Chapter 1:
International Economics is Different
Multiple Choice Questions
1. Sovereign nations:
a. Are subject to laws passed by the United Nations.
b. Must be concerned with the interests of foreigners when developing economic
policy.
c. Often ignore the interests of foreigners.
d. Must coordinate their monetary policy with the World Bank.
ANSWER: C
2. Outsourcing of services to foreign countries:
a. Cost the U.S. economy an estimated 5 million jobs by 2005.
b. Mainly impacts workers in business services such as data entry and software
development.
c. Is a serious concern for workers in high-wage manufacturing industries.
d. Will have a serious negative impact on all service sector jobs in the United
States.
ANSWER: B
3. Globalization:
a. Is the process of intensifying the connections between national economies
through international trade, foreign direct investments by multinational firms,
and international financial investments.
b. Has been proven to worsen working conditions and increase poverty in poor
countries.
, c. Requires governments to weaken labor and environmental regulations in order
to remain competitive.
d. Is coordinated by the International Labor Organization to ensure respect for the
four core labor standards.
ANSWER: A
4. The long-run solution to eliminating child labor is to:
a. Boycott companies whose products are produced using child labor.
b. Impose trade sanctions against countries that violate child labor standards.
c. Stimulate economic growth and rising incomes in poor countries.
d. There is no long-run solution as demand for cheap labor will always exist.
ANSWER: C
5. In early 2002, the national moneys of 12 European countries disappeared. They were
replaced by one new money, the euro. The benefits to those countries included all of the
following EXCEPT:
a. It is convenient – there is no need to change money when crossing national
borders.
b. It is less risky – there is no need to worry about the changing value of one
country’s money relative to another country’s money.
c. It is economical – travel and trade are made easier due to a decrease in
transaction costs.
d. It strengthens domestic policy – using an international money gives a country’s
Central Bank a greater ability to influence national prices, production, and jobs.
ANSWER: D
6. The Chinese government’s intervention in the foreign exchange market - buying U.S.
dollars and selling yuan – had the effect of:
a. Weakening the U.S dollar and increasing the U.S. trade deficit with China.
b. Strengthening the U.S dollar and increasing the U.S. trade deficit with China.
, c. Strengthening the yuan and increasing the U.S. trade deficit with China.
d. Strengthening the yuan and decreasing the U.S. trade deficit with China.
ANSWER: B
7. On July 21st, 2005, the Chinese government changed the value of the yuan from 8.28
yuan per U.S. dollar to 8.11 yuan per U.S. dollar. This implies a __________ dollar and a
__________ yuan.
a. Weaker; weaker
b. Weaker; stronger
c. Stronger; stronger
d. Stronger; weaker
ANSWER: B
8. Since the early 2000s, a variety of services has been subject to outsourcing in the United
States EXCEPT for:
a. Data entry.
b. Telephone call centers.
c. Software development.
d. Haircuts.
ANSWER: D
9. Since the late nineties, to keep the exchange rate of the yuan to the U.S. dollar fixed, the
Chinese government:
a. Has been trying to hold predominantly euros and British pounds as foreign
assets.
b. Has been buying dollars and selling Yuan.
c. Has been trying not to sell its domestic currency (Yuan).
, d. Has been keeping a trade deficit with many countries including Australia,
Russia, Japan, and Brazil.
ANSWER: B
10. The exchange rate policy of a “crawling peg” adopted by the Chinese government since
2005 means that the government:
a. Allowed small daily changes which over time resulted in a slow, tightly
controlled trend.
b. Vehemently defended the yuan by selling U.S. dollars.
c. Held a balanced portfolio of assets including a variety of foreign currencies.
d. Tried to unwind the trade surplus with the U.S.
ANSWER: A
11. Outsourcing is the process of:
a. Shifting business activities abroad.
b. Allowing foreign workers on temporary visas.
c. Eliminating business activities that require foreign labor.
d. Paying foreign workers lower wages compared to domestic workers.
ANSWER: A
12. In recent years, the European Union:
a. Attempted a geographic expansion to include Turkey.
b. Adopted a formal constitution in which was decided that all countries should
pay their debt in their own currencies.
c. Made progress on the formation of a monetary union, and on an expansion of
the European Union, but could not adopt a formal constitution due to the
negative vote of France in 2005.
d. Made significant progress on the formation of a monetary union, a formal
constitution, and on accepting some eastern European countries as members.
International Economics is Different
Multiple Choice Questions
1. Sovereign nations:
a. Are subject to laws passed by the United Nations.
b. Must be concerned with the interests of foreigners when developing economic
policy.
c. Often ignore the interests of foreigners.
d. Must coordinate their monetary policy with the World Bank.
ANSWER: C
2. Outsourcing of services to foreign countries:
a. Cost the U.S. economy an estimated 5 million jobs by 2005.
b. Mainly impacts workers in business services such as data entry and software
development.
c. Is a serious concern for workers in high-wage manufacturing industries.
d. Will have a serious negative impact on all service sector jobs in the United
States.
ANSWER: B
3. Globalization:
a. Is the process of intensifying the connections between national economies
through international trade, foreign direct investments by multinational firms,
and international financial investments.
b. Has been proven to worsen working conditions and increase poverty in poor
countries.
, c. Requires governments to weaken labor and environmental regulations in order
to remain competitive.
d. Is coordinated by the International Labor Organization to ensure respect for the
four core labor standards.
ANSWER: A
4. The long-run solution to eliminating child labor is to:
a. Boycott companies whose products are produced using child labor.
b. Impose trade sanctions against countries that violate child labor standards.
c. Stimulate economic growth and rising incomes in poor countries.
d. There is no long-run solution as demand for cheap labor will always exist.
ANSWER: C
5. In early 2002, the national moneys of 12 European countries disappeared. They were
replaced by one new money, the euro. The benefits to those countries included all of the
following EXCEPT:
a. It is convenient – there is no need to change money when crossing national
borders.
b. It is less risky – there is no need to worry about the changing value of one
country’s money relative to another country’s money.
c. It is economical – travel and trade are made easier due to a decrease in
transaction costs.
d. It strengthens domestic policy – using an international money gives a country’s
Central Bank a greater ability to influence national prices, production, and jobs.
ANSWER: D
6. The Chinese government’s intervention in the foreign exchange market - buying U.S.
dollars and selling yuan – had the effect of:
a. Weakening the U.S dollar and increasing the U.S. trade deficit with China.
b. Strengthening the U.S dollar and increasing the U.S. trade deficit with China.
, c. Strengthening the yuan and increasing the U.S. trade deficit with China.
d. Strengthening the yuan and decreasing the U.S. trade deficit with China.
ANSWER: B
7. On July 21st, 2005, the Chinese government changed the value of the yuan from 8.28
yuan per U.S. dollar to 8.11 yuan per U.S. dollar. This implies a __________ dollar and a
__________ yuan.
a. Weaker; weaker
b. Weaker; stronger
c. Stronger; stronger
d. Stronger; weaker
ANSWER: B
8. Since the early 2000s, a variety of services has been subject to outsourcing in the United
States EXCEPT for:
a. Data entry.
b. Telephone call centers.
c. Software development.
d. Haircuts.
ANSWER: D
9. Since the late nineties, to keep the exchange rate of the yuan to the U.S. dollar fixed, the
Chinese government:
a. Has been trying to hold predominantly euros and British pounds as foreign
assets.
b. Has been buying dollars and selling Yuan.
c. Has been trying not to sell its domestic currency (Yuan).
, d. Has been keeping a trade deficit with many countries including Australia,
Russia, Japan, and Brazil.
ANSWER: B
10. The exchange rate policy of a “crawling peg” adopted by the Chinese government since
2005 means that the government:
a. Allowed small daily changes which over time resulted in a slow, tightly
controlled trend.
b. Vehemently defended the yuan by selling U.S. dollars.
c. Held a balanced portfolio of assets including a variety of foreign currencies.
d. Tried to unwind the trade surplus with the U.S.
ANSWER: A
11. Outsourcing is the process of:
a. Shifting business activities abroad.
b. Allowing foreign workers on temporary visas.
c. Eliminating business activities that require foreign labor.
d. Paying foreign workers lower wages compared to domestic workers.
ANSWER: A
12. In recent years, the European Union:
a. Attempted a geographic expansion to include Turkey.
b. Adopted a formal constitution in which was decided that all countries should
pay their debt in their own currencies.
c. Made progress on the formation of a monetary union, and on an expansion of
the European Union, but could not adopt a formal constitution due to the
negative vote of France in 2005.
d. Made significant progress on the formation of a monetary union, a formal
constitution, and on accepting some eastern European countries as members.
