and 300 yards of cloth
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C) 375 bushels of wheat and 700 yards of cloth
D) 300 bushels wheat and 370 yards of cloth
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21. (Scenario: Relative Prices and Trade Levels) Which of the following could be the relative price of wheat and
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quantities of wheat traded at the trade equilibrium?

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A) relative price = 3.00, quantity = 520

B) relative price = 2.00, quantity = 475
C) relative price = 2.75, quantity = 450
D) relative price = 4.00, quantity = 480
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22. In the Ricardian model, by gains from trade it is meant that

A) in both countries, real wages measured in the amount of imported good rise
B) in both countries, consumers get more preferred bundle of goods
C) both A and B
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D) B but not A
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Answer Key
1. B
2. A
3. D
4. B
5. C
6. A
7. B
8. B
9. A
10. B
11. B
12. A
13. D
14. D
15. B
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16. B
17. B
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18. D
19. B
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20. A
21. D rs e
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22. C
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220:300:07 International Economics – Spring 2013 Daijiro Okada

A) how many jobs are lost due to international trade.

D) France, Singapore, Belgium

C) Larger countries tend to trade with other larger countries.

Exam 1 – Version A Page 1 of 6

9. Why should bilateral trade balances be viewed with some caution?

11. In the Ricardian model of trade, it is assumed that

output regardless of how much labor is currently employed

A) the slope of production possibilities frontier (PPF).

D) the slope of the production function for wheat

Exam 1 – Version A Page 2 of 6

Use the following to answer questions 14-15:

Figure: Home Equilibrium with No Trade

A) 0.5 bushels of wheat

B) Employment in wheat industry = 20, Employment in cloth industry =20

Exam 1 – Version A Page 3 of 6

Use the following to answer question 17:

Consider the Ricardian model with the following data

Output in Home and Foreign

A) Timber, Tobacco, Beef

B) Rubber, Wool, Almimum

C) Zinc, Banana, Copper

Exam 1 – Version A Page 4 of 6

Use the following to answer questions 20-21:

SCENARIO: RELATIVE PRICES AND TRADE LEVELS

Relative Price of Wheat Home's Wheat Exports Foreign's Wheat Imports

quantities of wheat traded at the trade equilibrium?

A) relative price = 3.00, quantity = 520

22. In the Ricardian model, by gains from trade it is meant that

Exam 1 – Version A Page 5 of 6

Exam 1 – Version A Page 6 of 6

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