A currency appreciation tends to make a nation's exports more competitive.

F
False. A currency appreciation tends to make a nation's exports less competitive. When a nation's currency appreciates,
its value increases relative to other currencies. This makes its exports more expensive for foreign buyers, which can
lead to a decrease in demand for those exports. Conversely, imports become cheaper for domestic consumers,
potentially increasing demand for foreign goods. Therefore, currency appreciation typically results in decreased export
competitiveness.
A deficit or surplus in the U.S balance of payments can also be measured by the net balance of the change in the
U.S official reserve assets and foreign official assets in the U.S. T
True. The balance of payments (BoP) reflects a country's economic transactions with the rest of the world. A deficit
occurs when a country spends more on imports, investments, and transfers than it earns from exports, investments, and
transfers. Conversely, a surplus happens when a country earns more than it spends. The net balance of the change in
the U.S. official reserve assets and foreign official assets in the U.S. is part of the financial account in the BoP. If
there's a deficit in the BoP, the U.S. may need to use its official reserves, leading to a decrease in the net balance of
change in U.S. official reserve assets. Conversely, a surplus may lead to an increase in this balance.
A nation that gains from trade will find its consumption point being located along its production possibilities
curve. F
False: A nation that gains from trade will find its consumption point being located: Outside its production possibilities
curve. This is because trade allows the nation to consume goods and services that it cannot produce domestically or can
only produce at a higher opportunity cost. By specializing in the production of goods and services in which it has a
comparative advantage and trading with other nations, the nation can achieve a consumption point beyond its PPC.
A nation that gains from trade will find its consumption point being located inside its production possibilities
curve
FALSE A nation that gains from trade will find its consumption point located outside its production possibilities curve
(PPC) before trade.
A tax of 10 percent on imports of T-shirts would be an example of an effective tariff. F
False. A tariff is a tax specifically placed on imported goods. So, a 10% tax on imported T-shirts does qualify as a
tariff. Effective tariffs consider the impact on the entire production process. This might include tariffs on raw materials
or intermediate goods used to make the final product. In this case, the tariff only applies to the finished T-shirt itself,
not the cotton or other materials used to make it. Therefore, it's a nominal tariff, not an effective tariff.
A tax of 35 cents per unit of imported toys would be an example of ad valorem tariff. F
false, it would be would indeed be an example of a specific tariff, not an ad valorem tariff. Specific tariffs are fixed
amounts of money charged per unit of imported goods, regardless of their value.
A tax of 50 cents on imports of shirts would be an example of a ad valorem tariff FALSE
FALSE: A specific tariff is levied as a fixed charge per unit of imports. Example for specific tariff is government
levies a $0.50 specific tariff on every shirt imported into the United States. The given statement a tax of 50 cents if
imposed on import of shirts is a generalized statement. It does not specify on 'every shirt'.
A tax of 50 cents per unit of imported shirts would be an example of ad valorem tariff
TRUE. The Ad Valorem tariff is a mandatory tax payment imposed on the imported commodities in a domestic
country and is paid by its consumers. It is equal to the percentage point of the imported commodity’s value which is
fixed by the government. So, when a 15% tax is imposed it is an Ad Valorem tariff on each imported commodity.
According to the theory of comparative advantage, a country will export a good only if its productivity is higher
in producing the good than the productivity of other countries in producing it.
FALSE . According to Comparative Advanatge theory, Countries will export goods in which they have the lowest
opportunity cost of production and import goods in which other countries have a lower opportunity cost.
According to the theory of comparative advantage, a country will export a good only if its productivity is higher
in producing the good than the productivity of other countries in producing it. FALSE
False. The theory of comparative advantage focuses on a country's ability to produce a good at a lower opportunity cost
than its trading partners, not necessarily the absolute highest productivity. Even if a country is less productive in
producing a good compared to another country, it can still benefit from exporting that good if the opportunity cost of
producing it is lower.
Adam Smith agreed with the mercantilists that if one nation benefits from trade its trading partner would lose.
F
False. Adam Smith disagreed with the mercantilists on this point. He argued that trade could benefit both parties
involved. Unlike mercantilist thought, which suggested that trade was a zero-sum game where one nation's gain was
another's loss, Smith believed in the principle of mutual benefit through trade. Smith argued that when countries
specialize in producing goods and services in which they have a comparative advantage and engage in free trade, both
parties can benefit by trading goods in which they have lower opportunity costs. This principle is foundational to the
theory of comparative advantage, which suggests that even if one country is more efficient in producing all goods, both
countries can still benefit from trade by specializing in their respective areas of comparative advantage.
Adam Smith maintained that free international trade brings benefits to only exporting nations. F
False. Adam Smith actually argued for the benefits of free international trade for all nations involved, not just
exporters. Adam Smith believed countries had a "comparative advantage" in producing certain goods. This means they
could produce them more efficiently (at a lower cost) than other countries. Free trade allows countries to specialize in
what they're good at and import goods they're less efficient at producing. This leads to lower prices and greater
selection for consumers in all countries. Adam Smith saw free international trade as a way to increase overall wealth
and prosperity for all participating nations.
An import quota is a non-tariff trade barrier that imposes a limit on the quantity of commodities that may be
imported. T
True. Import Quota: An import quota is a restriction on the amount of a good that can be brought into a country during
a specific period. It directly limits the quantity of imported goods, acting as a barrier to trade.
Non-Tariff Trade Barrier: Non-tariff trade barriers are restrictions on international trade that don't involve directly
imposing a tax (tariff) on imported goods. Import quotas are a common example of a non-tariff trade barrier.
An import quota is defined as a percentage tax on certain imports. F
False. An import quota is not a tax.
Import Quota: An import quota restricts the physical quantity of a good that can be imported into a country during a
specific period. It directly limits the amount that can be brought in, not the price itself.
Tariff: A tariff is a tax imposed on imported goods, raising the price for consumers in the importing country.
In short, import quotas limit quantity, while tariffs affect price.
An import quota is defined as a specific sum of money on certain imports. F
False. An import quota is not a set amount of money.
Import Quota: An import quota limits the physical quantity of a good that a country can import during a specific
period. It directly restricts how much of a good can enter the country, not how much it costs. Example: Imagine a
country sets an import quota of 10,000 widgets for a year. This means only 10,000 widgets can be brought into the
country in that time frame, regardless of their individual price. The total cost of those widgets could be high or low
depending on the price of each widget.
An increase in U.S official reserve assets represents credits in the U.S official account. F
True. When foreign central banks or governments purchase U.S. Treasury bonds or other U.S. assets (increasing U.S.
official reserve assets), they essentially extend credit to the U.S. government. They are paying the U.S. with their own
currency in exchange for dollar-denominated assets.
This transaction is recorded as a credit in the U.S. official account of the BOP. It reflects the foreign claim on U.S.
assets. In essence, an increase in U.S. official reserve assets signifies that foreigners are buying more U.S. financial
instruments, which translates to credits in the U.S. official account.
Benefits of a tariff on an imported commodity usually accrue to domestic producers TRUE
Tariffs make imports more expensive, pushing consumers towards domestic goods which benefits domestic producers.
Benefits of a tariff on an imported commodity usually accrue to domestic producers. T
True. Tariffs raise the price of imported goods. With imported goods more expensive, consumers are more likely to
choose domestic alternatives (if available). This increased demand for domestic goods benefits domestic producers in
the form of higher sales and potentially higher profits.
Benefits of a tariff on an imported good usually accrue to domestic consumers. F
False. Tariffs on imported goods typically result in higher prices for consumers in the domestic market, as the cost of
imported goods increases due to the tariff. While tariffs can offer benefits to domestic producers by protecting them
from foreign competition, these benefits often come at the expense of domestic consumers who have to pay higher
prices for goods. So, the benefits of tariffs usually accrue to domestic producers rather than consumers.
Benefits of a tariff on an imported good usually accrue to foreign producers. F
False. Tariffs on imported goods typically benefit domestic producers rather than foreign producers. When a tariff is
imposed on an imported good, it makes the imported product more expensive for domestic consumers, which can
reduce demand for the imported good. This can lead to decreased sales and revenue for foreign producers.
Additionally, tariffs can protect domestic industries from foreign competition, allowing them to capture a larger share
of the domestic market. Therefore, the benefits of tariffs usually accrue to domestic producers rather than foreign
producers.
Credit (+) items in the balance of payments correspond to anything that involves receipts from foreigners. T
True. Credit (+) items in the balance of payments represent transactions that involve receipts from foreigners. These
transactions typically include exports of goods and services, income earned from investments abroad, and unilateral
transfers received from foreigners, such as foreign aid or remittances. Essentially, any inflow of funds from foreigners
contributes to the credit side of the balance of payments.
Customs Union theory show that the formation of a customs union will reduce member's real welfare when the
trade diversion effect EXCEEDS the trade creation effect.
TRUE. Customs union theory reasons that formation of a customs union will decrease member's real welfare when
trade diversion effect of the custom union exceeds the trade creation effect. Trade diversion leads to fall in total welfare
of the union while trade creation increases total welfare of the society.
Customs union theory shows that the formation of a customs union will reduce members' real welfare when the
trade creation effect is SMALLER THAN the trade diversion effect. T
True. The theory of customs union suggests that when the benefits of trade creation (increased efficiency due to better
allocation of resources) are outweighed by the costs of trade diversion (shift of trade from more efficient external
suppliers to less efficient internal suppliers), members' real welfare will decrease. In such cases, although trade within
the customs union may increase, it comes at the expense of more efficient trade relationships outside the union, leading
to a net loss in welfare for the members.
Direct investment are real investments in factories, capital goods, land and inventories where both capital and
management are involved and the investor retains control over use of the invested capital.T
True. Direct investments, on the other hand, are real investments in factories, capital goods, land, and inventories
where both capital and management are involved and the investor retains control over use of the invested capital.
Direct investment usually takes the form of a firm starting a subsidiary or taking control of another firm (for example,
by purchasing a majority of the stock)
Dumping refers to a firm selling its goods in foreign markets below its domestic cost in order to drive
competitors out of those markets. F
True. Dumping is the export of a commodity at below cost or at least the sale of a commodity at a lower price abroad
than domestically. Dumping occurs when a company sells its products in a foreign market at a price lower than what it
charges in its domestic market or lower than its production cost. This can be a strategy to gain market share, drive
competitors out, or even to get rid of excess inventory. However, it can also lead to trade disputes and anti-dumping
measures by the affected countries.
Foreign Direct Investment (FDI) has only positive impacts on the host country. False
False. Foreign Direct Investment (FDI) brings both positive and negative impacts to the host country. Positive effects
include increased capital, job creation, technology transfer, and economic growth. However, FDI can also lead to
dependence on foreign investors, labor exploitation, income inequality, and concerns about sovereignty.
Graphically, producer surplus is represented by the area below the product's market price and above the
supply curve. False
False. Producer surplus is represented graphically by the area above the supply curve and below the market price.
If each worker in Japan can produce either 30 bottles of wine or 30 yards of clothing per hour and each worker
in Australia can produce either 20 bottles of wine or 10 yards of clothing per hour, Japan has a comparative
advantage in wine production FALSE
Japan: 1W -> 1C
Australia: 1W -> 0,5C
-> Australia has a comparative advantage in wine production because they can produce it with a lower opportunity
cost. Therefore, Japan should export clothing to Australia and import wine. Australia should export wine to Japan and
import clothing.
If each worker in Thailand can produce either 30 bushels of rice or 2 cars per day, and each worker in Vietnam
can produce either 20 bushels of rice or 1 car per day Vietnam and Thailand both can gain if Vietnam exports
rice and Thailand exports cars. True
Thailand:
To produce 1R, it has an opportunity cost of 1/15 C
To produce 1C, it has an opportunity cost of 15R
Vietnam:
To produce 1R, it has an opportunity cost of 1/20C
To produce 1C, it has an opportunity cost of 20C
=> Vietnam exports R; Thailand exports C
If each worker in Vietnam can produce either 20 bushels of rice or 1 car per day, and each worker in Thailand
can produce either 30 bushels of rice or 4 cars per day, Vietnam and Thailand both can gain if Vietnam exports
cars and Thailand exports rice.
False. Giải ở câu trên
If it takes 116.57 yen to buy one dollar, it takes $.0085785 to buy one yen.
True - If 116.57 yen = 1 dollar , Then 1 yen = $(1 / 116.57) = $$.0085785
If the interest rate on foreign deposits increases, holding everything else constant, the expected return on these
deposits must also increase. T
True. An increase in the expected return on foreign deposits, which occurs when either the foreign interest rate rises or
the expected future exchange rate falls
In the balance of payments, the statistical discrepancy is used to ensure that the sum of all debits matches the
sum of all credits. T
True. Statistics discrepancy results from incorrectly recording or from not recording at all only one side of some
transactions: Errors and omissions and Information – some is collected, some is estimated. The statistical discrepancy,
which keeps the BOP account in balance.
In the balance-of-payments account a transaction resulting in receipt of a payment is recorded as a credit,
whereas a transaction resulting in a payment to other nations is recorded as a debit.
True Credit transactions are those that involve the receipt of payments from foreigners. Debit transactions are those
that involve the making of payments to foreigners.
It is possible for one nation to have a comparative advantage in everything and the other nation to have a
comparative advantage in nothing.
True Because it is not possible for one nation to have a comparative advantage in everything and the other nation to
have a comparative advantage in nothing. But it can only be possible in the case of absolute advantage.
K/L is the ratio used for determining which country is Labor- abundant. False
Capital-labor ratio (K/L) is the ratio used for determining the amount of capital per unit of labor used in the production
of a commodity.
Monetary policy is very effective under a fixed exchange rate policy.
False - Monetary policy is ineffective in a fixed exchange system regardless of the magnitude of capital mobility..
As the trade balance, unemployment, and interest rates all remain the same as well. If one increases the money supply,
it leads to BOP deficit which would causes a loss of reserves and restores the money supply to previous level. Thus,
Monetary policy becomes ineffective as a policy tool in a fixed exchange rate system."
Purchasing-power parity theory postulates that the change in the exchange rate between two currencies is
proportional to the change in the ratio in the two countries' general price levels.
True - Absolute Purchasing-power parity theory states that equilibrium exchange rate between currency of 2
countries is equal to the ratio of price levels in the 2 nations. Prices of same goods in 2 different countries must be
equal when its measured in a common currency as per the absolute Purchasing-power parity.
The foreign exchange market is a grouping, by electronic means, of banks and traders who work at banks that
conduct foreign exchange trades. True
The foreign exchange market is the market in which individuals, firms, and banks buy and sell foreign currencies or
foreign exchange.
The foreign exchange market is a single gathering place where traders shout buy and sell orders at each other.
False The foreign exchange market is a decentralized market. This means there's no single physical location and
transactions happen electronically through networks of financial institutions.
The Heckscher-Ohlin theory predicts that a CAPITAL-abundant country will export relatively labor - intensive
products.
False. Because a country in which capital is relatively plentiful and labor relatively scarce will tend to export capital-
intensive products and it will import more labor intensive products.
The Heckscher-Ohlin theory predicts that a LABOR-abundant country will export relatively labor-intensive
products. T
True. The Heckscher-Ohlin theory focuses on a country's comparative advantage based on its factor endowments. A
labor-abundant country has more labor relative to other factors like capital. To make efficient use of this abundant
resource, the theory predicts that such a country will specialize in producing and exporting goods that are intensive in
labor. These labor-intensive goods require a lot of labor relative to other factors like capital. By exporting these goods,
the labor-abundant country can take advantage of its comparative advantage in labor.
The mercantilists believed that when each nation specializes in the production of the commodity of its absolute
advantage and exchanges parts of its output for the commodity of its absolute disadvantage, both nations end up
consuming more of both commodities.
F -> The given statement belongs to the Theory of Absolute Advantage which was given by the classical economist
Adam Smith and not by the mercantilists. Therefore, 1 is false.
The most important type of trade restriction is the tariff in the globalization. T
False. While tariffs are a significant type of trade restriction, they are not necessarily the most important in the context
of globalization. Other forms of trade restrictions, such as quotas, embargoes, and non-tariff barriers (like subsidies,
regulations, and licensing requirements), also play crucial roles in shaping global trade. Additionally, factors such as
exchange rates, trade agreements, and geopolitical dynamics can significantly influence global trade patterns.
The price-specie-flow adjustment mechanism operates by the deficit nation losing gold and experiencing a
reduction in its money supply.
True - Price Specie Flow states that under a gold standard the country that has a positive trade balances (positive net
exports) are effectively importing gold (net receiver of money) in exchange of their exported goods while nations with
negative trade balance are exporting gold (net payer of money) in exchange of imports. Thus, when nation is losing
gold it means it is also losing money supply.
The principal function of foreign exchange markets is the transfer of purchasing power from on nation and
currency to another. T
True - Transfer of fund is the basic function of foreign exchange market. it involves conversion of funds from one
currency to another for settlement of payments. The role of FOREX is to transfer the purchasing power from one
country to another.
The statement "Both nations use the different technology in production" is NOT one of the assumptions of
Heckscher- Ohlin theory on the comparative advantage TRUE
The statement "Both nations use the different technology in production" IS ONE OF the assumptions of
Heckscher-Ohlin theory on the comparative advantage. F
False. The statement contradicts one of the key assumptions of the Heckscher-Ohlin theory, which is that both nations
use the same technology in production. The theory suggests that differences in comparative advantage arise from
differences in factor endowments (such as labor, capital, and natural resources), not from differences in technology.
The Statement "Labor is moved freely among countries" is NOT one of the theory assumptions on comparative
advantage developed by D. Ricardo
TRUE Labor is homogeneous within a country but heterogeneous (nonidentical) across countries. Goods can be
transported costlessly between countries. Labor can be reallocated costlessly between industries within a country but
cannot move between countries. Labor is always fully employed. Production technology differences exist across
industries and across countries and are reflected in labor productivity parameters. The labor and goods markets are
assumed to be perfectly competitive in both countries. Firms are assumed to maximize profit, while consumers
(workers) are assumed to maximize utility.
The statement "Labor is not moved freely among countries" IS ONE OF the theory assumptions on
comparative advantage developed by D. Ricardo
true -> One among the assumptions of this theory is that factors of production are perfectly mobile within each
country. However, they are immobile between the two countries. Labour is a factor of production and its mobility is
restricted among countries.
The statement "The technology is unchanged" is one of Heckscher-Ohlin's theory assumptions on the
comparative advantage. F
True. The statement "The technology is unchanged" aligns with one of the assumptions of the Heckscher-Ohlin theory
of comparative advantage. This theory assumes that technology remains constant between countries, focusing instead
on differences in factor endowments such as labor, capital, and natural resources as the primary determinants of
comparative advantage.
The theory of purchasing power parity is a theory of how exchange rate are determined in the long run. T
True. The theory of purchasing power parity (PPP) posits that in the long run, exchange rates between two currencies
should adjust so that the prices of similar goods and services in different countries are equalized when expressed in the
same currency.
The thought on comparative advantage is developed by A. Ricardo. F
False. The concept of comparative advantage is primarily associated with the economist David Ricardo, who
developed it in the early 19th century.
Under the managed float system of exchange rates, a fall in the market price of a currency is called devaluation.
False. Under the managed float system of exchange rates, a fall in the market price of a currency is typically referred to
as depreciation, not devaluation. Devaluation specifically refers to a deliberate downward adjustment in the official
exchange rate set by the government or central bank.
Unlike the Mercantilists, Adam Smith maintained that free international trade brings benefits to both import
countries and export countries. TRUE
True, Smith argued that when countries specialize in producing goods and services in which they have a comparative
advantage and engage in free trade, they can maximize efficiency and overall welfare. By focusing on producing goods
where they have a comparative advantage, countries can increase total output and benefit from a wider variety of goods
available through trade. Thus, Smith believed that free trade could lead to mutual gains for all trading partners.