Chapter 16 International Trade and Exchange Rates

In effect, tariffs on imports are: A) special taxes on domestic producers. B) subsidies to domestic consumers. C) subsidies to foreign producers. D) subsidies for domestic producers.

D

Nation Alpha has a comparative advantage in product X and nation Beta has a comparative advantage in product Y. Trade in the two products will only benefit the two nations if: A) the exchange ratio of X for Y is fixed. B) the terms of trade increase in both nations. C) there is excess capacity in both economies. D) the prices charged for X and Y reflect their domestic opportunity costs.

D

The best example of a land-intensive commodity is: A) tractors. B) DVD players. C) wheat. D) chemicals.

C

A market in which the money of one nation is exchanged for the money of another nation is a: A) resource market. B) bond market. C) stock market. D) foreign exchange market.

D

Nation Statum can produce either 800 units of chemicals or 1600 units of clothing. Nation Timin can produce either 200 units of chemicals or 800 units of clothing. A) Nation Statum has a comparative advantage in producing clothing. B) Nation Timin has a comparative advantage in producing chemicals. C) Nation Statum has a comparative advantage in producing chemicals. D) Nation Timin is the high-cost producer of clothing.

C

Depreciation of the dollar will: A) decrease the prices of both U.S. imports and exports. B) increase the prices of both U.S. imports and exports. C) decrease the prices of U.S. imports but increase the prices to foreigners of U.S. exports. D) increase the prices of U.S. imports but decrease the prices to foreigners of U.S. exports.

D

A trade deficit refers to an excess of: A) imports of goods over exports of goods. B) exports of services over imports of services. C) total debits over total credits in the capital account. D) total payments over total revenues in the current account.

A

A trade surplus implies that: A) exports of goods exceed imports of goods. B) imports of goods exceed exports of goods. C) exports of services exceed imports of services. D) imports of services exceed exports of services.

A

According to the principle of comparative advantage, worldwide output and consumption levels will be highest when goods are produced in nations where: A) domestic opportunity costs are lowest. B) inflation rates are low. C) the balance of trade is in a surplus position. D) the exchange rate is falling.

A

Consider two countries that trade with each other. The degree of specialization according to their respective comparative advantages will be greater if the countries face: A) constant costs. B) high tariffs. C) low unemployment rates. D) increasing costs.

A

Dumping is the sale of a product in a foreign market: A) at a price below its domestic price or cost of production. B) that does not meet the quality standards in the domestic market. C) and is the principal means used to enforce nontariff barriers. D) and is encouraged by voluntary export restraints.

A

If the exchange rate between the U.S. dollar and the Japanese yen is $1 = 200 yen, then the dollar price of the yen is: A) $.005. B) $.05. C) $.50. D) $5.

A

If the rate of exchange for a pound is $4, the rate of exchange for the dollar is: A) 1/4 pound. B) 4 pounds. C) $.25. D) $1.00.

A

In 2015, U.S. exports of services ________ U.S. imports of services by about ________. A) exceeded; $220B B) fell short of; $64.8B C) exceeded; $366B D) fell short of; $529B

A

In considering yen and dollars, when the dollar rate of exchange for the yen rises: A) the yen rate of exchange for the dollar will fall. B) the yen rate of exchange for the dollar will also rise. C) the yen rate of exchange for the dollar may either fall or rise. D) U.S. net exports to Japan will fall.

A

Other things equal, economists would prefer: A) free trade to tariffs and tariffs to import quotas. B) free trade to import quotas and import quotas to tariffs. C) import quotas to tariffs and tariffs to voluntary export restrictions. D) import quotas to free trade and free trade to tariffs.

A

The U.S. demand for euros is: A) downsloping because, at lower dollar prices for euros, Americans will want to buy more European goods and services. B) downsloping because, at higher dollar prices for euros, Americans will want to buy more European goods and services. C) downsloping because the dollar price of euros and the euro price of dollars are directly related. D) upsloping because a higher dollar price of euros makes European goods and services more attractive to Americans.

A

The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2 pounds. We can conclude that: A) $1 = 4 euros. B) $1 = .5 euro. C) 1 euro = $.50. D) 1 euro = $2.

A

The number of countries belonging to the World Trade Organization (WTO), as of 2017, is about: A) 164. B) 28. C) 19. D) 114.

A

Which is a valid counterargument to the call for higher tariffs to save U.S. jobs? A) Nations adversely affected by such tariffs are likely to retaliate, causing a costly trade barrier war. B) U.S. firms and workers must be shielded from the competitive practices of foreign businesses. C) Strategic trade policy calls for trading nations to erect trade barriers so that they will have the same competitive conditions. D) They are needed to protect U.S. workers from poor enforcement of labor standards in other nations.

A

In 2015, the trade deficit in goods for the United States was about: A) $66 billion. B) $220 billion. C) $366 billion. D) $529 billion.

D

A given unit of resource inputs produces 400 tons of corn or 200 tons of soybeans in nation A, and 300 tons of corn or 100 tons of soybeans in nation B. Which of the following is correct? A) The domestic opportunity cost of corn is lower in nation A than in nation B. B) Nation A has a comparative advantage in soybeans. C) There are no gains from trade between nation A and nation B. D) The terms of trade favor nation A.

B

A protective tariff will: A) increase the sales of foreign exporters. B) increase the price and sales of domestic producers. C) increase the welfare of domestic consumers. D) create an efficiency gain in the domestic economy.

B

As it relates to international trade, dumping: A) is a form of price discrimination illegal under U.S. antitrust laws. B) is the practice of selling goods in a foreign market at less than cost. C) constitutes a general case for permanent tariffs. D) is defined as selling more goods than allowed by an import quota.

B

Critics of trade adjustment assistance: A) claim that it increases the prices of goods, unfairly burdening consumers. B) ask why jobs lost to trade should be privileged over jobs lost due to other factors. C) argue that it props up domestic firms that should be allowed to fail so that those resources can be moved to move highly valued uses. D) ask why companies struggling due to foreign competition deserve assistance over companies struggling for other reasons.

B

Dumping of goods abroad: A) constitutes a general case for permanent tariffs. B) may be part of a firm's price discrimination strategy. C) may be part of a nation's strategy to rectify its trade deficit. D) drives up prices of the dumped goods.

B

If Country A has a higher opportunity cost of producing good X than Country B, then Country: A) B should impose a tariff on the exports of product X. B) B has a comparative advantage in the production of product X. C) A should impose a tariff on the imports of product X. D) A has a comparative advantage in the production of product X.

B

If a Japanese importer could buy $1000 U.S. for 122,000 yen, the rate of exchange for one dollar would be: A) 112 yen. B) 122 yen. C) 1220 yen. D) 12,200 yen.

B

If the U.S. dollar appreciates relative to the British pound, then: A) the pound will appreciate relative to the U.S. dollar. B) the pound will depreciate relative to the U.S. dollar. C) British goods will be more expensive for Americans. D) American goods will be less expensive for the British.

B

If the dollar price of the yen rises, then: A) the yen price of dollars also rises. B) the dollar depreciates relative to the yen. C) the yen depreciates relative to the dollar. D) the dollar will buy fewer U.S. goods.

B

If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then: A) the peso has appreciated in value. B) Americans will buy more Mexican goods and services. C) more U.S. goods and services will be demanded by the Mexicans. D) the dollar has depreciated in value.

B

In comparing a tariff and an import quota, we find that: A) the tariff and quota both generate the same amount of revenue for the U.S. Treasury. B) the tariff generates revenue for the U.S. Treasury, but the quota does not. C) the quota generates revenue for the U.S. Treasury, but the tariff does not. D) neither the tariff nor the quota generates revenue for the U.S. Treasury.

B

In considering euros and dollars, the rates of exchange for the euro and the dollar: A) are directly related. B) are inversely related. C) are unrelated. D) move in the same direction.

B

In one year the dollar would buy 262 Japanese yen, but 10 years later, it would buy only 123 yen. Relative to the yen, the value of the dollar: A) increased by about 25 percent. B) decreased by about 53 percent. C) decreased by about 75 percent. D) decreased by about 79 percent.

B

Other things equal, a tariff is: A) superior to an import quota for Americans because a tariff increases the profits of foreign producers. B) inferior to an import quota for Americans because a tariff increases the profits of domestic producers. C) superior to an import quota for Americans because a tariff generates revenue for the U.S. Treasury. D) inferior to an import quota for Americans because a tariff generates revenue for the U.S. Treasury.

C

Nation A pays lower wages to workers than nation B. Nation A also uses fewer capital goods per worker than nation B. This suggests that gains from trade are likely to result if: A) nation A produces products that are more capital-intensive and exports them to nation B in return for products from nation B that are more labor-intensive. B) nation A produces products that are more labor-intensive and exports them to nation B in return for products from nation B that are more capital-intensive. C) nation B produces products that are more labor-intensive and exports them to nation A in return for products from nation A that are more capital-intensive. D) nations A and B each produces capital-intensive and labor-intensive goods and trades them with each other.

B

The Trade Adjustment Assistance Act of 2002: A) imposes tariffs on any foreign good that causes U.S. workers to lose their jobs. B) provides financial help to workers displaced by imports or plant relocations abroad. C) subsidizes domestic companies so they can better compete with foreign imports. D) imposes tariffs on nations whose firms are engaged predatory dumping.

B

The U.S. supply of Japanese yen is: A) downsloping because a lower dollar price of yen means U.S. goods are cheaper to the Japanese. B) upsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese. C) upsloping because a lower dollar price of yen means U.S. goods are cheaper to the Japanese. D) downsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese.

B

The domestic opportunity cost of producing 100 barrels of chemicals in Germany is one ton of steel. In France, the domestic opportunity cost of producing 100 barrels of chemicals is two tons of steel. In this case: A) France has a comparative advantage in the production of chemicals. B) Germany has a comparative advantage in the production of chemicals. C) mutual gains from trade can be obtained if Germany imports chemicals from France and France imports steel from Germany. D) mutual gains from trade can be obtained if Germany exports steel to France and France exports chemicals to Germany.

B

The nation needs to prevent foreign nations from selling their excess goods in our nation at a price below cost so we can save American firms." This quotation would be most closely associated with which protectionist argument? A) Increase in domestic employment. B) Protection against dumping. C) Strategic trade policy. D) Cheap foreign labor.

B

The organization created to oversee the provisions of multilateral trade agreements, resolve disputes under the international trade rules, and meet periodically to consider further trade liberalization is called the: A) International Monetary Fund (IMF). B) World Trade Organization (WTO). C) Common Market Organization (CMO). D) International Trade Commission (ITC).

B

The statement that "tariffs are needed to protect American firms from foreign producers that sell excess goods in the American market at less than cost" would be most closely associated with which tariff argument? A) Cheap foreign labor. B) Protection against dumping. C) Diversification for stability. D) Increased domestic employment.

B

There is a fall in the relative prices of Japanese goods to American goods when the: A) yen appreciates. B) dollar appreciates. C) inflation rate in the United States is higher than the inflation rate in Japan, and there are flexible exchange rates. D) inflation rate in Japan is higher than the inflation rate in the United States and there are fixed exchange rates.

B

What is one of the major shortcomings of using tariffs or quotas to "save American jobs"? A) Trade barriers protect the development of new technology, but the new technology eliminates jobs. B) Import restrictions alter the composition of domestic employment, but they have minimal effect on the amount of domestic employment. C) The volume of trade with other nations is limited to a few industries, so trade restrictions would not increase national employment. D) Major American firms have produced many products in other countries, and would not hire more domestic labor when trade barriers are imposed.

B

When a nation has a comparative advantage in producing a product, then in comparison with any other nation it can produce that product: A) at a lower average total cost. B) at a lower domestic opportunity cost. C) with less capital. D) with less labor.

B

Which is a valid counterargument to the call for higher tariffs to save U.S. jobs? A) U.S. firms and workers must be protected from the weak labor laws in nations where wages are low. B) All nations cannot simultaneously succeed in restricting imports while maintaining exports. C) Strategic trade policy calls for unequal treatment of all trading nations so that they have incentive to compete. D) They are needed to protect U.S. workers from unemployment and underemployment.

B

Which is a valid counterargument to the infant industry argument for protective tariffs? A) It results in too many benefits for domestic firms that export goods and services. B) It is difficult to determine which infant industries will become mature industries with a comparative advantage. C) The objective would be better achieved through strategic trade policy. D) The objective would be better achieved by import quotas and nontariff barriers.

B

Which of the following will generate a demand for Country X's currency in the foreign exchange market? A) Travel by citizens of Country X in other countries B) The desire of foreigners to buy stocks and bonds of firms in Country X C) The imports of Country X D) Charitable contributions by Country X's citizens to citizens of developing nations

B

The World Trade Organization: A) is also known as the International Monetary Fund (IMF). B) is also known as NAFTA. C) was established to resolve disputes arising under world trade rules. D) enhances world trade by providing interest rate subsidies to foreign borrowers who buy exports on credit.

C

A major difficulty with the argument that trade barriers are necessary because foreign workers are paid low wages is that: A) labor costs and product prices are not related. B) there is no discernible relationship between wage rates and labor productivity. C) wage rates and labor productivity are directly related. D) wage rates and labor productivity are inversely related.

C

A major goal of the World Trade Organization is to: A) increase the protection of producers against foreign trade competition. B) encourage bilateral trade agreements between nations. C) liberalize international trade among nations. D) maximize tariff revenue for governments.

C

Appreciation of the Canadian dollar will: A) intensify an existing disequilibrium in Canada' balance of payments. B) make Canada's exports less expensive and its imports more expensive. C) make Canada's exports more expensive and its imports less expensive. D) make Canada's exports and imports both more expensive.

C

Foreign exchange rates refer to the: A) price at which purchases and sales of foreign goods take place. B) movement of goods and services from one nation to another. C) price of one nation's currency in terms of a second nation's currency. D) difference between exports and imports in a particular nation.

C

If Country A has a comparative advantage in the production of good X over Country B, then: A) Country A should not trade with Country B. B) the domestic opportunity cost of producing X in Country A is higher than in Country B. C) the domestic opportunity cost of producing X in Country A is lower than in Country B. D) the domestic opportunity cost of producing X in Country A is higher or lower than in Country B.

C

If an American can purchase 40,000 British pounds for $90,000, the dollar rate of exchange for the pound is: A) $1.40. B) $2.00. C) $2.25. D) $6.00.

C

If the dollar depreciates relative to the Russian ruble, the ruble: A) will be less expensive to Americans. B) may either appreciate or depreciate relative to the dollar. C) will appreciate relative to the dollar. D) will depreciate relative to the dollar.

C

If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won, then: A) Americans will buy fewer Korean goods and services. B) the won has appreciated in value. C) fewer U.S. goods and services will be demanded by the South Koreans. D) the dollar has depreciated in value.

C

If there is no comparative advantage between two countries: A) one country must be more productive in producing all goods than the other. B) the benefits resulting from trade are increased. C) there are no gains from specialization and trade. D) each country should specialize in the production of a particular commodity.

C

In Germany, one worker can produce one cuckoo clock or one beer mug. In Taiwan, one worker can produce two cuckoo clocks or three beer mugs. Who has the comparative advantage in each good? A) Taiwan in both goods. B) Taiwan in clocks and Germany in mugs. C) Germany in clocks and Taiwan in mugs. D) Germany in both goods.

C

In a two-nation world, comparative advantage means that one nation can produce: A) a product with fewer inputs than the other nation. B) a product at lower average cost than the other nation. C) a product at a lower domestic opportunity cost than the other nation. D) more of a product than the other nation.

C

The domestic opportunity cost of producing a television in the United States is 20 bushels of wheat. In Korea, the domestic opportunity cost of producing a television is 10 bushels of wheat. In this case: A) Korea has a comparative advantage in the production of wheat. B) the United States has a comparative advantage in the production of televisions. C) mutual gains from trade can be obtained if the United States imports televisions from Korea and Korea imports wheat from the United States. D) mutual gains from trade can be obtained if the United States imports wheat from Korea and Korea imports televisions from the United States.

C

The long-run effect of tariffs is: A) an increase in domestic employment. B) an increase in export businesses. C) a reallocation of domestic workers from export industries to protected domestic industries. D) a reallocation of consumer spending to imported products over domestically produced products.

C

The predecessor to the World Trade Organization was: A) The European Union (EU) B) The North American Free Trade Agreement (NAFTA) C) The General Agreement on Tariffs and Trade (GATT) D) The United Nations

C

The principal concept behind comparative advantage is that a nation should: A) compare its volume of trade with other nations. B) use tariffs and quotas to protect the production of vital products for the nation. C) concentrate production on those products for which it has the lowest domestic opportunity cost. D) make the nation self-sufficient in the production of essential goods and services.

C

The principle of comparative advantage indicates that mutually beneficial international trade can take place only when: A) tariffs are eliminated. B) transportation costs are almost zero. C) relative costs of production differ between nations. D) a country can produce more of some product than other nations can.

C

The production possibilities for Country X are either 6000 bushels of soybeans or 10,000 bushels of wheat. The production possibilities for Country Y are 2000 bushels of soybeans and 4000 bushels of wheat. Which of the following is true? A) Country Y should specialize in the growing of soybeans according to the principle of comparative advantage. B) Country X is the least-cost producer of wheat. C) The domestic opportunity cost of wheat production is lower in Country Y. D) The high cost producer of soybeans is Country X.

C

Which is a valid counterargument to use tariffs to protect high wages from cheap foreign labor? A) The benefits of such a policy will go to consumers, not workers. B) The benefits of such a policy will go to businesses, not workers. C) Wage rates in a nation are largely determined by productivity. D) The economy may become overheated, thus increasing inflation.

C

Which nation has significantly increased its international trade in recent years to become an important trading nation? A) Algeria B) Argentina C) China D) Colombia

C

Which nation led the world in the volume of exports in 2014? A) Britain B) Japan C) China D) United States

C

Which of the following is not an implication of large U.S. trade deficits? A) The nation must consume within its production possibilities curve. B) U.S. productivity is falling. C) Deficits cause the U.S. dollar to depreciate. D) All of these are implications of large trade deficits.

C

Which organization meets regularly to establish rules related to international trade? A) The United Nations B) The Bank of America C) The World Trade Organization D) The Federal Reserve Board

C

Which product is a leading export of the United States? A) Steel B) Clothes C) Chemicals D) Petroleum

C

Nation X has a comparative advantage in the production of a product compared to nation Y when: A) it imposes a tariff on the import of the product. B) the trading possibilities line shifts outward. C) it is achieving full employment of resources. D) it has the lower domestic opportunity cost of the two countries.

D

The Smoot-Hawley Tariff Act: A) restricts the importation of goods critical to a strong national defense, when those goods can be produced domestically. B) imposes anti-dumping duties as needed. C) helped maintain domestic employment in the 1930s, causing the Great Depression to be less severe. D) prompted retaliation from other nations and helped cause the Great Depression.

D

The U.S. demand for British pounds is: A) downsloping because a higher dollar price of pounds means British goods are cheaper to Americans. B) downsloping because a lower dollar price of pounds means British goods are more expensive to Americans. C) upsloping because a lower dollar price of pounds means British goods are cheaper to Americans. D) downsloping because a lower dollar price of pounds means British goods are cheaper to Americans.

D

The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $.10. We can conclude that: A) 1 yen = 280 Swiss francs. B) 1 yen = 14 Swiss francs. C) 1 Swiss franc = 28 yen. D) 1 Swiss franc = 14 yen.

D

The increased-domestic-employment argument for tariff protection holds that: A) domestic inflation is a desirable policy goal because it stimulates exports. B) domestic deflation is a desirable policy goal because it stimulates imports. C) an increase in tariffs will reduce net exports and stimulate domestic employment. D) an increase in tariffs will increase net exports and stimulate domestic employment.

D

The protection against dumping argument for tariffs is criticized: A) because it is difficult to determine which industries merit protection. B) because direct subsidies are probably a better means of stimulating such industries. C) for all of these reasons. D) because there are too few documented cases to justify permanent tariffs.

D

Trade between individuals and between nations leads to: A) greater self-sufficiency. B) higher product prices. C) lower living standards. D) increased specialization.

D

Which country is the United States' most important trading partner, as of 2015? A) Germany B) Japan C) China D) Canada

D

Which is a likely result of imposing tariffs to increase domestic employment? A) A decrease in consumer prices. B) A decrease in the tariff rates of foreign nations. C) An increase in the number of jobs. D) An increase in the possibility of retaliatory tariffs.

D

Which is a valid counterargument to the call for higher tariffs to save U.S. jobs? A) They are needed to protect U.S. workers from the dumping of foreign products. B) Strategic trade policy calls for equal treatment of all trading nations so that they will have the same competitive conditions. C) U.S. firms and workers must be protected from the ruinous competition of nations where wages for workers are low. D) Imports may eliminate some U.S. jobs, but they create others, so they may have little or no effect on employment.

D

Which is not a commonly heard argument for protectionism? A) A strong national defense requires that some military products be produced domestically. B) Infant industries need short-run, but not long-run, protection from foreign competition. C) Specialization along the lines of comparative advantage can lead to greater economic instability for a nation. D) When other nations' economies grow, they typically import fewer goods and services.

D

Which is not commonly offered as a reason to support protectionism and abandon free trade? A) Maintaining military self-sufficiency. B) Increasing domestic employment. C) Allowing infant industries to mature and become competitive. D) Promoting specialization and increasing worldwide production levels.

D

Which of the following arguments comes closest to constituting a legitimate economic exception to the case for free trade? A) The increase-domestic-employment argument. B) The cheap-foreign-labor argument. C) The protection against dumping argument. D) The infant-industry argument.

D

Which of the following is an implication of large U.S. trade deficits? A) Consumers enjoy greater consumption in the present. B) U.S. indebtedness increases. C) Downward pressure is placed on the U.S. dollar. D) All of these.

D

Which of the following statements is most accurate about the euro? A) It is the common currency used by all the nations of the European Union (EU). B) The United Kingdom gave up the euro with the "Brexit" vote of 2016. C) It has equalized prices across the EU nations that use the currency. D) It has facilitated trade between the EU countries that have adopted the currency.

D

Which of the following was not implemented in an effort to liberalize trade? A) The European Union (EU) B) The North American Free Trade Agreement (NAFTA) C) The General Agreement on Tariffs and Trade (GATT) D) The Smoot-Hawley Tariff Act

D