Copyright 2022 Pearson Education, Inc.

1 Copyright © 2022 Pearson Education, Inc.

International Economics: Theory and Policy, 12e (Krugman)

Chapter 1 Introduction

1.1 What Is International Economics About?

1) Historians of economic thought often describe ________ written by ________ and published in ________ as the first real exposition of an economic model.

• "Of the Balance of Trade"; David Hume; 1776
• "Wealth of Nations"; David Hume; 1758
• "Wealth of Nations"; Adam Smith; 1758
• "Wealth of Nations"; Adam Smith; 1776
• "Of the Balance of Trade"; David Hume; 1758

Answer: E

Difficulty: Easy

AACSB: Application of knowledge

2) From 1960 to 2019

• the U.S. economy roughly tripled in size.
• U.S. imports roughly tripled in size.
• the share of U.S. trade in the global economy roughly tripled in size compared with the

economy as a whole.

• U.S. imports roughly tripled as compared to U.S. exports.
• U.S. exports roughly tripled in size.

Answer: C

Difficulty: Easy

AACSB: Application of knowledge

3) From 1960 to 2019, both U.S. imports and exports have increased, ________ have grown more, leading to a large excess of ________.

• imports; imports over exports
• exports; exports over imports
• imports; exports over imports
• exports; imports over exports

Answer: A

Difficulty: Easy

AACSB: Application of knowledge

4) The facts that U.S. imports and exports plunged in 2009 during the global economic crisis and in 2020 during the Covid-19 pandemic demonstrated the close links between

• world trade and the overall state of the world economy.
• crisis and unemployment.
• the pandemic and shortage of goods and services.
• the business cycle and trade policies.

Answer: A

Difficulty: Easy

AACSB: Application of knowledge

(International Economics Theory and Policy, 12e Paul Krugman, Maurice Obstfeld, Marc Melitz ) (Test Bank all Chapters) 1 / 4

2 Copyright © 2022 Pearson Education, Inc.5) The United States is less dependent on trade than most other countries because

• the United States is a relatively large country with diverse resources.
• the United States is a "Superpower."
• the military power of the United States makes it less dependent on anything.
• the United States invests in many other countries.
• many countries invest in the United States.

Answer: A

Difficulty: Easy

AACSB: Application of knowledge

6) Theories of international economics from the 18th and 19th centuries are

• not relevant to current policy analysis.
• only of moderate relevance in today's modern international economy.
• highly relevant in today's modern international economy.
• the only theories that are actually relevant to modern international economy.
• not well understood by modern mathematically oriented theorists.

Answer: C

Difficulty: Easy

AACSB: Application of knowledge

7) International economics ________ use the same fundamental methods of analysis as other branches of economics, because ________.

• does not; the level of complexity of international issues is unique
• does not; the interactions associated with international economic relations is highly

mathematical

• does not; international economics takes a different perspective on economic issues
• does; international economists must reach an agreement with other economists on every

economic issue

• does; the motives and behavior of individuals are the same in international trade as they are in

domestic transactions

Answer: E

Difficulty: Easy

AACSB: Application of knowledge

8) Because the Constitution forbids restraints on interstate trade

• the U.S. may not impose tariffs on imports from NAFTA countries.
• the U.S. may not affect the international value of the $ U.S.
• the U.S. may not put restraints on foreign investments in California if it involves a financial

intermediary in New York State.

• the U.S. may not impose export duties.
• the U.S. may not disrupt commerce between Florida and Hawaii.

Answer: E

Difficulty: Easy

AACSB: Application of knowledge

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3 Copyright © 2022 Pearson Education, Inc.9) An important insight of international economics is that when countries sell goods and services to each other,

• the exchange is almost always mutually beneficial.
• one country always benefits at the expense of the other.
• it only benefits the low wage country.
• it only benefits the high wage country.
• it is almost never beneficial to both countries.

Answer: A

Difficulty: Easy

AACSB: Application of knowledge

10) "Trade is generally harmful if there are large disparities between countries in wages."

• This is generally true.
• This is generally false.
• Trade theory has nothing to say about this issue.
• This is true if the trade partner ignores child labor laws.
• This is true if the trade partner uses prison labor.

Answer: B

Difficulty: Easy

AACSB: Application of knowledge

11) If there are large disparities in wage levels between countries, then

• trade is likely to be harmful to both countries.
• trade is likely to be harmful to the country with the high wages.
• trade is likely to be harmful to the country with the low wages.
• trade is likely to be harmful to neither country.
• trade is likely to have no effect on either country.

Answer: D

Difficulty: Easy

AACSB: Application of knowledge

12) If there are large disparities in productivity between countries, then

• trade is likely to be harmful to neither country.
• trade is likely to be harmful to the country with the high wages.
• trade is likely to be harmful to the country with the low wages.
• trade is likely to be harmful to both countries.
• trade is likely to have no effect on either country.

Answer: A

Difficulty: Easy

AACSB: Application of knowledge

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4 Copyright © 2022 Pearson Education, Inc.13) Which of the following statements is TRUE?

• Trade is mutually beneficial when countries exchange goods and services.
• Trade is harmful if large disparities exist between countries in productivity.
• Trade is harmful if large disparities exist between countries in wages.
• Trading with less-advanced, lower-wage countries will drag down a country's standard of

living.

Answer: A

Difficulty: Easy

AACSB: Application of knowledge

14) The benefits of international trade are derived from trade in

• tangible goods only.
• intangible goods only.
• goods but not services.
• services but not goods.
• anything of value.

Answer: E

Difficulty: Easy

AACSB: Application of knowledge

15) Which of the following statements is NOT TRUE?

• International trade will have no effects on income distribution.
• International trade may hurt particular groups within nations.
• International trade can adversely impact owners of resources that are specific to industries

that compete with imports.

• International trade can alter the distribution of income between broad groups, such as workers

and the owners of capital.

Answer: A

Difficulty: Moderate

AACSB: Application of knowledge

16) Who sells what to whom

• has been a major preoccupation of international economics.
• is not a valid concern of international economics.
• is not considered important for government foreign trade policy since such decisions are made

in the private competitive market.

• is determined by political rather than economic factors.
• is less important than international economic theory.

Answer: A

Difficulty: Easy

AACSB: Application of knowledge

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