Exercise 1

A) Please decide whether the following statements are correct or not.

Q1: According to Robert Gilpin, this is still a state-dominated world. (p. 363) CORRECT

Q2: The United States or Western Europe are more prone to crises than small economies, since these large entities are more vulnerable than their smaller counterparts. (p. 363) INCORRECT

Q3: The importance of the state has increased in some areas such as supporting R&D activities. (p. 363) CORRECT

Q4: The state is not able to assist domestic firms anymore because of the intensified world wide flow of international resources. (p. 363) INCORRECT

Q5: Economic globalisation is largely confined to North America, Western Europe and Pacific Asia. (p. 364) CORRECT

Q6: Non-tradable goods still consist of a large portion of commodities/services. (p. 365) CORRECT

Q7: Trade still accounts for a relatively small portion of most economies – and this is true in case of large countries as well such as the US. (p. 365) CORRECT

Q8: If different types of goods and services in the same country have the same prices, then such an economy can be considered as closely integrated in the world economy. (p. 365) INCORRECT

Q9: According to the law of one price, homogenous (that is, the same) goods should have the same price in different economies. (p. 365) CORRECT

Q10: Transportation costs may be the reason for the different prices of the same goods throughout the world. (p. 365) CORRECT

Q11: The Big Mac Index is often used to test the correctness of the law of one price. (p. 365) CORRECT

Q12: Migration today is more intense and significant than during the late 19^th century, therefore it can be stated that globalisation is really a world-wide phenomenon. (p. 365) INCORRECT

 Q13: Although the international flow of labour was restricted substantially in the past half century, there were a few exceptions as well such as Japan and Western Europe. (p. 365) INCORRECT

 Q14: Barriers to labour migration are built by policies that intend to protect the national (domestic) welfare of national citizens. (p. 366) CORRECT

 

Exercise 2

A) Please decide whether the following statements are correct or not.

Q1: Environmental damage results from the lax policies of nation-states and/or from their poor enforcement mechanisms. (p. 367) CORRECt

Q2: By raising taxes the government can stimulate the economy. (p. 369) INCORRECT 

Q3: In principle, a budget surplus will decrease economic activity. (p. 369) CORRECT

Q4: Monetary policy works through its determination of the size and velocity of a nation’s budget deficit. (p. 369) INCORRECT

Q5: In case of the so-called irreconcilable trinity, a government cannot achieve three specific goals at the same time – one of them should be given up. (p. 370) CORRECT

Q6: If a nation wants to be capable of pursuing an autonomous macroeconomic policy, it can achieve that goal by abandoning fixed exchange rates for instance. (p. 370) CORRECT

Q7: Whereas export businesses prefer exchange rate stability, domestic-oriented businesses prefer flexible exchange rates. (p. 371) INCORRECT

Q8: Investors prefer the strict control of capital. (p. 371) INCORRECT

Q9: If an economy were isolated from the international arena, fiscal policy would be constrained by the cost of borrowing. (p. 373) CORRECT

Q10: In the decades prior to World War I, national governments had little effective control over their economies. (p. 375) CORRECT

 

B) Multiple choice questions (only one correct answer exists).

Q1: When did governments accept Keynesian economics? (p. 369)

(a) in the first decades of the 20^th century

(b) in the last decade of the 20^th century

(c) in the early postwar era

(d) in the late 19^th century

 

Q2: What special tasks were undertaken by governments under Keynesian economics? (p. 369)

(a) promoting national economic stability

(b) providing aid for developing nations

(c) eliminating inflation

(d) providing armed defence

 

Q3: According to Keynesian macroeconomics, what type of relationship existed between inflation and unemployment?

(a) smooth

(b) trade-off

(c) similarity

(d) discrepancy

 

Q4: What are the basic tools of macroeconomic policy? (p. 369)

(a) fiscal policy and income policy

(b) fiscal policy and monetary policy

(c) budget policy and inflationary policy

(d) cycle policy and money policy

 

Q5: What are the principal instruments of fiscal policy?

(a) interest rate and government expenditure

(b) inflation and government deficit

(c) interest rate and inflation

(d) taxation and government expenditure

 

Q6: What is the ultimate goal of the monetary authority if it increases the interest rate? (p. 369)

(a) depressing economic activity

(b) increasing economic activity

(c) stimulating economic activity

(d) neutralising economic activity

 

Q7: Which of the following three objectives are in a trade off with each other? (p. 370)

(a) flexible exchange rates, national interdependence in microeconomic policy and international capital mobility

(b) flexible exchange rates, national interdependence in macroeconomic policy and international capital mobility fixed exchange rates, national autonomy in macroeconomic policy and international restriction of capital mobility

(c) fixed exchange rates, national autonomy in macroeconomic policy and international capital mobility

(d) fixed exchange rates, national autonomy in microeconomic policy and international restriction of capital mobility

 

Q8: How do we call the situation when it is impossible to follow the following three objectives at the same time: fixed exchange rates, national autonomy in macroeconomic policy and international capital mobility? (p. 370)

(a) irreconcilable trinity

(b) irreversible trinity

(c) irreversible triumph

(d) inherited dilemma

 

Q9: What does the USA prefer? (p. 370)

(a) maintaining a fixed exchange rate

(b) pursuing an independent macroeconomic policy

(c) controlling capital flows

(d) controlling trade flows

 

Q10: What does China prefer? (p. 371)

(a) maintaining a fixed exchange rate

(b) pursuing an independent macroeconomic policy

(c) controlling capital flows

(d) controlling trade flows

 

Q11: What do European advanced economies prefer? (p. 371)

(a) maintaining a fixed exchange rate

(b) pursuing an independent macroeconomic policy

(c) controlling capital flows

(d) controlling trade flows

 

Q12: What are the Fed’s or any other central bank’s primary means for managing the economy? (p. 371)

(a) unemployment

(b) open market operations

(c) national economy

(d) credits

 

Q13: Who can determine reserve requirements? (p. 372)

(a) the government

(b) the central bank

(c) commercial banks

(d) the IMF

 

Q14: What was the primary objective of the so-called Basle Agreement? (p. 373)

(a) To make credits less uniform throughout the world.

(b) To make discount rates more heterogeneous throughout the world.

(c) To make discount rates more uniform throughout the world.

(d) To make reserve requirements more uniform throughout the world.

 

Q15: An important constraint on monetary policy in a domestic economy is … (p. 374)

(a) unemployment

(b) credit

(c) discount rate

(d) inflation