Macro Econ Test 3

18) India is on the World Bank's list of ________ countries and its capital city is one of the top ten centers of commerce in the world. A) low-income B) lower middle-income C) upper middle-income D) high-income

A

2) The vicious-circle-of-poverty hypothesis states that poor countries A) are unable to save and invest enough to accumulate capital stock that would help them grow. B) cannot develop because they lack the ability to educate their workers. C) cannot develop because their economic policies are ineffective. D) cannot develop because people don't consume due to lack of goods and services

A

28) ________ involves a country selling its exports at a price lower than its cost of production. A) Dumping B) Having an absolute advantage C) Having a comparative advantage D) An export quota

A

32) In 2003, the ________ ruled that U.S. tariffs on steel imported from the EU were unfair and allowed the EU to issue retaliatory tariffs on U.S. products. A) World Trade Organization B) United Nations C) European Central Bank D) International Human Rights Commission

A

4) The country with the second-highest GDP in the world, behind only the United States, is A) China. B) India. C) Germany. D) Russia.

A

45) ________ implementing export promotion policies is Japan. A) One of the most successful countries in B) One of the least successful countries in C) The only developed country that has banned D) The only developed country that has been successful in

A

47) If demand is unit elastic and the labor supply is ________, the payroll tax is borne mostly by the employer. A) very elastic B) very inelastic C) unit elastic D) perfectly inelastic

A

48) Microfinance is the practice of lending ________, with no collateral, and accepting ________ savings deposits. A) very small amounts of money; small B) foreign currency; foreign currency as C) money electronically; electronic D) government-backed funds; government securities as

A

5) According to the theory of comparative advantage, a country A) exports the goods in which it has a comparative advantage. B) imposes tariffs on goods in which it does not have comparative advantage. C) imports the goods in which it has a comparative advantage. D) exports goods in which it has absolute advantage.

A

5) Compensation sent back to family in the home country by recent emigrants is known as A) remittances. B) transaction costs. C) outsourcing. D) capital flight.

A

7) The Heckscher-Ohlin theorem looks to ________ to explain trade flows. A) relative factor endowments B) the existence of trade barriers C) acquired comparative advantage D) the differences in preferences among consumers

A

83) According to the theory of comparative advantage, a country exports goods when it can produce those goods ________ than other countries. A) at a lower opportunity cost B) at a higher opportunity cost C) using fewer resources D) using more resources

A

3) Capital flight refers to the fact that both human and financial capital A) flow into developing countries to build much needed infrastructure. B) leave developing countries in search of a higher rate of return. C) leave developed countries in search of a higher rate of return. D) flow into developing countries to invest in risk free investments

B

30) GATT is the international agreement signed by the United States and ________ other countries in 1947 to promote the liberalization of foreign trade. A) 13 B) 22 C) 86 D) 97

B

4) A "brain drain" is A) the tendency of workers in developing countries to reject new technologies. B) the tendency of talented people in developing countries to get education in developed countries and to stay there after graduation. C) the impact of poverty on the productivity of workers in developing countries. D) the impact of malnutrition on education and productivity in developing countries

B

5) Refer to Figure 20.3. The domestic price of shoes is $80. After trade the price of a pair of shoes is $60. Now domestic production costs fall so that the equilibrium domestic price of a pair of shoes is $70. This would cause A) the number of pairs of shoes imported into this country to increase. B) the number of pairs of shoes imported into this country to decrease. C) the number of pairs of shoes exported from this country to increase. D) the number of pairs of shoes exported from this country to decrease

B

78) Suppose that the United States and Italy both produce wine and shoes. In the United States, wine sells for $10 a bottle and shoes sell for $40 a pair. In Italy, wine sells for 15 euros a bottle and shoes sell for 20 euros a pair. Given this information, trade will flow in both directions if the price of a dollar is between A) .5 and .75 euro. B) .67 and 2 euros. C) 1.5 and 2.5 euros. D) 2.0 and 3.0 euros

B

80) The theory of ________ is credited to David Ricardo. A) supply and demand B) comparative advantage C) national trade protection D) marginal production

B

87) When one country can produce a product at a ________ cost in terms of other goods, that country is said to have a(n) ________ advantage A) higher; comparative B) lower; comparative C) lower; absolute D) higher; absolute

B

Refer to Figure 18.1. The second poorest fifth of families earned ________% of income in Outland A) 5 B) 7 C) 12 D) 17

B

19) Which agency lends money to countries to promote their economic development? A) the International Monetary Fund B) the Federal Reserve C) the World Bank D) the League of Nations

C

24) Refer to Figure 20.5. The domestic price of oil is $130 per barrel. If the world price of oil is $135 per barrel, this country will A) import 23 million barrels. B) import 9 million barrels. C) export 5 million barrels. D) export 14 million barrels

C

31) ________ U.S. president(s) who has/have held office since GATT was signed has argued for free-trade policies, yet each one has used his powers to protect various sectors of the economy. A) Only one B) No C) Every D) Only 3

C

4) Refer to Figure 20.3. The domestic price of shoes is $80. After trade the price of a pair of shoes is $60. After trade this country will import A) 100 pairs of shoes. B) 200 pairs of shoes. C) 300 pairs of shoes. D) 1,300 pairs of shoes.

C

41) Refer to Figure 20.1. Which of the following statements is true? A) The United States has both an absolute advantage and a comparative advantage in the production of soybeans and alfalfa. B) The United States has an absolute advantage in the production of soybeans and alfalfa, but a comparative advantage only in the production of soybeans. C) The United States has an absolute advantage in the production of soybeans and alfalfa, but a comparative advantage only in the production of alfalfa. D) The United States has a comparative advantage in the production of both soybeans and alfalfa, but an absolute advantage only in the production of soybeans

C

91) The Dominican Republic has a comparative advantage in the production of tobacco, and Panama has a comparative advantage in the production of oranges. If both countries specialize based on the theory of comparative advantage, A) only the production of tobacco will increase. B) only the production of both goods will increase. C) only the consumption of both goods will increase. D) the production and consumption of both goods will increase

D

25) Refer to Figure 20.5. The domestic price of oil is $130 per barrel. This country imports 14 million barrels if the world price of oil is A) $120. B) $125. C) $135. D) $140.

A

20) Which agency lends money to countries to help them stabilize their exchange rates? A) the International Monetary Fund B) the World Bank C) the Federal Reserve D) the Bureau de Change

A

12) A Gini coefficient of zero means that A) the income is equally distributed. B) one person has all the income and everyone else has nothing. C) all the income is received by the top 20% of families. D) the income is split equally between the top 20% and the rest of the distribution

A

12) Building roads, power generators, and irrigation systems are projects that are referred to as A) social overhead capital. B) human capital. C) physical capital. D) financial capital.

A

16) Suppose that Argentina and Chile are both engaged in the production of copper and wheat, and that Argentina has an absolute advantage in the production of both goods. If Chile has a comparative advantage in the production of copper, then Chile A) has a lower opportunity cost for copper, which means that it should specialize in production of copper and engage in trade. B) has a lower opportunity cost for producing copper, but specialization is not feasible because Argentina has a lower monetary cost of copper production. C) has a higher opportunity cost for copper, which means it should specialize in the production of wheat and engage in trade. D) should continue to produce copper, but only for domestic consumption, because trade is not a viable option

A

29) The Smoot-Hawley tariff set off an international trade war in the A) 1930s. B) 1950s. C) 1970s. D) 1990s

A

46) The World Bank lends money to countries to A) finance their international transactions. B) stabilize their exchange rates. C) promote their economic development. D) fund wars against dictatorial regimes.

C

33) The Smoot-Hawley tariff increased the average tariff rate to ________ percent. A) 15 B) 30 C) 60 D) 90

C

20) A Gini coefficient of ________ means that one family has all the income and everyone else has nothing. A) 0 B) 1 C) 100 D) infinit

B

1) A tariff is A) a limit on the quantity of a good that can be imported into a country. B) a tax on imports. C) a government payment made to domestic firms to encourage exports. D) a payment made by the government to producers of the product

B

1) All of the following are factors that limit a poor nation's economic growth except A) insufficient capital formation. B) insufficient controls on free trade. C) lack of entrepreneurial ability. D) lack of human capital

B

11) Refer to Figure 20.4. The domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and after a tariff is imposed the price is $15. After the tariff is imposed, this country will import ________ leather wallets. A) 50 B) 100 C) 150 D) 200

B

11) The Gini coefficient is A) the most common way of representing the income distribution graphically. B) a commonly used measure of the degree of inequality in an income distribution. C) a commonly used measure of the degree of inequity in a property distribution. D) the ratio of the percentage of total income received by the top 20% of families to the percentage of total income received by the bottom 20% of families

B

16) The process of developing local industries to manufacture goods to replace imports is known as A) export promotion. B) import substitution. C) export favoritism. D) import promotion

B

12) If Brazil has a comparative advantage in the production of coffee compared to the United States, then A) Brazil also has an absolute advantage in the production of coffee. B) the United States has an absolute advantage in the production of coffee. C) Brazil can produce coffee at a lower opportunity cost than the United States. D) the United States cannot produce coffee

C

42) Refer to Figure 20.1. Which of the following statements is true? A) Only Canada can benefit from trade because the United States has an absolute advantage in the production of both soybeans and alfalfa. B) Trade will benefit both countries because the United States has a comparative advantage in the production of soybeans and Canada has a comparative advantage in the production of alfalfa. C) Trade will benefit both countries because the United States has a comparative advantage in the production of alfalfa and Canada has a comparative advantage in the production of soybeans. D) Trade will benefit neither country because the United States has an absolute advantage in the production of both soybeans and alfalfa, but Canada has a comparative advantage in the production of both soybeans and alfalfa.

C

5) The United States placed a limit on the amount of cars that can be imported into the United States. This is an example of A) a tariff. B) an export subsidy. C) a quota. D) dumping

C

6) China has a comparative advantage in textiles and an absolute advantage in both textiles and radios. Japan has a comparative advantage in radios. According to this scenario A) Japan should import both radios and textiles. B) China should export both radios and textiles. C) China should export textiles and import radios. D) Japan should export textiles and import radios.

C

81) The United States would have an absolute advantage compared to Canada in the production of wheat if A) wheat sells for a higher price in the United States than in Canada. B) the demand for wheat is higher in the United States than in Canada.the United States. C) the United States uses fewer resources to produce wheat than Canada does. D) wheat can be produced at lower cost in terms of other goods than it could be in Canada.

C

84) Thailand has a comparative advantage in rice and an absolute advantage in both rice and cell phones. Indonesia has a comparative advantage in cell phones. According to this scenario, A) Indonesia should import both cell phones and rice. B) Thailand should export both cell phones and rice. C) Thailand should export rice and import cell phones. D) Indonesia should export rice and import cell phones

C

90) If Mexico has a comparative advantage in the production of oil compared to France, then A) Mexico also has an absolute advantage in the production of oil. B) France has an absolute advantage in the production of oil. C) Mexico can produce oil at a lower opportunity cost than France. D) France cannot produce oil.

C

94) Suppose that Paraguay and Guyana are both engaged in the production of soybeans and grapefruit, and that Paraguay has an absolute advantage in the production of both goods. If Guyana has a comparative advantage in the production of soybeans, then Guyana A) has a higher opportunity cost for soybeans, which means it should specialize in the production of grapefruit and engage in trade. B) has a lower opportunity cost for producing soybeans, but specialization is not feasible because Paraguay has a lower monetary cost of soybean production. C) has a lower opportunity cost for soybeans, which means that it should specialize in production of soybeans and engage in trade. D) should continue to produce soybeans, but only for domestic consumption, because trade is not a viable option.

C

13) The government's role in a developing country is important during the country's development process for all of the following reasons except A) building social overhead capital cannot be taken on by the private sector. B) building infrastructure is a huge project that only the government can undertake. C) many social projects are associated with the free-rider problem, which minimizes the rate of return to the private sector. D) the government is the only institution with a vested interest in a country's development

D

14) Suppose that Japan and India are both engaged in the production of radios and rice, and that Japan has an absolute advantage in the production of both goods. If India has a lower opportunity cost for producing rice, then A) India has a comparative advantage in rice production, but there will be no gains from specialization and trade. B) Japan has a comparative advantage in the production of both goods. C) India has a comparative advantage in the production of rice, but it is outweighed by Japan's absolute advantage in rice production. D) India has a comparative advantage in the production of rice, and specialization and trade between the two countries can be mutually beneficial

D

17) Which of the following characteristics is generally representative of developing counties relative to developed countries? A) a higher rate of literacy B) a larger percentage of the labor force in urban areas C) a lower infant mortality rate D) lower productivity in the agricultural sector

D

2) Government payments made to domestic firms in order to encourage exports are called A) tariffs. B) bribes. C) quotas. D) subsidies

D

4) If the United States decreases the tariff on imported tuna steaks, this will A) reduce the number of tuna steaks imported into the United States and reduce production of tuna steaks in the United States. B) increase the number of tuna steaks imported in the United States and increase the production of tuna steaks in the United States. C) reduce the number of tuna steaks imported in the United States and increase the production of tuna steaks in the United States. D) increase the number of tuna steaks imported in the United States and reduce the production of tuna steaks in US

D

47) The International Monetary Fund lends money to countries to A) finance their international transactions. B) stabilize their exchange rates. C) promote their economic development. D) Both A and B are correct

D

5) Refer to Figure 18.1. Suppose that the Lorenz curve were the same as the 45-degree line OB. This would mean that A) the distribution of income is perfectly equitable. B) the distribution of income is completely inequitable. C) only one family earned all the income. D) the distribution of income is equal

D

85) India has a comparative advantage compared to Spain in the production of clothing if A) India can produce clothing at a lower monetary cost than Spain can. B) India can produce clothing using fewer resources than Spain can. C) the demand for clothing is higher in India than in Spain. D) India can produce clothing at a lower cost in terms of other goods than Spain can

D

92) Suppose that Greece and Portugal are both engaged in the production of grapes and figs, and that Greece has an absolute advantage in the production of both goods. If Portugal has a lower opportunity cost for producing figs, then A) Portugal has a comparative advantage in the production of figs, but it is outweighed by Portugal's absolute advantage in fig production. B) Greece has a comparative advantage in the production of both goods. C) Portugal has a comparative advantage in fig production, but there will be no gains from specialization and trade. D) Portugal has a comparative advantage in the production of figs, and specialization and trade between the two countries can be mutually beneficial

D