International Trade and Finance Flashcards
7 cards from real CEA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 International Trade and Finance flashcards as text
The J-curve effect in international trade suggests that after a currency depreciation, the trade balance initially:
Answer: Worsens before eventually improving
The J-curve occurs because import/export volumes adjust slowly, so the trade balance worsens in the short run before improving as quantities respond.
Which condition must hold for a currency depreciation to improve the trade balance in the long run?
Answer: The Marshall-Lerner condition must be satisfied
The Marshall-Lerner condition states that the sum of the price elasticities of demand for exports and imports must exceed one for depreciation to improve the trade balance.
A country running a persistent current account surplus is best described as:
Answer: A net lender to the rest of the world
A current account surplus means the country exports more than it imports, making it a net lender (capital outflow) to the rest of the world.
Covered interest rate parity links which variables?
Answer: Forward exchange rates, spot rates, and interest rate differentials
Covered interest parity states that the forward premium or discount on a currency equals the interest rate differential between two countries.
A tariff-rate quota (TRQ) allows imports:
Answer: At a low tariff up to a threshold, then a higher tariff above it
A TRQ charges a lower (or zero) tariff on imports up to a specified quantity and a higher tariff on any imports exceeding that threshold.
The Stolper-Samuelson theorem predicts that free trade will:
Answer: Benefit owners of the factor used intensively in the export sector
Stolper-Samuelson states that free trade raises the real return to factors used intensively in export industries and lowers returns to factors used intensively in import-competing industries.
A country with a fixed exchange rate that faces a balance of payments deficit under the Bretton Woods system was expected to:
Answer: Borrow from the IMF and adjust domestic policies
Under Bretton Woods, deficit countries were expected to seek IMF assistance and implement policy adjustments while maintaining the fixed peg.