International Trade Final Exam

Suppose that United States furniture makers import $100 of wood and parts in order to make a dining room table selling for $500. The imports have no tariff of quota restrictions. Based on Scenario 6.1 above, if a tariff of 20 percent is placed on imports of dining room tables, and another tariff of 50 percent is placed on imports of wood and parts, then the effective rate of protection on tables made in the United States is

12.5%

Use the following table to answer the next question(s). All values are measured as a percent of GNP. Table 9.2 Based on Table 9.2, total savings, private plus public, is equal to

16

Purchasing Power Parity

A monetary measurement of development that takes into account what money buys in different countries.

If the U.S. dollar depreciates in terms of the​ Euro:

American goods would be cheaper for Europeans.

A managed floating exchange rate refers​ to:

An exchange rate that is not​ pegged, but does not float freely.

Which of the following is FALSE? chapter 9(2)

Borrowed funds are always used in a manner that contributes to the expansion of the country's productive capability.

Based on Figure 6.1, given a tariff of $0.25 per bushel on soybean imports, how much will domestic production increase?

By 10 million

Which of the following is FALSE about issues/negotiations in the Doha Development agenda?

Developing countries don't use tariffs, and they want higher income countries to follow their model

Which of the following is FALSE?

Developing countries usually strongly advocate the protection of intellectual property rights.

A real cost of tariffs and quotas that is difficult to measure is that they

Encourage rent seeking

Empirical studies show that countries with low standards are very successful at attracting foreign investment

False

For countries such as the United States and the United Kingdom, it is important to have trade surpluses in order to service their external debts.

False

Global capital flows have completely broken the link between domestic savings and domestic investment.

False

There is clear evidence of a race-to-the-bottom internationally, regarding working conditions and the environment.

False

Total debt is more important in figuring out the ability of a country to service its debt than are debt to GDP and debt to export ratios.

False

Which of the following is NOT a valid argument against a floating exchange rate​ regime?

Floating rates put some countries in a privileged position.

How does a fall in the value of the pound sterling as shown in the diagram to the right affect British​ consumers?

Foreign goods are now relatively more expensive. British consumers are hurt.

The difference between GNP and GDP is

GNP includes income received from abroad and excludes income paid abroad.

Which of the following is NOT an obstacle to increased international economic integration?

High tariff rates imposed by industrialized nations

In a fixed exchange rate​ system, how do countries address the problem of currency market pressures that threaten to lower or raise the value of their​ currency?

If demand​ rises, countries must fill the excess demand for foreign currency by selling their reserves. If demand​ falls, then countries must increase demand by buying up the excess supply with domestic currency.

Under the Bretton Woods​ system, the increase in the U.S. inflation rate would lead​ to

Inflation in the countries that pegged their currencies to the U.S. dollar.

Which of the following is FALSE? chapter 9

The U.S. trade balance in services is in deficit.

Which of the following would be a deadweight loss from a tariff?

The decrease in consumer surplus due to a drop in consumption

Both tariffs and quotas lead to a decrease in imports, a decrease in domestic consumption, and an increase in domestic production. Correct!

True

depreciation of currency

a fall in the price of one currency relative to another. above the line. the currency becomes weaker, we use more money to buy the other currency.

appreciation of currency

a rise in the price of one currency relative to another. below the line. an increase value of currency; we use smaller amount to buy other currencies.

Suppose a bond issued by the European Central Bank and denominated in euros pays 5​% per year. Today the exchange rate is 1.85 dollars per euro. It is expected that the exchange rate in one year will be 2.04 dollars per euro. What is the annual dollar return on this​ bond?

between the years, there is a cause of inflation of 5%. THUS THE RETURN IS INFLATION PLUS 5%.

increase in demand of foreign currency

cause the home country dollar to depreciate.

Harmonization of standards refers to

common product safety, environment, labor, and fair competition standards agreed upon by trading partners

Tariffs reallocate income from

consumers and producers

All of the following are reasons countries may be unable to use discriminatory trade practices to enforce labor standards EXCEPT

countries can never impose trade barriers on other sovereign nations.

must choose an exchange rate system to determine how prices in the home country currency are converted into prices in another​ country's currency.

every country

For the United States, U.S. direct foreign investment abroad is more significant than foreign investment in U.S. securities and currency.

fasle

Which of the following is a valid argument against a floating exchange rate​ regime?

floating rates make a country more vulnerable to money market disturbances. Floating rates open possibilities for currency speculations. Floating rates increase uncertainty in​ prices, including foreign exchange.

A contract that contains a promise that a specified amount of foreign currency will be delivered on the specified date in the future is traded in which of the​ following?

forward market

One of the problems with excessive debt is that

if debt service is substantial, schools, health clinics, roads, ports, other infrastructure, and social needs are less likely to be addressed. it reduces the quantity of resources available to invest in economic development. it can intensify and spread a crisis. it worsens the central government's budget position by adding large debt service payments to other budget items.

Low labor standards are usually associated with

low foreign investment

decline in the dollar interest rate

money depreciated

The use of trade barriers to enforce standards abroad raises all of the following concerns except

only small countries may be able to use trade barriers effectively.

which of the following would be interested in holding foreign currency to take advantage of investment​ opportunities?

portfolio manager

Suppose the​ dollar-yen exchange rate is 0.02 dollars per yen. Since the base​ year, inflation has been 5 percent in Japan and 10 percent in the United States. What is the real exchange​ rate?

real exchange rate = norminal exchange rate * (foreign /domestic)

Using trade barriers to address labor standards does

redistributes income. potentially makes conditions worse as production moves to the informal sector. leads to deadweight losses.

Separate standards refers to

separate standards held by different trading partners which other partners refuse to recognize

Typically, the most important determinant of private investment in an economy is

the amount of domestic savings.

Under a Gold​ Standard:

the exchange rate is fixed

gold standard issues

the government hold gold instead of other countries' currency; thus, they must sell gold to print money. thus increase in the supply of gold. as it begins to run out of gold, they must devalue the currency.

Use the graph below and the following information to answer the next question(s). The world price of soybeans is $2.00 per bushel, and the importing country is small enough not to affect the world price. Based on Figure 6.1, suppose the government puts a tariff of $0.25 per bushel on soybean imports. How much will the tariff reduce imports?

the import decreased by 20 million

In a small country, the net national cost of tariff protection is equal to the reduction in consumer surplus minus

the increase in government revenue and the increase in producer surplus.

Debt Service

the interest required to be paid each year on outstanding debt is is rarely an issue for high income country

The current account will fall if

the real exchange rate appreciates or disposable income goes up

Exchange Rate Risk

the risk related to having international operations in a world where relative currency values vary

The race-to-the-bottom concept described in the text refers to

the situation in which countries with high standards are forced to lower their standards or face the loss of jobs and industry.

If Canada has a more rapid growth than The U.S

the supply curve shift to the right cause the U.S dollar to appreciate and Canadian to depreciate in the medium run.

Suppose that United States furniture makers import $100 of wood and parts in order to make a dining room table selling for $500. The imports have no tariff of quota restrictions. Based on Scenario 6.1 above, if a tariff of 20 percent is placed on imports of dining room tables, the effective rate of protection is

the value added before tax is 400$ after imposed tax: the rate cause the import good to go up to 120$ and the unit price 600$ so the new value added is 480$ the effective tax rate = 120$/480$ = 25%

Developing countries are usually unwilling to negotiate over labor standards because

they fear that industrialized nations are trying to undermine their comparative advantage—production of agriculture and textiles/apparel—and close the markets of high-income countries in these areas.

Suppose the U.S.​ dollar-euro exchange rate is 1.4 dollars per​ euro, and the U.S.​ dollar-Mexican peso rate is 0.1 dollars per peso. What is the​ euro-peso rate?

to find the euro-peso rate = peso /euro 0.1/1.4

Which of the following would be interested in holding foreign currency to engage in​ transactions?

tourists and manufacturing firms

interest rate arbitrage

transfer of funds to another currency to take advantage of a higher interest rate

It is important to compare debt levels of low- and middle-income countries to exports because countries must earn foreign exchange in order to service their debts.

true

Consumer surplus is equal to the area

under the demand curve and above the price line

When the dollar is worth less in relation to currencies of other countries ​(for example relative to the Japanese Yen in the diagram to the right​), are you more likely to buy​ American-made or​ foreign-made electronics?

we buy locally the US company wishes the currency to be weaker the business that doing import wishes the currency to be stronger.

Using trade barriers to address labor standards does all of the following except it

works more effectively for countries that are small relative to the total market.