Multiple choice questions:
Question 1
From an economic perspective, returns on foreign investment are included in the overall measure of trade because financial investments:
a) can also be thought of as payments made by the government.
b) are a form of trade that takes place in the financial capital market.
c) have expanded substantially in the U.S. over the last few decades.
d) are made by parties in the U.S. economy and foreign investors.
Question 2
When some countries increase their imports as a result of worldwide economic growth, other countries must be increasing their:
a) exports as demand in all countries substantially rises.
b) imports, but their trade deficits gradually decrease.
c) trade deficits since all of their imports significantly rise.
d) trade surplus since all of their exports gradually rise.
Question 3
Why would an analyst include, among other things, airplane parts, legal services and software, in an analysis of international economic trade?
to determine the merchandise trade balance
to determine the balance of trade in services
to determine the current account balance
to determine the international flow of income
Question 4
A country's trade in manufactured goods diminished substantially, causing it to lose tax revenue and become a net borrower of foreign funds. For the next two decades, its government used the borrowed funds to upgrade the nation's waste-water treatment plants and to develop efficient rapid transit systems, creating substantial gainful employment for its workforce. Thereafter, the country began to quickly repay its past borrowing debt. Which of the following most strongly supported this country's successful economic recovery?
a) global policies of low interest rates charged on funds borrowed by governments
b) the creation of a trade deficit through more aggressive buying of imports
c) ensuring borrowed funds were invested in long-term productive economic assets
d) ensuring that larger borrowing reduced the need for more private savings
Question 5
One insight that can be obtained from the national saving and investment identity is that a nation's balance of trade is determined by:
a) each nation's own levels of domestic saving and domestic investment.
b) foreign investment as a part of supply of financial capital.
c) foreign investment as part of the demand for financial capital.
d) all of the world government budgets and the overall global trade balance.
Question 6
In the United States, which of the following government institutions would most likely provide economists with the basic data for merchandise trade?
a) Department of the Treasury
b) Department of Commerce
c) Bureau of Economic Analysis
d) Census Bureau
Question 7
The term _____________ describes circumstances where a country's exports exceed its imports.
a) trade deficit
b) trade surplus
c) trade balance
d) trade imbalance
Question 8
At the outset of the 21st century, most global trade took the form of:
a) services, rather than goods.
b) equal trade in goods and services.
c) goods, rather than services.
d) trade surpluses in the service sector.
Question 9
A country's current national savings and investment identity is expressed in algebraic terms as X - M = S + (G - T) - I. In this instance:
a) there is no connection from domestic savings and investment to the trade balance.
b) there is an inflow of capital investment from the rest of the world economy.
c) the trade balance is determined by performance of certain sectors of the economy.
d) private and public domestic savings are higher than domestic investment.
Question 10
Which of the following represents the national savings and investment identity - Supply of financial capital = Demand for financial capital - expressed in algebraic terms?
a) S + (M - X) = I + (G - T)
b) X - M = S + (G - T) - I
c) (M - X) = I - S - (T - G)
d) I - S - (T - G) = (M - X)
Question 11
The two main sources for the supply of capital in the U.S. economy are:
a) private sector investment and government borrowing when spending is higher than tax revenues.
b) domestic savings from individuals and firms and government borrowing to make up a tax shortfall.
c) domestic savings from individuals and firms and inflows of financial capital from foreign investors.
d) domestic private sector borrowing and inflows of financial capital from foreign investors.
Question 12
Only one of the following statements about the trade surplus is correct. Which one is it?
a) increasing foreign capital investment is better than generating a trade surplus
b) the government should always strive for a trade surplus and a healthy inflow of foreign capital
c) the government generating a trade surplus is better than increasing foreign capital inflows
d) generating a trade surplus and an overall net inflow of capital is impossible
Question 13
The statement that GDP = C + I + G + X - M is an identity, because ________________________________.
a) trade surpluses can be either good or bad
b) it is true according to the definition of GDP
c) trade deficits can be either good or bad
d) each trade is conducted on a voluntary basis
Question 14
To a macroeconomist, a trade deficit is synonymous with which of the following?
a) outflow of financial capital
b) outflow of goods and services
c) inflow of financial capital
d) inflow of goods and services
Chapter 19 Random
Question 15
In low and middle-income countries, workers who are not connected to a labor market are often unable to:
a) be "officially" employed.
b) receive social benefits.
c) collect old-age payments.
d) specialize very much.
Question 16
Which of the following will have the greatest influence on shifting the aggregate supply curves of high-income countries to the right?
a) risk of exchange rate fluctuations
b) investment in human capital
c) growth-oriented public policy
d) a market-driven economy
Question 17
When other factors such as health and illiteracy rates are added to global comparisons of GDP and population, which of the following is likely to be revealed?
a) 2% of the world's GDP comes from agriculture in low-income countries
b) rough comparisons between regions as data are not available
c) very wide differences in the standard of living
d) the similarity in the low degree of urbanization
Question 18
If an economy has a high level of trade in goods and services relative to GDP and its exports and imports are balanced, what value will the net flow of foreign investment be?
a) zero
b) higher
c) unchanged
d) lower
Question 19
Of all the arguments for placing limitations on trade, which of the following would most likely be characterized as being the most controversial among economists?
a) the infant industry argument
b) floating currency argument
c) quantitative easing argument
d) bank/financial sector regulation argument
Question 20
When per capita GDP is used as a rough measure to compare the economic regions of the World, the richest region is _________________ and the poorest region is ________________.
a) East Asia and the Pacific; Sub-Saharan Africa
b) the United States, Western Europe and Japan; South Asia
c) East Asia and the Pacific; South Asia
d) the United States, Western Europe and Japan; Sub-Saharan Africa
Question 21
The U.S. trade deficit can disappear without raising legitimate concerns over disruption to the economy if:
a) domestic savings rates increases and foreign investment gradually decreases.
b) all tariffs are doubled and import quotas are reduced by half.
c) the U.S. immediately ceases trade with all foreign countries.
d) foreign investors sell their U.S. dollar investments and stop investing in the U.S. economy.
Question 22
A foreign aid donor has provided technology to help farmers in an undeveloped country to be more productive. If that country's government reacts to political pressure by urban food consumers by imposing price ceilings on farm products,
a) it will prove technologically disconnected countries need a full economic growth agenda.
b) it will create a reasonably stable market-oriented macroeconomic climate.
c) the farmers receiving the technology will still be unable to make a living.
d) foreign investors will be more likely to provide funds for profitable activities.
Question 23
In a number of middle to low-income economies around the world, governments may run an expansionary policy of huge and sustained budget deficits. This policy
a) counters inflation without regard to the shift to the left in aggregate demand.
b) will shift aggregate demand to the right, so that output is beyond the potential GDP level.
c) will begin a cycle of heavy reliance on economic growth from a few exported products.
d) uses the central bank as a mechanism for making loans to politically favored firms.
Question 24
Why do smaller economies around the world typically face more volatile inflation?
a) they can be unsettled by international movements of capital and goods
b) the fundamentals of growth are the same in every country
c) businesses are distracted from focusing on real productivity gains
d) they address inflation concerns without restricting trade and thus lose benefits
Chapter 20 Random
Question 25
As measured in 2008, about _________ of U.S. trade and ________ of European trade is intra-industry trade.
a) 10%; 10%
b) 90%; 90%
c) 30%; 30%
d) 60%; 60%