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International Trade Review Questions for AP Economics

By — McGraw-Hill Professional
Updated on Mar 2, 2011

The study guides for these review questions can be found at:

Questions

  1. The united states produces rice in a competitive market. With free trade, the world price is lower than the domestic price. What must be true?
    1. The United States begins to import rice to make up for a domestic shortage.
    2. The United States begins to export rice to make up for a domestic shortage.
    3. The United States begins to import rice to eliminate a domestic surplus.
    4. The United States begins to export rice to eliminate a domestic surplus.
    5. There is no incentive to import or export rice.
  2. If the U.S. dollar and Chinese yuan are traded in flexible currency markets, which of the following causes an appreciation of the dollar relative to the Chinese yuan?
    1. Lower interest rates in the United States relative to China.
    2. Lower price levels in China relative to the United States.
    3. Growing American preference to consume more Chinese-made goods.
    4. Rising per capita GDP in China, increasing imports from the United States.
    5. Speculation that the Chinese will decrease the money supply.
  3. You hear that the United States has a negative balance in the current account. With this information we conclude that
    1. there is a trade deficit.
    2. there is a capital account deficit.
    3. there is a capital account surplus.
    4. more U.S. dollars are being sent abroad than foreign currencies are being sent to the United States.
    5. there is a trade surplus.
  4. Which of the following is a consequence of a protective tariff on imported steel?
    1. Net exports fall.
    2. Income is transferred from steel consumers to steel producers.
    3. Allocative efficiency is improved.
    4. Income is transferred from domestic steel to foreign steel producers.
    5. Aggregate supply increases.
  5. If the Japanese economy suffers a deep, prolonged recession, in what ways would U.S. net exports and the values of the dollar and yen change?
  6. When the United States places an import quota on imported sugar, we expect which of the following effects?
    1. Consumers seek substitutes for sugar and products that use sugar.
    2. Consumers consume more sugar and products that use sugar.
    3. The supply of sugar increases.
    4. Net exports in the United States fall.
    5. The government collects revenue on every ton of imported sugar.

Answers and Explanations

  1. A—If the world price is below the domestic price, a shortage exists in the domestic market. The importation of foreign rice fills this shortage.
  2. D—Higher per capita income in trading nations increases demand for imported goods. The Chinese consumer increases demand for U.S. goods and services and for dollars.
  3. D—The trade of goods and services is not the only component of the current account. A negative balance in the current account does not always mean there is a trade deficit. For current transactions, more U.S. dollars were sent abroad than foreign currencies sent to the United States.
  4. B—Protective tariffs increase the price of steel above the free-trade equilibrium. This higher price is a transfer of money from consumers to domestic producers of steel.
  5. C—When the Japanese economy is suffering, demand for U.S. goods falls, decreasing U.S. net exports and demand for dollars. The dollar depreciates and the yen appreciates.
  6. A—A quota increases the price of sugar so consumers seek substitutes. We may see rising demand for sugar-free gum or falling demand for rich desserts.
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