Introduction to the Global Economy1
Test Bank
to accompany
Global Economic
Issues and Policies
Chapter One
Understanding the Global Economy
True/False
1. Jubilee 2000 was a worldwide movement to cancel the debts of impoverished nations.
Ans: True
Dif: E
2. According to Foreign Policy magazine, the smallest economies in the world tend to be the most globalized.
Ans: True
Dif: E
3. Economists have now defined a clear-cut method for measuring globalization using the Internet.
Ans: False
Dif: E
4. According to Foreign Policy magazine, the U.S. does not rank in the top 10 most globalized countries in the world.
Ans: True
Dif: M
5. U.S. businesses operating in a foreign country often pay higher wages and employ stricter environmental standards than similar local companies.
Ans: True
Dif: E
6. Economic integration refers to the extent to which different countries’ real sectors, but not their financial sectors, are linked.
Ans: False
Dif: E
7. The real sector of an economy refers to the production and exchange of goods, services and financial assets.
Ans: False
Dif: E
8. Exports minus imports divided by domestic output gives a common measure of a country’s global trade as a share of the total amount of economic activity.
Ans: False
Dif: M
9.Exports and imports comprise a greater percentage of domestic output in Canada than in the United States.
Ans: True
Dif: M
10.The value of world exports has increased by more than 900% since 1979.
Ans: False
Dif: M
11.Foreign direct investment to emerging economies has been negative every year since the East Asian crisis of 1997.
Ans: False
Dif: M
12. The law of demand states that there is an inverse relationship between quantity supplied and price.
Ans: False
Dif: E
13.The most important factors influencing demand are consumer tastes and preferences.
Ans: True
Dif: E
14.An inferior good is one that you purchase less of as your income grows.
Ans: True
Dif: E
15. An increase in the price of a complementary good will normally decrease demand for the related good.
Ans: True
Dif: M
16.If the quantity of goods supplied changes at every given price level this is called a movement along the supply curve.
Ans: False
Dif: M
17. The most important factor influencing supply is the cost and the availability of inputs or resources.
Ans: True
Dif: E
18.If the quantity of a good or service supplied increases the price of the good or service is likely to fall, all else equal.
Ans: True
Dif: E
19. At the market equilibrium price both excess demand and excess supply are zero.
Ans: True
Dif: E
20. If the quantity of exports for a good exceeds the quantity of imports desired, the price of the good will fall.
Ans: True
Dif: M
21. The value of foreign exchange trading exceeds the value of global exports.
Ans: True
Dif: E
Multiple Choice
1. The key factor in determining globalization is the
A) interrelatedness of peoples, societies and economies.
B) level of exports.
C) ratio of exports to imports.
D) number of Internet connections in a country.
E) volume of trade in goods, services and capital.
Ans: A
Dif: E
2. According to Foreign Policymagazine, the most globalized country was
A) the United States.
B) Switzerland.
C) Hong Kong.
D) Singapore.
E) Ireland.
Ans: E
Dif: M
3. The African Growth and Opportunity Act passed by the U.S Congress in 2000
A) was designed to shelter U.S. producers from African producers exploiting low cost labor.
B) cancelled all the debts owed to the U.S. by certain African countries.
C) eliminated import duties on all goods produced by sub-Saharan African countries.
D) resulted in large scale job losses in certain American industries.
E) led to additional environmental degradation in Africa.
Ans:C
Dif: M
4. Countries with greater levels of globalization tend to have
I. greater civil liberties and political rights.
II. lower levels of corruption.
III. more equal distribution of income among its people.
A) I only
B) I and II only
C) II only
D) I and III only
E) I, II, and III
Ans:B
Dif: M
5. World trade in goods and services has increased at an annual rate of almost ______since 1970.
A) 2%
B) 4%
C) 6%
D) 8%
E) 10%
Ans:C
Dif: E
6. Since 1970 growth in global trade and services has been negative in only ______year(s).
A) 1
B) 2
C) 3
D) 4
E) none of the above
Ans:C
Dif: E
7. Ten years ago Country A had exports of $3 billion, imports of $7 billion and total domestic output of $20 billion. Today Country A has exports of $25 billion, imports of $25 billion and total domestic output of $275 billion. Which of the following statements is the most correct?
A) The importance of global trade appears to have increased for Country A.
B) Country A’s share of global trade has decreased from 50% to about 18%.
C) The country is more import dependent today.
D) Today the country would not be affected by eliminating international trade.
E) Country’s A’s share of global trade has fallen from 20% to 0%.
Ans:B
Dif: M
8. The value of world exports has increased by more than ______since 1979.
A) 100%
B) 200%
C) 300%
D) 400%
E) 500%
Ans: B
Dif: E
9. The ratio of foreign exchange turnover to world exports of goods has increased from 12 to 1 in 1979 to 45 to 1 in 2001. This implies that
A) there is excessive foreign exchange trading today.
B) the primary purpose of foreign exchange trading is to pay for exports.
C) the primary purpose of foreign exchange trading is to support foreign direct investment.
D) foreign exchange trading serves more purposes than just paying for exports.
E) foreign exchange trading has become less important today.
Ans:D
Dif: E
10.Daily turnover in the foreign exchange markets slightly exceeds
A) $500 million.
B) $500 billion.
C) $1 trillion.
D) $5 trillion.
E) $7 trillion.
Ans:C
Dif: E
11.Foreign direct investment is an investment that involves a ______and represents a controlling interest of at least ______or more in an enterprise located in another economy.
A) government; 30%
B) financial investment; 25%
C) joint venture; 50%
D) long term relationship; 10%
E) bank; 15%
Ans:D
Dif: E
12. After 1985 growth rates in foreign direct investment were ______growth rates in world exports.
A)slightly less than
B) slightly greater than
C) equal to
D) much less than
E) much greater than
Ans:E
Dif: M
13.Since 1997 FDI to emerging economies has been ______and bank loans to emerging economies have been ______.
A) positive; negative
B)positive; positive
C) negative; positive
D) negative; negative
E) stable; positive
Ans:A
Dif: M
14.For a ______schedule, price and quantity are positively related, for a ______schedule, price and quantity are negatively related.
A) demand; supply
B) demand; consumer surplus
C) supply; demand
D) supply; producer surplus
E) marginal revenue; marginal cost
Ans:C
Dif: E
15. Jim is a parts dealer; he both buys and sells electronic parts. He shows you the following quote sheet:
Product A / Product BPrice / Quantity / Price / Quantity
$1.50 / 200 / $1.35 / 500
$1.60 / 300 / $1.40 / 300
$1.70 / 500 / $1.45 / 200
The information for Product A is a ______and the information for Product B is a ______.
A) demand schedule; supply schedule
B) demand schedule; demand schedule
C) supply schedule; demand schedule
D) supply schedule; supply schedule
Ans:C
Dif: M
16.Due to supply disruptions in the Middle East, the supply of oil to the United States is reduced. This will cause which one of the following?
A) A shift to up and to the left in the supply curve and a shift up and to the right in the demand curve for oil.
B) A shift to up and to the left in the supply curve and a shift down and to the left in the demand curve for oil.
C) A shift to up and to the left in the supply curve and a movement up along the demand curve.
D) A shift to up and to the left in the supply curve and a movement down along the demand curve.
E) Excess demand for oil which will cause the price to drop.
Ans:C
Dif: D
17.After you graduate from college you vow never to eat ‘hamburger surprise’ again and instead decide to eat healthy foods. For you ‘hamburger surprise’ is ______and health foods are a ______.
A)an inferior good; a normal good
B) a Giffen good; a complementary good
C) a normal good; an inferior good
D) a substitute good; a complementary good
E) normal good; superior good
Ans:A
Dif: E
18.Sweetened ice tea is sometimes called the ‘house wine’ of the South. If when the price of sugar rises, the demand for tea in the South falls then tea and sugar are
A) normal goods.
B) inferior goods.
C) substitute goods.
D) complementary goods.
E) positively correlated goods.
Ans:D
Dif: E
19.Everything else equal, an increase in the price of a substitute good results in a/an ______in the demand for related goods, and an increase in the price of a complementary good used in production results in a/an ______in the supply of related goods.
A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease
E) increase; indeterminate change
Ans:A
Dif: D
20.Due to improved technology, the costs to produce new computers has declined significantly. The result of this is
A) only a leftward shift in the supply curve.
B) only a shift in the demand curve up and to the right.
C) a rightward and upward shift in the demand curve and a movement along the supply curve.
D) a rightward and downward shift in the supply curve and a movement along the demand curve.
E) an increase in quantity demanded and no change in quantity supplied.
Ans:D
Dif: D
21.New findings indicate that egg consumption reduces bad cholesterol. The immediate result will be which one of the following?
A) An increase in the supply of eggs.
B) A decrease in the supply of eggs.
C) An increase in the demand for eggs.
D) A decrease in the demand for eggs.
E) A movement along the demand curve for eggs, resulting in a higher price of eggs.
Ans: C
Dif: E
22.The market for health foods has recently seen an increase in the number of consumers and the number of producers. As a result, what has probably happened to the price of health food products?
A) increased
B) decreased
C) stayed the same
D) can’t tell since supply and demand are both increasing
Ans:D
Dif: M
23.The most important factor causing changes in the demand schedule is usuallychanges in
A) consumer preferences.
B) consumer income.
C) the price of related goods.
D) the number of consumers.
E) the product’s price.
Ans:A
Dif: M
24.The most important factor causing changes in the supply schedule is usually changes in
A) the cost and availability of inputs.
B) technology.
C) the price of related goods.
D) the number of producers.
E) the product’s price.
Ans:A
Dif: M
25. Look at the following demand and supply schedules for a given product:
Demand / SupplyPrice / Quantity / Price / Quantity
$350 / 0 / $100 / 0
$300 / 100 / $150 / 100
$200 / 300 / $200 / 300
$100 / 500 / $350 / 450
If the market is in equilibrium, what is consumer surplus?
A) $45,000
B) $140,000
C) $70,000
D) $22,500
E) $30,000
Ans:D
Dif: D
26.Look at the following demand and supply schedules for a given product:
Demand / SupplyPrice / Quantity / Price / Quantity
$350 / 0 / $100 / 0
$300 / 100 / $150 / 100
$200 / 300 / $200 / 300
$100 / 500 / $350 / 450
If the market is in equilibrium, what is the producer surplus?
A) $15,000
B) $232,500
C) $116,250
D) $60,000
E) $30,000
Ans:A
Dif: D
27.The market clearing price is set where
A) excess demand is equal to excess supply.
B) excess demand just exceeds excess supply.
C) quantity demanded equals quantity supplied.
D) consumer surplus is zero.
E) consumer surplus is equal to producer surplus.
Ans:C
Dif: E
28.A country opens its markets to international trade for a given commodity and finds itself importing more of the product than it is exporting. The global price of the product will ______because global demand has ______more than global supply.
A) rise; decreased
B) fall; increased
C) rise; increased
D) fall; decreased
E) remain unchanged; not changed
Ans:C
Dif: M
29. In a global market, excess quantity demanded for a country is equivalent to a nation’s
A) imports.
B) exports.
C) trade deficit.
D) inflation rate.
E) balance of trade.
Ans:A
Dif: M
30.In a global market, excess quantity supplied for a country is equivalent to a nation’s
A) imports.
B) exports.
C) trade deficit.
D) inflation rate.
E) balance of trade.
Ans:B
Dif: M
31.Consumer surplus is the
A) area below the demand curve and above the market price.
B) area above the demand curve and below the market price.
C) area above the supply curve and below the market price.
D) area below the supply curve and above the market price.
E) amount overpaid by consumers in market equilibrium.
Ans: A
Dif: M
32.Producer surplus is the
A) area below the demand curve and above the market price.
B) area above the demand curve and below the market price.
C) area above the supply curve and below the market price.
D) area below the supply curve and above the market price.
E) amount overpaid by consumers in market equilibrium.
Ans: C
Dif: M
33.Falling market equilibrium prices ______consumer surplus and ______producer surplus.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Ans: B
Dif: M