41. Which among the following is an assumption of H-O Theorem
A. each commodity that a nation produce differs in factor intensity. trade is free i.e. there are no trade restrictions in the form of tariffs or non-tariff barriers.
B. the production function remains the same in different countries for the same commodity. for e.g. if commodity a requires more capital in one country then same is the case in other country.
C. there is full employment of resources in both countries and demand is identical in both countries.
D. all the above
Answer
A. each commodity that a nation produce differs in factor intensity. trade is free i.e. there are no trade restrictions in the form of tariffs or non-tariff barriers.
42. The HO theory deals with which type of trade?
A. intra industry trade
B. trade based on economies of scale
C. trade based on imitation gaps and product cycles
D. inter industry tarde
Answer
A. intra industry trade
43. The basis for mutually advantageous trade in H O theory is
A. technology
B. factor endowments
C. economies of scale
D. tastes.
Answer
C. economies of scale
44. Trade in differentiated products are also called
A. intra industry trade
B. trade based on economies of scale
C. trade based on imitation gaps and product cycles
D. inter industry tarde
Answer
D. inter industry tarde
45. Which among the following are the major limitations of the H O theorem?
A. it explains only a part of the world trade as it ignores trade in differentiated products.
B. factor endowment is not the sole factor influencing commodity price and international trade.
C. the theory is empirically proved wrong in the case of u s economy.
D. all the above.
Answer
A. it explains only a part of the world trade as it ignores trade in differentiated products.
46. ___ states that international trade will bring about equalization in the returns to homogeneous factors across countries, even without their physicalmovement.
A. theory of comparative advantage,
B. stolper-samuelson theorem,
C. rybczynski theorem, and
D. leontiff paradox.
Answer
B. stolper-samuelson theorem,
47. ___ states that at constant commodity prices, an increase in the quantity of one factor increases the production of the commodity intensive in this factor andreduces the output of the other commodity which is intensive in the constant factor.
A. theory of comparative advantage,
B. stolper-samuelson theorem,
C. rybczynski theorem, and
D. leontiff paradox.
Answer
C. rybczynski theorem, and
48. Net barter Terms of Trade is defined as
A. px/pm
B. g = qm/qx x 100
C. i = px/pm x qx
D. all the above
Answer
A. px/pm
49. The foreign exchange rate is NOT
A. the price of one currency expresses in terms of another.
B. rate at which of one commodity expresses in terms of another.
C. the value of one currency in terms of another
D. fixed for ever.
Answer
B. rate at which of one commodity expresses in terms of another.
50. ___ means the measures adopted for avoiding risks.
A. hedging
B. speculation
C. arbitrage
D. non of the above
Answer
A. hedging
51. ___ is an open position in the market with an expectation of gainsthrough the fluctuations.
A. hedging
B. speculation
C. arbitrage
D. non of the above
Answer
B. speculation
52. Under a fixed exchange rate system, ___ are official changes inthe value of a country’s currency relative to other currencies.
A. devaluation
B. depreciation and appreciation
C. revaluation
D. both a and c.
Answer
A. devaluation
53. ___ is the deliberate downward adjustment in the official exchange rate,reduces the currency’s value.
A. devaluation
B. depreciation
C. revaluation
D. appreciation. 56. a ___ is an upward adjustment in the official exchange rate, which
Answer
A. devaluation
54. A key effect of devaluation is that it
A. makes the domestic currency cheaper relative to other currencies.
B. makes the domestic currency dearer relative to other currencies.
C. makes the foreign currency cheaper relative to other currencies.
D. leaves the relative value unchanged.
Answer
A. makes the domestic currency cheaper relative to other currencies.
55. Devaluation leads to
A. increasing the price of imports and stimulating greater demand for domestic products.
B. domestic inflation.
C. rise in domestic interest rates.
D. all the above
Answer
D. all the above
56. Recardo’s Law of Comparitive advantage is based on
A. labour theory of value
B. opportunity cost
C. law of diminishing returns
D. all the above
Answer
A. labour theory of value
57. The exchange rate system that is followed in India is
A. fixed exchange rate system
B. flexible exchange rate system
C. managed float system
D. non of the above
Answer
C. managed float system
58. Pure theory of international trade is termed so because
A. it is based on unrealistic assumptions
B. it concentrates on static gains
C. monetary approaches are absent in them
D. it is based on deductive reasoning
Answer
C. monetary approaches are absent in them
59. Which among the following is true with regard to the PPP theory?
A. greater transportation costs and trade restrictions are between countries, the less likely for the costs of market baskets to be equalized.
B. costs of non tradable inputs are not taken into consideration by ppp.
C. it is based on the concept of law of one price
D. all the above
Answer
D. all the above
60. law of one price prevails when
A. transportation costs, barriers to trade (import-export levies, customs dutyet c) and other transaction costs (currency conversion fee) are insignificant.
B. there must be competitive markets for the goods and services in both countries.
C. the loop applies only to tradable goods. loop is not applicable to immobile goods such as houses and many services that are local in nature.
D. all the above
Answer
D. all the above
61. ___ is a summary statement of all economic transactions of the residents of a nation with the residents of Rest of the World (ROW) during aparticular period of time.
A. balance of payment
B. capital account
C. official reserve account
D. net exports
Answer
D. net exports
62. Which among the following are differences between Balance of Trade andBalance of Payment?
A. balance of trade is defined as difference between export and import of goods and services while balance of payment includes not only import and export of goods and services but also financial / capital transfer.
B. bot = net earning on exports – net payment made for imports while bop = current account + capital account + or – balancing item ( errors and omissions)
C. bot need not be in balance always while bop needs to be in balance
D. all the above
Answer
D. all the above
63. If Debit balance in the balance of payment accounts are greater than the Creditbalance it leads to
A. balance of payment surplus.
B. balance of payment deficit
C. chronic disequilibrium in bop
D. non of the above
Answer
B. balance of payment deficit
64. When each international transaction undertaken by the residents of a country areentered as a debit and credit entry of equal size, into the balance of payments, the method is known as.
A. balance ot trade
B. balance of payment
C. double entry bookkeeping
D. non of the above
Answer
C. double entry bookkeeping
65. Which among the following best explains the difference between Trade inInvisibles and merchandise trade?
A. invisible trade is much more hetnogenious than the merchandise.
B. invisibles trade includes shipping, banking and insurance services and payments by residents as tourists abroad. trade in merchandise include the export and import of goods only.
C. the net of exports and import of visible in balance of payment accounts is called the merchandise trade balance. the net of exports and import of invisibles or services in balance of payment accounts is called the services trade balance.
D. all the above.
Answer
D. all the above.
66. ___ are receipts which the residents of a country receive for free,without making any present or future service transaction in return.
A. grants
B. external borrowings
C. unilateral transfers
D. non of the above
Answer
C. unilateral transfers
67. The ___ records all international financial transactions that involve resident of the country concerned- changing either his assets with or his liabilitiesto a resident of another country.
A. current account
B. capital account
C. official reserve account
D. unilateral transfers.
Answer
B. capital account
68. Official reserves consist of
A. gold,
B. special drawing rights (sdrs) borrowed from the imf,
C. holding of foreign convertible currencies.
D. all the above
Answer
D. all the above
69. Distinguish between autonomous and accommodating items in the balance of payments.
A. all transactions in the current and capital account are called automatic transactions. accommodating items are transactions that come under the official reserve account.
B. transactions are said to be autonomous if their value is determined independently of the balance of payments. accommodating items are determined by the net consequences of the autonomous items.
C. they take place for business or private motive. accommodating items are required to balance international transactions.
D. all the above
Answer
D. all the above
70. Which among the following sentence is NOT true
A. items are said to be above the line (autonomous) or below the line (accommodating).
B. the sum of the accommodating and autonomous items must be zero, since all entries in the balance of payment s accounts must come under one of the tw3o headings.
C. a surplus in a nation’s balance of payments is given by a net debit balance in the nation’s autonomous items and a deficit is given by a net credit balance.
D. b o p is a systematic statistical statement or record of the character and dimensions of the country’s economic relationship with the rest of the world.
Answer
C. a surplus in a nation’s balance of payments is given by a net debit balance in the nation’s autonomous items and a deficit is given by a net credit balance.
71. Which among the following is NOT a measure to correct the balance of paymentdisequilibrium?
A. devaluation
B. deflation
C. revaluation
D. non of the above
Answer
D. non of the above
72. Tariffs are
A. taxes imposed on imports.
B. taxes imposed on the consumption of domestic goods
C. taxes imposed on the consumption of imported services.
D. taxes imposed on the consumption of domestic services.
Answer
A. taxes imposed on imports.
73. When tariffs are imposed
A. the prices of imports would increase to the extent of tariff.
B. the prices of imports would decrease to the extent of tariff.
C. the prices of imports would increase by a multiplier of tariff
D. the prices of imports would decrease by a multiplier of tariff
Answer
A. the prices of imports would increase to the extent of tariff.
74. What are the major drawbacks of tariffs
A. they are restrictions to free trade
B. tariffs seek to establish equilibrium without removing the root causes of disequilibrium.
C. tariffs bring equilibrium by reducing the volume of trade.
D. all the above
Answer
D. all the above
75. Which of the following statement is true
A. a depreciation is likely to correct a deficit in bop when the demand for and supply of foreign exchange is more elastic
B. a depreciation is likely to correct a deficit in bop when the demand for and supply of foreign exchange is less elastic
C. a depreciation is likely to correct a deficit in bop when the demand for foreign exchange is more elastic and the and supply of foreign exchange is less elastic
D. non of the above
Answer
A. a depreciation is likely to correct a deficit in bop when the demand for and supply of foreign exchange is more elastic
76. Protectionist trade policy is associated with
A. mercantilists
B. heckscher and ohlin
C. modern trade theory
D. wto
Answer
A. mercantilists
77. Modern trade theory is developed by
A. adam smith
B. heckscher and ohlin
C. david recardo
D. karl marx
Answer
B. heckscher and ohlin
78. According to ___ even though a country is absolutely disadvantageous inboth commodities there is still possibility for trade
A. adam smith
B. heckscher and ohlin
C. david recardo
D. karl marx
Answer
C. david recardo
79. Principles of Political Economy and Taxation is the book of
A. adam smith
B. heckscher and ohlin
C. david recardo
D. karl marx
Answer
C. david recardo
80. Who reoriented comparative advantage theory?
A. adam smith
B. j m keynes
C. haberler
D. karl marx
Answer
C. haberler
