380 Sample test file

1. a. Discuss the differences between the command and control approach, the Pigouvian approach, and
        the Coasian approach to addressing a negative externality in international trade.
    b. Using the efficiency criterion as the basis for judgement, discuss the effectiveness of each of these
        approaches.
    c. Suppose an environmental authority imposes the same quantitative regulation on two firms that have
       different marginal cost schedules for producing their product. Discuss the advantages and
       disadvantages of this type of environmental regulation.
2. The whaling industry has driven some species of whales nearly to extinction. Cattle, however, continue
    to thrive on farms throughout the world. As a student of economics, what accounts for this difference?
    What does your reasoning have to do with, say, the potential for the deforestation of the globe?
   Explain. Discuss the contribution to this issue made by Ronald Coase.
3. a. Distinguish between the following forms of economic integration: free trade area, customs union,
          common market.
    b. Explain the relevance of trade diversion and trade creation in assessing the economic wisdom
         of economic integration.
4. Among the justifications for the use of trade impediments is as a response to international product
    " dumping". Explain what this practice is, how a trade impediment would operate, and the justification
    for it. Explain the relevance of "price discrimination" to the phenomenon of international "dumping".
5. Discuss and evaluated three arguments for trade impediments.
6. Discuss the relationship between the problem of "the tragedy of the commons" and private property rights.

1. A U.S. firm has entered into a contractual agreement with a Swiss firm to purchase manufacturing equipment
    that is to be delivered in 90 days by a Swiss firm giving rise to a 50,000SFF (Swiss francs) account payable.
    Explain why the U.S. firm faces a financial exposure related to the payable, the nature of the exposure, and
    explain how the firm can hedge the exposure.
2. Explain what is meant by "covered interest arbitrage" and it significance in foreign exchange markets.
3. a. Two of the most important economic functions of the futures market are said to be a "risk transference
         or hedging function" and a "price discovery function". Explain the significance of these functions to
         "society" and how a "futures" or "forward" market may fulfill them.
     b. Explain the difference between a "futures" FX market and a "forward" FX market.
4. Discuss the potential advantages and disadvantages of "import-substitution" as a growth strategy for a
     developing economy.
5. a. Explain the differences in the following balance of payments concepts:
         1. merchandise trade balance
         2. goods and services balance
         3. current account balance
    b. Explain how a country can have a merchandise trade deficit at the same time that it is experiencing
        a current account surplus.
6. a. Explain in what sense a current account deficit suggests that a country is "living beyond its means".
    b. Explain why a current account deficit may not represent a "threat to the economic integrity" of the
         country experiencing it.
7. a. Explain the difference between a current account deficit and a "deficit" in international indebtedness.
    b. The facts show that the U.S. is a "debtor nation" and has been one since the late 1980's. Explain what is
          meant by this and discuss its importance. (Hint: explain why being a "creditor nation" may be "overrated").
8. Assume:
         a. Interest Rates on Dollar denominated 90 day U.S. Government securities is 5%
         b. Interest Rates on Sterling(British Pound) denominated 90 day British Government securities is 6%
         c. The spot FX rate is $1.50/ pound sterling
         d. The Forward Rate $1.50/pound sterling

Question: Ignoring transactions costs, is there an arbitrage opportunity in this case? If so explain how it can
be exploited and the economic consequences of such actions. Explain why such opportunities are likely to be rare.

Answer one question.
1. a. Pick a country that has recently (last 6 years) experienced a "currency or financial crisis". From any written
        sources you choose, write an "anatomy" of the crisis including the circumstances leading to the crisis.
        Drawing from the text, class discussion, and your readings, discuss the remedies that have been implemented
        or proposed. If this was your term paper topic you must choose a country other than the one covered in
        your paper.
     b. Discuss the role, if any, that the IMF (International Monetary Fund) played in the currency crises of the
         country you have chosen . Include a discussion of any criticisms of the role of the IMF in the crisis.
     c. Include a list of the sources used in preparing your remarks.

You may consult any written source but you may not collaborate with any other person. This is due to be
turned in with the inclass portion of your final exam on Thursday December 14.

1. A. What is the Leontief paradox?
   B. Explain how the "human skills" theory may provide an explanation
      for the paradox.
   C. Explain how the Linder model may provide an explanation of the
      paradox.

a. Stolper-Samuelson theorem
b. factor price equalization theorem
c. Heckscher-Ohlin theorem
d. the optimal tariff
e. immiserizing growth

3. Construct a graphic portrayal of the effects of a tariff assuming
the imposing country faces a perfectly elastic supply schedule for
the imported good at the world price.

   Identify and explain:the revenue effect,
                   the effect on the volume of trade
                   the effect of the tariff on domestic production
                   the welfare loss due to the consumption effect the welfare loss due to the production effect
         the net welfare loss associated with the tariff.

Briefly indicate how and why your answer may change if assumption #4 were changed to read "...a less than perfectly elastic supply."

4. Discuss the implications of the use of the "one-dollar-one-vote"
criterion in examining the welfare effects of a tariff to the
imposing country.

5. Assume the information below pertains to output per growing season for
200 hours of labor.

Provide an answer with explanation to each of the following:
a. Who has the absolute advantage in corn?
b. Who has the comparative advantage in corn?
c. Is there a basis for mutually advantageous trade between these
    two parties?
d. If yes, explain what the basis is, the direction of trade, and
    the commodity composition of trade.
e. What are the limiting terms of trade in this case?
f. Assume the two parties despise each other. Can mutually beneficial
       trade still take place? If so, what are the effects of this              complication?
g. If you were Kathryn, what would be your emotional response to the
    appearance of Aaron who's PP schedule is: Corn-140; Wheat-65?
h. If you are Meghan, what would be your response to the appearance of
    Aaron?
i. If you were the "rule maker" in this three person world, charged with
    the promoting higher standards of living in the community, what
    problems are suggested by the appearance of Aaron? Describe your
    recommendations for resolving these problems and provide a defense
    for your recommendations.
j. Would your recommendations be different if you had knowledge that
    Aaron was being subsidized by his parents or by a foreign benefactor?

6. If the nominal tariff on bicycles in the U.S. is 10 percent and domestic
value added for finished bikes is 50 percent, is the effective tariff rate
higher or lower than the nominal rate? Explain.

   To the extent that there are tariffs on imported inputs to the production
   of bikes, what effect does this have on the amount of protection afforded
   U.S. bike manufacturers by 10 percent tariff on finished bikes? Explain.

7. Discuss, compare, and evaluate each of the following arguments for trade
   protection:
a. infant industry argument
b. national security argument
c. cheap foreign labor argument
d. (you supply this one)
   Include in your essay the relevance, if any, of the "specificity rule"
   in evaluating impediments to international trade.

International Economics 380 Summer, 2002 Final Exam NAME

Answer three questions from Section A and two questions from Section B. 30 points each

1. a. Discuss the potential advantages and disadvantages of a flexible exchange rate system as compared to a "pegged"                                   exchange rate system.
    b. Discuss the difference between a "currency board" and "dollarization". What are the advantages and disadvantages of each?
2.a. Discuss the major factors that are believed to determine exchange rates in the long run. Include in your discussion the importance          of the concept of Purchasing Power Parity and the strengths and weaknesses of this concept as a basis for explaining changes in           exchange rates.
   b. Discuss the major factors that are believed to determine exchange rates in the short run.
3. Discuss advantages and disadvantages of three policy options available to a country that confronts a shortage of foreign exchange         at the current official exchange rate.
4. A U.S. firm has entered into a contractual agreement with a German firm to sell manufacturing equipment that is to be delivered in       90 days to a German firm giving rise to a 50,000 Euro accounts receivable. Explain why the U.S. firm faces a financial exposure             related to the payable, the nature of the exposure, and explain how the firm can hedge the exposure.
5. a. Two of the most important economic functions of the futures market are said to be a "risk transference or hedging function" and a          "price discovery function". Explain the significance of these functions to "society" and how a "futures" or "forward" market may           fulfill them.
     b. Explain the difference between a "futures" FX market and a "forward" FX market.
     c. An often expressed view of "speculators" is that their existence contributes to the instability of markets (commodity and financial          markets) and they therefore make our lives less secure. Explain how the presence of speculators in foreign exchange or commodity         markets may make our lives more secure.
6. a. Explain the differences in the following balance of payments concepts:
1. merchandise trade balance
2. goods and services balance
3. current account balance
    b. Explain how a country can have a merchandise trade deficit at the same time that it is experiencing a current account surplus.
7. a. Explain in what sense a current account deficit suggests that a country is "living beyond its means".
    b. Explain why a current account deficit may not represent a "threat to the economic integrity" of the country experiencing it.
    c. Explain the difference between a current account deficit and a "deficit" in international indebtedness.
    d. The facts show that the U.S. is a "debtor nation" and has been one since the late 1980's. Explain what is meant by this and discuss          its importance.
     e. Discuss the potential advantages and disadvantages of being a "creditor nation".   Discuss the potential advantages and disadvantages         of being a "debtor nation".
8. Assume:
a. Interest Rates on Dollar denominated 90 day U.S. Government securities is 5%
b. Interest Rates on Sterling(British Pound) denominated 90 day British Government securities is 6%
c. The spot FX rate is $1.50/ pound sterling
d. The Forward Rate $1.50/pound sterling
   Question: Ignoring transactions costs, is there an arbitrage opportunity in this case? If so explain the steps that can be taken                       to exploit the opportunity. Explain why such opportunities are likely to be rare and short-lived.

9. a. Distinguish between the following forms of economic integration: free trade area, customs union, common market.
       b.   Explain, using the appropriate graphic representation, the relevance of trade diversion and trade creation in assessing the economic           wisdom of   economic integration.
     c. What is the evidence suggest about the effects of NAFTA?
10. a. Compare an "import-substitution" with an "export-led" strategy for economic development. Discuss the potential advantages             and disadvantages of each as a growth strategy for an economy.
        b. Discuss the relationship between "industrial policy" and each of the growth strategies in part "a".

11. The whaling industry has driven some species of whales nearly to extinction. Cattle, however, continue to thrive on farms throughout           the world. As a student of economics, what accounts for this difference? What does your reasoning have to do with, say, the potential         for the deforestation of the globe? Explain.
12. a. Discuss, compare, and evaluate each of the following arguments for trade protection:
      1. infant industry argument
      2. national security argument
      3. cheap foreign labor argument
      4. equalization of costs argument
      b. Discuss the relevance of the "specificity rule" in examining the effects of a trade impediment.
13. Identify and explain the relevance of eleven of the following:
a. Tariff-rate quota
b. Trade diversion effect
c. Escape clause
d. Most favored nation principle
e. Section 302
f. Optimum currency area
g. Variable levies
I. Transfer pricing
j. Arbitrage
k. Hedging
l. Law of one price
m. Purchasing power parity.
n. Devaluation.
14. Discuss the advantages and disadvantages of an "international commodity agreement" as a mechanism to provide stability in the foreign        exchange earnings of a nation. Discuss the context in which such agreements have been used and discuss the evidence on their success
15. Defend the following proposition: " The recent increases in direct foreign investment by Multinational Corporations in the Chilean                                                                  economy is an important positive development in our country ."

Economics 380 Spring, 2013 Quiz#1 of 6 NAME

Answer one question. Maximum of 10 points

1. Assume the information below pertains to output per growing season for 200 hours of labor.

Kathryn Meghan

Corn 200 400

Wheat 150 600

a. Who has the absolute advantage in wheat? Explain.

b. Who has the comparative advantage in wheat? Explain.

c. Is there a basis for mutually advantageous trade between these two parties? If so, explain how each party can be benefitted. Since Meghan produces more of both goods for her labor, explain how can it be in Meghan’s interest to buy anything from Kathryn.

d. What is the relevance of is this example to the issue of trade between countries? Explain

f. What is the relevance of is this example to the issue of whether it is desirable to import goods from foreign countries into the United States? Doesn’t this mean that our money is going to other countries? Doesn’t it mean that U.S. “jobs” are leaving the country?

2. a. What was the "Mercantilist" view concerning the basis of the wealth of a nation?
b. What was Adam Smith’s view concerning the wealth of a nation?

    c. What was the "Mercantilist" view concerning exports and imports out of and into a country? Explain
    d. What was Adam Smith's criticism of the "Mercantilist View" concerning exports and imports? Expain
   e. What is the relevance of Smith's view of international trade to the contemporary U.S. economy?
    f. Explain how the U.S. Constitution appears to embody the views of Adam Smith concerning trade.
    g. We criticized the view that places "saving jobs" above all other considerations in judging whether imported

goods should be imported into our country. Discuss the criticisms.

3. You were asked to view four podcasts linked to the syllabus page regarding international trade. Discuss the major points of two

4. The article by Steven Landsburg raises the question: “Should Winners from Free Trade Compensate the Losers?” Write an essay explaining his answer. What is your view? Explain.

1. Explain what is meant by the “Quantity Theory of Money”. It is important in explaining one type of macroeconomic problem—what is that problem?

c. Most people regard themselves to be a “victim” of inflation. Explain why some may benefit

3. a. “Debtors gain and creditors lose during a period of inflation.” TRUE OR FALSE. EXPLAIN.

b. Who is the largest “debtor” in most economies and why is that important? Explain.

4. a. Explain the distinction between “real shocks” and other shocks to the national economy

b. According to the text, what was the major problem that caused the “great depression”? Explain.