eco 103 exam 3

One of the reasons the European Union was originally formed was because

Europeans desired a lasting peace after enduring two devastating world wars.

______ refers to shipping goods and services out of the jurisdiction of a country.

Exporting

Which country has consistently been the largest source of FDI since World War II?

The United States

The European Stability Mechanism was established by the EU to create _____.

a permanent bailout fund

By threatening ______ trade sanctions, one country can convince another country to open its markets

punitive

A tax on goods coming into or leaving a country is called a(n)

tariff

What are two impediments to establishing economic integration? (Check all that apply.)

Concerns over national sovereignty Costs of integration

______ trade is the economic policy of not discriminating against exports to or imports from foreign countries.

Free

A low-cost, no-frills grocery store chain that began in the United States decided to open similar stores in Germany which did not have any stores like this. What type of FDI is this company using?

Greenfield investment

Which two political factors support the idea for economic integration of nations through trade?

Interdependency among nations decreases the potential for violent conflict It can enhance the political weight of those countries in the world.

In the campaign to leave the EU, certain groups voted to stay and others voted to leave. What were two characteristics of those who wanted to leave?

Less educated Older

What occurs when a company practices dumping?

The firm is unloading excess production in a foreign market.

How has a shift toward democratic political institutions and free market economies affected FDI?

These shifts encourage businesses to participate in FDI.

What are two limitations on exporting?

Trade barriers Transportation costs

True or False: The United States has imposed trade sanctions on other countries as a way to protect and promote human rights in those nations

True

There are presently 19 trade blocs in Africa, and many of these blocs have been _____ for years.

dormant

When manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production, it is called ______.

dumping

FDI has a positive ______ impact on host countries as a result of technology transfers.

economic

There has been a(n) _____ in regional economic integration in the past two decades.

increase

Taxes places on imports to protect domestic producers from foreign competition and to produce revenue for the government are called

tariffs

Free trade agreements account for nearly ____ of regional economic agreements.

90 percent

Select two potential costs of FDI for host countries.

Adverse effects on competition Adverse effects on balance of payments

What are two current trends in FDI? (Check all that apply.)

An increase in the volume of FDI An increase in FDI aimed at countries that have liberalized their FDI regimes

What are four main instruments of trade policy?

Antidumping duties, import quotas, local content requirements, and tariffs

As noted in the text, the U.S. government used the threat of trade sanctions to try to convince the _____ government to enforce its intellectual property laws since massive copyright infringements in that country have cost U.S. companies millions of dollars in lost revenue.

Chinese

The ______ sets interest rates and monetary policy for the EU.

ECB

As the most enduring free trade area in the world, ______ concentrates on the free trade of industrial goods, but not agricultural products.

EFTA

When the German-based company Forrest Health Supply Inc. developed operations in Italy, it built a manufacturing facility there. In turn, the new facility also imported supplies and equipment from companies based in Germany. Which home country benefit of FDI does this represent?

Employment effects

What two political factors led to the development of the European Union? (Check all that apply.)

Europe's desire to hold its own on the world's political and economic stage. The devastation of western Europe during the two world wars.

Which of these trade unions is made up of European countries that decided NOT to be part of the European Community and emphasized free trade in industrial goods?

European Free Trade Association

Because of its economic and political influence, the _____ is considered the most significant trading block in Europe.

European Union

Which two groups represent major trading blocks in Europe?

European Union

What are two alternatives companies can use instead of FDI to take advantage of opportunities in foreign markets?

Exporting Licensing

When a firm invests directly in a business or venture in another country, it is called ______.

FDI

True or False: Critics say that the EU is an optimal currency area which is why it is difficult to adopt a single currency.

False

True or False: The introduction of the euro created greater competitive pressure in the European automobile industry which has resulted in higher prices for the consumer.

False

True or false: When FDI occurs through greenfield investment, it will increase competition in a market and decrease economic welfare.

False

Which view of FDI is based on the classical international trade theory of Smith and Ricardo asserting that international production should be based on comparative advantage?

Free market

What are three advantages of regional market integration that can result in cost savings to a business? (Check all that apply.)

Free movement of goods across borders Harmonized product standards Simplified tax regimes

What is the least integrated form of economic integration?

Free trade area

What are three forms of economic integration?

Free trade area Full political union Common market

Which three long-term members of the EU were NOT receptive to the euro as a common currency as set forth by the Maastricht Treaty?

Great Britain Sweden Denmark

In 2010, the IMF agreed to bailout _____ because of fears the country might default on its sovereign debt.

Greece

What are two characteristics of the European Central Bank?

It was established to ensure price stability. It is meant to be free from political pressure.

Country A wants to lower trade barriers with its neighbor, Country B. While both countries support free trade, they are both reluctant to lower their barriers because they are not sure the other country will reciprocate. What obstacle is preventing the advancement of free trade between these countries?

Lack of trust

Assume that Green Organics Ltd. based in Phoenix, Arizona has given a British-based company the right to produce and sell its products. In return for this, the British company will pay Green Organics $1 for every unit it sells. What type of investment is Green Organics using?

Licensing

What committed EU members to adopt a common currency by January 1, 1999?

Maastricht Treaty

Which view of FDI states that there are benefits and costs to FDI and that countries attempt to maximize the benefits and minimize the national costs of FDI?

Pragmatic nationalism

Many Western countries imposed trade sanctions against ______ during the 1980s and 1990s to encourage the country to improve human rights policies by dropping its apartheid policies.

South Africa

What are two reasons the United States has been an attractive target for FDI?

Stable economy Large domestic markets

______ constrain a firm's ability to export its products by raising the price of the exported product, which could put the firm at a competitive disadvantage with domestic firms in that country.

Tariff barriers

What is considered the simplest instrument of trade policy?

Tariffs

Which theory of foreign direct investment attempts to combine (1) the theories that focus on favoring direct investment when exporting and licensing are available and (2) theories that say certain locations are favored over others for FDI?

The eclectic paradigm

What are two ways trade barriers hamper a firm's productive activities? (Check all that apply.)

They raise the cost of exporting products. Quotas limit the ability to serve a country from outside locales.

What are two reasons for a customs union being put in place?

To eliminate trade barriers between member countries To establish a common external trade policy

What's the main reason a country would use export tariffs?

To ensure sufficient supply of a good within the country

True or false: One political reason for economic integration is the potential to minimize violent conflict between nations.

True (because nations that are dependent on each other for economic reasons are less likely to participate in violent conflicts with each other)

Which statement best describes the response by EU members to the introduction of the euro as a common currency?

While many members accepted the euro, several long-term members did not.

When an optimal currency area exists, similar underlying structures of economic activity make it more feasible to adopt _____.

a single currency

The Maastricht Treaty committed EU members to

adopt a common currency by January 1, 1999.

A country's ___________ accounts track expenditures and receipts from other countries.

balance-of-payments

The euro was established because a _____ currency would make it easier for Europeans to compare prices.

common

An argument against regional free trade agreements contends that the benefits have been oversold, but ______ have often been ignored.

costs

The _____ account tracks goods and services exports and imports in balance-of-payments accounting.

current

In moving toward economic and political integration, a(n) ______ union removes trade barriers among member nations and establishes a common trade policy for nonmembers.

customs

A government would be concerned when the country is running a ______ on the current account of their balance of payments.

deficit

The ______ effects of FDI come when a multinational enterprise hires host-country citizens and ______ effects come when local suppliers hire workers as a result of the FDI.

direct; indirect

Regional _____ integration creates agreements among countries in a specific geographic area in order to reduce and eventually remove tariff and nontariff barriers to the free flow of goods.

economic

If a country places a 20 percent tax on dairy products exported to other nations in order to limit exports and have sufficient supplies of dairy products for the home country, it is using a(n) ______.

export tariff

It is in the best interest of a company to seek out a country that has ____ (restrictive or favorable?) policies toward FDI.

favorable

The ___ of FDI is the amount of FDI attempted over a period of time (usually one year).

flow

Economic theories advocate for ____ trade and investment that will allow participating countries to gain economically. (Choose free or restricted.)

free

When the government does not use quotas, taxes, or other means to restrict what its citizens can buy from or sell to another country, it is called ______ trade.

free

A lack of barriers to the trade of goods and services among member countries is found in a(n)

free trade area

During the campaign for leaving the EU, one of the recent claims said that leaving the EU would allow the British to take back control of _____.

immigration

The United States has placed a limit on the amount of tuna in aircraft containers that can be imported into this country. This is an example of a(n)

import quota

The ______ argument for trade intervention states that developing countries need to support new industries until they are strong enough to compete globally.

infant industry

The oldest argument for government intervention in trade in which developing nations must protect their domestic industries until they are ready to compete globally is the ______ argument

infant industry

The market imperfections approach is also known as the ______ theory.

internalization

Internalization theory is used to explain why a firm would prefer foreign direct investment over ______ as a strategy to enter a foreign market.

licensing

A(n) ______ states that some percentage of a good must be produced domestically.

local content requirement

In order to win a contract in Mexico, QVB Auto Manufacturing must make 65 percent of their vehicles in Mexico. This is an example of a(n)

local content requirement

The ability of an individual, company, or economy to conduct an activity better than another for reasons related to location is called a(n)

location-specific advantage.

John Dunning proposed that ______ are an important factor when explaining the nature of foreign direct investment.

location-specific advantages

Exporting strategy does not work for a ______(low or high?) value-to-weight ratio product that can be produced anywhere.

low

The creation of a single market creates _____ costs of doing business.

lower

A key cost of FDI for the home country is when the balance of payments is adversely affected by the initial capital required to finance the FDI. (Choose inflow or outflow.)

outflow

African countries have attempted to form a continental trade agreement, but have been stymied by significant ______ turmoil.

political

An import _____ is a type of trade restriction that sets a physical limit on the quantity of a product that can be imported into the country in a set period of time.

quota

The _____ view of foreign direct investment has its basis in Marxist theory.

radical

A(n) ______ effect has occurred when a company's FDI of capital, technology, and management resources creates a positive contribution to a host country that might not otherwise be available.

resource transfer

An example of the pragmatic nationalist view is that the host country can gain in jobs and skills and the profits go to the ______ country.

source

Economic theories suggest that free trade allows countries to

specialize in producing goods and service that they are most efficient at producing.

A(n) ______ is a payment by the government to a domestic producer to help lower production costs so they are better able to complete with foreign imports.

subsidy

The nationwide company, Nightingale Health Systems, received a tax break from the government when it was faltering and ready to declare bankruptcy. This subsidy helped the company with production costs and allowed it to have a stronger presence in the competitive health industry. This tax break is a type of _____.

subsidy

A key impediment to economic integration is that although a majority of citizens may benefit from free trade, certain groups may lose their jobs to low-cost and low-skilled labor in other countries as was the experience of some U.S. and Canadian workers in the ______ industry following the establishment of NAFTA.

textile

Some economists argue that regional free trade agreements will provide global benefits only if

trade creation exceeds trade diversion

Research shows that multinational companies _____ technology when they invest in a foreign country. (Choose transfer or deplete.)

transfer

Unilateral lowering of trade barriers has not occurred mostly due to a lack of _____ among governments.

trust