International Trade Review Questions for AP Economics
The study guides for these review questions can be found at:
- Comparative Advantage and Gains from Trade Review for AP Economics
- Balance of Payments Review for AP Economics
- Foreign Exchange Rates Review for AP Economics
- Trade Barriers Review for AP Economics
- 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?
- The United States begins to import rice to make up for a domestic shortage.
- The United States begins to export rice to make up for a domestic shortage.
- The United States begins to import rice to eliminate a domestic surplus.
- The United States begins to export rice to eliminate a domestic surplus.
- There is no incentive to import or export rice.
- 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?
- Lower interest rates in the United States relative to China.
- Lower price levels in China relative to the United States.
- Growing American preference to consume more Chinese-made goods.
- Rising per capita GDP in China, increasing imports from the United States.
- Speculation that the Chinese will decrease the money supply.
- You hear that the United States has a negative balance in the current account. With this information we conclude that
- there is a trade deficit.
- there is a capital account deficit.
- there is a capital account surplus.
- more U.S. dollars are being sent abroad than foreign currencies are being sent to the United States.
- there is a trade surplus.
- Which of the following is a consequence of a protective tariff on imported steel?
- Net exports fall.
- Income is transferred from steel consumers to steel producers.
- Allocative efficiency is improved.
- Income is transferred from domestic steel to foreign steel producers.
- Aggregate supply increases.
- 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?
- When the United States places an import quota on imported sugar, we expect which of the following effects?
- Consumers seek substitutes for sugar and products that use sugar.
- Consumers consume more sugar and products that use sugar.
- The supply of sugar increases.
- Net exports in the United States fall.
- The government collects revenue on every ton of imported sugar.
Answers and Explanations
- 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.
- 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.
- 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.
- 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.
- 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.
- 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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