WGU C211 GLOBAL ECONOMICS
PRACTICE EXAM QUESTIONS AND
ANSWERS
1. Which economic theory suggests that a country should export goods for which it has a
lower opportunity cost than other countries?
A. Comparative Advantage
B. Absolute Advantage
C. Mercantilism
D. Product Life Cycle Theory
Answer: A
Conceptual Explanation: Comparative advantage, proposed by David Ricardo, focuses on
the relative efficiency and opportunity cost of production rather than just absolute output.
2. What is the primary objective of the World Trade Organization (WTO)?
A. To provide high-interest loans to developing nations
B. To act as a global central bank
C. To manage the global supply of gold
D. To ensure that trade flows as smoothly, predictably, and freely as possible
,Answer: D
Conceptual Explanation: The WTO’s main function is to ensure that global trade is
conducted smoothly and to provide a forum for negotiating trade agreements and settling
disputes.
3. In the context of the Balance of Payments, where are records of a country’s exports and
imports of goods and services kept?
A. Capital Account
B. Financial Account
C. Current Account
D. Foreign Exchange Account
Answer: C
Conceptual Explanation: The Current Account tracks the net trade in goods and services,
as well as net earnings on cross-border investments and net transfer payments.
4. Which type of Foreign Direct Investment (FDI) occurs when a firm moves upstream or
downstream in different stages of the value chain in a host country?
A. Vertical FDI
B. Horizontal FDI
C. Conglomerate FDI
D. Portfolio Investment
, Answer: A
Conceptual Explanation: Vertical FDI involves a firm moving into different stages of
production (supply or distribution) in another country.
5. What does the Heckscher-Ohlin Theory emphasize as the primary source of comparative
advantage?
A. Technological innovation
B. Labor productivity
C. Factor endowments
D. First-mover advantages
Answer: C
Conceptual Explanation: Heckscher-Ohlin theory argues that comparative advantage
arises from differences in national factor endowments such as land, labor, and capital.
6. A tariff that is calculated as a fixed charge for each unit of a good imported is known as a:
A. Ad Valorem tariff
B. Compound tariff
C. Specific tariff
D. Prohibitive tariff
Answer: C
PRACTICE EXAM QUESTIONS AND
ANSWERS
1. Which economic theory suggests that a country should export goods for which it has a
lower opportunity cost than other countries?
A. Comparative Advantage
B. Absolute Advantage
C. Mercantilism
D. Product Life Cycle Theory
Answer: A
Conceptual Explanation: Comparative advantage, proposed by David Ricardo, focuses on
the relative efficiency and opportunity cost of production rather than just absolute output.
2. What is the primary objective of the World Trade Organization (WTO)?
A. To provide high-interest loans to developing nations
B. To act as a global central bank
C. To manage the global supply of gold
D. To ensure that trade flows as smoothly, predictably, and freely as possible
,Answer: D
Conceptual Explanation: The WTO’s main function is to ensure that global trade is
conducted smoothly and to provide a forum for negotiating trade agreements and settling
disputes.
3. In the context of the Balance of Payments, where are records of a country’s exports and
imports of goods and services kept?
A. Capital Account
B. Financial Account
C. Current Account
D. Foreign Exchange Account
Answer: C
Conceptual Explanation: The Current Account tracks the net trade in goods and services,
as well as net earnings on cross-border investments and net transfer payments.
4. Which type of Foreign Direct Investment (FDI) occurs when a firm moves upstream or
downstream in different stages of the value chain in a host country?
A. Vertical FDI
B. Horizontal FDI
C. Conglomerate FDI
D. Portfolio Investment
, Answer: A
Conceptual Explanation: Vertical FDI involves a firm moving into different stages of
production (supply or distribution) in another country.
5. What does the Heckscher-Ohlin Theory emphasize as the primary source of comparative
advantage?
A. Technological innovation
B. Labor productivity
C. Factor endowments
D. First-mover advantages
Answer: C
Conceptual Explanation: Heckscher-Ohlin theory argues that comparative advantage
arises from differences in national factor endowments such as land, labor, and capital.
6. A tariff that is calculated as a fixed charge for each unit of a good imported is known as a:
A. Ad Valorem tariff
B. Compound tariff
C. Specific tariff
D. Prohibitive tariff
Answer: C
