Chapter 2 Multiple-choice questions

. Calculating the value of GDP of two countries using the Purchasing Power Parity (PPP) method involves:

Expressing the value of both country's output in US dollars.

Finding out what can be bought in each country with a unit of the local currency.

Comparing the inflation rates in each country.

Taking into account the exchange rate of each country's currency.

. Which of the following is included in GDP?

The value of goods produced illegally.

The value of local government provided social services.

The depletion of natural resources.

The value of housework.

. It has been estimated that Bolivia has a massive shadow economy equivalent to 66% of official GDP estimates. On the other hand, the US shadow economy is the equivalent of 9% of GDP. Use the figures for both countries in Table 2.1 on p. 49 to work out how the shadow economy would affect income per capita (PPP) in each country were it to be included in the official calculations. Do your calculations show:

A narrowing of the income gap between Bolivia and the USA in absolute terms?

A reduction in the income gap between Bolivia and the USA in relative terms?

No change in the income gap between Bolivia and the USA in absolute terms?

An increase of the income gap between Bolivia and the USA in relative terms?

. Fast rates of growth in emerging market economies help international business because:

It opens up access to more natural resources.

It means that the poorest economies in Africa are growing.

It signifies that some markets for goods and services are expanding rapidly.

Inflation is on the increase.

. The Chinese economy has been growing very rapidly, and much faster than that of the USA. This means that:

Chinese wages are now comparable with those in developed countries.

The Chinese economy in 2017 was bigger than the US economy in terms of Gross National Income.

The Gross National Income of the Chinese economy in 2017 in PPP terms was twice the size of the UK economy.

The Chinese market for both capital and consumer goods has become increasingly attractive to foreign firms.

. What is a key feature of intra-industry trade?

Products traded are largely homogeneous.

Most trade takes place between nations that are very different.

Product differentiation.

Demand for goods and services rises faster than demand for primary products.

. Intra-firm transfer pricing occurs when:

A firm in one US state transfers intermediate goods to its own factory in another state.

A firm sells goods to another part of its enterprise in a higher tax jurisdiction.

A firm sells goods to another part of its enterprise in a lower tax jurisdiction.

A firm transfers goods to it own factory in another country.

. In July 2018, the World Trade Organization reported that a total of 39 new trade-restrictive measures were applied by G20 economies during the period between the previous October and May of that year, including tariff increases, stricter customs procedures, imposition of taxes and export duties. Which of the following could be the major reason for countries taking steps to protect their domestic economies from foreign competition in a global recession?

To increase imports of raw materials.

To increase exports of services.

To reduce the value of their currency on the foreign exchange market.

To avoid increases in unemployment.

. Exchange rates determined purely by the forces of supply and demand are:

Fixed exchange rates.

Floating exchange rates.

Pegged exchange rates.

Managed exchange rates.

. Between a high point in 2014 and early 2017 the value of the £ sterling slumped by almost 30% against the dollar and by 17% against the euro. Which of the following most accurately reflects the effects of this on business?

German exporters to the UK will reap benefits from movements in the euro against sterling.

US firms importing from the UK will reap benefits from movements in the dollar against sterling.

UK importers will reap benefits from movements in sterling against the euro.

Eurozone firms will find it more expensive to produce goods and services in the UK.

Chapter 2 Multiple-choice questions

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