CFAI Practice: M06 — International Trade

Total: 5 questions

Source: CFA Institute Practice Questions — Economics (2026)


Question 1

Gross Domestic Product (GDP) differs from Gross National Product (GNP) in that GDP:

  • A. includes income earned by domestic residents abroad
  • B. measures output produced within a country’s borders regardless of who produces it
  • C. excludes government spending from total output calculations

Question 2

Country A can produce wine at a lower opportunity cost than Country B, while Country B can produce cloth at a lower opportunity cost than Country A. According to trade theory, Country A has:

  • A. an absolute advantage in wine production
  • B. a comparative advantage in wine production
  • C. both comparative and absolute advantage in wine production

Question 3

A government imposes a limit on the quantity of steel that can be imported during a given year. This trade restriction is best described as a:

  • A. tariff
  • B. quota
  • C. voluntary export restraint

Question 4

A customs union differs from a free trade area in that a customs union:

  • A. eliminates tariffs among member countries only
  • B. adopts a common external trade policy toward non-member countries
  • C. allows free movement of labor and capital among member countries

Question 5

When the formation of a trading bloc causes member countries to shift imports from a lower-cost non-member producer to a higher-cost member producer, this outcome is known as:

  • A. trade creation
  • B. trade diversion
  • C. trade liberalization