International Economics Questions and Answers

Q: Consider the following statements about 'Rules of Origin' :1. Rules of Origin are the criteria needed to determine the national source of a product.2. Rules of Origin help the custom agencies to know what regulations and fees apply to a given product.3. These are used for the purpose of trade statistics.4. Their importance is derived from the fact that duties and restrictions in several cases depend upon the sources of imports.Which of the above statements are correct?

All four statements are correct: All of the above.Rules of origin are the criteria for deciding the national source of a product (1). Customs authorities use them to decide which duties, quotas, preferences and other regulations apply to an import (2) and to compile trade statistics (3). They matter because, in many cases, duties and restrictions depend on where an import comes from, especially under free trade agreements and anti-dumping measures (4).Each narrower option leaves out a correct statement.

Q: Identify the CORRECT statement(s) in the context of an open economy.

The correct statement is When domestic currency appreciates, domestic goods become more expensive to foreign buyers.An appreciation means each unit of foreign currency buys fewer units of domestic currency, so foreigners must spend more of their own money for the same domestic goods. If the rupee appreciates from Rs 80 to Rs 75 per dollar, a good priced at Rs 7,500 costs an American buyer $100 instead of $93.75.The same appreciation makes foreign goods cheaper for domestic buyers, so the first statement is wrong. A depreciation works the other way: foreign goods become more expensive for domestic buyers and domestic goods become cheaper for foreign buyers, so both depreciation statements are wrong.

Consider the following statements about 'Rules of Origin' :

1. Rules of Origin are the criteria needed to determine the national source of a product.
2. Rules of Origin help the custom agencies to know what regulations and fees apply to a given product.
3. These are used for the purpose of trade statistics.
4. Their importance is derived from the fact that duties and restrictions in several cases depend upon the sources of imports.

Which of the above statements are correct?

A.Only 1 and 2
B.Only 3 and 4
C.Only 1, 3 and 4
D.All of the above

Exam Year(s)

BPSC Exam - 2023, BPSC CDPO - 2023,

Answer: D

All four statements are correct: All of the above.

Rules of origin are the criteria for deciding the national source of a product (1). Customs authorities use them to decide which duties, quotas, preferences and other regulations apply to an import (2) and to compile trade statistics (3). They matter because, in many cases, duties and restrictions depend on where an import comes from, especially under free trade agreements and anti-dumping measures (4).

Each narrower option leaves out a correct statement.

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What are transfers recorded in the current account of the BOP statement that include pension, remittances, gifts, etc. for which no specific services are rendered, called?

A.Invisible trade
B.Bilateral transfers
C.Unilateral transfers
D.Barter

Exam Year(s)

DSSSB PGT - 2023,

Answer: C

Transfers in the current account of the balance of payments for which no service is rendered in return, such as pensions, remittances and gifts, are called unilateral transfers, since they flow in one direction and have no matching payment. Invisible trade means trade in services, bilateral transfers are not a standard head, and barter is an exchange of goods for goods. The answer is unilateral transfers, option C. Unilateral transfers are recorded in the current account because they are income flows between residents and non residents, although no good or service moves.

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Who gave the Absolute Cost Advantage model of international trade?

A.Adam Smith
B.Bertil Ohlin
C.David Ricardo
D.Alfred Marshall

Exam Year(s)

DSSSB PGT - 2023,

Answer: A

The theory of absolute cost advantage in international trade was given by Adam Smith in The Wealth of Nations (1776): a country should export the goods it can produce with fewer resources than other countries and import the others. David Ricardo gave the later theory of comparative cost, Bertil Ohlin the factor endowments theory, and Alfred Marshall the offer curves. The answer is Adam Smith, option A. Smith argued that each country should specialise in the goods in which it has an absolute advantage in cost.

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General agreement on tariff and trade was replaced by:

A.Multilateral trade agreement
B.Cross Regional Trade Group
C.World Trade Organization (WTO)
D.North American free trade agreement

Exam Year(s)

DSSSB PGT - 2023,

Answer: C

The General Agreement on Tariffs and Trade (GATT), signed in 1947, was replaced by the World Trade Organization, which began work on 1 January 1995 after the Uruguay Round. The WTO has a wider reach, covering services and intellectual property as well as goods, and a binding dispute settlement system. The other options are not what replaced the GATT. The answer is option C. The WTO, set up on 1 January 1995, has its headquarters in Geneva.

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The mercantilist propagates to:

A.Encourage exports and imports
B.Encourage exports and discourage imports
C.Discourage exports and encourage imports
D.Discourage exports and imports

Exam Year(s)

DSSSB PGT - 2023,

Answer: B

Mercantilists held that a nation grows rich by building up a surplus of exports over imports, which brings in gold and silver, so they favoured encouraging exports and discouraging imports through tariffs and subsidies. The other options are not the mercantilist policy. The answer is option B.

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According to mercantilists, trade is a:

A.Positive sum game
B.Negative sum game
C.Zero sum game
D.Infinite sum game

Exam Year(s)

DSSSB PGT - 2023,

Answer: C

According to the mercantilists, the total wealth of the world is fixed, so what one country gains from trade another country loses, and trade is a zero sum game. Free trade theory, in contrast, treats trade as a positive sum game. The answer is zero sum game, option C.

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Which of the following is a non-tariff barrier in international trade?

A.Export ban
B.Export control
C.Import Quota
D.Import duty

Exam Year(s)

DSSSB PGT - 2023,

Answer: C

A non tariff barrier restricts trade by means other than a tax on imports. Import quotas, which limit the quantity of imports, are the standard example. An import duty is a tariff barrier. The key gives import quota, option C. Export bans and controls also restrict trade, but they limit exports and are less commonly meant by the term. Tariffs, in contrast, are taxes on imports, and non tariff barriers include quotas, licensing and standards.

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Which of the following is also known as Bretton Wood twins?

A.IMF and IBRD
B.IBRD and IDA
C.IMF and IFC
D.IBRD and ADB

Exam Year(s)

DSSSB PGT - 2023,

Answer: A

The International Monetary Fund and the International Bank for Reconstruction and Development (the World Bank) were set up at the Bretton Woods Conference of 1944, and they are called the Bretton Woods twins. The IDA, the IFC and the ADB are other institutions, and the Asian Development Bank was created later and in another place. The answer is IMF and IBRD, option A.

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From the following it can be interpreted that:

Country	Hours required for Commodity
Country	X	Y
A	120	100
B	80	90

A.A has an absolute advantage in production of Y while B has a comparative advantage in production of X
B.A has a comparative advantage in production of X while B has a comparative advantage in production of Y
C.B has a comparative advantage in production of X while A has a comparative advantage in production of Y
D.No country has a clear comparative advantage in production of X and Y

Exam Year(s)

DSSSB PGT - 2023,

Answer: C

The comparative cost of X in terms of Y: for A the cost of one unit of X is 120/100 = 1.2 units of Y, and for B it is 80/90 = 0.89 units of Y. B gives up less Y to make X, so B has the comparative advantage in X. For Y, the cost for A is 100/120 = 0.83 units of X, and for B it is 90/80 = 1.125, so A has the comparative advantage in Y. B has absolute advantage in both (fewer hours). The answer is option C. The result is the standard test of comparative advantage: compare the opportunity costs, not only the hours.

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10.

Identify the CORRECT statement(s) in the context of an open economy.

A.When domestic currency appreciates, foreign goods become more expensive to domestic buyers.
B.When domestic currency appreciates, domestic goods become more expensive to foreign buyers.
C.When domestic currency depreciates, foreign goods become less expensive to domestic buyers.
D.When domestic currency depreciates, domestic goods become more expensive to foreign buyers.

Exam Year(s)

IIT JAM - 2026,

Answer: B

The correct statement is When domestic currency appreciates, domestic goods become more expensive to foreign buyers.

An appreciation means each unit of foreign currency buys fewer units of domestic currency, so foreigners must spend more of their own money for the same domestic goods. If the rupee appreciates from Rs 80 to Rs 75 per dollar, a good priced at Rs 7,500 costs an American buyer $100 instead of $93.75.

The same appreciation makes foreign goods cheaper for domestic buyers, so the first statement is wrong. A depreciation works the other way: foreign goods become more expensive for domestic buyers and domestic goods become cheaper for foreign buyers, so both depreciation statements are wrong.

International Economics Questions and Answers

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