Q2. Assume that Wayland has a comparative advantage in the production of coal, while Country X has a comparative advantage in the production of paper goods. Which of the following statements regarding the law of comparative advantage is most accurate?

A)   When each country specializes in the good for which they have the comparative advantage and trades with the other, both countries will benefit from the alliance.

B)   Wayland should impose a quota on the import of coal and Country X should impose a similar quota on the import of paper goods in order to preserve their respective comparative advantages.

C)   Wayland should impose a tariff on the import of coal and Country X should impose a similar tariff on the import of paper goods in order to preserve their respective comparative advantages.

Q3. Recent financial information released by the government of Wayland for the year ending 2006 includes the following information (in millions of W$):

Calculate the official reserve account (in millions of W$) for Wayland as of the end of 2006:

A)   W$265,000.

B)   W$835,000.

C)   W$−265,000.

Q4. With regards to the performance of Wayland’s currency over the past year, which of the following statements is most accurate? The W$ has:

A)   depreciated relative to the Euro, in part due to the decline in Wayland’s interest rates relative to the EU.

B)   appreciated relative to the Euro, in part due to the decline in Wayland’s interest rates relative to the EU.

C)   depreciated relative to the Euro, in part due to investor expectations that trade restrictions will soon be enacted by Wayland’s government.

Q5. Assume that Wayland’s central bank states that its goal is to maintain the long-term W$ exchange rate relative to the Euro at W$110/

答案和详解如下：

Q2. Assume that Wayland has a comparative advantage in the production of coal, while Country X has a comparative advantage in the production of paper goods. Which of the following statements regarding the law of comparative advantage is most accurate?

A)   When each country specializes in the good for which they have the comparative advantage and trades with the other, both countries will benefit from the alliance.

B)   Wayland should impose a quota on the import of coal and Country X should impose a similar quota on the import of paper goods in order to preserve their respective comparative advantages.

C)   Wayland should impose a tariff on the import of coal and Country X should impose a similar tariff on the import of paper goods in order to preserve their respective comparative advantages.

Correct answer is A)

The law of comparative advantage holds that trading partners are better off if they specialize in the production of those goods for which they are the low-opportunity cost producers. In this example, Wayland and Country X should each specialize in the production of their respective specialized goods and then trade with each other, resulting in an arrangement that is beneficial to both sides.

Q3. Recent financial information released by the government of Wayland for the year ending 2006 includes the following information (in millions of W$):

Calculate the official reserve account (in millions of W$) for Wayland as of the end of 2006:

A)   W$265,000.

B)   W$835,000.

C)   W$−265,000.

Correct answer is C)         

The Balance of Payments equation is:

Current account + capital account + official reserve account = 0

Therefore, solving for the official reserve account, W$550,000 + (−285,000) − 0 = W$−265,000

Q4. With regards to the performance of Wayland’s currency over the past year, which of the following statements is most accurate? The W$ has:

A)   depreciated relative to the Euro, in part due to the decline in Wayland’s interest rates relative to the EU.

B)   appreciated relative to the Euro, in part due to the decline in Wayland’s interest rates relative to the EU.

C)   depreciated relative to the Euro, in part due to investor expectations that trade restrictions will soon be enacted by Wayland’s government.

Correct answer is A)

The interest rates of Wayland have declined over the past year relative to rates in the EU, so investors will find Euro-denominated investments more attractive than W$-denominated investments. As a result, the W$ has depreciated in value relative to the Euro as demand for investments in the W$ currency have decreased.

Q5. Assume that Wayland’s central bank states that its goal is to maintain the long-term W$ exchange rate relative to the Euro at W$110/

Thanks