St.

Mary’s university
Faculty of Business
Department of Economics
Final Examination (50%)
Course title: International Economics I
Course code: Econ 3018
For Regular Students Date of exam--------------/24
Semester I: Time allowed 2:20 hrs.
Student Name -------------------------------------------Id No: ------------------------section ------
General Instructions
 Make sure that the booklet you have received has all questions/III sections.
 Read the INSTRUCTIONS for each part very carefully! And Attempt all questions.
 This is a closed book examination.
 Cell phones or any other hand-held devices that facilitate wireless communication are NOT PERMITTED. Switch them off until you go out of the
exam hall.
 any form of cheating in the exam hall is strictly forbidden and results in serious consequences.
 any measures taken by invigilators against breach of conduct are not to be compromised.
 you may use a calculator if the course requires so. This must not be programmable, and may be inspected during the examination.
Part I: Blacken the the circle corresponding to “T” if the statement is correct and to “F” if it is incorrect on the separate answer sheet (0.5 each)
1. Tariffs are designed to make imported goods more expensive, thereby protecting domestic industries.
A. True
B. False
Answer: A
2. The World Trade Organization (WTO) primarily focuses on providing loans to developing countries.
A. True
B. False
Answer: B
3. Economic integration always leads to trade creation and never causes trade diversion.
A. True
B. False
Answer: B
4. Comparative advantage allows countries to specialize in producing goods at a lower opportunity cost than others.
A. True
B. False
Answer: A
5. Non-tariff barriers such as quotas and technical standards can restrict trade as effectively as tariffs.
A. True
B. False
Answer: A
6. Export-oriented industrialization (EOI) encourages countries to focus on producing goods primarily for domestic consumption.
A. True
B. False
Answer: B
7. Globalization can lead to both opportunities for growth and challenges such as inequality and environmental degradation.
A. True
B. False
 Answer: A
8. Import substitution industrialization (ISI) promotes the replacement of imported goods with domestically produced goods.
A. True
B. False
Answer: B
9. The main goal of economic integration is to isolate member countries from global trade.
A. True
B. False
Answer: B
10. The Prebisch-Singer hypothesis suggests that terms of trade for primary commodities tend to improve over time.
A. True
B. False
Answer: B
Part II: Multiple choice questions items (1 point)
Instruction: Choose the correct answer among the given alternatives for each question and blacken the corresponding circle of the letter of your
choice on the separate answer sheet
1. Which of the following is a primary objective of trade policy?
A. Reducing domestic savings
B. Enhancing currency depreciation
C. Protecting domestic industries
D. Promoting inflation
Answer: C
2. A type tariffs which are assessed on the basis of the physical weight of the product which is imported or exported
A. Ad valorem tariffs
B. Discriminatory tariff
C. Specific tariffs
D. Retaliatory tariffs
Answer: C
 3. All of the following are Non-tariff trade barriers EXCEPT:
A. Import quotas
B. Voluntary export restraints
C. Export taxes
D. Technical standards
Answer: C
4. Which of the following is an example of an administrative barrier to trade?
A. Tariff escalation
B. Bureaucratic delays at customs
C. Export subsidies
D. Free trade agreements
Answer: B
5. Which of the following the purpose of Export subsidies is:
A. Make imports cheaper
B. Encourage domestic consumption
C. Make domestic goods more competitive abroad
D. Increase tariffs on imported goods
Answer: C
6. "Quota" in trade terminology refers to:
A. A government incentive to export
B. A tax on exports
C. A tax on imports
D. A limit on the quantity of a good that can be imported
Answer: D
7. One of the following the effect of the imposition of tariffs:
A. Reduce government revenue
B. Improve global efficiency
C. Raise the domestic price of imports
 D. Increase trade deficits
Answer: C
8. International trade contributes to economic development primarily by:
A. Reducing domestic savings
B. Increasing fiscal deficits
C. Raising tariffs
D. Encouraging specialization
Answer: D
9. Comparative advantage in trade promotes:
A. Self-sufficiency
B. Protectionism
C. Efficient resource allocation
D. Import substitution
Answer: C
10. The Prebisch-Singer hypothesis argues that:
A. All countries gain equally from trade
B. Import substitution policies are ineffective
C. Developing countries benefit more from capital flows than trade
D. The terms of trade for primary commodities tend to deteriorate over time
Answer: D
11. The Export-led grow trade strategies are most associated with:
A. Latin America
B. Sub-Saharan Africa
C. East Asia
D. Western Europe
Answer: C
12. One key risk of over-dependence on trade for development is:
A. Vulnerability to external shocks
 B. Currency stability
C. Diversification
D. Reduced foreign exchange reserves
Answer: A
13. Trade openness is positively associated with:
A. Greater protectionism
B. Lower economic growth
C. Higher innovation and productivity
D. Lower capital inflows
Answer: C
14. Which sector often dominates exports in least developed countries (LDCs)?
A. Services
B. Primary commodities
C. High-tech manufacturing
D. Automotive industry
Answer: B
15. Which of the following is NOT typically a component of trade strategy?
A. Exchange rate policy
B. Investment in infrastructure
C. National defense policy
D. Trade facilitation
Answer: C
16. A dual trade strategy involves:
A. Promoting exports while restricting imports
B. Encouraging both import substitution and export promotion
C. Focusing only on capital goods
D. Avoiding regional agreements
Answer: B
 17. Which one is a key characteristic of successful trade strategy is:
A. High trade barriers
B. Currency manipulation
C. Institutional capacity building
D. Exclusive reliance on aid
Answer: C
18. Infant industry protection is justified in strategy to:
A. Eliminate competition permanently
B. Foster the growth of emerging domestic industries
C. Increase tariff revenue only
D. Delay structural change
Answer: B
19. The main objective of the World Trade Organization (WTO) is to:
A. Impose sanctions
B. Promote protectionism
C. Facilitate free and fair trade
D. Finance infrastructure
Answer: C
20. Which of the following is NOT a function of the WTO?
A. Trade negotiations
B. Trade dispute settlement
C. Providing trade finance
D. Monitoring trade policies
Answer: C
21. The International Monetary Fund (IMF) focuses primarily on:
A. Trade liberalization
B. Exchange rate stability
C. Tariff setting
 D. Trade dispute resolution
Answer: B
22. Which institution replaced the GATT in 1995?
A. WTO
B. IMF
C. World Bank
D. OECD
Answer: A
23. The World Bank’s role in international trade is mainly through:
A. Setting tariffs
B. Resolving disputes
C. Providing development finance
D. Supervising trade negotiations
Answer: C
24. Which of the following represents the highest level of economic integration?
A. Free trade area
B. Customs union
C. Common market
D. Economic and monetary union
Answer: D
25. Which of the following the elements of a customs union trade integration:
A. Free movement of capital
B. Common external tariffs
C. Independent trade policies
D. Complete political integration
Answer: B
26. The European Union is best described as:
A. Free trade area
 B. Economic and monetary union
C. Customs union only
D. Political federation
Answer: B
27. Which African initiative aims at regional trade integration?
A. ASEAN
B. SAARC
C. AfCFTA
D. NFTA
Answer: C
28. Trade diversion is a risk of integration because it:
A. Promotes global efficiency
B. Encourages unfair competition
C. Shifts trade from more efficient non-members to less efficient members
D. Increases domestic productivity
Answer: C
29. Which one of the following is true about Globalization:
A. National self-reliance
B. Increasing interdependence among nations
C. Tariff protectionism
D. Industrial decline
Answer: B
30. one of the following is a key driver of globalization is:
A. Rising protectionism
B. Technological advancements
C. Tariff escalation
D. Nationalization of firms
Answer: B
 31. Which sector is most influenced by globalization?
A. Agriculture
B. Heavy manufacturing
C. Services and finance
D. Mining
Answer: C
32. Which one is the argument against globalization:
A. Enhanced cultural diversity
B. Greater global equity
C. Higher environmental protection
D. Widening income inequality
Answer: D
33. Which organization promotes globalization through trade liberalization?
A. ILO
B. WTO
C. FAO
D. UNDP
Answer: B
34. Which of the following best explains the term "Most Favored Nation" (MFN) in WTO agreements?
A. Granting exclusive trade rights to a partner country
B. Providing financial aid to least developed countries
C. Ensuring non-discriminatory trade treatment to all WTO members
D. Favoring domestic industries over foreign ones
Answer: C
35. Which of the following is a potential disadvantage of protectionist trade policies?
A. Increased foreign competition
B. Improved domestic efficiency
C. Retaliatory measures by trading partners
 D. More innovation in export sectors
Answer: C
36. Which economic theory supports the idea that countries should specialize in the production of goods for which they have the lowest opportunity cost?
A. Mercantilism
B. Absolute advantage
C. Comparative advantage
D. Protectionism
A. Answer: C
37. Which of the following agreements led to the creation of the World Trade Organization (WTO)?
A. Bretton Woods Agreement
B. Maastricht Treaty
C. Uruguay Round Agreement
D. NAFTA
Answer: C
38. Which of the following is NOT a goal of trade integration?
A. Increase trade among member countries
B. Improve labor and capital mobility
C. Increase external tariffs on non-members
D. Enhance economic cooperation
Answer: C
39. Which of the following institutions is primarily responsible for lending to developing countries for infrastructure projects?
A. IMF
B. WTO
C. World Bank
D. OECD
Answer: C
40. Which of the following best describes a free trade area?
A. Common external tariffs and coordinated monetary policy
 B. Removal of trade barriers among members but each maintains its own external tariffs
C. Elimination of all forms of tariffs globally
D. Economic and political union
Answer: B
41. What is the main purpose of trade facilitation?
A. Increase tariffs for revenue generation
B. Introduce technical barriers to protect local firms
C. Simplify and expedite the movement of goods across borders
D. Discourage import competition
Answer: C
42. Which trade strategy emphasizes reducing dependency on imports and building domestic industry capacity?
A. Export-led growth
B. Import substitution industrialization
C. Trade liberalization
D. Free trade agreements
Answer: B
43. Which of the following best explains how trade contributes to economic growth?
A. It reduces foreign investment
B. It restricts domestic competition
C. efficient resource allocation
D. It increases tariff revenue
Answer: C
44. Which of the following statements is true about the relationship between trade and development?
A. Trade alone guarantees development
B. Trade always increases inequality
C. Trade can promote development if complemented by sound policies and institutions
D. Trade leads to resource depletion only
Answer: C
45. Which of the following is NOT typically a reason for implementing trade protection measures?
A. Protecting strategic industries
B. Correcting a trade deficit
C. Reducing government revenue
D. Shielding local employment
Answer: C
46. Which of the following is a likely short-term effect of trade liberalization in developing countries?
A. Immediate industrial growth
B. Increased government ownership of businesses
C. Higher import tariffs
D. Short-term job losses in protected sectors
Answer: D
47. Which of the following would most likely be supported by advocates of protectionism?
A. Elimination of tariffs
B. Global trade agreements
C. Import quotas and subsidies
D. WTO dispute resolution mechanisms
Answer: C
48. Which One of the following is major disadvantage of protectionist policies:
A. higher consumer prices
B.
C. Reduce domestic employment
D. Encourage foreign direct investment
E. Promote specialization
Answer: A
49. Export-led growth strategies are most effective when a country:
A. Focuses only on raw material exports
B. Isolated its economy from global markets
 C. Builds competitive advantage in manufacturing and services
D. Limits technology transfer
Answer: C
50. Trade protection is often justified by governments using the:
A. Comparative advantage argument
B. Terms-of-trade argument
C. Heckscher-Ohlin model
D. Infant industry argument
Answer: D

Part III: Short answer (5 point)

1. What is a quota and how does it compare to the economic effects of a tariff?
Both quotas and tariffs are tools of trade protection, but tariffs are generally preferred in economic policy because they:
Are more efficient,Generate government revenue,Are more transparent. Quotas are more restrictive and distort markets more severely.
2. Write the potential benefit of global and regional trade integration for Ethiopia economy and its negative impacts
Potential Benefits of Global and Regional Trade Integration for Ethiopia
1. Access to Larger Markets: Trade integration allows Ethiopian businesses to reach broader regional and international markets, boosting exports and
economic growth.
2. Increased Foreign Direct Investment (FDI)
Openness to trade enhances investor confidence, attracting capital, technology, and skills into key sectors like manufacturing and agriculture.
3. Job Creation: Expansion of export-oriented industries and new investments can generate employment opportunities, especially for youth and women.

Negative Impacts of Trade Integration on Ethiopia

1. Increased Foreign Competition: Local industries may struggle to compete with more efficient foreign producers, potentially leading to business closures
and job losses.
2. Loss of Government Revenue: Reducing or eliminating import tariffs under trade agreements can decrease government income, affecting public
spending.
3. Trade Imbalances; If imports grow faster than exports, Ethiopia may face a trade deficit, leading to foreign exchange shortages and economic instability
3. Explain the difference between an ad valorem, specific and compound tariff.
Types of Tariffs in the Ethiopian Context (Short Explanation)
1. Ad Valorem Tariff; Ethiopia commonly uses this type: a percentage tax on the value of imported goods; Example: 30% ad valorem tariff on a car worth
1,000,000 ETB means a tax of 300,000 ETB.
2. Specific Tariff: Less common in Ethiopia, this is a fixed tax per unit of goods, regardless of [Link]: 50 ETB per liter of imported fuel.
3. Compound Tariff; Rarely used in Ethiopia, it combines both ad valorem and specific [Link]: 10% of the value of imported machinery plus 100
ETB per unit. Ethiopia mainly relies on ad valorem tariffs in its import tax structure, especially for consumer goods, vehicles, and electronics.