1. GBM 381 Final Exam
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1. _____________ explains how mutually beneficial trade can take place even when
one nation is less efficient than another nation in the production of all commodities.
2. The ability of one nation to produce a commodity using fewer resources than
another nation is:
3. According to the following table, the US can gain from trade with the UK by
getting how much cloth for 9 bushels of wheat?
U.S. U.K.
Wheat (bushels/hr) 9 3
Cloth (yards/hr) 5 4
4. In a two-nation world, if Nation A’s export prices increase relative to their import
prices, which of the following will occur?
5. Which of the following would least likely apply to the product cycle theory?
6. Mexico is relatively abundant in labor, while Canada is relatively abundant in
capital. In both nations, the production of televisions is relatively more capital
intensive than the production of corn. According to the factor endowment theory,
Mexico will have a(n):
7. ____________ have historically been the most important and most used type of
trade restriction.
8. A(n) __________ is a tax or duty levied on the traded commodity as it enters a
nation.
9. The difference between what consumers would be willing to pay for each unit of
commodity and what they actually pay for that unit is called ____________.
10. If Japan is accused of dumping televisions into the US market, it is believed that
Japan is:
11. The World Trade Organization was established by the ___________________ of
multilateral trade negotiations.

2. 12. The Export-Import Bank of the US assists firms in selling overseas by providing
direct loans to foreign purchasers of US goods. This serves as a(n)
__________________ to US firms.
13. Real investment in factories, capital goods, land, and inventories where the
investor retains control over the use of the invested capital is referred to as:
14. If a US firm exports $7,000 of goods which are to be paid for within six months,
using a double-entry bookkeeping system, what entries should be made in the US
balance of payments?
15. Which of the following are included in the current account?
16. Which of the following is an example of a deficit in the balance of payments?
17. A television costs 600 Canadian dollars (CAD) in Canada and 500 US dollars
(USD) in the US. The exchange rate between the Canadian dollar and the US dollar
is:
18. An exchange rate is defined as:
19. If the US dollar price of the Japanese yen changes from $1 per 100 yen to $1.50
per 100 yen, the dollar is said to have _____________ and the yen has
______________.
20. A foreign currency is said to have appreciated against the dollar when:
21. If you have a commitment to pay a friend in Britain 1,000 pounds in 30 days, and
you are holding US dollars, you could remove the risk of loss due to the appreciation
of the pound by:
22. Suppose the exchange rate of the British pound is $1.75 per pound while the
exchange value of the Swiss franc is $0.667 cents per franc. The cross exchange rate
between the pound and the franc is:
23. Which of the following will cause a nation's currency to depreciate?
24. Which of the following would occur if the price level in the US increases relative
to the UK, and before this increase the dollar was in exchange rate equilibrium with
the sterling?
25. Which of the following would occur if the interest rate in the United States fell
relative to that in the UK, and before this change the dollar was in an exchange rate
equilibrium with the sterling?
Short Essay (Please respond to 3 out of 4 of the following questions:)

3. 1. Describe the major points of the mercantilists’ view of trade and how they differ
from today’s views.
2. Discuss the major points of the Heckscher-Ohlin theory, the objection to this
theory posed by the Leontief paradox, and the counterargument to this objection.
3. “Using international trade theory, we can unambiguously state that the
imposition of a tariff imposes net losses to the imposing nation.” Is this statement
true or false? Explain.
4. Describe why monetary policy under a fixed exchange rate system is ineffective.
GBM 381 Final Exam
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