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Multiple Choice

part (a)-(b), Suppose that the free-trade price of a ton of steel is 500 euros. Finland, a small country, imposes a 60 euros-per-ton specifific tariff on imported steel.

With the tariff, Finland produces 300,000 tons of steel and consumes 600,000 tons of steel.

(a). Which of the following statements is incorrect?

A. The tariff makes Finnish steel producers better off.

B. The tariff makes Finnish steel consumers better off.

C. The tariff raises the domestic market price of steel in Finland by 60 euros per ton.

D. Finland collects the tariff revenue of 18 million euros.

(b). Which of the following statements is incorrect?

A. The tariff reduces Finland's national welfare, partly because Finnish steel producers pro

duce too much relative to the efficient level of output.

B. The tariff reduces Finland's national welfare, partly because Finnish steel consumers

consume too much relative to the efficient level of output.

C. Finland's production loss due to the tariff equals 3 million euros.

D. Finland's consumption loss due to the tariff equals 3 million euros.

(c). A Canadian tourist travels to France and buys a box of macaroons. She pays with her

RBC Bank credit card. Which of the following correctly describes the entries in Canada's balance

of payment?

A. Current Account credit: goods import; financial account debit: export of Canadian assets

B. Current Account debit: goods import; financial account credit: import of Canadian assets

C. Current Account credit: goods import; financial account debit: import of Canadian assets

D. Current Account debit: goods import; financial account credit: export of Canadian assets

(d). Which of the following is describing an effect that is consistent with standard assumptions

in the AA-DD model?

A. During the Great Depression of the 1930s, the nominal interest rate hit zero in the United

States, and the country found itself caught in a liquidity trap.

B. Economists estimated that, for OECD countries, 10 percent nominal depreciation of the

domestic currency caused the import price level to rise by 6.4 percent in the long run.

Their estimates indicate that exchange rate pass-through is incomplete.

C. Canada's long run price elasticity for exports is around 0.71 and the absolute value of long

run price elasticity for imports is around 0.72. The sum of the relative price elasticities

of export and import demand exceeds 1.

D. Following a real currency depreciation, a country found that its current account worsens

immediately and improves only in the long run.

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