Section+Four+Questions+(International+Economics)

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__﻿SECTION FOUR QUESTIONS (INTERNATIONAL ECONOMICS)__
1. Outline the methods used by governments to stabilize exchange rates, and discuss their advantages and disadvantages.

2. A country wishes to appreciate its currency (to raise its value) against other national currencies. What are the alternative policy tools at its disposal? What are the advantages and disadvantages of each?

3. Why are monopolies and mergers a cause of international concern?

4. “Balance of payments surpluses on current account are good; deficits are bad.” Critically discuss this statement.

5. It has been observed that the world might be splitting into large trading blocks. What is a trading block, and how might this trend affect world trade and living standards?

6. How might a depreciation of an exchange rate affect the Balance of Payments on current account?

7. What factors determine the exchange rate of one currency against another? In what ways can changes in the exchange rate affect the domestic economy of a country?

8. What would be the main difficulties involved in establishing a common currency for the whole world? If such a thing were attempted, what would be the advantages and disad­vantages for an individual country, such as the one where you live or study?

9. Discuss why the idea of ‘comparative advantage’ is important to developing countries, and explain how comparative advantage can change over time.

10. Why are many international markets becoming dominated by a relatively small number of large companies? What are the economic consequences of this trend?

11. A certain country experiences persistent balance of payments deficits. Why might this occur? Is it necessarily a serious economic problem?

12. If protectionism is such a bad thing, why have so many countries joined trading blocks?

13 (a) What is a floating exchange rate system and what factors influence the level of a country’s exchange rate? (15) (b) Do floating exchange rates accurately reflect the relative values of a country’s goods and services? (10)

14. “Most modern mass production techniques can be performed in most countries and climates with almost equal efficiency.” Consider this statement with respect to the theo­ries of comparative and absolute advantage.

15. (a) What problems might a country face if it experiences a persistent deficit in the current account of its balance of payments? (10) <span style="font-family: 'Times New Roman',Times,serif;">(b) Evaluate the alternative ways in which such a deficit might be reduced or eliminated. (15)

<span style="font-family: 'Times New Roman',Times,serif;">16. “Whether the exchange rate rises or falls there are always losers.” Evaluate this statement from a domestic and/or global perspective.

<span style="font-family: 'Times New Roman',Times,serif;">17. (a) Explain the various factors that could cause a change in the terms of trade for a country. (10) <span style="font-family: 'Times New Roman',Times,serif;">(b) Discuss, with reference to less developed countries, the possible consequences of a deterioration in the terms of trade. (15)

<span style="font-family: 'Times New Roman',Times,serif;">18. Evaluate the extent to which the international trading system has contributed to economic growth in developed countries?

<span style="font-family: 'Times New Roman',Times,serif;">19. Explain the factors which cause the value of a currency to change under a floating exchange rate. <span style="font-family: 'Times New Roman',Times,serif;">Evaluate the extent to which an appreciation of a currency may harm an economy?

<span style="font-family: 'Times New Roman',Times,serif;">20. (a) Explain the components of the balance of payments.

<span style="font-family: 'Times New Roman',Times,serif;">(b)Evaluate the extent to which the balance of payments may be controlled by the manipulation of interest rates.

<span style="font-family: 'Times New Roman',Times,serif;">21. (a) Explain the theory of comparative advantage (10 marks) <span style="font-family: 'Times New Roman',Times,serif;">(b) Given the benefits of specialization, evaluate reasons why countries might choose not to specialize (15 marks)

<span style="font-family: 'Times New Roman',Times,serif;">22. (a) Describe the factors which might cause a change in a country’s terms of trade (10 marks)

<span style="font-family: 'Times New Roman',Times,serif;">(b) Evaluate the significance for less developed countries of a deterioration in the terms of trade (15 marks)

<span style="font-family: 'Times New Roman',Times,serif;">23. (a) Explain the concepts of trade creation and trade diversion (10 marks)

<span style="font-family: 'Times New Roman',Times,serif;">(b) Explain the advantages and disadvantages of joining a trading bloc (15 marks)

<span style="font-family: 'Times New Roman',Times,serif;">24. (a) Explain why an improvement in a country’s terms of trade does not always lead to an improvement in its balance of payments on current account (10 marks) <span style="font-family: 'Times New Roman',Times,serif;">(b) An economy is currently experiencing a deficit on the current account of its balance of payments. The government is considering either allowing the exchange rate to fall or reducing aggregate demand.

<span style="font-family: 'Times New Roman',Times,serif;">Evaluate the relative advantages and disadvantages of these two policies. (15 marks)

<span style="font-family: 'Times New Roman',Times,serif;">25. (a) What are the causes of inflation (10 points)

<span style="font-family: 'Times New Roman',Times,serif;">(b) Evaluate the possible effects of a persistently high inflation rate on a country’s current account balance and its exchange rate (15 points)

<span style="font-family: 'Times New Roman',Times,serif;">26. (a) Explain the various factors which may affect an exchange rate in a floating exchange rate system (10 marks) <span style="font-family: 'Times New Roman',Times,serif;">(b) Evaluate a government decision to adopt a floating exchange rate system as opposed to a fixed exchange rate system (15 points)

<span style="font-family: 'Times New Roman',Times,serif;">27. (a) Explain three factors that influence the value of a country’s exchange rate (10 marks) <span style="font-family: 'Times New Roman',Times,serif;">(b) Evaluate government/Central Bank intervention in the foreign exchange market to reduce the value of the exchange rate (15 marks)

<span style="font-family: 'Times New Roman',Times,serif;">28. (a) Explain the principle of comparative advantage and the benefits which might arise from free trade (10 marks)

<span style="font-family: 'Times New Roman',Times,serif;">(b) Evaluate the importance of membership of a trading bloc for the export performance of a country (15 marks)

__**<span style="font-family: 'Times New Roman',Times,serif;">Short Essays **__

<span style="font-family: 'Times New Roman',Times,serif;">29. Outline the principle of comparative advantage. Does it explain modern international trade?

<span style="font-family: 'Times New Roman',Times,serif;">30. Examine the argument that floating exchange rates are preferable to fixed exchange rates.

<span style="font-family: 'Times New Roman',Times,serif;">31. How do tariffs affect economic welfare?

<span style="font-family: 'Times New Roman',Times,serif;">32. What is meant by ‘an improvement in the terms of trade’? Does it necessarily improve a nation’s balance of trade?

<span style="font-family: 'Times New Roman',Times,serif;">33. Explain why a current account balance of payments deficit may or may not be a problem.

<span style="font-family: 'Times New Roman',Times,serif;">34. Distinguish carefully between what is measured by the ‘terms of trade’ and the ‘balance of trade’.

<span style="font-family: 'Times New Roman',Times,serif;">35. Using supply and demand curves, explain how a government might try to keep the exchange rate of a currency at an artificially high level. <span style="font-family: 'Times New Roman',Times,serif;">36. What economic theories could be used to justify WTO’s promotion of more free trade in services?

<span style="font-family: 'Times New Roman',Times,serif;">37. What are the main features of a free trade area?

<span style="font-family: 'Times New Roman',Times,serif;">38. A firm is trying to sell in export markets. What factors can influence its competitiveness?

<span style="font-family: 'Times New Roman',Times,serif;">39. Explain how changes in interest rates can be expected to affect exchange rates.

<span style="font-family: 'Times New Roman',Times,serif;">40. Many people never travel to another country and never need to exchange currencies. Explain how their everyday lives can still be affected by exchange rates.

<span style="font-family: 'Times New Roman',Times,serif;">41. Explain why, in theory, freely floating exchange rates would automatically correct a balance of payments disequilibrium?

<span style="font-family: 'Times New Roman',Times,serif;">42. With the aid of a supply and demand diagram explain how changes in imports and exports can be expected to affect a floating exchange rate.

<span style="font-family: 'Times New Roman',Times,serif;">43. A country wishes to improve its ‘comparative advantage’ in producing manufactured goods. What does this mean and how it might be achieved?

<span style="font-family: 'Times New Roman',Times,serif;">44. Explain why a deterioration in the terms of trade could bring about an improvement in the balance of payments on current account.

<span style="font-family: 'Times New Roman',Times,serif;">45. For what reasons might a country’s exchange rate rise?

<span style="font-family: 'Times New Roman',Times,serif;">46. What factors determine the competitiveness of a country in international trade?

<span style="font-family: 'Times New Roman',Times,serif;">47. Use demand and supply analysis to explain the possible effects of currency speculation on a country’s exchange rate.

<span style="font-family: 'Times New Roman',Times,serif;">48. A government decides to raise interest rates. How might this affect the external account?

<span style="font-family: 'Times New Roman',Times,serif;">49. Explain why deterioration in the terms of trade could bring about an improvement in the balance of payments on current account.

<span style="font-family: 'Times New Roman',Times,serif;">50. Explain why the depreciation of a country’s exchange rate might not improve its balance of payments?

<span style="font-family: 'Times New Roman',Times,serif;">51. Explain the effects of inflation on a country’s international competitiveness.

<span style="font-family: 'Times New Roman',Times,serif;">52. What is a voluntary export restraint and who is likely to benefit from it?

<span style="font-family: 'Times New Roman',Times,serif;">53. What impact is a substantial rise in the level of interest rates in a country likely to have on its balance of payments?

<span style="font-family: 'Times New Roman',Times,serif;">54. Why might a country’s current account balance worsen as it approaches full employment?

<span style="font-family: 'Times New Roman',Times,serif;">55. Explain two benefits which might arise from international trade.

<span style="font-family: 'Times New Roman',Times,serif;">56. Explain how in theory balance of payments deficits and surpluses on current account are automatically adjusted under a system of flexible exchange rates. Illustrate your answer using supply and demand analysis.

<span style="font-family: 'Times New Roman',Times,serif;">57. How would deterioration in the terms of trade affect the current account of a country?

<span style="font-family: 'Times New Roman',Times,serif;">58. Why are the concepts of trade creation and trade diversion important for a country that is considering joining a customs union?

<span style="font-family: 'Times New Roman',Times,serif;">59. Why might a government prefer to negotiate Voluntary Export Restraints (VERs) rather than impose tariffs as a means of restricting international trade?

<span style="font-family: 'Times New Roman',Times,serif;">60. Using an example, explain how the concept of opportunity cost is a key element in the theory of comparative advantage

<span style="font-family: 'Times New Roman',Times,serif;">61. With reference to the Marshall-Lerner condition, explain how the depreciation of a country’s exchange rate might affect its current account balance.

<span style="font-family: 'Times New Roman',Times,serif;">62. Using an appropriate diagram, explain who gains and who loses from the introduction of a tariff

<span style="font-family: 'Times New Roman',Times,serif;">63. Explain the link between the Marshall-Lerner condition and the J-curve effect.

<span style="font-family: 'Times New Roman',Times,serif;">64. Using the principle of comparative advantage, explain why economic theory suggests that countries should specialize and trade with each other.

<span style="font-family: 'Times New Roman',Times,serif;">65. Explain two reasons for an improvement in a country’s terms of trade.

<span style="font-family: 'Times New Roman',Times,serif;">66. Explain why a depreciation of a country’s exchange rate may not always lead to an improvement in its current account of the balance of payments.

<span style="font-family: 'Times New Roman',Times,serif;">67. Using a diagram or a numerical example, explain how the concept of comparative advantage determines which goods or services a country should export.