Econ 327 Test 3
Customs unions differ from free trade areas by the manner in which A. member countries apply tariffs to nonmembers. B. members share the gains from trade with each other. C. countries attain membership. D. the WTO adjudicates disputes between the members.
A
In early 2016, negotiators from 12 countries around the Pacific Rim, including the United States and Canada, agreed on a proposal for a new trade agreement called the Trans-Pacific Partnership (TPP). However, the U.S. withdrew from that agreement on January 23, 2017. The U.S. decision to withdraw was based A. in part on uncertainty over the likely benefits of the TPP for the United States, and in part on a widespread backlash against globalization that was visible in 2016 B. on provisions of the TPP that would weaken intellectual property rights and make it more difficult to resolve arguments between private businesses and national governments C. on the failure of the TPP to reduce tariffs or eliminate import quotas as much as previous trade agreements had done D. on the fear that the TPP would harm the interests of both corporations and workers.
A
Is it possible for a country to have a current account deficit at the same time it has surplus in its balance of payments? A. Yes. B. No.
A
Our usual models of trade assume that jobs lost in one industry will be offset by jobs gained in other industries. The Autor et al. paper argued, however, that communities that lose manufacturing jobs to imports end up losing other jobs as well. Is this a contradiction? The Autor et al. paper A. does not contradict our usual models because the gains and losses from trade may B. contradicts our usual models because workers are predicted to acquire different skills to benefit from trade. C. contradicts our usual models because consumer demand is predicted to increase with lower prices. D. contradicts our usual models because workers are predicted to move geographically to benefit from trade. E. does not contradict our usual models because a country's industries are rarely so geographically concentrated.
A
The existence of positive externalities due to the impossibility of full appropriability A. provides support for government protectionism. B. supports arguments for free trade. C. supports the concept that the government should support only highminus−tech industries. D. supports the conclusions of the Heckscherminus−Ohlin model. E. rejects the usefulness of government protectionism.
A
The relationship showing that damage to the environment increases as a country's per capita income rises from an initially low level but then falls with further increases in its per capita income is known as the environmental A. Kuznets curve B. income cycle C. Engel curve D. Gore curve.
A
The two industries most commonly receiving protection are A. agriculture and clothing B. agriculture and steel C. automobiles and pharmaceuticals D. pharmaceuticals and steel.
A
Unlike the eight previous rounds of world trade negotiations since the creation of GATT in 1948, the Doha round appears to be the first to have A. broken down with no agreement. B. received unanimous approval. C. pitted the U.S. against its traditional allies. D. forced the rich nations to compensate the poor nations.
A
A pollution haven is said to exist when A. the industrial countries choose an area, usually in the less developed world, to dispose of industrial wastes. B. an economic activity becomes concentrated in countries or regions having less strict environmental controls than elsewhere. C. a country fails to prosecute violators of its environmental regulations. D. a poorer region or country agrees to store pollutants in exchange for aid.
B
What is the main problem with imposing environmental standards? A. Consumers in developed countries are not willing to pay more for "clean" goods. B. They can cause potential export industries to shut down in poor countries. C. It is too costly to monitor. D. Countries cannot settle on a particular standard.
B
What is the main reason explaining why agriculture enjoys protective tariffs in the U.S.? A. Unfair competition from European agriculture. B. Producers (who gain) are well organized, while consumers (who lose) are not. C. Low wages in the agriculture sector would fall even further in the absence of protection. D. Environmental and health concerns force the government to restrict non-compliant imports.
B
What is the main reason for the anti-globalization movement in the late 1990s? A. Falling wages in low-wage countries due to trade B. Increasing manufacturing exports from low-wage countries C. Beggar-thy-neighbor policies D. Falling wages in domestic import-competing sectors.
B
Which of the following is NOT a valid argument against a strategic trade policy in an externality-generating sector? A. The externalities are hard to measure. B. The externalities can spill over across the border if free trade is allowed. C. Such policies can lead to trade wars. D. It might be better to address the appropriability problem directly.
B
Which of the following is not a key assumption that allows strategic trade policy to work effectively in the Brander-Spencer example of Airbus and Boeing? A. The economies of scale are large for each firm. B. A subsidy enables both firms to operate profitably. C. Firms can earn excess returns. D. Only one firm can profitably produce aircraft.
B
France, in addition to its occasional stabs at strategic trade policy, pursues an active nationalist cultural policy, promoting French art, music, fashion, cuisine, and so on. This may be primarily a matter of attempting to preserve a national identity in an increasingly homogeneous world, but some French officials also defend this policy on economic grounds. In what sense could some features of such a policy be defended as a kind of strategic trade policy? A. There are no economic grounds for pursuing a nationalist cultural policy. B. Promoting French culture is a strategic trade policy in that it promotes tourism and industries related to French culture such as the textile and wine industries. C. Nationalist pride can encourage French workers and firms to produce high quality goods for export.
B
Some retailers in advanced countries sell products from developing countries with low wages but assure customers that these goods are produced under tolerable working conditions. Is demanding that kind of guarantee the same thing as putting a tariff on low-wage exports? Demanding the working conditions guarantee A. is the same thing as a tariff because both decrease import consumption. B. is different than a tariff because it increases consumer demand. C. is different than a tariff because it decreases market prices. D. is different than a tariff because it raises government revenue. E. is the same thing as a tariff because both increase production costs. Is there any way demanding a working conditions guarantee can benefit workers overseas? Demanding tolerable working conditions A. could benefit overseas workers if the demand for their labor decreases. B. could hurt overseas workers if their employers earn higher profits. C. will not affect overseas workers if retailers receive more revenue. D. could benefit overseas workers if they are paid higher wages.
B, D
Brander-Spencer analysis states that A. competition can be enhanced by international trade. B. monopoly profits can be eliminated by international trade. C. monopoly profits can be moved from one country to another by a government subsidy. D. monopoly profits can be eliminated by trade policies.
C
In a closed economy, national saving A. sometimes equals investment. B. is never equal to investment. C. always equals investment. D. is always less than investment. E. is always more than investment.
C
Some economists argue that conventional analysis of international trade policy underestimates the disruption to communities in the U.S. caused by rapid shifts in international trade. The reasons put forth to justify why impacts sometimes fall more heavily on certain communities include: A. uneven growth across industries in exports by foreign countries, the high geographic concentration of certain U.S. manufacturing industries, and the willingness of U.S. workers to relocate away from depressed regions B. even growth across industries in exports by foreign countries, the high geographic concentration of certain U.S. manufacturing industries, and the unwillingness of U.S. workers to relocate away from depressed regions C. uneven growth across industries in exports by foreign countries, the high geographic concentration of certain U.S. manufacturing industries, and the unwillingness of U.S. workers to relocate away from depressed regions D. uneven growth across industries in exports by foreign countries, the even distribution of U.S. manufacturing industries across regions of the country, and the unwillingness of U.S. workers to relocate away from depressed regions.
C
The difference between Gross National Product (GNP) and National Income is a trivial amount. A. True B. False. National income equals GNP less depreciation less net unilateral transfers C. False. National income equals GNP less depreciation plus net unilateral transfers D. False. National income equals GNP plus depreciation less net unilateral transfers.
C
The notion that trade policy often imposes costs on large numbers of people, and benefits only a few is explained by A. the basic impossibility of the democratic system to reach a fair solution. B. the power of advertisement. C. the problem of collective action. D. the lack of political involvement of the public.
C
What are the requirements of the GATT-WTO system? A. Import quotas cannot be reduced. B. Tariffs cannot exceed 1% C. Export subsidies are not allowed. D. Tariffs are not allowed.
C
What is the main critique against the WTO with respect to environmental protection? A. The WTO's stance on environmental protection supports protectionist trade policy. B. The WTO interferes with environmental policy of sovereign nations. C. It doesn't do enough to impose tougher environmental standards on developing countries. D. It imposes environmental standards on developing countries that they cannot afford.
C
What is the main problem with imposing labor standards to prevent child labor and poor working conditions in the exporting sector of a less-developed country? A. Countries cannot settle on a particular standard. B. It is too costly to monitor. C. Less-developed countries are opposed to them. D. Consumers in developed countries are not willing to pay more for goods produced in better conditions.
C
When are preferential trade agreements welfare-improving? A. When they take a form of free trade zone B. When they take a form of customs union C. When they lead to trade creation D. When they lead to trade diversion.
C
GNP accounts avoid double counting by including only the value of final goods and services sold on the market. Should the measure of imports and exports used in the GNP accounts therefore be defined to include only imports and exports of final goods and services received from and sold to other countries? A. Total value of imports should be included, but only the value of exports of final goods. B. Yes, only the value of final goods that are exported or imported should be included. C. Total value of exports should be included, but only the value of imports of final goods. D. No, total values and imports and exports should be included in the calculation of the GNP.
D
Give an intuitive explanation for the optimal tariff argument. A. In a small country, a tariff can unfavorably shift the terms of trade such that the welfare loss exceeds the tariff revenue. B. In a small country, a tariff can favorably shift the terms of trade such that the tariff revenue exceeds the welfare loss. C. In a large country, a tariff can unfavorably shift the terms of trade such that the tariff revenue exceeds the welfare loss. D. In a large country, a tariff can favorably shift the terms of trade such that the tariff revenue exceeds the welfare loss.
D
Gross National Product represents the sum of the following expenditure categories: A. consumption, investment, tax collections, and the current account balance. B. consumption, investment, government purchases, and the capital account balance. C. savings, investment, tax collections, and government purchases. D. consumption, investment, government purchases, and the current account balance.
D
In 2002 some European countries threatened to deny permission to land airplanes for airlines that enjoy a government subsidy. The countries claimed that the threat was targeted against Swissair, which was bailed out by the Swiss government. However, it coincided with the U.S. imposing a tariff on steel imports and U.S. government compensation to the airlines for their losses due to the September 11th attack and increased security. Such a threat by the Europeans is an example A. policies not allowed by WTO B. the Brander-Spencer argument C. a desirable second-best outcome D. a trade policy that could lead to a trade war.
D
Because of its politically sensitive nature, the last economic sector to be liberalized via multilateral trade negotiations has been A. financial services B. transportation C. manufacturing D. energy E. agriculture.
E
What is the essence of the "terms-of-trade" argument against free trade?
a large country can improve its terms of trade by imposing tariffs, and the optimal tariff is positive
GNP (Gross National Product) equals GDP plus A. indirect business taxes. B. net receipts of factor income from the rest of the world. C. a statistical discrepancy. D. the capital consumption allowance.
B
What particular market failure does the "market failure argument" against free trade refer to? A. Any market failure that occurs in the tradable sector B. Knowledge and technology spill overs C. Environmental externalities D. Unemployment.
A
Why are international negotiations important in order to reduce tariff rates worldwide? A. They help avoid trade wars. B. Special-interest groups cannot affect international negotiations. C. Large countries can impose policy restrictions on smaller countries. D. The world as a whole gains from free trade.
A
According to the rules of the World Trade Organization (WTO), countries are free to impose whatever environmental regulations they choose, as long as the regulations A. provide exemptions for the world's low-income countries B. are nondiscriminatory C. do not hinder worldwide economic growth D. are sanctioned by Greenpeace.
B
If governments make trade policies based on national economic welfare, is the problem of trade warfare still represented by a "Prisoner's dilemma" game? What is the equilibrium solution to the game if governments formulate policy in this way? Would they ever choose the strategy of protectionism? A. It is still a Prisoner's dilemma game; however, now each country's dominant strategy would be to engage in free trade and there would be no incentive to switch to protectionism. B. In this case, it would no longer be a Prisoner's dilemma game; each country's dominant strategy would be to engage in free trade and there would be no incentive to switch to protectionism. C. It is still a Prisoner's dilemma game; however, now each country's dominant strategy would be to engage in free trade. This equilibrium is unstable as there would be an incentive for large countries to switch to protectionism to reap additional gains. D. In this case, it would no longer be a Prisoner's dilemma game; each country's dominant strategy would be to engage in free trade. However, this equilibrium is unstable as there would be an incentive for large countries to switch to protectionism to reap additional gains.
B
Shall a government be concerned about a large current account deficit or surplus? A. The government should worry about current account surplus, but not deficit B. Both current account surplus and deficit might not be sustainable in a long run and are thus a concern C. There is no economic reason for a government to worry about either a surplus or a deficit D. The government should worry about current account deficit, but not surplus.
B
The economic analysis of international trade says that specialization and free trade A. is good for everyone in both developed and less-developed countries. B. increases welfare for a country as a whole, but can also create losers as well as winners by shifting the distribution of income within the country C. increases welfare not only for a country as a whole, but also for every citizen within the country D. increases welfare for developed countries, but not for less-developed countries.
B
The world trading system can be characterized as a combination of "levers" and "ratchets." In this analogy the "ratchetsratchets" represent A. international tradeinternational trade negotiations that pushnegotiations that push trade liberalization forwardtrade liberalization forward. B. the implementationthe implementation of binding tariffsof binding tariffs which prevent backslidingwhich prevent backsliding. C. "carrotscarrots" that enticethat entice desired behaviordesired behavior.
B
The "theory of the second best" states that A. free trade is only the "second best" policy, after the optimal tariff. B. in the presence of a market failure, government intervention may improve welfare. C. trade intervention is the best policy for dealing with domestic market imperfections. D. there is always an alternative solution if the first best is not feasible.
B
Capital gains and losses on a country's net foreign assets are not included in the national income measure of the current account. How would economic statisticians have to modify the national income identity Upper Y equals Upper C plus Upper I plus Upper G plus Upper X minus Upper M nbspY = C+I +G + X − M if they did wish to include such gains and losses as part of the definition of the current account? A. Y = C + I + G + X minus− M + Gross capital gain. B. Y = C + I + G + X minus− Mminus− Net capital gain. C. Y = C + I + G + X minus− M + Net capital gain. D. Y = C + I + G + X minus−M minus− Gross capital gain.
C
Do data on the U.S. official settlements balance give an accurate picture of the extent to which foreign central banks buy and sell dollars in currency markets? A. Yes, this account balance is equal to the total net sales of dollars by foreign central banks. B. Yes, this account balance is equal to the total net purchases of dollars by foreign central banks. C. No, this account provides only a partial picture because it shows a net value of all transactions. D. No, this account does not include sales or purchases of dollars by foreign central banks.
C
Faced with the evidence of poor working conditions and low wages in the border maquiladoras, Economists A. argue that Mexico's generally high overall productivity offsets these conditions. B. shrug their shoulders and ignore the issue. C. argue that the poor conditions and low wages are actually improvements for the Mexican workers, and may be cited as gainsminus−fromminus−trade. D. agree that trade theory is thus proven hollow and internally inconsistent. E. argue that U.S. consumers should not consume lettuce.
C
How does the WTO justify its position on trade disputes that involve environmental issues? A. Imposing uniform environmental standards on all countries prevents any one country from gaining an unfair advantage. B. It requires developed countries to meet the same standards. C. It forces member countries to apply the same standards to imported goods that it applies to domestically produced goods. D. The WTO argues that it is not its place to impose environmental regulations on sovereign nations.
C
If the United States had its way, it would demand that Japan spend more money on basic research in science and less on applied research into industrial applications. Explain why in terms of the analysis of appropriability. A. Research targeting specific problems in an industry does not produce an externality that can be appropriated by other firms. Only basic research generates a technology externality. B. Research targeting problems in specific industries will lead to a competitive advantages for Japan that the U.S. cannot appropriate. C. The benefits to the United States of Japanese basic research would exceed the benefits from Japanese research targeted to specific problems in Japanese industries. D. All of the above.
C
In an open economy holding GNP and consumption spending constant and where private savings equals domestic investment, a government budget deficit must be matched by A. a positive difference between domestic exports and imports. B. a current account balance. C. a current account deficit. D. a current account surplus.
C
Many countries have value-added taxeslong dash—taxes that are paid by producers, but are intended to fall on consumers. (They're basically just an indirect way of imposing sales taxes.) Such value-added taxes are always accompanied by an equal tax on imports; such import taxes are considered legal because, like the value-added tax, they're really an indirect way of taxing all consumer purchases at the same rate. Compare this situation to the argument over carbon tariffs. Which of the following statements regarding carbon tariffs is true? A. A carbon tariff is put into place to encourage domestic firms to move their production to a pollution haven with lax environmental regulations. B. A carbon tariff would give an artificial advantage to domesticdomestic firms if it would be more costly for a domesticdomestic firm to reduce its carbon emissions than a foreignforeign firm. C. An objection over carbon tariffs is that they may be discriminating between domestic and foreign goods. D. By imposing a carbon tariff on imports, the overall level of pollution will be increased.
C
Which of the following is NOT an account in the balance of payments? A. Capital account B. Financial account C. Future account D. Current account.
C
Which of the following is not part of the definition for Gross National Product? A. The market value... B. ...of all final goods and services... C. ...produced within a country's borders... D. ...within a given period of time.
C
It's widely believed that self-driving vehicles will become commonplace in the fairly near future and that their growth will be fast for years to come. Doesn't this mean that the United States should have policies designed to ensure that we are a leader in the self-driving car industry? Should the U.S. subsidize the domestic self-driving car industry? The U.S. should A. offer subsidies if the U.S. naturally has a comparative advantage in producing self-driving vehicles. B. offer subsidies if the subsidies would promote perfect competition. C. not offer subsidies if the subsidies would lead to technological spillovers. D. offeroffer subsidies if the subsidies wouldwould generate returns from market power in excess of subsidy costs. E. not offer subsidies if the subsidies would lead to excess returns above normal market levels.
D
The European Union (EU) began in 1957 as a customs union among six nations, and has widened and deepened the economic integration of Europe up until the Brexit decision in 2016. The reason for Brexitlong dash—British exit from the European Union, which was decided upon narrowly through a referendum held in that countrylong dash—is most likely related to A. the higher welfare benefits for British citizens that would arise from imposing large tariffs on imports from other EU member nations. B. the frustration that EU member nations, for purely political reasons, have not yet moved to reduce tariffs and export subsidies in agriculture to realize all the gains possible from free trade. C. domestic market failures that cause the level of social welfare with free trade to be below the level that would result with a welfare-maximizing tariff. D. the perception in Britain that the inward migration of poorer EU citizens from the former Communist countries in Eastern Europe have resulted in job losses for native-born British citizens and put a strain on public services.
D
The efficiency case made for free trade is that as trade distortions are eliminated A. tariff revenue will decrease, and therefore national economic welfare will increase. B. tariff revenue will decrease, and therefore national economic welfare will decrease. C. efficiency losses for producers and consumers will decrease, hence decreasing national economic welfare. D. efficiency losses for producers and consumers will decrease, hence increasing national economic welfare.
D
What is the relationship between GATT and WTO? A. GATT is a more formal organization with larger scope B. WTO is a new name for GATT C. GATT is a new name for WTO D. WTO is a more formal organization with larger scope.
D
Which of the following is NOT an argument to support free trade? A. Free trade leads to efficient allocation of resources B. Free trade limits the influence of special-interest groups C. Free trade allows firms to exploit economies of scale D. Free trade is always welfare-improving because those who gain can compensate those who lose.
D
Which of the trade rounds was the first to achieve across-the-board tariff reduction? A. The Uruguay Round. B. The Tokyo Round. C. The Kyoto Agreement. D. The Kennedy Round.
D
Why do people argue that WTO undermines national sovereignty? A. WTO increases trade that leads to cultural homogenization B. WTO imposes restrictions on trade policy that are too stringent C. WTO dictates to the countries what to produce D. WTO monitors some domestic policies that affect trade.
D
Nowadays, some people recommend restrictions on imports from China (and other countries) to reduce the American current account deficit. How would higher U.S. barriers to imports affect private saving, domestic investment, and government deficit? A. It will reduce government budget deficit. B. It will certainly reduce private savings. C. It will increase investment. D. It is impossible to tell without a general equilibrium model. Do you agree that import restrictions would necessarily reduce a U.S. current account deficit? A. No, because we cannot tell what general equilibrium effects will be. B. Yes, because it will reduce imports.
D, A
A country's gross national product (GNP) is A. the value of all final goods and services produced by its factors of production and sold on the market. B. the value of all intermediate goods and services produced by its factors of production and sold on the market in a given time period. C. the value of all final goods produced by its factors of production and sold on the market in a given time period. D. the value of all final goods and services produced by its factors of production, excluding land, and sold on the market in a given time period. E. the value of all final goods and services produced by its factors of production and sold on the market in a given time period.
E
When one applies the Heckscherminus−Ohlin model of trade to the issue of trademinus−related income redistributions, one must conclude that North South trade, such as U.S.minus−Mexico trade, A. is likely to help highly skilled workers in Mexico. B. is likely to hurt highminus−skilled workers in the U.S. C. is likely to hurt lowminus−skilled workers in Mexico. D. must help low skill workers on both sides of the border. E. is likely to hurt lowminus−skilled workers in the U.S.
E