Net-jrf Practice Mock Test #5: International Economics

1.

A primary reason why nations conduct international trade is because:
- A.
  
  Some nations prefer to produce one thing while others produce other things
- B.
  
  Resources are not equally distributed among all trading nations
- C.
  
  Trade enhances opportunities to accumulate profits
- D.
  
  Interest rates are not identical in all trading nations
Correct Answer
B. Resources are not equally distributed among all trading nations

Explanation
Nations conduct international trade because resources are not equally distributed among all trading nations. This means that some nations may have an abundance of certain resources, while others may have a scarcity. By engaging in trade, nations can exchange their surplus resources for the resources they lack, leading to a more efficient allocation of resources and increased economic growth.

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2.

The main advantage of specialization results from:
- A.
  
  Economies of large-scale production
- B.
  
  The specializing country behaving as a monopoly
- C.
  
  Smaller production runs resulting in lower unit costs
- D.
  
  High wages paid to foreign workers
Correct Answer
A. Economies of large-scale production

Explanation
The main advantage of specialization is economies of large-scale production. When a country specializes in producing a specific good or service, it can take advantage of economies of scale, which means that the average cost of production decreases as the volume of production increases. This is because fixed costs, such as machinery and infrastructure, can be spread over a larger number of units, resulting in lower unit costs. By focusing on producing a limited range of goods or services, a country can achieve greater efficiency and productivity, leading to cost savings and increased competitiveness in the global market.

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3.

International trade in goods and services is sometimes used as a substitute for all of the following except:
- A.
  
  International movements of capital
- B.
  
  International movements of labor
- C.
  
  Domestic production of the same goods and services
- D.
  
  Domestic production of different goods and services
Correct Answer
D. Domestic production of different goods and services

Explanation
International trade in goods and services is often used as a substitute for domestic production of the same goods and services. This means that countries import goods and services that they could produce domestically. However, international trade is not a substitute for international movements of capital or labor. International movements of capital refer to the flow of investments and financial assets across borders, while international movements of labor involve the migration of workers. Additionally, international trade is not a substitute for domestic production of different goods and services, as countries still produce and trade different products based on their comparative advantages.

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4.

If a nation has an open economy, it means that the nation:
- A.
  
  Allows private ownership of capital
- B.
  
  Has flexible exchange rates
- C.
  
  Has fixed exchange rates
- D.
  
  Conducts trade with other countries
Correct Answer
D. Conducts trade with other countries

Explanation
An open economy refers to a nation that conducts trade with other countries. This means that the nation engages in the exchange of goods, services, and capital with other nations. It implies that the country is not restricted or isolated in its economic activities and is actively involved in international trade. The other options mentioned, such as private ownership of capital, flexible exchange rates, and fixed exchange rates, are not necessarily exclusive to an open economy and may exist in other economic systems as well.

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5.

International trade forces domestic firms to become more competitive in terms of
- A.
  
  Introduction of new products
- B.
  
  Product design and quality
- C.
  
  Product price
- D.
  
  All of the above
Correct Answer
D. All of the above

Explanation
International trade forces domestic firms to become more competitive in terms of introducing new products, product design and quality, and product price. When firms engage in international trade, they face competition from firms in other countries. In order to stay competitive, domestic firms need to constantly innovate and introduce new products to attract customers. They also need to focus on improving the design and quality of their products to meet the high standards set by international competitors. Additionally, they need to offer competitive prices to attract customers in the global market. Therefore, all of the above factors contribute to the increased competitiveness of domestic firms in international trade.

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6.

The movement to free international trade is most likely to generate short-term unemployment in which industries?
- A.
  
  Industries in which there are neither imports nor exports
- B.
  
  Import-competing industries
- C.
  
  Industries that sell to domestic and foreign buyers
- D.
  
  Industries that sell to only foreign buyers
Correct Answer
B. Import-competing industries

Explanation
The movement to free international trade is most likely to generate short-term unemployment in import-competing industries. When trade barriers are removed, foreign goods can enter the domestic market more easily, leading to increased competition for domestic industries. Import-competing industries, which produce goods that can be easily substituted by cheaper imported goods, are particularly vulnerable to job losses as consumers shift their purchases to the cheaper imports. Therefore, the opening of international trade can result in short-term unemployment in these industries.

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7.

International trade is based on the idea that:
- A.
  
  Exports should exceed imports
- B.
  
  Imports should exceed exports
- C.
  
  Resources are more mobile internationally than are goods
- D.
  
  Resources are less mobile internationally than are goods
Correct Answer
D. Resources are less mobile internationally than are goods

Explanation
International trade is based on the idea that resources are less mobile internationally than goods. This means that it is generally easier to transport and trade goods across borders than it is to move and trade resources such as labor, capital, or natural resources. This is because resources are often tied to specific locations and may require significant investment or legal barriers to be overcome in order to be moved internationally. Goods, on the other hand, can be easily transported and traded due to advancements in transportation and communication technology. International trade allows countries to specialize in producing goods that they have a comparative advantage in and trade them for goods that they are less efficient at producing.

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8.

Arguments for free trade are sometimes disregarded by politicians because:
- A.
  
  Maximizing domestic efficiency is not considered important
- B.
  
  Maximizing consumer welfare may not be a chief priority
- C.
  
  There exist sound economic reasons for keeping one’s economy isolated from other economies
- D.
  
  Economists tend to favor highly protected domestic markets
Correct Answer
B. Maximizing consumer welfare may not be a chief priority

Explanation
Politicians may disregard arguments for free trade because they prioritize other factors over maximizing consumer welfare. They may prioritize other goals such as protecting domestic industries or preserving jobs, which could conflict with the benefits of free trade. Additionally, politicians may prioritize short-term political gains over long-term economic benefits, leading them to disregard the potential consumer welfare gains from free trade.

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9.

How much physical output a worker producers in an hour’s work depends on:
- A.
  
  The worker’s motivation and skill
- B.
  
  The technology, plant, and equipment in use
- C.
  
  How easy the product is to manufacture
- D.
  
  All of the above
Correct Answer
D. All of the above

Explanation
The correct answer is "All of the above" because the physical output a worker produces in an hour's work depends on multiple factors. The worker's motivation and skill play a role in their productivity level. The technology, plant, and equipment in use can also impact the worker's efficiency and output. Additionally, the ease of manufacturing the product can affect the worker's productivity. Therefore, all of these factors contribute to determining how much physical output a worker can produce in an hour's work.

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10.

Increased foreign competition tends to:
- A.
  
  Intensify inflationary pressures at home
- B.
  
  Induce falling output per worker-hour for domestic workers
- C.
  
  Place constraints on the wages of domestic workers
- D.
  
  Increase profits of domestic import-competing industries
Correct Answer
C. Place constraints on the wages of domestic workers

Explanation
Increased foreign competition tends to place constraints on the wages of domestic workers. This is because when foreign competitors enter the market, they often offer lower prices for their products or services. In order to remain competitive, domestic industries may need to reduce their costs, including labor costs. This can lead to stagnant or even decreasing wages for domestic workers as companies try to cut expenses and maintain profitability.

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Net-jrf Practice Mock Test #5: International Economics

A primary reason why nations conduct international trade is because:

The main advantage of specialization results from:

International trade in goods and services is sometimes used as a substitute for all of the following except:

If a nation has an open economy, it means that the nation:

International trade forces domestic firms to become more competitive in terms of

The movement to free international trade is most likely to generate short-term unemployment in which industries?

International trade is based on the idea that:

Arguments for free trade are sometimes disregarded by politicians because:

How much physical output a worker producers in an hour’s work depends on:

Increased foreign competition tends to: