Question 1

Which of the following best describes the concept of comparative advantage?

Accepted Answer

A country can produce a good at a lower opportunity cost than another country.

Question 2

Suppose Country A can produce either 10 units of cloth or 20 units of wheat with its resources, while Country B can produce either 15 units of cloth or 15 units of wheat. What is the opportunity cost of 1 unit of cloth in Country A?

Accepted Answer

$$2$$ units of wheat

Question 3

According to the theory of gains from trade, what happens when two countries specialize based on comparative advantage and trade?

Accepted Answer

Both countries can consume outside their individual production possibilities curves.

Question 4

Which of the following is NOT typically considered a factor of production in international trade?

Accepted Answer

Tariffs

Question 5

If the U.S. increases its interest rates relative to other countries, what is the most likely short-term effect on the value of the U.S. dollar and the trade balance?

Accepted Answer

The dollar appreciates and the trade deficit widens.

Question 6

Which of the following best explains why a firm might choose to outsource production to another country?

Accepted Answer

To reduce operational costs and access regional expertise.

Question 7

What is the primary difference between outsourcing and offshoring?

Accepted Answer

Outsourcing refers to transferring tasks to an outside supplier, while offshoring refers specifically to moving tasks to a different country.

Question 8

If Switzerland has an inflation rate of $$3\%$$ and Canada has an inflation rate of $$1\%$$, what is the likely effect on their currencies?

Accepted Answer

The Swiss franc appreciates and the Canadian dollar depreciates.

Question 9

Which of the following is a likely implication of increased offshoring for the U.S. labor market?

Accepted Answer

A loss of domestic jobs, especially in manufacturing and increasingly in white-collar sectors.

Question 10

The balance of payments is best described as:

Accepted Answer

A record of all international transactions a nation engages in over a year.

Question 11

Suppose the Federal Reserve raises U.S. interest rates while the Bank of England does not. What is the expected effect on the exchange rate between the U.S. dollar and the British pound?

Accepted Answer

The U.S. dollar appreciates and the British pound depreciates.

Question 12

Which of the following is a direct benefit to consumers from free trade in imports?

Accepted Answer

Domestic consumers gain more than domestic producers lose.

Question 13

If a country has a trade deficit, which of the following must be true?

Accepted Answer

The value of imports exceeds the value of exports.

Question 14

Which of the following is a likely effect of a country's currency depreciating relative to its trading partners?

Accepted Answer

Exports become less expensive for foreign buyers, increasing export demand.

Question 15

Which of the following is NOT a typical reason for a firm to outsource tasks?

Accepted Answer

To increase operational costs.

Question 16

If a country specializes in producing the good for which it has a comparative advantage and trades for other goods, what is the expected outcome?

Accepted Answer

The country can consume beyond its production possibilities curve.

Question 17

Which of the following is a potential negative implication of increased foreign direct investment (FDI) in developing countries?

Accepted Answer

Loss of domestic control over key industries.

Question 18

Suppose currency traders expect South Korea to have much higher inflation than Taiwan. What is the likely effect on their currencies?

Accepted Answer

The South Korean won depreciates and the Taiwan dollar appreciates.

Question 19

Which of the following best describes the 'market clock vs. policy clock' dilemma in macroeconomic policy?

Accepted Answer

There is often a lag between when economic conditions change and when policy responses take effect.

Question 20

If European tourists reduce visits to the United States, what is the likely effect on the U.S. dollar and the euro?

Accepted Answer

The U.S. dollar depreciates and the euro appreciates.

Globalization: International Trade Policy and International Finance

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