ECO 103 Final Review

U.S. candy makers have responded to the tariffs and price floor policies that were introduced as temporary measures in the U.S. sugar industry during the 1930s

by moving production to foreign markets.

In many of the world's nation-states, there has been a move away from ________ since the late 1980s.

centrally planned command economies

Which of the following is NOT a way in which managers can promote good ethics within an international corporation?

fire an employee who is more ethical than their manager

Identify the correct sequence of economic integration starting from the least integrated to the most integrated.

free trade area, customs union, common market, economic union, and political union

Assume that the exchange rate between the euro and the dollar is €1.00 = $1.50. An American tourist in Germany is buying a product whose price is €50. How much in U.S. dollars would the tourist have to pay to buy the product?

$75

The purchase of Volvo by Li Shufu is called a

Acquisition

Which of these is NOT a reason why democracy has spread around the world?

Communism has proven to be popular since the 1990s.

The Bretton Woods agreement created which two multinational institutions?

International Monetary Fund and the World Bank

What is the shift toward a more integrated and interdependent world economy called?

Globalization

The goal of the Single European Act was to remove barriers to forming a single European market. Why would European countries benefit from being a part of a single European market? For example, why would Turkey benefit from joining the European Union?

(ALL OF THESE) Improvements in trade brought about by sharing the same currency as other member countries., Improvements in trade brought about by joining a customs union and charging a common set of import taxes on goods from non-member countries., Improvements in trade brought about by greater negotiating power from a union of countries rather than a single country.

Why is the United States cut out of the Regional Comprehensive Economic Partnership?

(ALL OF THESE) There may be a loss of respect for the United States in the Asia-Pacific region., There is a popular idea that the United States is being taken advantage of through international trade deals like RCEP and TPP., The ASEAN countries are becoming less reliant on participation from the United States in trade deals.,There is a lack of support for the partnership in the United States.

Some Latvians and Lithuanians feel negative about the adoption of the euro and joining the European Union. Why?

(ALL OF THESE) They feel a loss of identity as they drop their home currency for the euro., They fear inflation as their regional neighbor, Estonia, experienced inflation after adopting the euro. They are worried about a loss of national sovereignty.

When a country chooses to follow a managed-float the value of a currency is determined by market forces, but with central bank intervention if it depreciates. How can a central bank intervene to change the value of a currency?

(BOTH OF THESE) It can buy or sell foreign exchange reserves., It can print more or less money.

One form of FDI is ________, which involves the establishment of a new operation in a foreign country.

A Greenfield investment

________ occurs when two parties agree to exchange currency and execute the deal at some specific date in the future.

A forward exchange

How does the International Monetary Fund (IMF) provide loans to deficit-laden countries?

A pool of gold and currencies contributed by its members provides the resources for lending operations.

Nikoli lives in New Salom which specializes in component parts, while its geographical neighbor, Durma specializes in heavy machinery. New Salom exports component parts to Durma, which in turn exports heavy machinery to New Salom. According to the theory of comparative advantage, this mutually beneficial trade relationship best illustrates

A positive-sum game

You hear that the United Kingdom wants to leave the European Union and you think that the British pound will depreciate against the U.S. dollar in the future. What can you do to hedge against foreign exchange risk?

Agree to a forward exchange of British pound for U.S. dollar.

The Yuan depreciated from 2015 to 2016. This meant that the Yuan was less valuable relative to other currencies like the U.S. dollar. How does a depreciation in the Yuan affect Chinese goods in the U.S.?

Americans buy more Chinese goods because they are cheaper.

If GNI adjusted for cost of living in China is about $13,000 while GNI adjusted for cost of living is about $56,000 in the United States, then

Americans enjoy a higher standard of living

The U.S. dollar to Euro exchange rate changed from $1.15 per Euro to $1.00 per Euro. This is an example of U.S. dollar

Appreciation

The U.S. dollar to Euro exchange rate changed from $2.15 per Euro to $1.00 per Euro. This is an example of U.S. dollar

Appreciation

A country is said to be in _____ when the income its residents earn from exports is equal to the money its residents pay to other countries for imports.

Balance-of-trade-equilibrium

Traders at a stock exchange notice that five traders on the floor seem to be selling more yen and purchasing more euros because of an expected decline in the yen. As a result, all other traders started to do the same. This is an example of the ________ that creates a self-fulfilling prophecy when the yen does decline in value.

Bandwagon effect

Nobel Prize-winning economist Amartya Sen would agree that ________ is/are an important factor in development of a country.

Basic health care

Does the USMCA create trade, divert trade, both, or neither?

Both creates and diverts trade

Neomercantilism is a policy that encourages exports, discourages imports, and allows a central government to control large flows of capital. Which of the following countries seem to follow a neomercantilist policy?

China

An individual's right to do something may be restricted on the grounds that it runs counter to "the good of society" when the political system emphasizes

Collectivism

As Japan has become economically richer, there has been a decline in

Collectivism

The needs of society as a whole are generally viewed as being more important than individual freedoms when the emphasis is on:

Collectivism

A(n) ________ has no barriers to trade among member countries, includes a common external trade policy, and allows factors of production to move freely among members, but does not have a common currency.

Common market

_____ is the idea that businesspeople should consider the social consequences of economic actions when making business decisions, and that there should be a presumption in favor of decisions that have both good economic and social consequences.

Corporate Social Responsibility

What political system has a government that is by the people, exercised either directly or through elected representatives?

Democracy

Which group has been receiving a greater share of foreign direct investment (FDI) inflows over time?

Developing regions like Latin America and Southeast Asia.

A(n) _____ system refers to one in which a country's currency is nominally allowed to float freely against other currencies but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value.

Dirty-float

Which characteristic does NOT describe Saudi Arabia?

Diversified economy

The group that benefits the most from receiving subsidies is

Domestic producers

The harmonization of member nations' tax rates is required to form a(n)

Economic union

The ________ refers to systematic reductions in production costs that have been observed to occur over the life of a product.

Experience curve

The effect of bulky or heavy products on transportation costs can make _______ an inappropriate strategy.

Exporting

TickTock Inc., an American watchmaker, makes custom watches in California, which it then ships to Brazil for sale there. Based on this information, TickTock Inc. is involved in

Exporting

When a currency depreciates relative to another currency, ________ typically increase.

Exports

Most economists would agree that the best interests of international business are found in a nation with a

Free-trade policy

The labor, energy, land, and capital a country relies on to source goods and services are known as

Factors of production

In today's marketplace, outsourcing efforts are confined to manufacturing activities.

False

T of F? A localization strategy focuses on using mass production of product to meet general tastes and preferences.

False

T or F? Mercantilism, propagated in the sixteenth and seventeenth centuries, advocated that countries should discourage exports.

False

T or F? A pegged exchange rate system exists when the value of a currency is determined by market forces, but with central bank intervention if it depreciates too rapidly against an important reference currency.

False

T or F? A society that emphasizes collectivism concerns itself more with preserving individual freedoms than serving the needs of society as a whole.

False

T or F? A zero-sum game is one in which all participating parties win.

False

T or F? Ethical dilemmas are often easy to resolve because real-world decisions and moral problems are often straightforward and should be interpreted without nuance.

False

T or F? Political, economic, and legal systems are known collectively as political economy. Each system of political economy is separate from the other systems and is therefore independent.

False

T or F? Sustained economic growth requires an economy that is centrally planned by a government authority.

False

T or F? The 2014 Mustang would meet the regional content requirement in the USMCA.

False

T or F?The Regional Value Content requirement for automobiles produced in the United States is 75% according to NAFTA. If a vehicle costs $20,000 net and contains $6,000 worth of foreign car parts, then the car's regional value content meets the NAFTA requirement.

False

T or F?Voluntary export restraints are trade instruments that positively benefit consumers.

False

To truly benefit from globalization, a firm needs to be a multinational conglomerate rather than a small or mid-size company.

False

The exchange rate for converting the U.S. dollar into other currencies is continuously adjusted depending on the laws of supply and demand. This illustrates a _____ exchange rate.

Floating

It is one of Garrett's job responsibilities to report the amount of foreign direct investment undertaken by the government over a one-year time period. Garrett reports the ________ of FDI.

Flow

A computer manufacturing firm from the United States invests in a microprocessor manufacturing plant in Taiwan. This is an example of

Foreign direct investment

If the firm is facing the threat of trade barriers such as high import tariffs or quotas and the firm has proprietary technology, the firm should consider

Foreign direct investment

The ________ view argues that international production should be distributed among countries according to the theory of comparative advantage and countries should specialize in the production of goods they can produce most efficiently.

Free market

Agri-Corp manufactures large farm implements and currently sources component parts for these large machines from fifteen different companies around globe. They use these sources to take advantage of lower costs. This demonstrates the idea of

Globalization of production

West Electronic Corporation sources goods and services for its electronics products from different locations around the globe in an attempt to take advantage of differences in the cost and quality of labor and land. This practice is an example of the

Globalization of production

__________ measures the total annual income received by residents of a nation.

Gross national income

During our lecture on trade instruments, we learned that subsidies help domestic producers. However, we also watched a clip from the "Millenial Farmer" wherein he explains his view on the recent $12 billion in farm subsidies provided by the Trump administration. What is this farmer's view on the subsidies?

He has mixed emotions. On the one hand, he feels that the subsidy acts as a temporary fix to a larger problem of trade with China. On the other hand, he appreciates the effort to help U.S. farmers during a trade war.

Jacob is the chief financial officer for RinseAll Detergent products. His company is interested in investing in a facility in Indonesia, but he is worried about unpredictable fluctuations in future exchange rates, which could cost his company millions of dollars. One way to ensure against this exchange risk is for Jacob to use

Hedging

Last week, Saturn Tide a U.S.-based energy firm, entered into an agreement with another party to exchange currency and execute the deal in eighteen months. What is Saturn Tide using to insure itself against foreign exchange risk?

Hedging

Italy has a direct restriction on the amount of metal products that may be imported into the country. Which instrument of trade policy does this reflect?

Import quota

When a currency appreciates relative to another currency, ________ typically increase.

Imports

When Aristotle said that private property is more highly productive than communal property, he was advocating for

Individualism

The USMCA specifies free trade in North America, so why is it criticised for diverting trade?

It contains regional content requirements for automobiles that incentivize regional production rather than international trade.

Which of the following is a criticism of the "infant industry argument".

It could be used by companies to receive preferential government treatment and to never "grow up".

Agri-Cor sells farm equipment throughout the euro zone. The company has noticed that some customers travel to countries where equipment sells for less to obtain a better deal. What implication of adopting the euro as a common currency does this situation demonstrate?

It makes it easier to compare prices across Europe.

Assume that the exchange rate between the U.S. dollar and the Japanese yen is $1 = ¥150. A book that retails for $10 in New York should sell for ¥1,500 in Tokyo, if there are no trade barriers and transportation costs, according to the

Law of one price

Kitchen-Rite believes that by producing its small appliances in Canada, they can take advantage of lower wage rates in that country. By pursuing such a strategy, Kitchen-Rite hopes to realize

Location economies

Which strategy is in a country's best interests, according to the main tenet of mercantilism?

Maintaining a trade surplus

When stock traders purchased shares of Gamestop (GME) on the expectation that the GME stock price would increase (and it did), this is an example of

The bandwagon effect

The price of a bouquet of tulips in France is 4 euros. Jenna Algren, a frequent international traveler, found that a similar bouquet of tulips cost only 3 euros in Belgium. This demonstrates that the benefit of adopting the euro as a common currency is that it

Makes it easier to compare prices across Europe

During early globalization efforts, outsourcing was typically confined to _____ activities.

Manufacturing

As democracy has spread since the 1980s, so has the development of more ________ economies.

Market-based

Totalitarian states usually have

Media that are heavily censored

When government-run enterprises fail, what solution is possible?

Move the enterprises from the public sector to the private sector.

Subsidies and quotas are examples of ________ barriers a county might impose.

Nontariff

A country that wants to create the highest level of economic integration would enter into a(n)

Political union

The European Parliament plays an important role in the European Union and creates a(n) _____ to coordinate the economic, social, and foreign policy of the member states.

Political union

The rate of return that a firm makes on its invested capital is referred to as

Profitability

A company's value is determined by

Profitability and profit growth

In the United States, citizens have the right to elect officials who make decisions on behalf of the public. This practice is the reason the United States is a

Representative democracy

A positive economic change from 1960 to 2018 was seen in the

Share of world output enjoyed by rich industrialized countries such as Great Britain, Germany, and France

Fast food chain restaurants promote different menu choices in different countries depending on a range of factors such as demographics, local taste, income levels, and cultural values. This demonstrates that

Significant differences still exist among national markets

A tax of 32 cents is levied for each pair of eyeglasses imported into a nation. This is an example of a(n)

Specific tariff

The rate at which a foreign exchange dealer converts one currency into another currency on a particular day is the

Spot exchange rate

An unfavorable environment for innovations and entrepreneurship is the result of

State monopoly in production

DiamondPlus Jewelers currently has $583,000 in foreign-owned assets. This represents the _____ of the company.

Stock of FDI

In a free market, the price and quantity of goods and services are determined by

Supply and Demand

Strategies that not only help the multinational firm make good profits, but that do so without harming the environment while simultaneously ensuring that the corporation acts in a socially responsible manner with regard to its stakeholders are called

Sustainable strategies

There are seven main instruments used in trade policy with _____ being the oldest and the simplest.

Tariffs

The foundational code of conduct that outlines how corporations should ethically treat their employees is called

The Sullivan Principles

Under the fixed exchange rate regime established at Bretton Woods, _____ served as the reference point for all other currencies.

The U.S. Dollar

An economist would say that the benefits of regional integration are determined by

The amount of trade creation

The movement of traders like a herd, all in the same direction and at the same time, in response to each other's perceived actions, is called

The bandwagon effect

Give a reason why Brazil's economy is struggling.

The government must spend less due to pension obligations.

In his theory of absolute advantage, Adam Smith advocated that ________ should determine what a country imports and what it exports.

The market mechanism

In the previous lecture we learned about SelectUSA which is a resource for foreign investors looking to directly invest in the United States. Which of the following is not a reason why the United States is a good destination for foreign direct investment.

There is an investment policy such that investors who make more money receive preferential treatment under the law.

Based on the information on political economy in the text and the case on Venezuela above, which statement best characterizes the situation in Venezuela?

There is probably a high level of corruption within the government.

The creation of a single market increases price competition for business. In other words, it creates a(n)

Threat

The United States imports sugar from several nations. If the NAFTA agreement caused the United States to import sugar only from Canada, even though it cost more to do so, it would be an example of

Trade Diversion

A country that imports more goods than it exports experiences a

Trade deficit

One important aspect of environmental pollution is the lack of property rights in less developed countries. If less developed countries could better enforce property rights, then common goods would not be overused and depleted. The situation where a free, public good is overused by individuals pursuing their own self-interest is called

Tragedy of the Commons

T or F?

True

T or F? Free trade exists when there is no government influence on what citizens can buy from another country or sell to another country.

True

T or F? A society that emphasizes individualism concerns itself more with preserving individual freedoms than serving the needs of society as a whole.

True

T or F? According to Michael Porter, one way to create superior value is to differentiate the product so that consumers are willing to pay a premium price.

True

T or F? One Criticism of globalization is that falling trade barriers encourage companies to locate manufacturing activities in another country to take advantage of lower wage rates

True

T or F? One function of the foreign exchange market is to provide people insurance against sudden changes in an exchange rate that could adversely affect their business.

True

T or F? Removing the restrictions that many governments put in place in markets will typically lead to economic growth.

True

T or F? The information system of a company is an example of a support activity.

True

T or F?A country that is more efficient than any other country in producing goods still benefits from trade.

True

T or F?In our class example, Ghana and South Korea increase their consumption as a result of specialization and trade.

True

T or F?In the case of Japan and the United States in the early 80s, the voluntary export restraints on Japanese automobiles helped the U.S. automakers and hurt the U.S. consumers.

True

T or F?Many of the ethical issues in international business are rooted in the fact that political systems, law, economic development, and culture vary significantly from nation to nation.

True

T or F?SUVs imported to the U.S. from Germany are more expensive than other automobiles due to their classification as "light trucks" and being subject to the chicken tariff.

True

T or F?The Foreign Corrupt Practices Act (FCPA) allows the United States government to fine and investigate foreign corporations doing business abroad.

True

T or F?The Regional Comprehensive Economic Partnership (RCEP) is a regional trade agreement between Asia-Pacific nations for free trade and economic integration.

True

T or F?The benefits of trade arise from the specialization and exportation of products.

True

Saturn Systems Inc., which is headquartered in the United States, has its production plant located in a less-developed country where working conditions are poor. For example, employees work 15-hour shifts, are exposed to toxic chemicals, and are forced to work overtime. What type of behavior is Saturn Systems Inc. exhibiting?

Unethical

What is the difference between the value of a product to an average customer and the cost of production per unit?

Value created per unit

A situation in which an economic gain by one country results in an economic loss by another is called a

Zero-sum game

Paul Krugman characterizes strategic trade policy as being

a boost to national income at the expense of other countries.

VW's goal of being the world leader in electric vehicles together with its decision to devote large resources to the effort signals

corporate social responsibility.

With its goal of offering a complete line of electric cars beginning in 2020, VW is

demonstrating its commitment to pursuing a sustainable strategy

The two caveats of the Sullivan principles are first, a company should not obey the apartheid laws in its own South African operations and second, a company should

do everything possible to abolish apartheid laws.

In a social context, the term values is used to describe the

ideas about what a group believes to be good, right, and desirable.

Latvians are positive about the adoption of the euro and joining the European Union because

it means more investment from Europe and greater security from Russia.

According to the Bretton Woods agreement, the task of the IMF would be to

maintain order in the international monetary system.

The Wells Fargo fraud case is a good example of:

pressure to meet unrealistic performance goals.

The tariffs and floor price in the U.S. sugar industry

protect U.S. producers at the expense of U.S. consumers

The Single European Act was put in place in an attempt to

remove all impediments to the formation of a single market.

GNI figures are helpful in understanding an economy because they

tell us how poor a country is relative to another.

Which of the following is not a common reason given to protect domestic industries?

to ensure that trade is a positive sum game

Which situation poses the greatest problem for international businesses in the long run?

volatility of the global exchange rate regime