Units 4.1-4.6: Multiple choice quiz

Units 4.1-4.6: Multiple choice questions

1. Which of the following is considered an advantage of international trade?

Increased tax revenue from the imposition of tariffs

Greater dependance on foreign products

Increased competition

Greater economies of scale from increased imports

2. What is comparative advantage?

When a country can produce a good or service for a lower unit cost than another product

When a country can produce a good or service for a lower unit cost than another country

When a country can produce a good or service for a lower opportunity cost than another country

When a country can produce a good or service for a lower opportunity cost than another product

3. What is absolute advantage?

When a country can produce a good or service for a lower opportunity cost than another country

When a country can produce a good or service for a lower opportunity cost than another product

When a country can produce a good or service for a lower unit cost than another product

When a country can produce a good or service at a lower unit cost than another country

4. Country A has a maximum productive capacity of either 50 million tonnes of sugar or 40 million tonnes of tea. Country B can produce a maximum of 100 million tonnes of sugar and 50 million tonnes of tea. What is the opportunity cost for each nation of producing 1 unit of tea?

Country A 1.2 tonnes of sugar, country B 0.5 tonnes of sugar

Country A 1.2 tonnes of sugar, country B 2 tonnes of sugar

Country A 1.25 tonnes of sugar, country B 0.5 tonnes of sugar

Country A 1.25 tonnes of sugar, country B 2 tonnes of sugar

5. Which of the following statements is true about the following countries, A and B?

It will always be advantageous for both nations to trade providing a suitable exchange rate can be negotiated

It will be advantageous for both nations to trade providing at least one has an absolute advantage

It will be advantageous for both nations to trade providing they have different factor resource endowments

It will be advantageous for both nations to trade providing both have a comparative advantage

6. Which of the following is a weakness of comparative advantage theory?

It assumes constant returns to scale

It ignores the fact in the real world countries have different factor resources

It ignores the fact that countries may wish to be self sufficient

The gains of trade are not equally distributed with losers as well as winners from trade

7. A country joins a new bilateral trade agreement and is forced to purchase their raw materials from a country inside the trading bloc rather than from a third country outside of the bloc. This is known as:

Diseconomies of scale

Trade diversion

Trade creation

Customs Union

8. A group of countries join together to form an association which grants free trade between members, common external tariff barriers as well as a single currency. This is called a:

Monetary Union

Preferential Trade Agreement

Free Trade Association

Customs Union

9. Which of the following is an advantage of a fixed exchange rate system?

Governments are able to use monetary policy in order to control macro economic objectives

It requires central banks to hold large reserves of currency in order to keep the currency in equilibrium

It provides greater certainty for exporters which encourages trade

Governments are forced into macro economic policy objectives which prioritise growth

10. An advantage of a floating exchange rate system is the following:

They are self correcting in the case of a current account deficit or surplus

They allow a central bank to use fiscal policy to control macro economic objectives

They encourage greater trade through the certainty of knowing the price of one currency relative to another

They do not require central banks to give up control to a larger European wide central bank

11. A country places a fixed limit on the number of goods and services that are allowed into a country. This is an example of which kind of import barrier?

Embargo

Quota

Subsidy

Tariff

12. The following shows the market for steel into EU, after the imposition of a tariff on imported steel. Which area represents the welfare loss and loss of consumer surplus from the imposition of the tariff.

E and H

E and G

E and F

H and E

13. The following table represents the market for corn in the EU after the imposition of a quota on imported corn. Total sales of corn after the quota has been introduced are _____

400,000 Kgs

800,000 Kgs

1,200,000 Kgs

100,000 Kgs

14. Which of the following represents a long term solution for a country wishing to reduce a persistent current account deficit?

A policy of low inflation to reduce overall prices in the economy

Use of the central banks foreign currency reserves to equalise the market for a currency

A competitive devaluation of the currency to make exports cheaper and imports more expensive

A policy of high interest rates to attract hot money flows

15. According to the Marshall-Lerner condition which of the following statements is true.

A country will experience an improvement in its current account if their currency rises in value and its exports are PED elastic

A country will experience an improvement in its current account if the currency rises in value and the terms of trade also rise

The current account will improve if it devalues and the combined PED of exports and imports is price elastic

A country's current account will improve if it devalues, assuming that the PED of its exports are price elastic

16. What is the J curve?

It shows the long term impact of a currency devaluation on a nation's current account

It shows the impact of a currency devaluation on a nation's balance of payments

It shows the long term impact of a currency devaluation on a nation's balance of payments

It shows the impact of a currency devaluation on a nation's current account

17. Which of the following will cause an improvement in a nation's current account?

A sustained rise in inflation

A sustained rise in the exchange rate of a country

A sustained rise in income

A sustained rise in productivity

18. A devaluation of a country is less likely to be beneficial if:

Demand for exports rise faster than demand for imported goods and services

It comes from expenditure reducing rather than expenditure switching policies

The nation trades in PED inelastic goods and services

The nation trades in PED elastic goods and services

19. In terms of integration level, from lowest to highest the order of trading blocs is as follows:

Preferential trade area, free trade area, political union, fiscal union

Preferential trade area, free trade area, common market, customs union

Preferential trade area, customs union, monetary union, common market

Preferential trade area, free trade area, common market, fiscal union

20. Which of the following is not a disadvantage of joining a Monetary Union?

Shoe leather costs

Central banks lose the power to set interest rates

The cost of converting from one currency to another rises

Funds are not diverted between richer and poorer states in the union

Total Score:

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Units 4.1-4.6: Multiple choice quiz

Units 4.1-4.6: Multiple choice questions