Ch 6 & 8 Quiz Intl. Trade and Finance

What factors influence the extent of trade creation and trade diversion? (Short answer)

Trade creation and diversion are influenced by the degree of competitiveness that member-nation economies have prior to formation of the customs union, the number and size of its members, and the size of its external tariff against non-members.

A main disadvantage of the European Monetary Union is that: a) Each member country loses the use of monetary policy as to tool to combat recession b) There is a high degree of labor mobility among the member countries c) Prices are highly flexible in response to changing economic conditions d) Wages are highly flexible in response to changing economic conditions

a) Each member country loses the use of monetary policy as to tool to combat recession

For the United States, which organization makes loans to foreign buyers of U.S. manufactured goods? a) Export-Import Bank b) Domestic International Sales Corporation c) Organization for Economic Cooperation and Development d) Commodity Credit Corporation

a) Export-Import Bank

Suppose that steel from Japan faces a 20 percent tariff in France and a 25 percent tariff in Italy, while France and Italy maintain free trade between each other. France and Italy are therefore part of a (an): a) Free trade area b) Customs union c) Common market d) Economic union

a) Free trade area

Members of the European Union find that "trade creation" is fostered when their economies are: a) Highly competitive b) Highly noncompetitive c) Small in economic importance d) Geographically distant

a) Highly competitive

Countervailing duties may be imposed: a) In response to a foreign export subsidy b) In response to a foreign antidumping tariff c) To promote exports of domestic companies d) To promote imports of domestic consumers

a) In response to a foreign export subsidy

The implementation of the European Union has: a) Made it harder for Americans to compete against the Germans in the British market b) Made it easier for Americans to compete against the Germans in the British market c) Made it harder for Americans to compete against the Japanese in the British market d) Made it easier for Americans to compete against the Japanese in the British market

a) Made it harder for Americans to compete against the Germans in the British market

When the United States, Canada, and Mexico form a free trade area, and Mexico begins importing a product from Canada rather than from the lowest cost world producer. a) Trade diversion occurs b) Trade creation occurs c) World welfare rises d) World welfare falls to zero

a) Trade diversion occurs

As new regional trading arrangements are formed, the opportunity cost of remaining outside: a) increases b) decreases c) remains stable d) none of these

a) increases

Which of the following has resulted in economic instability of developing countries? a) ​a fall in the prices of natural resources of developing countries b) ​a rise in the prices of natural resources of developing countries c) ​a rise in the labor productivity of developing countries d) ​a rise in the rate of saving of developing countries

a) ​a fall in the prices of natural resources of developing countries

Developing countries tend to export ______ because many of them have large endowments of ______. a) ​primary products, natural resources b) ​primary products, capital c) ​capital goods, advanced technology d) ​capital goods, investment funds

a) ​primary products, natural resources

If the United States and Canada abolish all tariffs on each other's goods and implement a common tariff on goods imported from other countries, there occurs a (an): a) Free-trade area b) Customs union c) Common market d) Economic union

b) Customs union

NAFTA is a: a) Monetary union b) Free trade area c) Common market d) Customs union

b) Free trade area

Suppose that Mexico and Canada form a free-trade area. Mexicans then decrease auto manufacturing and increase imports of autos from Canada, while the Canadians decrease computer production and import more computers from Mexico. This is an example of: a) Trade diversion b) Trade creation c) Trade destruction d) Trade exhaustion

b) Trade creation

The result of normal trade relations (the most favored nation clause) is a) ​a discriminatory tariff structure b) ​a nondiscriminatory tariff structure c) an increase of all tariff rates between all nations​ d) ​an elimination of all tariff rates for all nations

b) ​a nondiscriminatory tariff structure

Comparing per-capita incomes of many developing countries and industrial countries, we tend to see a) ​lower per-capita incomes in industrial countries b) ​lower per-capita incomes in developing countries c) ​identical per-capita incomes in developing countries

b) ​lower per-capita incomes in developing countries

Economic sanctions are most effective in causing the target nation to modify its behavior when the: a) Target nation had negligible economic relationships with the imposing nation prior to the sanctions b) People of the target nation have weak cultural ties to the people of the imposing nation c) Sanctions are levied by a large number of nations d) Target government is supported by the majority of its people

c) Sanctions are levied by a large number of nations

​The Reciprocal Trade Agreements Act of 1934 allowed the President to lower tariffs by up to _____ of the existing level, subject to a tariff reductions by our trading partner a) ​15 percent b) ​35 percent c) ​50 percent ​d) 75 percent

c) ​50 percent

Soon after the United States implemented the Smoot Hawley Tariff Act of 1930 a) ​the volume of international trade dramatically increased b) ​employment in the United States rapidly increased c) ​about 25 countries levied import tariffs on U.S, products d) ​the world returned to a policy of free trade

c) ​about 25 countries levied import tariffs on U.S, products

​If the United States and Canada implement a regional trading agreement that results in the two countries eliminating trade barriers between themselves while maintaining separate trade barriers against nonmember countries, they have formed a a) ​common market b) ​customs union c) ​free trade area d) ​economic union

c) ​free trade area

​The primary objective of the World Trade Organization is to a)maximize tariff revenue for developing-country governments b) ​promote bilateral trade negotiations among nations c) ​liberalize international trade among member countries d) ​increase the protection of firms and workers against foreign competition

c) ​liberalize international trade among member countries

​The purpose of the U.S. Trade Adjustment Assistance Program is to ​a)provide production subsidies to American exporting companies b) ​protect American jobs and wages by imposing import tariffs and quotas c) ​provide benefits to American workers who are dislocated because of international trade d) ​provide price supports for American farmers harmed by international trade

c) ​provide benefits to American workers who are dislocated because of international trade

Which trade strategy have developing countries used to restrict imports of manufactured goods so that the domestic market is preserved for home producers, who thus can take over markets already established in the country? a) International commodity agreement b) Export promotion c) Multilateral contract d) Import substitution

d) Import substitution

The Uruguay Round of trade negotiations was primarily concerned with: a) Import tariffs b) Export tariffs c) Economic sanctions d) Nontariff trade barriers

d) Nontariff trade barriers

When products from high-cost suppliers within a customs union replace imports from a low-cost nation that is not a member of the customs union, there exist(s): a) Dynamic welfare losses b) Dynamic welfare gains c) Trade creation d) Trade diversion

d) Trade diversion

Among the benefits that a regional trading arrangement can provide are all of these EXCEPT: a) economies of large scale production b) specialization fostering c) attracting foreign investment d) a shorter production time

d) a shorter production time

​The mission of the ______ is to make loans to developing countries aimed toward poverty reduction and economic development, including schools, hospitals, roads, and bridges a) ​Bank for International Settlements b) ​International Monetary Fund c) ​World Trade Organization d) ​World Bank

d) ​World Bank

According to the theory of optimal currency areas, there are gains to be achieved from sharing a currency across national boundaries. These gains include You Answered a) ​more uniform prices and lower transactions costs b) ​greater certainty for investors and enhanced competition c) ​a single monetary policy run by an independent central bank d) ​all of the above

d) ​all of the above

Critics of the World Trade Organization maintain that liberalized trade can result in ​a) environmental degradation b) ​lower wages paid to workers c) ​business firms avoiding labor protections such as workplace safety d) ​all of the above

d) ​all of the above

​Developing countries that emphasize production in raw materials and agricultural goods may realize a long-run decline in their international terms of trade as the result of a) ​inelastic demand for these products in advanced countries b) ​sizable increases in the amount of these products supplied to the world market c) ​weak demand for these products in advanced countries d) ​all of the above

d) ​all of the above

​Efforts to stabilize export prices and revenues include all of the following except a) ​production and export controls b) ​buffer stocks c) ​multilateral contracts d) ​all of the above

d) ​all of the above

​For the United States, the political debate of joining NAFTA was very intense because of Mexico's a) ​relatively low wage levels b) ​relatively low levels of environmental enforcement c) ​relatively low standards for protecting workers d) ​all of the above

d) ​all of the above

​Some environmentalists in industrial countries fear that the rules of international trade under the World Trade Organization a) ​increase the development of renewable energies b) ​improve the water and air quality of member nations c) ​lead to the planting of more trees d) ​erode the environmental standards of member nations

d) ​erode the environmental standards of member nations

​The Smoot-Hawley Tariff Act of 1930 a) ​decreased U.S. tariffs to the lowest level since the early 1800s b) ​decreased U.S. tariffs to the lowest level since the late 1800s c) ​increased U.S. tariffs to an average of 53 percent on protected imports d) ​resulted in foreign nations increasing their tariffs on U.S. export

d) ​resulted in foreign nations increasing their tariffs on U.S. export

​Section 301 of the Trade Act of 1974 emphasized a) ​the use of strategic trade policy b) ​the welfare effects of export subsidies c) ​relatively low wage levels of developing countries d) ​unfair trading practices of American trading partners

d) ​unfair trading practices of American trading partners

Who were the losers in the U.S. as a result of NAFTA? (Short answer)

•Citrus & sugar industries that rely on trade barriers to limit imports of low-priced Mexican goods •Unskilled workers, e.g., in apparel industry, who now face competition with low wage workers abroad, leading to job losses