Question Details

Trading partners should specialize in producing goods 



1.		In an open economy with few capital restrictions and substantial import-export trade, a rise in interest rates and a decline in the producer price index of inflation will
a.	raise the value of the currency
b.	lower the nominal interest rate
c.	increase the volume of trading in the foreign exchange market
d.	lower the trade-weighted exchange rate
e.	increase consumer inflation.


	

	2.	When a manufacturer's home currency appreciates substantially,
a.	domestic sales decline
b.	foreign sales decline
c.	company-owned foreign plant and equipment will increase
d.	margins often decline
e.	all of the above


	

	3.	An increase in the exchange rate of the U.S. dollar relative to a trading partner can result from
a.	higher anticipated costs of production in the U.S.
b.	higher interest rates and higher inflation in the U.S.
c.	higher growth rates in the trading partner's economy
d.	a change in the terms of trade
e.	lower export industry productivity


	


	4.	The purchasing power parity hypothesis implies that an increase in inflation in one country relative to another will over a long period of time
a.	increase exports
b.	reduce the competitive pressure on prices
c.	lower the value of the currency in the country with the higher inflation rate
d.	increase foreign aid
e.	increase the speculative demand for the currency


	

	5.	Trading partners should specialize in producing goods in accordance with comparative advantage, then trade and diversify in consumption because
a.	out-of-pocket costs of production decline
b.	free trade areas protect infant industries
c.	economies of scale are present
d.	manufacturers face diminishing returns
e.	more goods are available for consumption



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