MEcon Master of Economics International Trade and Finance

Question 1

According to the theory of comparative advantage, a country should specialize in producing goods for which it has a lower:

Accepted Answer

Opportunity cost

Answer

Comparative advantage is based on opportunity cost — producing the good that requires giving up the least of other goods.

Question 2

The Heckscher-Ohlin theorem predicts that a country will export goods that intensively use its:

Accepted Answer

Abundant factor

Answer

H-O theory states that countries export goods whose production is intensive in the factor they possess in relative abundance.

Question 3

A tariff imposed on imported goods directly results in:

Accepted Answer

Higher government revenue and higher domestic prices

Answer

Tariffs raise the domestic price of imports and generate government revenue, though they reduce overall economic welfare.

Question 4

The Marshall-Lerner condition states that a currency depreciation will improve the trade balance if the sum of the absolute values of import and export demand elasticities is:

Accepted Answer

Greater than 1

Answer

If |price elasticity of exports| + |price elasticity of imports| > 1, depreciation improves the current account.

Question 5

Under a fixed exchange rate regime, a central bank must intervene in currency markets to:

Accepted Answer

Maintain the pegged exchange rate

Answer

A fixed exchange rate requires the central bank to buy or sell foreign currency to keep the exchange rate at its stated peg.

MEcon Master of Economics Practice Test

MEcon Master of Economics Practice Test

MEcon Master of Economics International Trade and Finance