Question 1

Exporting of products by one country to other countries at prices below cost is called elasticity.

Accepted Answer

A) True 
 B)False

Question 2

The Central American Trade Agreement (CAFTA) is intended to raise tariffs and regulations between the U.S., the Dominican Republic, and Central American countries.

Accepted Answer

A) True 
 B)False

Question 3

Intracompany trade makes up approximately ____ percent of all international trade.

Accepted Answer

A)   50
B)   70
C)   25
D)   13
E)   5F) B) and E)
G) B) and D)

Question 4

Which of the following is not a goal of the International Monetary Fund (IMF) ?

Accepted Answer

A)   To promote cooperation among countries on international monetary issues
B)   To promote stability in exchange rates
C)   To enhance a country's long-term economic growth via the extension of structural adjustment loans
D)   To promote free trade
E)   To promote free mobility of capital funds across countriesF) C) and D)
G) A) and B)

Question 5

____ represent aid, grants, and gifts from one country to another.

Accepted Answer

A)   Transfer payments
B)   Factor income
C)   The balance of trade
D)   The balance of payments
E)   The capital accountF) A) and B)
G) A) and C)

Question 6

Like the International Monetary Fund (IMF) , the ____ is composed of a collection of nations as members. However, unlike the IMF, it uses the private rather than the government sector to achieve its objectives.

Accepted Answer

A)   World Bank
B)   International Financial Corporation (IF
C)  
C)   World Trade Organization (WTO) 
D)   International Development Association (ID
A)  
E)   Bank for International Settlements (BIS) F) B) and E)
G) A) and D)

Question 7

The World Bank extends loans only to developed nations, while the International Development Association (IDA) extends loans only to developing nations.

Accepted Answer

A) True 
 B)False

Question 8

The North American Free Trade Agreement (NAFTA)  increased restrictions on:

Accepted Answer

A)   trade between Canada and Mexico.
B)   trade between Canada and the U.S.
C)   direct foreign investment in Mexico by U.S. firms.
D)   none of the above.E) B) and C)
F) C) and D)

Question 9

The J curve effect is the initial worsening of the U.S. trade balance due to a weakening dollar because of established trade relationships that are not easily changed; as the dollar weakens, the dollar value of imports initially rises before the U.S. trade balance is improved.

Accepted Answer

A) True 
 B)False

Question 10

A balance of trade deficit indicates an excess of imports over exports.

Accepted Answer

A) True 
 B)False

Question 11

Outsourcing allows some MNCs to reduce costs but shifts jobs to other countries.

Accepted Answer

A) True 
 B)False

Question 12

A high home inflation rate relative to other countries would ____ the home country's current account balance, other things equal. A high growth in the home income level relative to other countries would ____ the home country's current account balance, other things equal.

Accepted Answer

A)   increase; increase
B)   increase; decrease
C)   decrease; decrease
D)   decrease; increaseE) A) and B)
F) A) and C)

Question 13

Assume the U.S. has a balance of trade surplus with the country of Thor. When individuals in Thor manufacture CDs and DVDs that look almost exactly like the original product produced in the U.S. and other countries, they ____ the U.S. balance of trade surplus with Thor. This activity is called ____.

Accepted Answer

A)   reduce; flipping
B)   reduce; pirating
C)   increase; pirating
D)   increase; flippingE) None of the above
F) B) and D)

Question 14

Japan's annual interest rate has been relatively ____ compared to other countries for several years, because the supply of funds in its credit market has been very ____.

Accepted Answer

A)   low; small
B)   high; small
C)   low; large
D)   high; largeE) All of the above
F) B) and D)

Question 15

The "J curve" effect describes:

Accepted Answer

A)   the continuous long-term inverse relationship between a country's current account balance and the country's growth in gross national product.
B)   the short-run tendency for a country's balance of trade to deteriorate even while its currency is depreciating.
C)   the tendency for exporters to initially reduce the price of goods when their own currency appreciates.
D)   the reaction of a country's currency to initially depreciate after the country's inflation rate declines.E) A) and B)
F) A) and C)

Question 16

A weakening of the U.S. dollar with respect to the British pound would likely reduce U.S. exports to the U.K. and increase U.S. imports from the U.K.

Accepted Answer

A) True 
 B)False

Question 17

A U.S. purchase of patent rights from a firm in Mexico reflects a credit to the U.S. balance of payments account.

Accepted Answer

A) True 
 B)False

Question 18

Portfolio investments represent transactions involving long-term financial assets (such as stocks and bonds) between countries that do not affect the transfer of control.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is mentioned in the text as a possible means by which the government may attempt to improve its balance of trade position (increase its exports or reduce its imports) .

Accepted Answer

A)   It could attempt to reduce its home currency's value.
B)   The government could require firms to engage in outsourcing.
C)   The government could require that its local firms pursue outsourcing.
D)   All of the above are mentioned.E) A) and B)
F) B) and C)

Question 20

The World Bank was established to:

Accepted Answer

A)   enhance development solely in Asia through grants.
B)   enhance economic development through non-subsidized loans (at market interest rates) .
C)   enhance economic development through low-interest rate loans (below-market rates) .
D)   enhance economic development of the private sector through investment in stock of corporations.E) B) and C)
F) A) and B)

Exam 2: International Flow of Funds

Outsourcing allows some MNCs to reduce costs but shifts jobs to other countries.

Correct AnswerverifiedShow Answer

A balance of trade deficit indicates an excess of imports over exports.

Correct AnswerverifiedShow Answer

A U.S. purchase of patent rights from a firm in Mexico reflects a credit to the U.S. balance of payments account.

Correct AnswerverifiedShow Answer

The J curve effect is the initial worsening of the U.S. trade balance due to a weakening dollar because of established trade relationships that are not easily changed; as the dollar weakens, the dollar value of imports initially rises before the U.S. trade balance is improved.

Correct AnswerverifiedShow Answer

Which of the following is mentioned in the text as a possible means by which the government may attempt to improve its balance of trade position (increase its exports or reduce its imports) .

Correct AnswerverifiedShow Answer

Intracompany trade makes up approximately ____ percent of all international trade.

Correct AnswerverifiedShow Answer

The World Bank extends loans only to developed nations, while the International Development Association (IDA) extends loans only to developing nations.

Correct AnswerverifiedShow Answer

A high home inflation rate relative to other countries would ____ the home country's current account balance, other things equal. A high growth in the home income level relative to other countries would ____ the home country's current account balance, other things equal.

Correct AnswerverifiedShow Answer

Which of the following is not a goal of the International Monetary Fund (IMF) ?

Correct AnswerverifiedShow Answer

Japan's annual interest rate has been relatively ____ compared to other countries for several years, because the supply of funds in its credit market has been very ____.

Correct AnswerverifiedShow Answer

The Central American Trade Agreement (CAFTA) is intended to raise tariffs and regulations between the U.S., the Dominican Republic, and Central American countries.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Portfolio investments represent transactions involving long-term financial assets (such as stocks and bonds) between countries that do not affect the transfer of control.

Correct AnswerverifiedShow Answer

The "J curve" effect describes:

Correct AnswerverifiedShow Answer

The North American Free Trade Agreement (NAFTA) increased restrictions on:

Correct AnswerverifiedShow Answer

Exporting of products by one country to other countries at prices below cost is called elasticity.

Correct AnswerverifiedShow Answer

The World Bank was established to:

Correct AnswerverifiedShow Answer

Like the International Monetary Fund (IMF) , the ____ is composed of a collection of nations as members. However, unlike the IMF, it uses the private rather than the government sector to achieve its objectives.

Correct AnswerverifiedShow Answer

A weakening of the U.S. dollar with respect to the British pound would likely reduce U.S. exports to the U.K. and increase U.S. imports from the U.K.

Correct AnswerverifiedShow Answer

____ represent aid, grants, and gifts from one country to another.

Correct AnswerverifiedShow Answer

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A high home inflation rate relative to other countries would the home country's current account balance, other things equal. A high growth in the home income level relative to other countries would the home country's current account balance, other things equal.

Correct Answer
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Japan's annual interest rate has been relatively compared to other countries for several years, because the supply of funds in its credit market has been very .

Correct Answer
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