1. When a government allows raw materials and other intermediate products to enter a country duty free, this generally results in a(an) A) effective tariff rate less than the nominal tariff rate. B) nominal tariff rate less than the effective tariff rate. C) rise in both nominal and effective tariff rates. D) fall in both nominal and effective tariff rates. E) rise in only the effective tariff rate. 2. If a good is imported into (small) country H from country F, then the imposition of a tariff in country H A) raises the price of the good in both countries (the "Law of One Price"). B) raises the price in country H and does not affect its price in country F. C) lowers the price of the good in both countries. D) lowers the price of the good in H and could raise it in F. E) raises the price of the good in H and lowers it in F. 3. The change in the economic welfare of a country associated with an increase in a tariff equals A) efficiency loss - terms of trade gain. B) efficiency gain - terms of trade loss. C) efficiency loss + tax revenue gain. D) efficiency loss + tax revenue gain + terms of trade gain. E) efficiency loss - tax revenue gain. 4. The main redistribution effect of a tariff is the transfer of income from A) domestic producers to domestic buyers. B) domestic buyers to domestic producers. C) domestic producers to domestic government. D) domestic government to domestic consumers. E) foreign producers to domestic consumers. Questions on chapter 11 5. Which of the following could explain why the terms of trade of developing countries might deteriorate over time? A) Developing country exports consist mainly of manufactured goods. B) Developing country exports consist mainly of primary products. C) Commodity export prices are determined in highly competitive markets. D) Commodity export prices are solely determined by developing countries. E) Developing country exports are too diverse. ASSIGNMENT 02 DUE DATE: 30 August 202210 6. Which trade strategy have developing countries used to restrict imports of manufactured goods so that the domestic market is preserved for home producers? A) international commodity agreement B) export promotion C) multilateral contract D) import substitution E) export subsidies 7. The infant industry argument calls for active government involvement A) only if the government forecasts are accurate. B) only if some market failure can be identified. C) only if the industry is not one already dominated by industrial countries. D) only if the industry has a high value added. E) only if the industry is independently able to earn high returns. 8. The growth successes of the high-performance Asian economies A) supports the belief that economic development requires import substitution policies. B) rejects the belief that export-oriented industrialization is likely to promote economic development. C) rejects the belief that economic development requires import substitution policies. D) suggests that free trade policies are required for successful economic development. E) enforces United States' hesitation to trade with developing countries. Questions on chapter 16 9. Which of the following statements is the MOST accurate regarding the law of one price and the purchasing power parity (PPP)? A) The law of one price applies only to the general price level. B) The law of one price applies to the general price level while PPP applies to individual commodities. C) The law of one price applies to individual commodities while PPP applies to both the general price level and to individual commodities. D) PPP applies only to individual commodities. E) The law of one price applies to individual commodities while PPP applies to the general price level. 10. In order for the condition EUS$/HK$ = PUS/PHK to hold, what assumptions does the principle of purchasing power parity make? A) Only that there are no transportation costs and restrictions on trade. B) Only that the markets are perfectly competitive, i.e., P = MC. C) The factors of production are identical between countries. D) No arbitrage exists. E) HK and the U.S.A. are perfectly competitive and there are no transportation costs or restrictions on trade. 11. Under PPP (and by the Fisher Effect), all else equal, A) a rise in a country's expected inflation rate will eventually cause a more-than proportional rise in the interest rate that deposits of its currency offer in order to accommodate for the higher inflation. B) a fall in a country's expected inflation rate will eventually cause an equal rise in the interest rate that deposits of its currency offer. C) a rise in a country's expected inflation rate will eventually cause an equal rise in theECS4865/102 11 interest rate that deposits of its currency offer. D) a rise in a country's expected inflation rate will eventually cause a less than proportional rise in the interest rate that deposits of its currency offer to accommodate the rise in expected inflation. E) a fall in a country's expected inflation rate will eventually cause an inversely proportional rise in the interest rate that deposits of its currency offer to accommodate the rise in expected inflation. 12. Under a flexible-price monetary approach to the exchange rate, A) when the domestic money supply falls, the price level would eventually fall, increasing the interest rate. B) when the domestic money supply falls, the price level would fall right away, causing a reduction in the interest rate. C) when the domestic money supply falls, the price level would fall right away, causing an increase in the interest rate. D) when the domestic money supply falls, the price level would eventually fall, keeping the interest rate constant. E) when the domestic money supply falls, the price level would fall right away, keeping the interest rate constant. Questions on chapter 18 13. By fixing the exchange rate, the central bank gives up its ability to A) adjust taxes. B) increase government spending. C) influence the economy through fiscal policy. D) depreciate the domestic currency. E) influence the economy through monetary policy. 14. The main reason(s) why governments sometimes choose to devalue their currencies is (are) A) devaluation makes domestic goods more expensive in relation to foreign goods. B) devaluation makes domestic services more expensive in relation to foreign services. C) devaluation increases foreign reserves held by the central bank. D) devaluation improves the current account and increases foreign reserves held by the central bank. E) devaluation hurts foreign currencies. 15. Currency crises may result from A) central bank balance sheets with higher liabilities than assets. B) political upheaval leading to lowering exports. C) a reconfiguration of central bank balance sheets. D) speculative attacks on the currency or central banks purchasing excessive amounts of government bonds. E) depreciation of foreign reserves.