Essay questions on international trade and exchange rates
Discuss whether an increase in FDI into low-income countries (LEDCs) is likely to lead to an increase in economic development.
Explain what is meant by a country's terms of trade and explain two factors that could cause it to worsen.
Evaluate the view that a worsening in a country's terms of trade is good for its economy.
With the aid of a diagram, explain how the imposition of a tariff can lead to a decline in economic welfare.
Case study: Sharp fall in the pound after political turmoil
Explain, using diagrams, why exchange rates can be volatile.
Case study: Sharp fall in the pound after political turmoil
Discuss whether a policy of keeping a country's exchange rate below its equilibrium level is likely to be economically beneficial for that country.
Case study: Norway and Iceland both part of the European Union's (EU's) single market
Explain why a non-EU member such as Norway might become part of the single market.
Case study: Norway and Iceland both part of the European Union's (EU's) single market
Evaluate the effects of membership of the European Monetary Union (EMU) (the eurozone) on an EU member state.
Case study: IMF: Weak governance a key obstacle to growth and development
Consider how effective the interventionist policies of import substitution and export-led industrialisation are likely to be in raising the levels of economic growth and development in LEDCs.
Case study: Germany runs permanent current account surplus
Evaluate the view that a current account surplus is always beneficial to an economy.
Case study: RISE IN PROTECTIONISM THREATENS GROWTH IN WORLD TRADE
Using diagrams and the concept of comparative advantage, explain how international trade should allow a country to consume outside its production possibility frontier.
Case study: RISE IN PROTECTIONISM THREATENS GROWTH IN WORLD TRADE
Discuss the costs and benefits of globalisation.
Case study: CHINA IN AFRICA – INFRASTRUCTURE INVESTMENT HELPING TO OVERCOME THE
Discuss whether an increase in inward foreign direct investment is a good way to improve economic development for countries that are primary product dependent.
Case study: NIGERIAN CENTRAL BANK SELLS $4BN ON FOREIGN EXCHANGE MARKETS TO
Using a diagram(s), explain how the exchange rate will be determined in a free-floating exchange rate system.
Case study: NIGERIAN CENTRAL BANK SELLS $4BN ON FOREIGN EXCHANGE MARKETS TO
Discuss the extent to which it is desirable for a central bank to use foreign currency reserves to support its exchange rate.
Case study: FALLING POUND WORSENS TERMS OF TRADE AND FAILS TO REDUCE THE TRADE
Explain the factors that might cause a country's exchange rate to depreciate.
Case study: FALLING POUND WORSENS TERMS OF TRADE AND FAILS TO REDUCE THE TRADE
To what extent would an improvement in the terms of trade improve the balance of trade?
Case study: UK CURRENT ACCOUNT DEFICIT REACHES 5.2 % OF GDP IN 2015
To what extent should a government be concerned by a large current account deficit?
Case study: "TRADE IS BETTER THAN AID"
Explain, using numerical examples, the difference between comparative and absolute advantage in trade.
Data response questions on international trade and exchange rates
The diagram below shows a market in which a government has imposed a tariff on imported goods. Briefly explain what is represented by area W in the diagram.
The diagram below shows a market in which a government has imposed a tariff on imported goods. Briefly explain what is represented by area X+Z in the diagram.
The diagram below shows a market in which a government has imposed a tariff on imported goods. Briefly explain what is represented by area Y in the diagram.
(i) Use an exchange rate diagram to outline how import restrictions would have stopped the rupee from depreciating. (ii) Using the data, discuss the possible macroeconomic benefits to Pakistan of ending the policy of keeping the exchange rate artificially above its free market level.
Using the data, discuss whether the IMF's fiscal recommendations (lines 16–22) are likely to be beneficial for Pakistan.
(i) State the meaning of a tariff. (ii) Assuming firms pass on the full tariff, calculate the new quantity demanded of Australian wine in China. (iii) Calculate the tax revenue raised for the Chinese government.
(i) State the meaning of a quota. (ii) The UK government stated that British producers have nothing to fear from the free trade deal with Australia. Using Figure 4, to what extent do you agree with this statement?
Case study: History to be repeated?
Explain how an increase in the US trade surplus could depreciate the currencies of other countries.
Case study: History to be repeated?
Using a diagram or diagrams, explain how a tariff on agricultural goods could affect consumer and producer surplus within the US agriculture market.
Using the data, explain why productivity might be lower in some parts of the UK than in others.
How effective is the UK's 'plan for growth' (Figure 8) likely to be in dealing with the regional inequalities in the UK presented in the data?
Using the data, discuss the extent to which membership of the CPTPP might be beneficial for the UK economy.
Using the data, discuss whether the weak sterling exchange rate will be more likely to improve or worsen living standards in low-income areas of the UK.
Using a demand and supply diagram, outline how China might be able to manage their exchange rate below their free market exchange rate.
Using Figure 2, explain why China's monetary authorities would argue that the recent increase from $1: 6.30 CNY to $1: 7.20 CNY is not the result of any management of the exchange rate.
Using the data and economic analysis, discuss the strength of the relationship between China's exchange rate and its economic growth, inflation and net exports between January 2018 and October 2019.
Case study: Out of Africa
The theory of comparative advantage suggests that countries should specialise to increase their levels of economic welfare. Construct your own numerical example to explain why this is so.
Using the data, discuss the likely effect on the USA economy of China restricting its exports of rare-earth minerals to the USA.
Case study: Woes of Argentina
Using a diagram, explain the likely impact of the Argentinian drought on the price of processed plums and peaches.
Case study: Woes of Argentina
(i) Explain the impact of a decrease in the exchange rate of the peso against the US dollar on the cost of Argentina's public sector debt. (ii) Given the increase in interest rates, discuss whether the change in the exchange rate of the peso in August 2018 is surprising. Use a diagram in your answer.
With reference to the data, discuss to what extent the German Government should be concerned by the protectionist measures taken by the USA.
Case study: GLOBAL OIL PRICES PLUNGE
Explain one advantage of an economy specialising at a national level.
Case study: GLOBAL OIL PRICES PLUNGE
Using diagrams, analyse reasons why oil prices are volatile.
Case study: GLOBAL OIL PRICES PLUNGE
Consider whether the Nigerian Government is right to keep its exchange rate artificially above its equilibrium level.
Case study: GLOBAL OIL PRICES PLUNGE
Using the data, discuss whether the fiscal and monetary policies being implemented by Nigeria in 2018 (lines 18–23) could improve its economic performance.
With reference to the matrix and economic theory, discuss whether or not the countries should engage in free trade.
Fears over Brexit driving growth but not profit for the UK's food and drink industry. The weak pound saw international exports for UK food and drink producers increase by 14%. However, inflation in raw material prices caused by a depreciation in sterling reduced producers' profits. Wage cost per employee has continued to rise. This has meant that even though revenue from overseas sales has increased, overall profits have fallen. Adapting the diagram opposite, analyse the impact of the factors above on the profits of the UK food and drink sector.
Case study: The Codfathers – a fishy business
With reference to the data (including Figures 3.1 and 3.2), discuss which market structure best describes the UK fishing industry.
Case study: The Codfathers – a fishy business
Using diagrams and with reference to the data, explain why small-scale fishing operators have profits close to zero, but large scale operators are highly profitable.
Case study: The Codfathers – a fishy business
With reference to the data, discuss whether it would be beneficial to give more fishing quotas to small-scale fishing operators instead of large-scale fishing operators.
Case study: Turkey in economic turmoil
Using the data, discuss the extent to which the Turkish economy might have benefitted from the change in the lira exchange rate over the period shown in Figure 2.
Adapting the supply and demand diagram below and with reference to the data, explain why soybean prices have gone down inside the US.
Case study: Zambian economy boosted by rising copper prices
With reference to the data and using a supply and demand diagram, explain why the price of copper is rising.
Case study: Zambian economy boosted by rising copper prices
Using an exchange rate diagram and Figures 1 and 2, evaluate the link between the world price of copper and Zambia's exchange rate.
Suppose the price elasticity of demand for UK car exports to the eurozone is -0.5 and that the exchange rate is £1=1.5 euros. A UK based car manufacturer exports 300 000 cars per year to the eurozone at an average price of £15 000. If the exchange rate depreciates to £1=1.1 euros, calculate: (i) the expected new level of demand for UK cars in the eurozone following the change in the exchange rate. (ii) the expected new level of revenue in pounds (£) for the manufacturer, assuming that the new level of demand can be met.
To what extent might a depreciation of the pound against the euro lead to an improvement in the UK current account of the balance of payments?
Case study: TRUMP: "LETS MAKE AMERICA GREAT AGAIN"
With the use of a tariff diagram, outline: (i) How US imports from Mexico will be affected by tariffs on Mexican goods. (ii) How Trump plans to finance the border wall. (iii) Why some commentators argue that it will be US consumers who actually pay for the border wall.
Case study: TRUMP: "LETS MAKE AMERICA GREAT AGAIN"
(i) Outline what economists mean by economic growth. (ii) With reference to economic theory and Chart 1, discuss the extent to which economic growth is a major influence on the US Balance of Trade (part of the current account of the Balance of Payments).
Case study: OLIVE OIL ON THE UP OLIVE OIL PRICES GO UP, AND UP, AND UP
With the aid of a diagram, discuss the effects on the UK restaurant sector if EU migrants leave the UK labour market as a result of Brexit.
Case study: IMF Survey: Weakening Growth in Sub-Saharan Africa Calls for Policy Change
Discuss the extent to which the relationship between Malawian interest rates and the Malawian exchange rate shown in Figures 3 and 4 can be explained by economic theory.
Using an AD/AS diagram, explain how the actions taken by the Bank of England were designed to prevent a post-Brexit recession.
Case study: HIGHER OIL PRICE AND WEAKER POUND START TO PUSH UP INFLATION
Using an appropriate diagram and with reference to the data, evaluate the economic effects of UK tariffs being imposed on products imported from the rest of the EU.
Discuss how likely it is that a country meeting any two out of the three criteria above is manipulating its currency unfairly.
Using a supply and demand diagram, explain briefly how the Government of Kazakhstan could hold the value of the tenge above its free market exchange rate.
With reference to the data, discuss whether the depreciation of the tenge will be likely to improve Kazakhstan's current account balance.
Case study: Rising unemployment piles up problems for Indonesian President
Discuss the case for and against membership of free trade agreements such as the one described in lines 34-39.
Using a diagram, explain how the tariffs on imported Chinese and Taiwanese solar panels would be expected to: (i) Reduce the imports of such panels into the US. (ii) Increase the producer surplus of US manufacturers of solar panels.
Using the data, discuss whether the US Government is right to impose the tariffs described in the data on Chinese and Taiwanese manufacturers of solar panels.
With reference to the data, discuss the extent to which the fall in the value of the rouble (Figure 1) is likely to be beneficial to Russia's economy.
Case study: MIXED PICTURE FOR UK ECONOMIC HEALTH
Using a diagram, explain why, according to the data, the pound appreciated in 2014.
Short answer questions on international trade and exchange rates
Discuss the extent to which the UK's terms of trade will have deteriorated after the EU referendum in 2016.
With the use of a diagram, outline why the peso appreciated in July 2017.
Calculate the change in Brazil's terms of trade between April 2015 and January 2016.
Multiple choice questions
- A-level Component 1, June 2025, Q13
The diagram below shows the circular flow of income in an economy, with flows 1 to 5 between households, firms, saving, tax, government spending and investment. 1, 2, 3, 4 and 5 are flows in the circular flow of income. They are most…
- A-level Component 1, June 2024, Q15
The diagram below shows the production possibilities for two fictional countries, Gondwana and Laurasia, producing Product X and Product Y. The theory of comparative advantage would suggest that: (The diagram is in the question paper.)
- A-level Component 1, June 2023, Q17
The charts in the question paper show indexes of Japanese export and import prices between July 2019 and April 2020. It can be concluded that:
- A-level Component 1, June 2023, Q20
Which of the following combinations shows the most likely effect of a sharp depreciation of a country's exchange rate?
- A-level Component 1, June 2022, Q1
The diagram below shows the PPFs for the economies of Country A and Country B, producing cars and wine. Which one of the following statements is correct? (The diagram is in the question paper.)
- A-level Component 1, June 2022, Q5
The diagram below shows the supply and demand for a country's currency. The central bank manages the exchange rate to keep it between E1 and E2. Suppose that demand rises from D1 to D2. What would the central bank need to do to maintain…
- A-level Component 1, June 2022, Q11
The chart in the question paper shows the value of the UK's exports and imports of goods and services as a percentage of GDP in 2017, split by EU-27, US, China, EFTA and the rest of the world. It can be concluded that:
- A-level Component 1, June 2022, Q13
An appreciation in the exchange rate would be most likely to improve the current account balance if the price elasticities of demand (PED) for exports and imports were:
- A-level Component 1, June 2022, Q15
The table below gives the index of UK export prices and the index of UK import prices. January 2016: exports 98, imports 99. January 2017: 111, 109.5. January 2018: 112, 111. It can be concluded from the table that:
- A-level Component 1, October 2021, Q5
The change in the sterling exchange rate in the UK in 2016, as shown in the chart of the Sterling Exchange Rate Index (Jan 2005 = 100) in the question paper, was most likely the result of the:
- A-level Component 1, October 2021, Q14
The diagram below shows the production possibility frontiers (PPFs) for two economies, Crickovia and Footania, producing Good X and Good Y. Which of the following summarises the potential trade situation between the two countries? (CA =…
- A-level Component 1, October 2021, Q16
The chart in the question paper shows the terms of trade index for Indonesia (2006 to 2018). It can be concluded that:
- A-level Component 1, October 2021, Q17
A sharp fall in the value of the pound against all major currencies would most likely result in:
- A-level Component 1, October 2020, Q4
Over a 6-month period the exchange rate between the pound sterling (£) and the Singapore dollar (S$) changed from £1=S$1.75 to £1=S$1.85. The fee for an overseas student taking a course at the LSE (the London School of Economics) was…
- A-level Component 1, October 2020, Q7
Study the exchange rate diagram below (supply S and demand D for the currency; exchange rates R1 and R2; quantities X, Y and Z). If the central bank wanted to maintain the exchange rate at R1, it would need to: (The diagram is in the…
- A-level Component 1, October 2020, Q9
The Indian rupee (the Indian currency) depreciated to a record low after the country's trade deficit widened to a five-year high because petroleum imports rose sharply. Which one of the possible exchange rate diagrams best reflects the…
- A-level Component 1, October 2020, Q12
Assuming that the Marshall-Lerner condition holds, a depreciation in the exchange rate would be most likely to have which of the following effects?
- A-level Component 1, October 2020, Q13
The table below gives a set of different economic indicators for an economy in £billions. In which situation (A, B, C, D or E) would national income be expected to rise?
- A-level Component 1, June 2019, Q7
In early 2016, the inflation rate in South Africa rose from 4.5% to 6.5%. The most likely explanation for this is:
- A-level Component 1, June 2019, Q9
The diagram below shows a £5 tariff being imposed on an imported product with a world price of £15. At the world price of £15, domestic supply is 35m and domestic demand is 180m. With the tariff (price £20), domestic supply is 70m and…
- A-level Component 1, June 2019, Q18
The table below shows the terms of trade for 5 economies: Terms of Trade Country 2011 2012 2013 2014 2015 2016 Canada 103.37 101.78 101.78 100.42 93.53 91.66 France 97.64 97.32 98.42 99.61 102.71 103.54 Germany 97.29 97.10 98.17 99.50…
- A-level Component 1, June 2018, Q6
Following the removal of a tariff on a major imported product, which of the following would be expected to happen in the domestic market for that product?
- A-level Component 1, June 2018, Q7
The table below shows the index of export prices and the index of import prices for a country over a six-year period. Year 1: export prices 100, import prices 100. Year 2: 108, 110. Year 3: 120, 115. Year 4: 120, 123. Year 5: 125, 125…
- A-level Component 1, June 2018, Q15
Two countries, Stephenia and Colinia, can produce the following output of either good X or good Y with one worker: Units of good X Units of good Y Colinia 200 or 160 Stephenia 100 or 50 Assuming that there are no transport costs, which of…
- A-level Component 1, June 2018, Q19
One significant effect of a fall in the exchange rate of the pound on the UK economy is that:
- A-level Component 1, June 2017, Q17
Following a sharp depreciation of a country's foreign exchange rate all of the following are likely except:
