Every Book Back multiple-choice question from International Economics (12th Standard Economics, Samacheer Kalvi) — each with the correct option highlighted and a clear, worked explanation. Free to read in English and Tamil.
Q1
Trade between two countries is known as ____________ trade
- A. ExternalCorrect
- B. Internal
- C. Inter-regional
- D. Home
Explanation. Trade that occurs between two or more different countries across political boundaries is defined as international or external trade.
Q2
Which of the following factors influence trade?
- A. The stage of development of a product
- B. The relative price of factors of productions
- C. Government
- D. All of the aboveCorrect
Explanation. International trade is influenced by multiple elements, including a product's development stage, relative factor prices, and various government policies.
Q3
International trade differs from domestic trade because of
- A. Trade restrictions
- B. Immobility of factors
- C. Different government policies
- D. All the aboveCorrect
Explanation. Factors like labour and capital are immobile between nations, and countries impose trade barriers and unique policies, making international trade distinct from domestic trade.
Q4
In general, a primary reason why nations conduct international trade is because
- A. Some nations prefer to produce one thing while others produce another
- B. Resources are not equally distributed among all trading nationsCorrect
- C. Trade enhances opportunities to accumulate profits
- D. Interest rates are not identical in all trading nations
Explanation. Unequal distribution of natural and productive resources among nations means no country is fully self-sufficient, motivating international exchange.
Q5
Which of the following is a modern theory of international trade?
- A. Absolute cost
- B. Comparative cost
- C. Factor endowment theoryCorrect
- D. None of these
Explanation. The Heckscher-Ohlin model, also known as the factor endowment theory, represents the modern approach to international trade.
Q6
Exchange rates are determined in
- A. Money market
- B. Foreign exchange marketCorrect
- C. Stock market
- D. Capital market
Explanation. The foreign exchange market is the global marketplace where national currencies are traded and exchange rates are established.
Q7
Exchange rate for currencies is determined by supply and demand under the system of
- A. Fixed exchange rate
- B. Flexible exchange rateCorrect
- C. Constant exchange rate
- D. Government regulated exchange rate
Explanation. Under a flexible or floating exchange rate system, market forces of demand and supply determine currency values without government pegging.
Q8
Net export equals ______
- A. Export x Import
- B. Export + Import
- C. Export - ImportCorrect
- D. Exports of services only
Explanation. Net exports represent the difference between the total value of a nation's exports and imports.
Q9
Who among the following enunciated the concept of single factoral terms of trade?
- A. Jacob VinerCorrect
- B. G.S. Dorrance
- C. Taussig
- D. J.S. Mill
Explanation. Jacob Viner introduced the concept of single factoral terms of trade as an improvement over commodity terms of trade.
Q10
Terms of Trade of a country show _______________
- A. Ratio of goods exported and imported
- B. Ratio of import duties
- C. Ratio of prices of exports and importsCorrect
- D. Both (a) and (c)
Explanation. Terms of trade measure the exchange ratio between countries, represented by the ratio of export price index to import price index.
Q11
Favourable trade means value of exports are ________ than that of imports.
- A. MoreCorrect
- B. Less
- C. More or Less
- D. Not more than
Explanation. A country experiences a favourable trade balance when the value of its exports exceeds the value of its imports.
Q12
If there is an imbalance in the trade balance (more imports than exports), it can be reduced by
- A. decreasing customs duties
- B. increasing export duties
- C. stimulating exportsCorrect
- D. stimulating imports
Explanation. To correct a trade deficit where imports exceed exports, a country must promote and increase its export volume.
Q13
BOP includes
- A. visible items only
- B. invisible items only
- C. both visible and invisible itemsCorrect
- D. merchandise trade only
Explanation. The Balance of Payments is a comprehensive record that includes both visible trade of physical goods and invisible trade of services.
Q14
Components of balance of payments of a country include
- A. Current account
- B. Official account
- C. Capital account
- D. All of aboveCorrect
Explanation. The Balance of Payments structure consists of three main sub-accounts: the current account, the capital account, and the official settlements account.
Q15
In the case of BOT,
- A. Transactions of goods are recorded.Correct
- B. Transactions of both goods and services are recorded.
- C. Both capital and financial accounts are included.
- D. All of these
Explanation. Unlike Balance of Payments, the Balance of Trade is restricted to recording transactions of visible physical merchandise or goods.
Q16
Tourism and travel are classified in which of balance of payments accounts?
- A. merchandise trade account
- B. services accountCorrect
- C. unilateral transfers account
- D. capital account
Explanation. Tourism and travel represent international transactions of non-physical items, which are classified under the services account of the balance of payments.
Q17
Cyclical disequilibrium in BOP occurs because of
- A. Different paths of business cycle
- B. The income elasticity of demand or price elasticity of demand is different
- C. long-run changes in an economy
- D. Both (a) and (b)Correct
Explanation. Cyclical disequilibrium arises when countries undergo different phases of the business cycle or experience variations in their price and income elasticities of demand.
Q18
Which of the following is not an example of foreign direct investment?
- A. the construction of a new auto assembly plant overseas
- B. the acquisition of an existing steel mill overseas
- C. the purchase of bonds or stock issued by a textile company overseasCorrect
- D. the creation of a wholly owned business firm overseas
Explanation. Purchasing overseas stocks or bonds without acquiring management participation is classified as portfolio investment rather than foreign direct investment.
Q19
Foreign direct investments not permitted in India
- A. Banking
- B. Atomic energyCorrect
- C. Pharmaceutical
- D. Insurance
Explanation. To safeguard national interest and security, the Indian government prohibits foreign direct investment in the atomic energy sector.
Q20
Benefits of FDI include, theoretically
- A. Boost in Economic Growth
- B. Increase in the import and export of goods and services
- C. Increased employment and skill levels
- D. All of theseCorrect
Explanation. Foreign direct investment theoretically aids the host nation by raising investment, enhancing employment opportunities, and stimulating trade volumes.
