1999 Economics Challenge Play-off
INTERNATIONAL ECONOMICS
Round III

1. Which of the following is most likely correct?
   1. An easy money policy will cause the dollar to depreciate and will increase U.S. net exports.
   2. An easy money policy will cause the dollar to depreciate and will decrease U.S. net exports.
   3. An easy money policy will cause the dollar to appreciate and will increase U.S. net exports.
   4. An easy money policy will cause the dollar to appreciate and will decrease U.S. net exports.

    

2. To say that the American South after the Civil War had a comparative advantage (vis-à-vis the North) in cotton and not corn means
   1. corn yields per labor unit in the South were lower than in the North.
   2. cotton could not be produced in the North.
   3. at market prices cotton yielded sufficient revenue to purchase the corn that could have been grown, plus some.
   4. corn was not important in the southern diet, so there was no advantage in producing it.

    

3. When companies from other countries "dump" products on the U.S. market, they
   1. sell at prices lower than prices charged to their own domestic customers.
   2. expect the United States to help pay any industrialist's losses.
   3. are following an export subsidy plan.
   4. All of the above are true.

   

   Figure 1

    

4. In Figure 1, the opportunity cost of a unit of wheat in terms of cotton is which of the following?
   1. 1 for the United States; 5 for Egypt.
   2. 20 for the United States; 2 for Egypt.
   3. 1 for the United States; 2 for Egypt.
   4. 20 for the United States; 10 for Egypt.

    

5. If one were traveling to France six months from now, one would buy francs immediately if one anticipated a
   1. sharp decline in the American inflation rate.
   2. sharp rise in American interest rates.
   3. French recession.
   4. sharp decline in French interest rates.
      
      

   

   Figure 2

    

6. From the graph in Figure 2 (curves show output per unit of labor input), one can infer that
   1. in terms of TVs, computers are more expensive in China than Japan.
   2. in terms of computers, TVs are more expensive in China than Japan.
   3. China should produce more computers and fewer TVs.
   4. All of the above are true.

    

7. The purchasing-power parity theory of exchange rate determination holds that
   1. in the short run, the cost of labor really sets the exchange rate.
   2. in the long run, a government agency sets the rate at par (or parity).
   3. in the long run, the rate reflects differences in price levels between the two countries.
   4. in the short run, rates will adjust to parity.

    

8. In the current international monetary system, what is the role for gold?
   1. The system is a gold-exchange standard, based on a fixed value for a key currency.
   2. It serves as a stabilizing asset.
   3. Gold backs each currency and therefore the system as a whole.
   4. It has no significant role.

    

9. Which of the following might lead a nation to engage in international trade?
   1. Differences in natural endowments such as climate.
   2. Differences in skills of labor force.
   3. Differences in endowments of natural resources.
   4. Inability to attain economies of scale in all industries.
   5. All of the above.

    

10. An essential point in the refutation of the "cheap foreign labor" argument is
    1. foreign workers have a lower standard of living.
    2. foreign workers are less productive.
    3. low foreign wages mean fewer exports for the United States.
    4. the United States does not benefit from cheap foreign labor so the goods should be kept out.

     

11. In 1980, U.S. citizens imported merchandise valued at about $28 billion more than the merchandise they exported. This counts as a deficit
    1. in the balance of trade.
    2. in the balance of payments.
    3. in unilateral transfers.
    4. on the capital account.
    5. All of the above are correct.

     

12. The Bretton Woods Conference in 1944
    1. established in the International Monetary Fund.
    2. sanctioned world trade on the gold-exchange system.
    3. allowed nations to devalue their currencies under some conditions.
    4. All of the above are correct.

    	Real Growth Rate	Interest Rate	Inflation Rate
    Country A	4 percent	2 percent	10 percent
    Country B	1 percent	8 percent	2 percent
    Country C	3 percent	2 percent	4 percent
    Country D	2 percent	4 percent	4 percent

    Table 1

     

13. Table 1 presents the relevant data for four countries that allow their exchange rate to float. Which of these countries, given the data, is most likely to experience the largest currency depreciation?
    1. A
    2. B
    3. C
    4. D

    	Output per Unit Labor Input
    	Cotton	Wheat
    Egypt	10	2
    United States	20	20

     

14. The data in Table 2 indicate that the United States has
    1. an absolute advantage in both goods, a comparative advantage in cotton.
    2. an absolute advantage in both goods, a comparative advantage in wheat.
    3. only a comparative advantage in wheat.
    4. only a comparative advantage in cotton.

     

15. On Wednesday, February 10, 1999, it cost 114.28 Yen to buy a dollar. How many U.S. dollars did it take to buy a Yen?
    1. 0.00114
    2. 0.00280
    3. 0.00875
    4. 0.11428
    5. 0.28054

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