15 extra multiple-choice questions for International Economics (12th Standard Economics, Samacheer Kalvi), beyond the ones printed in the textbook — each with the correct option highlighted and a clear, worked explanation. Free to read in English and Tamil.
Q1
Which branch of economics is primarily concerned with the economic interdependence among nations and the entire range of cross-border transactions?
- A. Development Economics
- B. International EconomicsCorrect
- C. Fiscal Economics
- D. Monetary Economics
Explanation. International Economics specifically studies economic transactions, trade of goods and services, and financial interdependence across national borders.
Q2
The subject matter of International Economics is divided into several segments. Under which segment are issues of tariffs, protection, and exchange control analyzed?
- A. Pure Theory of Trade
- B. Policy IssuesCorrect
- C. International Cartels
- D. Trade Blocs
Explanation. Policy issues cover the regulation of trade, tariffs, protectionism, subsidies, and measures for correcting balance of payments disequilibrium.
Q3
According to the comparative differences between domestic and foreign trade, which of the following is a characteristic of internal trade?
- A. High immobility of labor and capital
- B. High restriction of goods through quotas and tariffs
- C. Multiple currencies in circulation
- D. Free movement of factors of production across regionsCorrect
Explanation. Internal trade occurs within a single nation where labor and capital can move freely without political or tariff restrictions.
Q4
Adam Smith's theory of absolute cost advantage operates under several simplified assumptions. Which of the following is one of these assumptions?
- A. High transportation costs between nations
- B. Multiple factors of production including capital
- C. Labor is the only factor of productionCorrect
- D. Heterogeneous labor units
Explanation. The classical theory of absolute cost advantage assumes that labor is the sole factor of production and all labor units are homogeneous.
Q5
According to David Ricardo's theory of comparative cost advantage, a country should specialize in and export the commodity in which its:
- A. Absolute cost of production is the highest
- B. Comparative cost disadvantage is the leastCorrect
- C. Nominal exchange rate is at purchasing power parity
- D. Factor intensity matches its capital abundance
Explanation. Ricardo showed that even if a nation has an absolute disadvantage in both goods, it should export the good where its relative disadvantage is smallest.
Q6
The modern theory of international trade, developed by Eli Heckscher and Bertil Ohlin, attributes the primary cause of comparative cost differences to differences in:
- A. Labor productivity and efficiency of workers
- B. National income levels and purchasing power
- C. Factor endowments and factor intensitiesCorrect
- D. Transportation networks and shipping speeds
Explanation. The Heckscher-Ohlin model explains that international trade is driven by differences in national factor endowments, such as land, labor, and capital.
Q7
The concept of Net Barter Terms of Trade, which measures the ratio of the export price index to the import price index, was developed by which economist in 1927?
- A. Jacob Viner
- B. G.S. Dorrance
- C. David Ricardo
- D. Frank TaussigCorrect
Explanation. Frank Taussig introduced the Net Barter Terms of Trade, which index the relationship between the average price of exports and imports.
Q8
Which concept of terms of trade adjusts the commodity terms of trade for changes in the productivity of a country's export industries?
- A. Gross Barter Terms of Trade
- B. Income Terms of Trade
- C. Single Factoral Terms of TradeCorrect
- D. Double Factoral Terms of Trade
Explanation. Single Factoral Terms of Trade, introduced by Jacob Viner, adjust the export-import price ratio by the productivity index of the domestic export sector.
Q9
The Balance of Trade differs from the Balance of Payments because the Balance of Trade:
- A. Records transactions of both visible and invisible items
- B. Includes capital transfers and foreign direct investments
- C. Considers only the export and import of physical commoditiesCorrect
- D. Is always kept in perfect equilibrium by central banks
Explanation. Balance of Trade represents only visible trade, which is the import and export of physical goods or commodities.
Q10
Which type of Balance of Payments disequilibrium is caused by deep-seated, long-run structural shifts in an economy as it progresses from one stage of economic growth to another?
- A. Cyclical disequilibrium
- B. Secular disequilibriumCorrect
- C. Temporal disequilibrium
- D. Frictional disequilibrium
Explanation. Secular disequilibrium is a long-term phenomenon that arises from fundamental developmental changes in the economy over decades.
Q11
Devaluation is a deliberate policy tool used to correct Balance of Payments deficits. In which of the following years was the Indian Rupee devalued?
- A. 1956
- B. 1966Correct
- C. 1980
- D. 2016
Explanation. The Indian Rupee was devalued three times since independence, with the second devaluation occurring on June 6, 1966.
Q12
Which economist defined the equilibrium exchange rate as that rate which, over a certain period of time, keeps the balance of payments in equilibrium?
- A. Ragnar NurkseCorrect
- B. Adam Smith
- C. Jacob Viner
- D. Irving Fisher
Explanation. Ragnar Nurkse defined the equilibrium exchange rate in terms of its ability to maintain balance of payments equilibrium over a specific period.
Q13
If the bilateral nominal exchange rate is 'e', the domestic price level is 'P', and the foreign price level is 'Pf', how is the Real Exchange Rate calculated?
- A. e multiplied by P divided by Pf
- B. e multiplied by Pf divided by PCorrect
- C. e divided by the sum of P and Pf
- D. the sum of e and P divided by Pf
Explanation. The real exchange rate is calculated by multiplying the nominal exchange rate by the foreign price level and dividing by the domestic price level.
Q14
Which of the following is a primary characteristic of Foreign Portfolio Investment (FPI) that distinguishes it from Foreign Direct Investment (FDI)?
- A. It involves long-term ownership of physical factories
- B. It is motivated primarily by short-term profit and does not seek management controlCorrect
- C. It requires complete technology transfer to the host country
- D. It is strictly prohibited in the financial and banking sectors
Explanation. FPI consists of passive holdings of financial assets like stocks and bonds without active management control or participation.
Q15
Under India's current foreign direct investment policies, in which of the following sectors is FDI completely prohibited?
- A. Pharmaceuticals
- B. Telecommunications
- C. Atomic energyCorrect
- D. Hospitality and tourism
Explanation. India prohibits FDI in strategic sectors such as atomic energy, railways, arms and ammunition, and certain types of mining.
