2000 Economics Challenge Play-off
INTERNATIONAL ECONOMICS
Round III

1. A deficit on the current account
   1. tends to cause a surplus on the capital account.
   2. tends to cause a deficit on the capital account.
   3. has no relationship to the capital account.
   4. means that a nation is making international transfers.

    

2. The U.S. Treasury secretary met with the Japanese finance minister to discuss possible cuts in the Japanese discount rate. The likely outcome of currency speculation on this matter is
   1. the dollar will appreciate relative to the yen.
   2. the dollar will depreciate relative to the yen.
   3. the value of the dollar will remain constant relative to the yen.
   4. not enough information is given.

    

3. Subsidies mean that infant industry firms can likely charge
   1. higher prices while competing with foreign producers
   2. higher prices than foreign producers are able to receive.
   3. a price equal to the world price and still earn a profit.
   4. the foreign tariff to other customers of the foreign firm.
    
4. Which of the following does not result from a tariff?
   1. decreased imports.
   2. increased domestic consumption.
   3. government revenue.
   4. higher prices.

    

5. Suppose that the world price of kiwi fruit ($25 per case) is below the domestic price ($40 per case). A tariff of $10 per case would
   1. cause domestic producers to be worse off by $10 per case.
   2. allow domestic consumers to enjoy kiwi fruit for $10 more per case than the free trade price, but still $5 less than the domestic price.
   3. allow domestic consumers to enjoy kiwi fruit for $5 more per case than the free trade price, but still $10 less than the domestic price.
   4. cause domestic producers to be worse off by $5 per case.
   5. cause foreign producers to be better off, since the price they charge is now higher by $10 per case.

   

   FIGURE 1  

6. The production possibilities curves in Figure 1 suggest that
   1. West Mudsville should specialize in, and export, baseball bats.
   2. West Mudsville should specialize in, and export, both baseballs and baseball bats.
   3. East Mudsville should specialize in, and export, baseball bats.
   4. workers will try to immigrate from West Mudsville to East Mudsville.

    

7. Assuming labor forces of equal size, the production possibilities curves suggest that workers in West Mudsville will have
   1. lower wages than workers in East Mudsville before, trade, but equal wages after trade.
   2. higher wages than workers in East Mudsville both before and after trade.
   3. lower wages than workers in East Mudsville both before and after trade.
   4. higher wages than workers in East Mudsville before trade, but lower wages after trade.

   	Calculators	Rice (in pounds)
   Japan	10	2
   Korea	5	5

   
   
   TABLE 1

    

8. In Table 1, what is the least amount Japan is willing to accept for 1 calculator?
   1. 1 pound of rice
   2. 5 pounds of rice
   3. 2 pounds of rice
   4. 1/5 pound of rice
   5. 1/2 pound of rice

    

9. For purposes of determining comparative advantage, the cost of producing a good in each of two countries is measured in terms of
   1. metric units only.
   2. opportunity costs.
   3. total costs.
   4. the currency of the importing country.
   5. the currency of the exporting country.

    

10. The World Bank was created to
    1. help finance economic development in poor countries.
    2. supervise exchange-rate practices of member countries.
    3. lend money to countries that are having difficulty meeting their international payment obligations.
    4. All of the above.

     

11. In a nation's balance of payments, which one of the following items is always recorded as a positive entry?
    1. merchandise exports
    2. changes in foreign currency reserves
    3. exports of services
    4. none of the above

     

12. A voluntary exchange between two nations
    1. is expected to lead to mutual gains.
    2. is expected to make one of the two nations stronger.
    3. usually comes after devious negotiations.
    4. can only happen with prior approval from the United Nations.

     

13. Under a system of freely flexible (floating) exchange rates an American trade deficit with Mexico will tend to cause
    1. the U.S. government to ration pesos to American importers.
    2. a flow of gold from the United States to Mexico.
    3. an increase in the peso price of dollars.
    4. an increase in the dollar price of pesos.

     

14. In deciding what products to produce, which of the following would central planners in a command economy consider the least important?
    1. the size of the economy's labor force
    2. the country's stock of raw materials
    3. consumer preferences
    4. the production capabilities of the economy's factories

    Hours Required to Produce:	Country X	Country Y
    One Loaf of Bread	1 Hour	6 Hours
    One Gallon of Milk	2 Hours	3 Hours
    Total Time	3 Hours	9 Hours

    TABLE 2  

15. If the two nations in Table 2 specialize and trade according to comparative advantage, they
    1. will both lose because each would require more time to obtain a loaf of bread and a gallon of milk.
    2. Country X will gain, but Country Y will lose.
    3. Country X will obtain both products and save 2 hours of work time, and Country Y will obtain both products and save 6 hours of work time.
    4. Country X will obtain both products and save 1 hour of work time, and Country Y will obtain both products and save 3 hours of work time.

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