CEA International Trade and Finance 3

Question 1

Which of the following best describes 'Dutch disease' in international economics?

Accepted Answer

Currency appreciation from a resource boom crowding out manufacturing exports

Answer

Dutch disease refers to the deindustrialization that occurs when a natural resource boom appreciates the exchange rate, making other exports less competitive.

Question 2

The 'impossible trinity' (trilemma) in international finance states that a country cannot simultaneously maintain:

Accepted Answer

A fixed exchange rate, free capital mobility, and independent monetary policy

Answer

The Mundell-Fleming trilemma holds that only two of three goals—fixed exchange rate, capital mobility, and monetary autonomy—can be achieved at the same time.

Question 3

Intra-industry trade is best explained by which theory?

Accepted Answer

New Trade Theory emphasizing economies of scale and product differentiation

Answer

New Trade Theory explains intra-industry trade (exporting and importing similar goods) through increasing returns to scale and consumer demand for variety.

Question 4

A country imposes a countervailing duty. This trade measure targets:

Accepted Answer

Imports subsidized by a foreign government

Answer

Countervailing duties are imposed to offset the competitive advantage gained by foreign producers who receive government subsidies.

Question 5

Under a currency board arrangement, the domestic money supply is:

Accepted Answer

Fully backed by foreign exchange reserves at a fixed rate

Answer

A currency board ties the domestic money supply directly to foreign reserve holdings, leaving no discretion for independent monetary policy.

(CEA) Certified Economic Analyst Practice Test

(CEA) Certified Economic Analyst Practice Test

CEA International Trade and Finance 3