Int. Finance - Test #1 - Chapter 1

When was the first wave?

1870-1914

when was the second wave?

1945 - 1980

Latest wave happened when?

1980 - present

Why is international trade sometimes a threat for workers? 1. Wages in exporting industries tend to fall due to trade. 2. Import-competing industries suffer job loss as a result of trade. 3. Productivity in import-competing industries declines due to trade.

2

Why is international trade sometimes an opportunity for workers? 1. Wages in import-competing industries tend to rise due to trade. 2. Wages in export industries tend to increase. 3. Productivity in import-competing industries declines due to trade.

2

Transportation costs decreased due to the invention of airplanes.

Technological change

The three forces that have done the most to encourage globalization:

Technological change, Liberalization of trade, liberalization of investment

Trade is both good and bad True False

True

Why did the first wave end?

WW1

Advances in transport technology

better shipping methods

Economic interdependence is ------ and ------

complex and uneven

What was the first wave sparked by?

decreased tariff barriers and new technology

Why did the latest wave happen?

developing countries harnessed labor abundance to get a competitive edge because of tariff cuts on manufactured goods

All aspects of a nation's economy is linked to economies trading partners

economic interdependence

Openness measure equation

exports - imports / GDP

Why did the second wave happen?

fall in transportation cost and people persuaded gov. to lift trade barriers

Developed countries during the second wave were largely disadvantaged from barriers? True False

false

Those who raise trade barriers are usually more prosperous true false

false

True or False: The volume of international trade is governed by the variety of "made in America" goods. True False

false

agglomeration economies

firms clustered close or vertical linkage

Why is trade good?

increases productivity, exporting countries wages are higher, exporting requires workers to have more education

High degree of economic interdependence casques countries to have ------------------

international cooperation such as the United Nations

Why is trade bad?

job losses to cheap exports, mass immigration for low wage work, unskilled worker in developed countries are threatened, puts pressure on workers wages because of competition.

Lower openness number =

less open

Liberalization of Investment

lower tariffs and quotas

Liberalization of trade

lower trade barriers

development of international financial markets

money can flow more easily into country

higher openness number =

more open

Researchers have found that companies exposed to global competition tend to be ----------------that are not.

more productive than

Technological change

new innovation of technology

rough measure of the importance of International trade in a nations economy

openness

economic growth relates closely to:

openness, education, communications, infrastructure

Globalization is:

political, technological, cultural, and economic

Disadvantages of economic interdependence:

pressure on developing countries, keep developing countries in poverty, impact on participation (recession, inflation, high priced energy)

outsourcing

products manufactured in more than 1 country ( ex: Boeing having a call center in India or the doors being made in Japan)

2000s caused what with outsourcing

professional work to be outsourced

Protectionist

protection from imports during hard economic times

What did the Great Depression bring for trade?

raised tariffs and protectionism

policies of one country pill over and effect other economies

spillover effects (ex: quantitative easing --> $ fall in price --> imports become more expensive --> exports increase which increase production)

Productivity increased due to the invention of the telephone.

technological change

Larger countries have a lower openness measure. Why?

they do not rely on trade

misconceptions of international trade

trade is a zero-sum activity, imports result in unemployment, tariffs and quotas result in more jobs for domestic workers

Developing countries only exported agricultural products that did not compete with developed countries True False

true

True or False: Among the challenges confronting the international trading system are maintaining fair standards for labor and promoting environmental quality. True False

true

True or False: One of the major misconceptions about international trade is that it is a zero-sum activity. True False

true

True or False: One of the major misconceptions about international trade is that tariffs and quotas save jobs and promote a higher level of employment. True False

true

True or False: The volume of international trade is governed by factors including the level of domestic economic activity (for example, prosperity versus recession) and restrictions imposed by countries on their imports. True False

true

no nation can exist in economic isolation True False

true

policies cannot be made within thinking about the impact on other economies with economic interdependence True False

true

effects of economic interdependence are ------

uneven

Which of the following factors explain why the world's trading nations have become increasingly interdependent, from an economic and political viewpoint, during the post-World War II era? Check all that apply. 1. The rise of multinational corporations 2. The liberalization of investment 3. The formations of the European Community and the Organization of Petroleum Exporting Countries 4. The post-World War II baby boom

All

Each nation gains by producing goods in which it has a relative advantage

Law of comparative advantage

Trade increased as barriers fell with the signing of the North American Free Trade Agreement (NAFTA).

Liberalization of Trade

China's infrastructure grew rapidly once the government allowed foreign investment.

Liberalization of investment

The establishment of the euro led to lower transaction costs, spurring additional investment between European countries.

Liberalization of investment

Profits increased for companies and a new demand for exports developed as quotas were dropped.

Liberalization of trade

What do researchers say about the relation between a firm's productivity and exposure to global competition? 1. Exposure to global competition increases a company's productivity. 2. Exposure to global competition discourages technological development. 3. Exposure to global competition increases job security of blue collar jobs and service jobs. 4. Exposure to global competition decreases a company's productivity.

1

Why is international trade sometimes an opportunity for workers? 1. Exporting industries create more jobs as a result of trade. 2. The number of blue collar jobs and service jobs being sent overseas declines due to trade. 3. Wages in import-competing industries tend to rise due to trade.

1

Which of the following correctly describe how the concept of international competitiveness applies to a nation? Check all that apply. 1. No nation can be equally competitive in everything. 2. Some nations can be net exporters of everything. 3. Nations benefit from specialization and by exporting products for which they have a comparative advantage. 4. Only the industries that have an absolute advantage should be exporting their products.

1 and 3

What significance does growing economic interdependence have for a country like the United States? Check all that apply. 1. International political and economic events have an increasingly important effect on energy prices in the United States. 2. The U.S. agricultural sector increasingly benefits from free trade. 3. Exports and imports decrease as a share of national output. 4. Foreign competition increasingly affects profits of domestic firms.

1 and 4

Which of the following are major arguments for an open trading system? Check all that apply. 1. It enables the free flow of resources from low productivity to high productivity uses. 2. It causes the displacement of domestic firms and workers. 3. Nations must protect their strategic industries. 4. It offers a greater range of consumption choices.

1 and 4

Which of the following correctly describe how the concept of international competitiveness applies to a nation? Check all that apply. 1. No nation can be equally competitive in everything. 2. Competitiveness refers to free trade being a zero-sum activity. 3. Competitiveness refers to free trade being a winner-takes-all game. 4. Nations benefit from specialization and by exporting products for which they have a comparative advantage.

1 and 4

Which of the following are major misconceptions about international trade? Check all that apply. 1. Trade is a zero-sum activity. 2. Imports reduce employment. 3. Tariffs and quotas save jobs and promote a higher level of employment. 4. Tariffs and quotas increase unemployment.

1, 2, and 3

What significance does growing economic interdependence have for a country like the United States? Check all that apply. 1. Energy prices in the United States grow increasingly independent from the world prices due to international political and economic events. 2. Exports and imports increase as a share of national output. 3. Foreign competition increasingly affects profits of domestic firms. 4. The U.S. agricultural sector increasingly benefits from free trade.

2 and 3

Which of the following correctly describe how the concept of international competitiveness applies to a firm or industry? Check all that apply. 1. Because a firm's resources are limited, it has to outsource production to a lower wage country whenever possible. 2. Competitiveness refers to the extent to which the goods of a firm or industry can compete in the marketplace. 3. The competitiveness of a firm or industry depends on the relative prices and qualities of its products. 4. Some firms reach an absolute advantage in producing a good, which earns an absolute advantage for the nation.

2 and 3

Which of the following factors explain why the world's trading nations have become increasingly interdependent, from an economic and political viewpoint, during the post-World War II era? Check all that apply. 1. The post-World War II baby boom 2. The reindustrialization of Europe and Japan 3. The formations of the European Community and the Organization of Petroleum Exporting Countries 4. The aging of the Western population

2 and 3

Which of the following are major arguments against an open trading system? Check all that apply. 1. Resources tend to be immobile, which decreases productivity. 2. It causes the displacement of domestic firms and workers. 3. It offers a greater range of consumption choices. 4. Nations must protect their strategic industries.

2 and 4

Which of the following factors influence the rate of growth in the volume of world trade? Check all that apply. 1. The availability of free medicine programs 2. Restrictions imposed by countries on their imports 3. Access to free education 4. The level of domestic economic activity

2 and 4

What significance does growing economic interdependence have for a country like the United States? Check all that apply. 1. The U.S. agricultural sector increasingly benefits from free trade. 2. Exports and imports decrease as a share of national output. 3. International political and economic events have an increasingly important effect on energy prices in the United States. 4. Exports and imports increase as a share of national output.

3 and 4

Which of the following are challenges confronting the international trading system? Check all that apply. 1. Providing free education 2. Providing global health insurance 3. Maintaining environmental quality 4. Fair standards for labor

3 and 4

Which of the following are major arguments for an open trading system? Check all that apply. 1. It leads to higher prices. 2. It causes the displacement of domestic firms and workers. 3. It leads to lower prices. 4. It enables the development of more efficient production methods.

3 and 4

Which of the following factors explain why the world's trading nations have become increasingly interdependent, from an economic and political viewpoint, during the post-World War II era? Check all that apply. 1. The rapid decline of Asian nations 2. The aging of the Western population 3. The liberalization of investment 4. The development of international financial markets

3 and 4

What do researchers say about the relation between a firm's productivity and exposure to global competition? 1. Exposure to global competition increases wages in import-competing industries. 2. Exposure to global competition decreases a company's productivity. 3. Exposure to global competition decreases wages in export industries. 4. Exposure to global competition increases a company's productivity.

4

True or False: Among the challenges confronting the international trading system are providing global health insurance and promoting free education for all workers. True False

False

Process of Greater Interdependence amount countries and their citizens

Globalization

because of ------------- we are more likely to consumer a product from another country

globalization

Globalization increase the flow of:

goods, services, people, investments, factories, stocks, bonds

Amy has worked in a factory for the past 30 years making handmade fishing lures. Amy's company places a very high value on the quality of its lures. It has resisted the temptation to outsource production for many years because it would be difficult to monitor workers' craftsmanship overseas. Recently, though, videoconferencing technology has improved enough to enable supervisors in America to monitor the work of new employees in China. Based on Amy's experience, her boss has offered to promote Amy and pay for training so that Amy can use the new technology to oversee all the outsourced production. International trade ------- Amy Changes in international trade can affect workers' lives in many different ways. Which of the following best describes how international trade has changed Amy's life? 1. The skill level of Amy's job has made it especially responsive to international trade. 2. A change in international trade has affected the value of the good or service that Amy produces. 3. Technology associated with Amy's job has changed and influenced international trade.

helped 3

Ginny is a virtuoso violist who performed throughout Austria for many years. As the European Union formed, barriers to trade and travel fell. With the adoption of the euro, it became much easier for Ginny to book performances in neighboring countries. Because of her reputation as a world-class performer, she has fielded many new requests to perform. International trade ------ Ginny Changes in international trade can affect workers' lives in many different ways. Which of the following best describes how international trade has changed Ginny's life? 1. A change in international trade has affected the value of the good or service that Ginny produces. 2. Technology associated with Ginny's job has changed and influenced international trade. 3. The skill level of Ginny's job has made it especially responsive to international trade.

helped 3

small countries have a ------- measure of openness

high

Janet is an interior decorator who has worked in Japan for the past 25 years, specializing in decorating homes in a traditional Japanese style. In the past few years, as more internationally produced consumer goods have become cheaper in Japan, many of Janet's clients have decided they would prefer a more Western-style decor now that it is affordable. Because Janet isn't capable of decorating in that style, she has seen a drop in business. Janet is worried that if consumer tastes don't change soon, her business will fail. International trade ---------- Janet Changes in international trade can affect workers' lives in many different ways. Which of the following best describes how international trade has changed Janet's life? 1. The skill level of Janet's job has made it especially responsive to international trade. 2. Technology associated with Janet's job has changed and influenced international trade. 3. A change in international trade has affected the value of the good or service that Janet produces.

hurt 3