Chapter 1 Introduction
? Multiple Choice Questions
Historians of economic thought often describe ___________ written by _______ and published in __________ as the first real exposition of an economic model.
“Of the Balance of Trade,” David Hume, 1776 “Wealth of Nations,” David Hume, 1758 “Wealth of Nations,” Adam Smith, 1758 “Wealth of Nations,” Adam Smith, 1776
“Of the Balance of Trade,” David Hume, 1758
Answer: E From 1959 to 2000,
the U.S. economy roughly tripled in size. U.S. imports roughly tripled in size.
the share of US Trade in the economy roughly tripled in size. U.S. Imports roughly tripled as compared to U.S. exports. U.S. exports roughly tripled in size.
Answer: C
The United States is less dependent on trade than most other countries because
the United States is a relatively large country. the United States is a “Superpower.”
the military power of the United States makes it less dependent on anything. the United States invests in many other countries. many countries invest in the United States.
Answer: A Ancient theories of international economics from the 18th and 19th Centuries are:
not relevant to current policy analysis.
are only of moderate relevance in today’s modern international economy. are highly relevant in today’s modern international economy.
are the only theories that actually relevant to modern international economy. are not well understood by modern mathematically oriented theorists.
Answer: C
2 Krugman/Obstfeld ? Seventh Edition
An important insight of international trade theory is that when countries exchange goods and services one with the other it
is always beneficial to both countries. is usually beneficial to both countries.
is typically beneficial only to the low wage trade partner country. is typically harmful to the technologically lagging country. tends to create unemployment in both countries.
Answer: B If there are large disparities in wage levels between countries, then
trade is likely to be harmful to both countries.
trade is likely to be harmful to the country with the high wages. trade is likely to be harmful to the country with the low wages. trade is likely to be harmful to neither country. trade is likely to have no effect on either country.
Answer: D Benefits of international trade are limited to
tangible goods. intangible goods.
all goods but not services. services.
None of the above.
Answer: E
Attempts to explain the pattern of international trade
have been a major focus of international economists. have proven to be hopeless.
have proven to be a trivial exercise.
have been the preoccupation of economic development theorists. None of the above.
Answer: A Which of the following does not belong?
NAFTA
Uruguay Round
World Trade Organization None Tariff Barriers None of the above.
Answer: D
Chapter 1 Introduction 3
Cost-benefit analysis of international trade
is basically useless.
is empirically intractable.
focuses attention on conflicts of interest within countries. focuses attention on conflicts of interests between countries. None of the above.
Answer: C
An improvement in a country’s balance of payments means a decrease in its balance of payments deficit, or an increase in its surplus. In fact we know that a surplus in a balance of payments
is good.
is usually good. is probably good.
may be considered bad. is always bad.
Answer: D The study of exchange rate determination is relatively
difficult.
new and mathematical. old. obtuse.
None of the above.
Answer: B
The GATT was
an international treaty.
an international U.N. agency. an international IMF agency. a U.S. government agency. a collection of tariffs.
Answer: A
The international debt crisis of early 1982 was precipitated when _____ could not pay its international debts.
Russia Mexico Brazil Malaysia China
Answer: B
4 Krugman/Obstfeld ? Seventh Edition
International economics can be divided into two broad sub-fields:
macro and micro.
developed and less developed. monetary and barter.
international trade and international money. static and dynamic.
Answer: C
A primary reason why nations conduct international trade is because of differences in
historical perspective. location.
resource availabilities. tastes. incomes.
Answer: C
International trade is sometimes used as a substitute for all of the following except
international movements of capital. international movements of labor.
domestic production of the same goods or services. domestic production of different goods and services. None of the above.
Answer: D International trade forces domestic firms to become more competitive in terms of
the introduction of new products. product design and quality. product reliability. product price. All of the above.
Answer: E
The movement to free international trade is most likely to generate short-term unemployment in which industries?
Industries producing non-tradable goods Import-competing industries Export industries Import sectors None of the above.
Answer: B
Chapter 1 Introduction 5
International trade is logically associated with which assumption?
Resources are less mobile internationally than domestically. Resources are more mobile internationally than are goods. Imports should exceed exports. Exports should exceed imports. None of the above.
Answer: A
Arguments for free trade are sometimes disregarded by the political process because
economists tend to favor highly protected domestic markets.
economists have a universally accepted decisive power over the political decision mechanism. maximizing consumer welfare may not be a chief priority for politicians. the gains of trade are of paramount concern to typical consumers. None of the above.
Answer: C
Increased foreign competition tends to
increase profits of domestic import-competing industries. place constraints on the wages of domestic workers. induce falling output per worker for domestic workers. intensity inflationary pressures at home None of the above.
Answer: B
____________ is the ability of a firm to design, produce, and market goods and services that are better and/or cheaper than those of other firms.
Competitiveness Protectionism
Comparative advantage Interventionism None of the above.
Answer: A For a country to maximize its productivity in a global economy, it requires
only imports. only exports.
both exports and imports. neither exports nor imports. foreign direct investment.
Answer: C
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