Question

1. If the exchange rate is such that $1 equals 5 Indian rupees, then the price of a rupee is

Select one:

A. $5.

B. $1.

C. $0.40.

D. $0.20.

2.

Arguments in support of protectionism (and against free trade) include all of the following EXCEPT

Select one:

A. new and troubled industries need to be protected until they acquire sufficient strength to compete equally against their foreign counterparts.

B. jobs at home should be protected from cheap foreign labor.

C.  protectionism increase total domestic consumption possibilities.

D. national security interests require that nations retain the ability to produce vital materials at home and avoid dependence upon potential enemies.

3.

Governments sometimes subsidize domestic industries. When this occurs,

Select one:

A. the governments will not impose tariffs.

B. the subsidized sell less in international markets because it is more profitable to sell at home.

C. the subsidized industries have an advantage on international markets relative to non-subsidized firms. For this reason, other countries often impose tariffs on the subsidized imports.

D. the subsidized industries have an advantage on international markets relative to nonsubsidized firms. However, this is not an argument for imposing tariffs and tariffs would violate international agreements.

4.

Changes in which of the following will cause a change in exchange rates?

Select one:

A. real interest rates

B. consumer preferences

C.  perceptions of economic and political stability

D. All of the above

Answer 1

Answer 1

If the exchange rate is such that $1 equals 5 Indian rupees, then the price of a rupee is Option D) $0.20

Reason: If 5 rupees = $1

Then, 1 rupee = $ 1/5

  = $0.20

Answer 2

Arguments in support of protectionism (and against free trade) include all of the following EXCEPT

Option C) protectionism increase total domestic consumption possibilities.

Reason: Domestic consumption/ demand would be the same even if the domestic industry is protected or not.

Answer 3

Governments sometimes subsidize domestic industries. When this occurs, Option D) the subsidized industries have an advantage on international markets relative to nonsubsidized firms. However, this is not an argument for imposing tariffs and tariffs would violate international agreements.

Reason: There exist organizations such as WTO which make sure that there are no tariffs imposed on importing goods. Thus, even when some countries subsidize their domestic industries, import tariffs by the importing countries violate international agreements.

Answer 4

Changes in which of the following will cause a change in exchange rates? Option A) real interest rates

Reason: It is only the real interest rate out of the given options that has an impact on exchange rates. For example- An increase in interest rates lures investors to invest in that country, thus, increasing the demand for that country's currency. The exchange rate for that country improves.