1. Concerning international trade restrictions, which of the following is false?

Trade restrictions:
a. Limit specialization and the division of labor
b. Reduce the volume of trade and the gains from trade
c. Cause nations to produce inside their production possibilities curves
d. May result in a country producing some of the product of its comparative disadvantage
ANS: C
2. If the international terms of trade settle at a level that is between each country's opportunity cost:
a. There is no basis for gainful trade for either country
b. Both countries gain from trade
c. Only one country gains from trade
d. One country gains and the other country loses from trade
ANS: B
3. Suppose that a steel manufacturer headquartered in Japan sets up a subsidiary in Canada to produce steel. This
practice is referred to as:
a. Conglomerate integration
b. Forward vertical integration
c. Backward vertical integration
d. Horizontal integration
ANS: D
4. Which of the following best refers to the outright construction or purchase abroad of productive facilities, such
as manufacturing plants, by domestic residents?
a. Direct investment
b. Portfolio investment
c. Short-term capital investment
d. Long-term capital investment
ANS: A
5. Direct foreign investment has taken all of the following forms except:
a. Investors buying bonds of an existing firm overseas
b. The creation of a wholly owned business enterprise overseas
c. The takeover of an existing company overseas
d. The construction of a manufacturing plant overseas
ANS: A
6. Both Coca-Cola Co. and Pepsi-Cola Co. are multinational firms in that their soft drinks are bottled throughout
the world. This practice illustrates:
a. Backward vertical integration
b. Forward vertical integration
c. Horizontal integration
d. Conglomerate integration
ANS: C
7. Under managed floating exchange rates, if the rate of inflation in the United States is less than the rate of
inflation of its trading partners, the dollar will likely:

a.
b.
c.
d.

Appreciate against foreign currencies

Depreciate against foreign currencies
Be officially revalued by the government
Be officially devalued by the government

ANS: A
8.Which exchange-rate system does not require monetary reserves for official exchange-rate intervention?
a. Floating exchange rates
b. Pegged exchange rates
c. Managed floating exchange rates
d. Dual exchange rates
ANS: A
9.An appreciation of the U.S. dollar tends to:
a. Discourage foreigners from making investments in the United States
b. Discourage Americans from purchasing foreign goods and services
c. Increase the number of dollars that could be bought with foreign currencies
d. Discourage Americans from traveling overseas
ANS: A
TRUE/FALSE
10. Under a fixed exchange rate system, adjustment mechanisms work for the automatic return to currentaccount balance after the initial balance has been disrupted.
ANS: T
11. Suppose the exchange value of the franc rises against the currencies of Switzerland's major trading partners.
To protect themselves from decreases in foreign sales caused by the mark's appreciation, Swiss companies
could shift production to countries whose currencies had depreciated against the mark.
ANS: T