Economy

ECON 335 – International Economy Instructor: Huiran Rachel Pan

Sample Midterm (Chapters 1-7)

Multiple Choices 1. The index of openness (a) is the ratio of a country's exports to its total output (GNP or GDP) (b) is the ratio of a country's imports to its total output (GNP or GDP) (c) would be quite high if calculated for the United States. (d) Both (a) and (c). (e) Both (b) and (c). Answer:A 2. If individuals have money illusion then they (a) think that money is worthless. (b) ignore the effects on their income or wealth of some price changes in the economy. (c) base their production and consumption decisions on relative prices. (d) both (a) and (c). (e) both (b) and (c). Answer: B 3. Indifference curves are downward sloping because (a) when some of one good is taken away theconsumer must be compensated with more of the other. (b) higher prices mean less quantity demanded. (c) higher indifference curves mean higher utility. (d) the more the consumer has one good, the less they want more of it. (e) All of the above. Answer: A

T

50

S
150

4. Refer to the above figure, the relative price of T (in terms of S) is (a) 50. (b) 3. (c) 1/3.
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ECON 335 –International Economy Instructor: Huiran Rachel Pan

Sample Midterm (Chapters 1-7)

(d) 150. (e) 100. Answer: B
Answer the question(s) below based on the information in the following table Country A 3 4

Goods X Y

B  9  2 

(numbers indicate hours of labor per unit of output)    5. Refer to the table above. Country A has a comparative advantage in 

(a) X. (b) Y. (c) Both X and Y. (d)Neither X nor Y. (e) Not enough information to decide. Answer: A
 

6. Refer to the table above. In autarky (no trade) the relative price of X (in terms of Y) in A would be (a) 3/4. (b) 4/3. (c) 3/9. (d) $3. (e) None of the above. Answer: A
 

7. Refer to the table above. If countries were to trade along the lines of comparative advantage (a) A would export X. (b) B would import Y. (c) BothA and B export Y. (d) neither country would want to trade. (e) Not enough information to decide. Answer: A
 

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ECON 335 – International Economy Instructor: Huiran Rachel Pan

Sample Midterm (Chapters 1-7)

8. Refer to the table above. For trade to occur along the lines of comparative advantage, wages in A relative to wages in B (measured in the same currency) (a) must be atleast 1/3 but less than twice as great. (b) must be at least half but less than 3 times as great. (c) must be greater than $3 but less than $9. (d) must be greater than $0.5. (e) Not enough information to decide. Answer: B

9. The HO model assumes that ________ are identical between countries (a) Technology sets. (b) Tastes. (c) Labor forces. (d) Capital endowment. (e) Both A and B. Answer: E10. In the 2-factor, 2 good Heckscher-Ohlin model, an increase in country H’s capital stock would (a) move the point of production along the production possibility curve. (b) shift the production possibility curve outward, and increase the production of both goods. (c) shift the production possibility curve outward and increase the production of the labor-intensive product. (d) shift the productionpossibility curve outward and increase the production of the capitalintensive product. (e) None of the above. Answer: D

11. Assume that only two countries, A and B, exist. Consider the following data: Countries Factor Endowments Labor Force Capital Stock A 45 15 B 20 10

If good S is capital intensive, then following the Heckscher-Ohlin Theory, (a) country A will export good S. (b) country Bwill export good S. (c) both countries will export good S. (d) trade will not occur between these two countries.
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ECON 335 – International Economy Instructor: Huiran Rachel Pan

Sample Midterm (Chapters 1-7)

(e) Insufficient information is given. Answer: B

12. If Australia has relatively more land per worker, and Belgium has relatively more capital per worker, then if...