Fundamentals Of International Trade And Global Economic Theory Practice Tests

Question 1

The Gravity Model of trade is expressed as $T_{ij} = A \cdot \frac{Y_i \cdot Y_j}{D_{ij}}$, where $T_{ij}$ is trade volume, $Y$ represents GDP, and $D$ is the distance between countries. If country A has a GDP of $10$ trillion, country B has a GDP of $5$ trillion, and the distance between them is $2000$ km, calculate the trade volume $T_{ij}$ assuming the constant $A = 0.001$.

Accepted Answer

25

Question 2

Two countries, Alpha and Beta, have the following data: Alpha has a GDP of $500$ billion and total trade (exports + imports) of $250$ billion. Beta has a GDP of $2000$ billion and total trade of $600$ billion. Determine which country has a higher trade-to-GDP ratio and identify that ratio for the higher country.

Accepted Answer

Option A

Answer

Option B

Answer

Option C

Answer

Option D

Question 3

According to the Gravity Model of trade, if the distance $D_{ij}$ between two trading partners doubles while their respective GDPs remain constant, the trade volume $T_{ij}$ will also double.

Accepted Answer

False

Answer

True

Question 4

Which of the following factors are primary drivers of the third wave of globalization (1980–present) as described in the economic foundations?

Accepted Answer

Option A

Answer

Option B

Answer

Option C

Answer

Option D

Question 5

If a nation's GDP grows by $3\%$ annually and its total trade volume grows by $5\%$ annually, calculate the percentage point increase in the trade-to-GDP ratio over one year, assuming the initial ratio was $0.4$.

Accepted Answer

0.0077

Question 6

In a mercantilist framework, if Country A exports goods worth €100 and imports goods worth €80, the net change in national wealth is represented by a surplus of €20, which is considered a positive-sum outcome for the global economy.

Accepted Answer

False

Answer

True

Question 7

Consider two countries, Alpha and Beta. Alpha requires 4 labor hours to produce 1 unit of wheat, while Beta requires 6 labor hours. Alpha requires 2 labor hours to produce 1 unit of cloth, while Beta requires 5 labor hours. Which country possesses the absolute advantage in wheat production?

Accepted Answer

Option A

Answer

Option B

Answer

Option C

Answer

Option D

Question 8

If Country X produces 1 unit of steel using 10 labor hours and 1 unit of corn using 2 labor hours, while Country Y produces 1 unit of steel using 15 labor hours and 1 unit of corn using 5 labor hours, calculate the absolute advantage for each good.

Accepted Answer

Country X has the absolute advantage in both steel and corn.

Question 9

Given the production requirements: Country A produces 1 unit of X with 2 hours and 1 unit of Y with 4 hours. Country B produces 1 unit of X with 5 hours and 1 unit of Y with 10 hours. What is the opportunity cost of producing 1 unit of X in terms of Y for Country A?

Accepted Answer

Option A

Answer

Option B

Answer

Option C

Answer

Option D

Question 10

Country M produces 1 unit of Good A for 3 hours and 1 unit of Good B for 6 hours. Country N produces 1 unit of Good A for 4 hours and 1 unit of Good B for 10 hours. Which country has the comparative advantage in producing Good B?

Accepted Answer

Option A

Answer

Option B

Answer

Option C

Answer

Option D

Question 11

Which of the following conditions must be met for two countries to benefit from trade based on the Ricardian model?

Accepted Answer

Option A

Answer

Option B

Answer

Option C

Answer

Option D

Question 12

If Country P requires 10 labor hours for wheat and 20 for cloth, and Country Q requires 30 labor hours for wheat and 40 for cloth, calculate the opportunity cost of wheat in terms of cloth for Country Q.

Accepted Answer

1.33 units of cloth

Question 13

If the production possibility frontier is defined by the function $X^2 + Y^2 = 100$, calculate the Marginal Rate of Transformation (MRT) at the point $(6, 8)$.

Accepted Answer

0.75

Question 14

Given a community indifference curve represented by $U = X^{0.5}Y^{0.5}$, determine the Marginal Rate of Substitution (MRS) when $X = 4$ and $Y = 16$.

Accepted Answer

Option A

Answer

Option B

Answer

Option C

Answer

Option D

Question 15

If a nation's export price index increases from 100 to 120 and its import price index increases from 100 to 150, the nation's terms of trade have improved.

Accepted Answer

False

Answer

True

Question 16

A nation produces two goods, X and Y. At autarky, the price ratio is $\frac{P_X}{P_Y} = 2$. If international trade opens and the world price ratio is $\frac{P_X}{P_Y} = 3$, calculate the gain in terms of the relative price of X.

Accepted Answer

50%

Question 17

Which of the following conditions must hold for a general equilibrium in a two-nation trade model?

Accepted Answer

Option A

Answer

Option B

Answer

Option C

Answer

Option D

Question 18

If a nation's offer curve is represented by the equation $E_X = 0.5E_M$ (where $E_X$ is exports and $E_M$ is imports), what is the relative price of exports in terms of imports?

Accepted Answer

Option A

Answer

Option B

Answer

Option C

Answer

Option D

Question 19

A country has an export price index of 110 and an import price index of 110. If the export price index rises by 10% and the import price index remains constant, calculate the new terms of trade.

Accepted Answer

1.1

Question 20

Partial equilibrium analysis is sufficient to determine the global welfare effects of a tariff on commodity X.

Accepted Answer

False

Answer

True

Fundamentals Of International Trade And Global Economic Theory Practice Tests

Practice Tests

Fundamentals of International Trade and Global Economic Theory

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