Econ 340 Final Exam
10. With free trade, Albania, a small country, imports 70 tons of steel at a world price of $4 per ton. It then imposes an import quota permitting only 30 tons of steel to be imported. In response, the price of steel inside Albania rises to $6 per ton. The total quota rent is a. $2 b. $60 c. $80 d. $120 e. $140
$60
Tequila Crisis
(Peso Crisis) The financial crisis that occurred in Mexico in later 1994, including a depreciation of the Mexican peso of about 50%.
3. When the IMF was first created, one of its main functions was to a. Assist countries in devaluing their currencies so as to stimulate employment. b. Prevent countries from raising tariffs on imports as a means of stimulating employment. c. Enforce the freedom of international capital flows. d. Assure that exchange rates were freely flexible. e. Assist countries in maintaining pegged exchange rates.
Assist countries in maintaining pegged exchange rates.
"guest worker" program
a government program that permits workers to enter a country from abroad to work temporarily where there is a labor shortage
trade adjustment assistance
a government program that provides financial assistance to workers who have lost their jobs due to imports
wage insurance
a government program to temporarily give displaced workers payments
optimal currency area
a group of countries for which the benefits of having common currency outweigh the costs
Economic and Monetary Union
a group of countries that set out (through the Maastricht Treaty) to unify their economies and adopt a common currency
countervailing duty law
a law that places a tariff on imports that are subsidized by a foreign government
Generalized System of Preferences
a system to reduce tariffs on certain imports from developing countries
countervailing duty
a tariff levied against imports that have been subsidized by the government of the exporting country
variable levy
a tariff on imports that is varied automatically in order to maintain a constant domestic price
Tobin Tax
a very small tax to all financial transactions
"haircut"
a write-down in the value of debt so that lenders take a substantial loss
dollarization
adoption of the U.S. dollar as the currency of a country other than the US
A predecessor of the US-Canada FTA and NAFTA was a free trade arrangement between the U.S. and Canada involving what product?
automobiles (and auto parts)
Sterilization
The use by a central bank of open market operations to offset the effect of exchange market intervention on the domestic money supply (thus keeping the money supply unchanged)
retaliation
The use by a country of any policy prompted by the harm done to it by another country's policy, especially in order either to harm it in return, or to neutralize the damage.
Strategic trade policy
The use of government policy to tilt the terms of oligopolistic competition so as to shift excess returns from foreign to domestic firms
developed or developing: who are biggest traders?
developed
developed or developing: who is experiencing more rapid growth?
developing
World Bank function
development assistance
managed float>>
dirty float
other than terrorism, poverty causes
disease
adoption of the US dollar the currency of a country (other than the United States)
dollarization
not one of the possible results of a developing country permitting capital flows
domestic firms invest their profits in foreign markets (its labor force becomes more productive as a result of having more capital to work with, its banks can borrow abroad at low interest rates and lend at home at higher interest rates, if its currency depreciates: those of its residents who borrowed on world capital markets may go bankrupt, multinational corporations buy up domestic firms and manufacturing facilities)
VA*
domestic value added AFTER taking into account ALL TARIFFS
VA
domestic value added under free trade
the pricing of imports below the fair price (either below the price in the domestic market of the exporter or below cost)
dumping
double tax relief
each country grants a credit for the taxes of the other country
negative externality
economic activity that imposes a negative effect on an unrelated third party
economic populism
economic policies emphasizing growth and redistribution while ignoring the associated economic risks and constraints
economic policies that were common in Latin America, emphasizing growth and redistribution while ignoring the associated economic risks and constraints
economic populism
Shallow Integration
elimination or reduction of tariffs, quotas, and other border-related barriers to trade
shallow integration
elimination or reduction of tariffs, quotas, and other border-related barriers to trade
Free Riding
enjoying the benefits of a public good without paying for it
E
exchange rate
use of a pegged exchange rate to constrain policy and expectations, so as to reduce inflation
exchange rate anchor
financial crises occur in developing countries when:
expectation of depreciation causes foreigners to withdraw their capital from the country
if you are a seller in a low-price country, you will
export
the name of a host country when FDI is done there to produce third countries
export platform
pollution tax raises costs of
exporters, import-competitors
3 ways that a company in one country can sell its product to a market in a foreign country
exporting, licensing, FDI
Oppenness
exports + imports/GDP
Intra-firm trade
exports and imports that take place within a firm
intra-industry trade
exports and imports within the same industry
Derived Demand
factor demands are derived from the demands for the outputs that they are used to produce
real price of a country's scarce factor _______ due to trade
falls
Mexico's international reserves
fell during the year after NAFTA went into effect
deficit
fell further in 2012 and 2013
tariffs impact what 2 things?
final goods and intermediate inputs
Tf
final tariff
R/F: bank deposits
financial
R/F: bank loans
financial
R/F: currency
financial
R/F: government bonds
financial
R/F: private bonds
financial
changes in asset holdings
financial account
A Brazilian widow buys stock in AT&T
financial account (+)
A student in Thailand deposits dollars in a Los Angeles bank account, planning later to pay tuition at UCLA.
financial account (+)
A Michigan student, preparing for a semester abroad in France, buys $1000 worth of French currency from an Ann Arbor bank.
financial account (-)
An American company buys a warehouse in Ireland
financial account (-)
liquid capital
financial assets that can readily be converted into cash
IMF function
financial assistance
International Monetary Fund provides:
financial assistance
bonds, loans, bank deposits, currency of stocks if less than 10% of company
financial capital flow
3 rules of the gold standard
fix the value of the currency in terms of gold, keep the supply of domestic money fixed in some constant proportion to their supply of gold, stand ready to redeem their own currency with payments in gold and permit gold to be exported and imported
pegged exchange rate
fixed exchange rate
pegged exchange rate>>
fixed exchange rate
floating exchange rate=
flexible exchange rate
floating exchange rate>>
flexible exchange rate
flexible exchange rate>>
floating exchange rate
industry US exports more than imports
food (agriculture)
official reserve assets are primarily:
foreign currencies (but also gold and SDRs)
another name for real capital flows
foreign direct investments
contracts today for transactions that will take place in the future (1,3,6 months from now)
forward exchange rate
the price at which one can enter into a contract today to buy or sell a currency 30 days from now
forward exchange rate
fastest growing manufactures
fuels, mining
"Impossible trinity"
full capital controls, pure float, monetary union
increasing world wide integration of markets for goods, services and capital
globalization
the value of a currency should remain constant in terms of what it can buy in different countries of
goods
How could US firms doing FDI abroad cost jobs in the US?
if a US firm moves production abroad that it would otherwise have continued to do in the US
Assumptions of the New Trade Theory (one or more of:
increasing returns to scale, imperfect competition, product differentiation
globalization
increasing world wide integration of markets for goods, services and capital
a currency board renounces
independent monetary policy
Mastel practices
industrial policies, market collusion, government pricing, sanctuary markets
government efforts to promote competitiveness in particular industries and to encourage resources to move into industries that it views as important for economic growth
industrial policy
human capital and the value of institutions
intangible capital
included in the current account?
interest payments, gifts, imports of services
solution for "race to the bottom"
international agreement for all to tax equally (harmonization)
purchasing power parity>>
law of one price
what percentage of those in the US who involuntarily lose their jobs each year do the authors estimate are due to offshoring?
less than five percent
Drain or Gain?: effect of emigration from developing countries on the countries from which they emigrate
levels of education improve, as the possibility of emigration provides the incentive, even for those who don't ultimately move
borrowing to finance a purchase of a financial asset, creating potential for both larger gain and larger loss
leverage
borrowing to finance a purchase of an asset, creating potential for both larger gains and losses
leverage
licensing
license to a foreign company to produce it there, paying a fee or royalty to the home country
the Escape Clause permits the US to
limit imports in an industry if they are causing injury to domestic interests
financial assets that can easily be converted into cash
liquid capital
dead weight loss
loss of economic and social welfare due to inefficiency
Which of the following is not one of advantages that will allow the US to prosper in the new world? a. Protection for intellectual property b. Low wages c. Secure capital markets d. Government funding for science e. Strength in logistics
low wages
legislating better conditions
lowers wage, lowers employment
in the Plaza Accord:
major central banks met at the Plaza Hotel in New York and agreed to stop the US dollar from appreciating
Adam Smith example
making of pins
an exchange regime in which central banks occasionally sell or buy their own currency as they try to nudge their exchange rate up or down (dirty float)
managed float
dirty float=
managed float
dirty float>>
managed float
reason that companies engage in "reshoring"
manufacturers are increasing their use of robots
What is the "optimal" level of a negative externality?
marginal benefit (of reducing externality)=marginal cost (of reducing externality)
the World Bank's "Doing Business" indicators
measure the ease of starting and running a business in many countries
When was the Plaza Accord?
mid-1980s
8. Which of the following is not one of the labor standards that the United States has required that certain developing countries enforce in return for preferential treatment of their exports into the U.S.? a. Minimum wage b. Minimum age for employment c. Minimum hours of work d. Freedom of association e. The right to organize
minimum hours of work
monitory policy which reduces the size of money supply in the economy
monetary contraction
not a factor of production
money
characterizes the extent to which countries have ratified the fundamental convention of the International Labor Organization
most countries of the world have ratified most of the fundamental conventions, but the US has not
offshoring
movement of an activity to outside of the country
outsourcing
movements of an activity to outside of the firm
when a country eliminates its tariff against a partner country, keeping the tariff positive against other countries, the effect of that change alone is that the partner country as a whole
must gain
not one of the policies/institutions advocated as part of the Washington Consensus
nationalization (tax reform, financial liberalization, fiscal discipline)
financial account surplus
net capital inflow
Blinder identifies 2 causes of the recent increase in OS
new technologies, entry of new populations into the world economy
one currency expressed in per units of another currency
nominal exchange rate
4. By definition, public goods are a. excludable b. nonrival c. perfectly competitive d. provided by government e. imported
nonrival
debt incurred without the consent of the people and that was not used for their benefit
odius debt
tied aid
offering bilateral aid on the condition that money must be spent on the donor's goods and services
holdings by governments and central banks of assets (primarily foreign currencies but also gold and SDRs) for use in settling international debts and intervening in the exchange market
official reserve assets
used for settling international debts and intervening in the exchange market
official reserve assets
What does taking into account all tariffs mean (VA*)?
on final goods and intermediate outputs
National Treatment
once an import enters a country, it is treated exactly the same as a domestic good produced in that country
Singapore Issue
one of four issues raised at the 1996 Singapore Ministerial of the WTO: investment, competition policy, transparency in government procedures and trade facilitation
a group of countries for which the benefits of having a common currency outweigh the costs
optimal currency area
TO
original tariff
the progressive reduction of environmental regulations to compete with foreign producers (the firms pressure their governments)
race to the bottom
minimum wage
raise wage, lowers employment
R/F: equipment
real
R/F: plant
real
R/F: real estate
real
physical assets, land, or ownership of companies (>10%)
real capital flow
foreign direct investments are the same as
real capital flows
adjusts the nominal exchange rate for changes in price levels in both currencies
real exchange rate
Purchasing Power Parity
real exchange rate should remain constant over time
the use by a country of any policy prompted by the harm done to it by another country's policy, especially in order to either harm it in return or neutralize the damage
retaliation
appreciation
revaluation
appreciation>>
revaluation
real prices of a country's abundant factor _____ due to trade
rises
the value of the euro relative to the US dollar has
started at more than $1, fell to less than $1, then rose to more than $1 later
view that government policy can tilt the playing field in imperfectly competitive markets to bring more profits to domestic firms at expense of foreigners
strategic trade policy
Trade Facilitation
streamlining the administrative and physical procedures involved in actually moving goods across borders
more efficient in raising revenue: subsidy or tariff
subsidy
offshoring is
substituting foreign for domestic labor
demographic transition is a shift that typically accompanies:
successful economic development
demand for domestic currency>>
supply of foreign currency
effective rate of protection
takes into account the nominal rate and any tariffs on intermediate inputs
carbon tariff
tariff imposed on goods from countries that do not curb their emissions of greenhouse gases
a firm that otherwise would have exported to a country instead invests there in order to avoid paying the country's tariff
tariff jumping
difference between subsidy and tariff
tariffs are financed by revenues, subsidies come from the treasury
specific tariff
tax on imports that is dollars per unit of good
Stability and Growth Pact
the commitment by countries of the Eurozone to keep their government budget deficits below 3% of GDP
Eurozone
the countries adopting the Euro as their currency
why is trade diversion undesirable for an importing country that lowers its tariff against a partner in a free trade area
the country imports from the partner at a higher cost than it previously imported from some other country
a surplus in the balance of trade or in the balance on current account implies that
the country is lending to foreigners more than foreigners are lending to it
Millennium Challenge Account
recent US program that gives aid to developing countries only if they demonstrate the ability to use it productively with good policies and responsible government
a Tobin Task seeks to:
reduce financial volatility and raise funds for dealing with crises
why is trade growing?
reduction in tariffs
of the issues being negotiated in the TTIP, which is likely to be both most difficult and also most important, if it succeeds?
reduction of regulatory barriers
Terms of Trade
relative price of a country's exports compared to it's imports
Lost Decade
the decade of low growth in Latin America that began with the debt crisis of the early 1980s
Tequila Crisis
the financial crisis that occurred in Mexico in 1994 when the Peso devalued by almost 50% and disrupted the Mexican economy
produce-more-pollute-more model
the idea that trade stimulates production and production increases pollution
Stolper-Samuelson Theorem
the implication of the H-O model that scarce factors lose from international trade and abundant factors gain
political economy
the interaction between political processes and economic policies
Montreal Protocol
the international agreement in 1987 to limit the emission of CFCs into the atmosphere
firms choose to offshore:
the less efficient parts of what they do
Sterilization of exchange-market transactions by a central bank means to prevent those transactions from affecting
the level of domestic money supply
"freely floating exchange rates" describes the exchange regimes of
the major industrialized countries
brain drain
the migration of highly skilled or educated workers out of a country
9. Suppose you know that, in a small country, a 3% tariff on imported beer would cause a deadweight loss of $12,000. Which of the following would be most plausible as the deadweight loss due to a 6% tariff on beer, in the same country? a. $6,000 b. $12,000 c. $24,000 d. $36,000 e. $48,000
$48,000
fiscal/monetary expansion difference
(income and price rise) fiscal interest rate rises, but monetary interest rate falls
policies recommended for dealing with outsourcing/offshoring in the United States
-gather more data about it -provide additional assistance to workers who lose their jobs because of it -repeal any tax laws that artificially increase the practice -provide wage insurance NOT prohibit imports that have been produced with foreign labor
reasons for not forgiving the debts of the heavily indebted poor countries
-high debts are often the result of misguided policies in the past, which are likely to be repeated -not all poor countries are heavily in debt, yet they too need help -past episodes of debt relief have not benefited the poor -direct use of resources to benefit the poor is more likely to help them NOT: POOR COUNTRIES MUST HELP THEMSELVES, NOT RELY ON OTHERS, IN ORDER FOR THEIR PROGRESS TO BE LASTING
How much aid, as a fraction of their incomes, did the people behind the "Live 8" concerts want the G8 to commit to?
0.70%
WTO: __ countries
157
how many countries are in G-20
19 + EU
US is #___ importer and #__ exporter
2, 3
4. At what date, approximately did or will the total GDP at market exchange rates of the "emerging economies" (as the term is used by The Economist) exceed that of the developed economies. a. 1998 b. 2008 c. 2018 d. 2028 e. Never
2018
trade is roughly __% of world GDP
25
China: #__ importer and #__ exporter
3 1
Binder estimates that ___ million US jobs are potentially offshorable
30-40 (up to a quarter of US employment)
Four Tigers
4 East Asian countries whose economic growth began shortly after the success of Japan: Hong Kong, South Korea, Singapore, Taiwan
US has less than __ of the world population but more than __ of world income
5% 20%
WTO: __ people
7 billion
World GDP 2011
70 trillion
2. Approximately what percentage of what the United States consumes is produced inside its borders? a. 2% b. 15% c. 50% d. 85% e. 98%
85%
___ of what the US consumes is produced inside its borders
87%
3. Which of the following would be an example of foreign direct investment from the US to Taiwan? c. Microsoft hires a Taiwanese computer programmer to debug some software for it. d. A California toy manufacturer buys a building in Taipei, Taiwan, to use as a warehouse for storage of toys made in China before shipping them to the U.S. e. Warren Buffet (a U.S. citizen) buys a single share in a Taiwanese electronics firm in order to become eligible to vote as a shareholder.
A California toy manufacturer buys a building in Taipei, Taiwan, to use as a warehouse for storage of toys made in China before shipping them to the U.S.
5. Which of the following is not an international capital flow? a. An American depositing money in a bank account in Zurich, Switzerland. b. A German buying a U.S. Treasury bill. c. A Canadian purchase of a Japanese-made automobile. d. A Brazilian firm borrows from an Argentine bank. e. A Korean car company buys a factory in California.
A Canadian purchase of a Japanese-made automobile.
Export platform
A FDI with the purpose of producing in the host country for export to a "third" country
Example of FDI from the US to Brazil? a. An American professor deposits money in a Brazilian bank, which the bank then lends to a Brazilian firm. b. A firm in the U.S. purchases Brazilian corporate bonds on the Brazilian bondmarket. c. A US-based multinational firm buys a factory in Brazil from a Brazilian who had acquired it cheap from a bankrupt Brazilian manufacturer. d. A rich American lends money to a rich Brazilian, to be used in expanding the Brazilian's business. e. A New York bank uses dollars that have been deposited in it by the government of an oil exporter to buy Brazilian government bonds denominated in dollars.
A US-based multinational firm buys a factory in Brazil from a Brazilian who had acquired it cheap from a bankrupt Brazilian manufacturer.
28. With a floating exchange rate, a monetary contraction causes a. The exchange rate to depreciate. b. The interest rate to fall. c. National income to increase d. A capital inflow. e. The price level to rise.
A capital inflow.
10. In the context of United States trade legislation, "fast track" is b. A provision for providing job preferences to workers who have been displaced by imports. c. An optimal tariff. d. A commitment by the Congress to vote on trade legislation without amendment.
A commitment by the Congress to vote on trade legislation without amendment.
5. Which of the following is an implication of the New Trade Theory? a. A country may both export and import goods in the same industry. b. Countries as a whole must gain from trade. c. A country can only hurt itself by using government policies to promote exports. d. Consumers lose from the increased variety of goods that trade makes available. e. A tariff to protect an industry in a small country hurts demanders more than it helps suppliers.
A country may both export and import goods in the same industry.
Pollution haven
A country that competes internationally by offering foreign firms a reduced set of environmental compliance requirements.
18. According to the Most Favored Nation principle, a. Tariffs should be zero. b. Tariffs should be lowest on imports from countries that cooperate with our nation's foreign policy objectives. c. A country's tariff on imports of a good should be the same for all exporting countries. d. Under a quota, those imports should be admitted that arrive first at the nation's border. e. Once foreign goods are inside a country, they should be treated the same as domestically produced goods.
A country's tariff on imports of a good should be the same for all exporting countries.
13. Which of the following will cause the tariff equivalent of a quota to become larger in a small country? a. A decrease in domestic demand (the demand curving shifting left). b. A decrease in domestic supply (the supply curving shifting left). c. A rise in the world price. d. A rise in the quantity of imports permitted by the quota. e. Nothing: the tariff equivalent of a quota is fixed by law.
A decrease in domestic supply (the supply curving shifting left).
Increasing returns to scale
A fall in average cost as an industry produces larger output by proportional increase in all inputs.
20. Which of the following is not one of the steps in the WTO Dispute Settlement mechanism? a. Consultation between the disputing parties. b. Recommendation by a 3-person panel. c. Ruling by the Appellate Body. d. Levying of tariffs against the exports of the offending party. e. A fine imposed by the WTO on the offending party
A fine imposed by the WTO on the offending party.
21. Tariff Jumping occurs when a. A firm that otherwise would have exported to a country invests there instead in order to avoid paying the country's tariff. b. A country raises a tariff against a foreign exporter who sells to it below cost. c. Countries raise (and lower) their tariffs in an effort to stabilize the price of a product on the domestic market. d. A firm buys inputs from domestic firms rather than importing them from abroad over a tariff. e. A government levies a tariff on the price of a good that already has been increased by another tariff.
A firm that otherwise would have exported to a country invests there instead in order to avoid paying the country's tariff.
8. A tariff-rate quota is a. The number of import tariffs that the World Trade Organization permits a country to impose. c. A high tariff levied on imports above a specified quantity, combined with a lower or zero tariff on imports below that quantity.
A high tariff levied on imports above a specified quantity, combined with a lower or zero tariff on imports below that quantity.
10. According to the supply and demand approach to explaining a floating exchange rate, which of the following would cause the currency of Canada to appreciate? a. A rise in interest rates in the U.S. b. A rise in Canadian imports. c. A large payment of dividends by the U.S.-based Microsoft Corporation to stockholders in Canada. d. An increase in Canadian aid to Bangladesh. e. The expectation that the Canadian dollar is about to fall in value.
A large payment of dividends by the U.S.-based Microsoft Corporation to stockholders in Canada
47. In the news we saw that the American Chemistry Council (an industry organization) and the Sierra Club (an environmental organization) were on the same side in pushing for what US policy that would affect international trade? a. A tariff on US imports of toxic chemicals. b. A countervailing duty on imports of fertilizer. c. A limit on US exports of natural gas. d. A ban on imports of live chickens from China. e. A subsidy to US exports of methylpirelene.
A limit on US exports of natural gas.
Ministerial
A meeting of the "trade ministers" of the member countries of the WTO every 2 years
19. In the WTO, a Ministerial is a. The land that a country must give to other countries if it loses a trade dispute. b. The confusion that erupts when trade negotiators are unable to reach agreement. c. A trade agreement between two or more countries. d. A meeting of the trade ministers of all member countries. e. A legal exception to an otherwise inviolable rule of the WTO.
A meeting of the trade ministers of all member countries.
Crawling peg
A pegged exchange rate in which the pegged value is changed slowly and systematically over time in response to market forces
over-valued exchange rate
A pegged exchange rate that is set higher than the rate at which supply would equal demand for foreign exchange in the absence of exchange market intervention
import license
A permit to import a specified quantity of a good that is subject to a quota.
12. What could cause the effective rate of protection on a good to be negative? a. A positive tariff on an input to producing the good, together with a zero tariff on the good itself. b. A specific tariff that is larger than its ad valorem equivalent. c. A tariff imposed by a foreign country in retaliation against the home country's tariff. d. Failure to collect a tariff because importers bribe customs officers. e. An import quota that is set larger than the quantity of imports that would enter under free trade.
A positive tariff on an input to producing the good, together with a zero tariff on the good itself.
15. Which of the following macroeconomic changes would cause the home country's currency to depreciate? a. A rise in the foreign interest rate. b. A domestic monetary contraction. c. An increase in foreign demand for the home country's exports. d. An increase in domestic investment. e. A fall in the amount that domestic residents choose to save out of any given income.
A rise in the foreign interest rate.
Autarky
A situation in which a country does not trade with other countries.
7. Which of the following would have an incentive to buy euros on the 30-day forward market? a. A speculator who expects the euro to appreciate substantially during the next month. b. A speculator who expects the euro to depreciate substantially during the next month. c. An American exporter who will be paid in euros 30 days from now. d. An American exporter who will be paid in dollars 30 days from now. e. A French importer who will make a payment in dollars 30 days from now.
A speculator who expects the euro to appreciate substantially during the next month.
18. Which of the following is an example of Strategic Trade Policy? a. A subsidy to a domestic manufacturer of airplanes intended to allow it to take the market away from a foreign manufacturer of airplanes. b. A countervailing duty. c. Use of a tariff by a large country to improve its terms of trade. d. Negotiation of a free trade agreement. e. A subsidy to farmers in a rich country that lowers the world price of their agricultural exports and impoverishes foreign farmers in poor countries.
A subsidy to a domestic manufacturer of airplanes intended to allow it to take the market away from a foreign manufacturer of airplanes.
Currency board
A system that combines a pegged exchange rate with automatic change in the money supply matching changes in international reserves.
15. According to the "optimal tariff argument," a. A tariff is the easiest way for a government to raise revenue. b. A tariff can benefit a large country by causing the world price of the imported good to fall. c. The best tariff is one that raises the cost of imported goods to equal the cost of domestically produced goods. d. The best time to levy a tariff is shortly after consumers have come to depend on imports. e. Workers should be given extended unemployment compensation if they lose their jobs because of competition from imports.
A tariff can benefit a large country by causing the world price of the imported good to fall.
The main difference between a tariff and a quota is that
A tariff generates government revenue, while a quota, unless it is sold, does not.
11. An anti-dumping duty is a. A trade restriction designed to offset the effects of a foreign subsidy. b. An international obligation not to pollute a river that crosses an international border. c. A tariff on imports set equal to the difference between their price and the exporter's price in its home market. d. The commitment by a central bank under the Bretton Woods system not to permit its currency to fall in value. e. The price charged for international transport of non-inferior goods.
A tariff on imports set equal to the difference between their price and the exporter's price in its home market.
countervailing duty
A tariff on imports that are subsidized by the government of the foreign exporter
Anti-dumping duty
A tax on exports from abroad
16. Anti-dumping duty is a. A tax on exports from abroad set equal to the difference between their price in their home market and their price for export. b. A tariff on imports that are in excess supply in foreign markets. c. The international obligation not to dispose of waste products in international waters. d. Levied whenever imports cause injury to domestic firms or workers. e. A requirement imposed by the International Monetary Fund on countries requesting assistance, designed to prevent them from undermining IMF objectives.
A tax on exports from abroad set equal to the difference between their price in their home market and their price for export.
Ad valorem tariff
A tax on imports defined as a percentage of the value of the good.
13. A specific tariff is a. An import tax that must be paid in kind (i.e., giving the government the good itself). b. Any tax on a particular imported good (as opposed to one on all imports). c. A requirement to pay the government a specified fraction of the monetary value of an imported good. d. A tax on imports defined as an amount of currency per unit of the good. e. The revenue that the government earns by auctioning off import quotas.
A tax on imports defined as an amount of currency per unit of the good.
Indicate when the absolute advantage and the comparative advantage of nations matter.
Absolute advantage is a short-term phenomenon. Comparative advantage emerges in the long-run.
Foreign direct investment
Acquiring ownership of real capital in another country
3. Which of the following is an example of foreign direct investment from the United States to Mexico? a. Sale of a U.S. Treasury Bill to a corporation in Mexico. b. Acquisition of a convenience store in Mexico City by lawyer in Chicago on behalf of an American client. c. Deposit by an American professor of US dollars into a bank in Mexico. d. Sale of land in Mexico by an American to a Mexican. e. Sale of land in the U.S. by an American to a Mexican.
Acquisition of a convenience store in Mexico City by lawyer in Chicago on behalf of an American client.
Dollarization
Adoption of the US dollar as the currency of a country other than the US.
41. What continent has the most countries that are rated as "difficult" by the World Bank's measures of the ease of doing business? a. Africa b. Asia c. Europe d. North America e. South America
Africa
Double Tax Avoidance Agreement
Agreement between 2 countries to avoid a double taxation of the same income.
32. Which country is a current member of the European Union but has not adopted the euro as its currency? a. Sweden. b. Denmark c. United Kingdom d. All of the above e. None of the above
All of the above
12. By using a tariff, a large country may be able to a. Improve its terms of trade. b. Benefit domestic producers that compete with imports. c. Drive down the world price of the imported good. d. Collect revenue. e. All of the above.
All of the above.
managed float
An exchange regime in which central banks occasionally sell or buy their own currency as they try to nudge their exchange rate up or down
17. A trade-weighted exchange rate is a. A currency that is depreciating due to a rise in imports. b. An index of the value of a currency relative to several others, weighted by amounts of trade. c. The price that a seller of foreign currency will get if he or she is willing to wait 30, 60, or 90 days for payment. d. The nominal exchange rate adjusted for inflation on traded goods. e. The ratio of the value of a country's exports to the value of its imports.
An index of the value of a currency relative to several others, weighted by amounts of trade.
2. The graph below was shown in lecture from Bivens, at the Economic Policy Institute. Which part of it is relevant to offshoring, and why?
Ans: The portion relevant to offshoring is the last several years, from 2000 to 2004, when the real wages of these young college graduates declined. This was the period, according to Bevins, when offshoring began to happen, and it is possible that the decline in wages may have been due to offshoring. Even if it was not, the decline in wages was a source of concern for these workers, leading them to suspect that they were being hurt by competition from foreign workers.
AD
Anti-dumping Duties
What is the current status of the Doha Development Round?
As of the December 2013, finally reached an agreement, although it was a limited one
8. Underlying the Asset Theory of the exchange rate is the idea that a. Asset holders will try to purchase massive amounts of a currency whose value they expect to rise. b. Physical assets in different countries are the most important determinants of exchange rates because they represent the countries' productivity. c. Physical assets in different countries are the most important determinants of exchange rates because they cannot easily be moved. d. Financial assets, especially bonds, are the primary tool of monetary policy used by central banks to influence exchange rates. e. The volume of foreign direct investment is greater than the volume of trade.
Asset holders will try to purchase massive amounts of a currency whose value they expect to rise.
ASEAN
Association of South East Asian Nations
self-sufficiency
Autarky
Scale Economies
Average cost falls as output rises
10. The New Trade Theory differs from the Ricardian and Factor Proportions theories in that it allows for a. Workers in one country to be more productive than workers in another. b. Average costs to fall as an industry employs proportionally more of all factors of production. c. Firms to be perfectly competitive. d. One country to export a good that is not the same as the good that another country exports. e. Firms that choose not to maximize their profits.
Average costs to fall as an industry employs proportionally more of all factors of production.
15 countries that were initially part of the Euro Zone
BAFFLING PIGS
2. When the U.S. eliminated tariffs on imports from Mexico as part of the NAFTA, certain goods that the U.S. had previously imported from Asia subject to tariffs were now purchased from Mexico instead. From the perspective of the welfare of the United States as a whole, this was a. Good for the U.S. because the Mexican goods cost less than the Asian ones. b. Bad for the U.S. because American producers were forced to shut down. c. Good for the U.S. because the prices of these imports were less distorted by tariffs. d. Bad for the U.S. because Mexico's cost of producing these goods was higher than Asia's.
Bad for the U.S. because Mexico's cost of producing these goods was higher than Asia's.
5. The United States in 2011 (the year for which international transactions were reported in your textbook) had a surplus in its a. Balance on merchandise trade. b. Balance on goods and services. c. Balance on current account. d. Balance on financial account. e. None of the above.
Balance on financial account.
14. Why is the use of a tariff to raise revenue "second best"? a. Because smugglers evade the tariff. b. Because too large a tariff will stop all imports, thus yielding no revenue. c. Because more revenue can be gotten at lower cost with a consumption tax. d. Because a government that used a tariff would be voted out of office. e. Because a tariff is the optimal method of raising revenue.
Because more revenue can be gotten at lower cost with a consumption tax.
36. Developing countries often worry that free trade will cause them to specialize in production of primary products. Why do they think this is bad for them? a. Because primary products require high technology in their production, and they lack access to that technology. b. Because primary products cannot be exported. c. Because they expect the relative prices of primary products to fall over time. d. Because they do not have a comparative advantage in primary products. e. Because they do not have an absolute advantage in primary products.
Because they expect the relative prices of primary products to fall over time.
18. In the United States, an Anti-dumping duty is a tariff levied against imports a. Whose price is lower in the foreign market. b. That have been determined by the USITC to be unfairly priced. c. Being sold in the US for a price below cost. d. Of goods that foreign consumers do not want. e. That are subsidized by a foreign government.
Being sold in the US for a price below cost.
BAFFLING
Belgium Austria France Finland Luxemburg Italy Netherlands Germany
1. How many countries are there in the world? a. Fewer than ten b. Between 10 and 100 c. Between 100 and 500 d. More than 500 e. The number changes too rapidly to select among these answers.
Between 100 and 500
BITs
Bilateral Investment Treaties
22. How has the use of anti-dumping (AD) laws changed since the 1980s, by both developed and developing countries? a. Both are using AD more now than they did then, with the biggest increase by developed countries. b. Both are using AD more now than they did then, with the biggest increase by developing countries. c. Developed countries are using AD more, but developing countries are using it less. d. Developing countries are using AD more, but developed countries are using it less. e. Both are using AD less than they did in the 1980s.
Both are using AD more now than they did then, with the biggest increase by developing countries.
the upper limit on the tariff that a country can levy on a particular good, according to its commitments under the GATT and WTO
Bound Tariff
11. In order to peg its currency at an overvalued rate and avoid any resulting change in its money supply, a country's central bank should a. Buy foreign currency. b. Sell domestic currency. c. Buy bonds. d. All of the above. e. None of the above.
Buy bonds.
24. How are companies able to "park" profits in low-tax countries? a. By exporting to them rather than using foreign direct investment. b. By laying off workers from their home-country factories. c. By shifting ownership of patents to their subsidiaries abroad. d. By paying more tax than they owe to foreign governments, so as to deduct those taxes at home. e. By making large charitable contributions to nongovernmental organizations abroad.
By shifting ownership of patents to their subsidiaries abroad.
23. Which of the following equations correctly states how the current account surplus (CA) is related to investment (I), private savings (S), and the government budget surplus (T-G)? a. CA = S + (T-G) + I b. CA = S - (T-G) + I c. CA = S + (T-G) - I d. CA = -S + (T-G) + I e. CA = -S + (T-G) - I
CA = S + (T-G) - I
developing countries insisted on elimination of export subsidies on agricultural products
Cancun Ministerial
CGD
Center for Global Development
CAFTA
Central American Free Trade Agreement
Conditionality
Changes in economic policies that developing countries are required to make in order to receive loans from the IMF.
25. The news reported that Google sold its mobile phone business to a company based in a. China b. Mexico c. The United Kingdom d. Japan e. The Netherlands
China
against Carbon tariff
China
not currently part of the negotiations to form the TPP?
China
trade raises the income of the poor in:
China India
experienced no depreciation at all during the Asian crisis of 1997
China and Hong Kong
CFCs
Chloroflorocarbons
CAP
Common Agricultural Policy
Customs Union plus free movement of labor among members
Common Market
11. Suppose that Thailand is a small country that imports fudge, which it also produces itself under free trade. If Thailand levies a tariff on imports of fudge, then a. The price of fudge on the world market will fall. b. The price of fudge in Thailand will fall. c. Consumers in Thailand will buy a larger total quantity of fudge. d. Consumers in Thailand will buy more fudge from producers in Thailand. e. Fudge producers in Thailand will have to pay the tariff.
Consumers in Thailand will buy more fudge from producers in Thailand.
GDP=
Consumption+Investment+Exports-Imports
CVDs
Countervailing Duties
CVD
Countervailing duty
1. What is the connection, if any, between comparative advantage (CA) and foreign direct investment (FDI)? a. Nothing. CA has nothing to do with FDI. b. Countries engage in FDI in industries where the country they invest in has a comparative disadvantage. c. Countries engage in FDI in industries where the country they invest in has a comparative advantage. d. When a country's firms invest abroad, this helps to create CA in the same industry at home. e. When a country's firms invest abroad, this helps to create CA in the same industry in the country where they undertake the investment.
Countries engage in FDI in industries where the country they invest in has a comparative advantage.
Hecksher-Ohlin Theorem
Countries export goods that use abundant factors.
Heckscher-Ohlin Theorem
Countries have comparative advantage in, and therefore export, goods that use relatively intensively and their relatively abundant factors
25. Which of the following exchange arrangements is used by a smaller number of countries than the others listed? a. Independently Floating Exchange Rates b. Currency board c. Managed floating d. Pegged Exchange Rates e. None of the above (all are used by about the same number of countries)
Currency board
21. Which of the following was not one of the Maastricht Convergence Criteria? a. Current-account deficit less than 10% of foreign exchange reserves. b. Government budget deficit less than three percent of GDP. c. Long-term interest rates less than 2% above the average of lowest three Eurozone interest rates. d. Government debt less than 60% of GDP. e. Inflation rate less than 1.5% above the average of the lowest three Eurozone inflation rates.
Current-account deficit less than 10% of foreign exchange reserves
CIAO
Customer feedback, Incentives, Accountability, Outcomes
FTA plus common external tariff
Customs Union
the 3 countries of the EU that were not initially part of the Euro Zone
DUKS
DWL
Dead Weight Loss
Odious debt
Debt incurred by a country without the consent of its people and that was not used for their benefit.
3. Which of the following is a member of the European Union and has not adopted the euro as its currency? a. Denmark b. Finland c. Greece d. Italy e. Switzerland
Denmark
DUKS
Denmark UK Sweden
4. Which of the following would appear as a (positive) credit in the Financial Account of the U.S. balance of payments? a. Purchase by a Florida corporation of an orange-squeezing machine from Germany. b. Purchase by an American student of a villa in the south of France. c. Sale of a Boeing 757 airplane by the U.S.-based Boeing Corporation to Singapore Airlines. d. Deposit in a Chicago bank of $15,000 by a resident of South Africa. e. Sale by a Korean executive to an American executive of shares of stock in the Ford Motor Company.
Deposit in a Chicago bank of $15,000 by a resident of South Africa.
14. A macroeconomic tax increase in a country with a floating exchange rate causes its currency to a. Appreciate, because of a capital inflow. b. Depreciate, because it stimulates imports c. Appreciate, because it stimulates exports d. Depreciate, because it lowers the domestic interest rate. e. Not change, because fiscal policy requires a balanced budget.
Depreciate, because it lowers the domestic interest rate.
14. Under a floating exchange rate, an increase in the income tax would be expected to cause the currency to __________, because it leads to __________. a. Depreciate; a fall in the interest rate. b. Depreciate; rise in imports. c. Appreciate; a fall in the interest rate. d. Appreciate; a rise in exports. e. Appreciate; a capital inflow.
Depreciate; a fall in the interest rate.
3. The less developed countries of the world trade mostly with a. Developed countries b. Other less developed countries c. Former communist countries d. Nobody. They do not trade e. None of the above
Developed countries
DAC
Developing Assistance Committee
25. In the news, we saw that a. Indonesia is requesting that Saudi Arabia prohibit households from hiring Indonesian maids to clean their homes. b. Unskilled workers from the Philippines are being expelled from Indonesia in order to protect the jobs of Indonesian workers. c. Developing countries are asking that countries that employ their workers abroad assist in collecting income taxes from them. d. Developing countries are trying to improve working conditions of their unskilled workers working in other countries. e. Malaysia is prohibiting Malaysian unskilled workers from seeking employment abroad, as they become a financial burden on their families back home.
Developing countries are trying to improve working conditions of their unskilled workers working in other countries.
33. In the news it was reported that, contrary to what had been stated in lecture, a. Countries export goods that use intensively their scarce factors. b. President Obama has been granted "fast track" authority by the Congress. c. Developing countries now trade more among themselves than they do with developed countries.
Developing countries now trade more among themselves than they do with developed countries
DAC
Development Assistance Committee
group of richer countries within the OECD who confer on providing aid
Development Assistant Committee
DFI
Direct Foreign Investment
DFI
Direct foreign investment
DSM
Dispute Settlement Mechanism
consultation, recommendation by a three-person panel of experts, possibility of appeal
Dispute Settlement Mechanism
the procedures (within the GATT and WTO) for resolving disagreements about trade policy among countries . It includes consultation, recommendation by a three-person panel of experts and the possibility of appeal
Dispute Settlement Mechanism
the GATT or WTO negotiating rounds a. Doha b. Kennedy d. Tokyo e. Uruguay
Doha, Kennedy, Tokyo, Uruguay
6. Which of the following is made better off when a country increases its tariff on imports of a good? a. Domestic producers of the good. b. Domestic consumers of the good. c. The country as a whole, including its government. d. The rest of the world. e. All of the above.
Domestic producers of the good.
DTAA
Double Tax Avoidance Agreement
25. In which case below does the euro appreciate most relative to the dollar in real terms? In each case, E is the nominal exchange rate in $/€, PU is the U.S. price level, and PE is the price level in the eurozone. a. E rises 3%; PU rises 4%; PE rises 1%. [0=3+1-4] b. E rises 2%; PU rises 0%; PE rises 4%. [6=2+4-0] c. E rises 1%; PU rises 2%; PE rises 3%. [2=1+3-2] d. E rises 0%; PU rises 3%; PE rises 1%. [-2=0+1-3] e. E rises -1%; PU rises 1%; PE rises 5%. [3=-1+5-1]
E rises 2%; PU rises 0%; PE rises 4%. [6=2+4-0]
Exchange Rate
E=P/P* P=domestic price P*=solving for US price of big mac
trade and other transactions within Europe
EU
19. Although there are some exceptions permitted to this, the Most Favored Nation principle of the GATT and WTO says that a. Each country must select a preferred provider of the goods that it imports and then levy no tariff on those imports. b. Each member should levy as low a tariff on any member's exports as the lowest tariff that it levies on any other member's exports of the same good. c. Countries cannot raise their tariffs above the "bound levels" to which they have committed in trade negotiations. d. Once a product has entered a country, it should be treated the same as products that originated inside that country. e. Countries that subsidize exports will be forced to relinquish their memberships.
Each member should levy as low a tariff on any member's exports as the lowest tariff that it levies on any other member's exports of the same good.
18. Suppose that the country of Econostan pegs its currency, the wiggo, to the Icelandic drona at a rate of 1.4 w. per dr. At this rate, participants in the exchange market supply more dronas (in exchange for wiggos) than they demand, and the Econostan central bank must intervene in the exchange market to maintain the peg. The central bank also engages in accompanying sterilization operations in the domestic bond market. Based on this information which of the following is true? b. The wiggo is overvalued. c. Econostan's international reserves are declining. d. Econostan's central bank is selling bonds.
Econostan's central bank is selling bonds.
EME
Emerging Market Economies
8. According to the factor proportions model, countries have comparative advantage in the good that a. Employs a relatively large amount of their abundant factor. b. Employs a relatively large amount of the factor whose price there is relatively high. c. Uses intensively their scarce factor. d. Requires proportionately more of every factor than the goods they import. e. Increases their proportional endowment of their scarce factor.
Employs a relatively large amount of their abundant factor
ECB
European Central Bank
EC
European Community
ECU
European Currency Unit
basket of European currencies that formed the basis of the European Monetary System
European Currency Unit
EEC
European Economic Community
EMS
European Monetary System
system established in 1979 in which the European currencies pegged to each other but floated against outsiders and used adjustments of the pegs and some capital controls to remain viable
European Monetary System
EMU
European Monetary Union
EU
European Union
ERM
Exchange Rate Mechanism
5. The assigned reading by Griswold points out that the US economy has usually __________ when the US trade deficit was growing. The reason for this is that a trade deficit is __________ growing income. a. Expanded; a cause of. b. Contracted; a hindrance to. c. Expanded; a result of. d. Contracted; reduced by. e. Been stable; irrelevant to.
Expanded; a result of.
EPZ
Export Processing Zone
Intra-industry trade
Export and import within the same industry.
Dumping
Export of a good at a price below the "fair" price.
What is the "index of openness" used in the textbook to compare openness of countries? a. The balance of trade b. The terms of trade c. Exports divided by population d. Exports plus imports divided by GDP e. Foreign capital inflows per unit of wealth
Exports plus imports divided by GDP
Balance of Trade
Exports-Imports
real capital movements
FDI
9. When a large country levies a tariff on imports, this causes the world price of the imported good to __________, which is __________ to the importing country and __________ to the foreign exporting country a. Fall; beneficial; harmful. b. Fall; harmful; beneficial. c. Rise; beneficial; harmful. d. Rise; harmful; beneficial. e. Rise; irrelevant; beneficial.
Fall; beneficial; harmful.
A crawling peg has the advantage of being immune to speculative attack.
False
After it was created, the euro immediately rose in value relative to the US dollar, and it has only declined recently.
False
An optimal currency area is the geographic region within a country where the currency issued by local government primarily circulates
False
An optimal currency area is the region within a country where the currency issued by local government primarily circulates.
False
Japan is a major "host" of FDI.
False
Over the last 20 years, world trade has grown less rapidly than world GDP
False
Since 1990, China's share of world FDI outflows has always been a very small fraction (less than 10%) of its FDI inflows.
False
The U.S. exports a larger fraction of its GDP than do Japan and Germany
False
The U.S. owns more assets abroad than foreigners own of assets in the U.S.
False
The US has a deficit in its balance of trade but a surplus in its current account.
False
The United States is number 1 in the world on the Heritage Foundation's index of Economic Freedom
False
The countries of Africa trade more with each other than they do with the developed world.
False
44. Those who fear a "race to the bottom" in environmental and labor standards believe that a. Firms will demand weaker standards so that they can compete more effectively with imports. b. Tariffs will be driven to zero by multinational corporations. c. Nongovernmental organizations will push for standards that ultimately eliminate international trade. d. Competing exporters will insist on speed in shipping in order to be first to market, and ever faster ships will pollute the seas and squander energy. e. Weaker environmental standards will worsen working conditions, which will in turn pollute the environment.
Firms will demand weaker standards so that they can compete more effectively with imports.
17. Milton Friedman views the exchange rate as a "price." As a result, he favors a. Fixed exchange rates, because price changes are harmful. b. Flexible exchange rates, because markets do a better job than government at setting prices. c. Fixed exchange rates, because government should stand behind the value of the money it has created. d. Flexible exchange rates, because price volatility is an indication of economic strength. e. Neither fixed nor flexible exchange rates, because money is too important to be subject to market forces.
Flexible exchange rates, because markets do a better job than government at setting prices.
FDI
Foreign Direct Investment
16. If one country pays a subsidy to its producers of a product, a. Foreign producers gain. b. Foreign consumers lose. c. Foreign countries that are net importers of the product lose. d. Foreign countries that are net exporters of the product lose. e. All of the above.
Foreign countries that are net exporters of the product lose.
7. A large country may gain by imposing a tariff on its imports because a. The world price of the imported good will rise. b. Other countries will respond by supplying more exports. c. The domestic price paid by consumers of the imported good will fall. d. Foreign exporters will reduce the price they are willing to be paid. e. The tariff undermines the monopoly power of domestic producers.
Foreign exporters will reduce the price they are willing to be paid.
Singapore, Hong Kong, S Korea, and Taiwan: all began economic growth shortly after the success of Japan
Four Tigers
5. Belgium is twice as productive as France in producing glass and three times as productive as France in producing sheet metal. Considering a world that includes only these two countries and these two goods, who has a comparative advantage in glass? a. Belgium b. France c. Both countries d. Neither country e. It is impossible to tell from the information given
France
FTA
Free Trade Agreement
zero tariffs for members and higher for non-members
Free Trade Area
25. Which of the following is not one of the recommendations included in the "Washington Consensus" describing what countries should do in order to develop successfully? a. Free emigration and immigration b. Tax reform c. Clear and enforced property rights d. Trade liberalization e. Fiscal discipline
Free emigration and immigration
20. Which of the following preferential trading arrangements routinely includes "rules of origin"? a. Free trade area. b. Customs union c. Common market. d. European Economic Community e. All of the above.
Free trade area.
9. The Factor Price Equalization result of the Heckscher-Ohlin Model implies that, a. All workers are equally productive. b. If a country fails to trade, its skilled workers will earn no more than its unskilled workers. c. Trade causes the return to human capital to be the same as the return to physical capital. d. Free trade causes identical factors in different countries to be paid more nearly the same than they were in autarky. e. In order for countries to trade freely, they must tax wages so that firms in all countries pay the same.
Free trade causes identical factors in different countries to be paid more nearly the same than they were in autarky.
9. Factor Price Equalization means that, a. All workers are equally productive. b. If a country fails to trade, its skilled workers will earn no more than its unskilled workers. c. Trade causes the return to human capital to be the same as the return to physical capital. d. For countries to trade fairly, they must tax factors of production so that firms in all countries pay the same factor prices. e. Free trade causes identical factors in different countries to be paid more nearly the same than they would be in autarky.
Free trade causes identical factors in different countries to be paid more nearly the same than they would be in autarky.
24. Which of the following is included in basic labor rights according to the International Labor Organization? a. Freedom to employ child labor. b. Freedom of association and collective bargaining. c. Guarantee of lifetime employment. d. Payment of a living wage. e. Limit on the number of hours worked in a day.
Freedom of association and collective bargaining.
goals of Live 8 concerts
G8 to commit 0.7% of GDP to aid, eliminating agricultural subsidies, eradicating disease
instead of ITO
GATT
reasons US tariffs are lower than expect
GATT was successful in restraining trade barriers, protection is given through NTBs, which are high, and free riding by firms hinders lobby organization
2. In class you saw that Singapore's exports are 161% of Singapore's GDP. That is possible because a. Singapore reports more exports than it actually has. b. Reported exports of Singapore are actually those of the entire Malay peninsula, including Malaysia. c. GDP measures only value added, while the value of exports includes the value of intermediate inputs that may have been imported. d. A large part of Singapore's GDP is produced by the informal economy and is therefore unreported. e. Prices of Singapore's exports are more than 60% higher than of the goods that it keeps for itself.
GDP measures only value added, while the value of exports includes the value of intermediate inputs that may have been imported.
Saving=
GDP-Consumption
GATT
General Agreement of Tariffs and Trade
GATT
General Agreement on Tariffs and trade
GATS
General Agreement on Trade in Services
GSP
Generalized System of Preferences
a system to reduce tariffs on certain imports from developing countries that developed countries have used to help develop
Generalized System of Preferences
14. Which of the following was one of the reasons why foreign direct investment was small during the 1950s and 1960s? a. Government controls on international capital movements. b. High wages of unskilled labor. c. The low price of oil. d. Returns to capital were largely the same in all countries due to factor price equalization. e. The IMF discouraged FDI.
Government controls on international capital movements.
25. The current debt crisis in the Eurozone led recently to a. Greece giving up the euro as its currency and returning to the drachma. b. Greece being declared "in default" on its debt. c. The European Central Bank agreeing to cancel the portion of Greece's debt owed to the ECB.
Greece being declared "in default" on its debt
HIPC
Heavily Indebted Poor Countries
Susan Rice gives several reasons why the US should spend more fighting poverty around the world. Which if the following is not one of those reasons? a. Poverty fosters conflict that can spill over to other countries and involve the US. b. Terrorists take sanctuary in poor countries. c. Extremist groups win over poor populations by providing services to them. d. Poverty breed diseases that may cross borders. e. Helping poor countries will cause them to vote with the US in the United Nations.
Helping poor countries will cause them to vote with the US in the United Nations.
HIC
High Income Countries
HPAE
High Performance Asian Economies
HPAE
High-performance Asian Economies
How could offshore outsourcing create new jobs in the U.S.?
Hiring of workers abroad can make a domestic industry viable whose costs would otherwise have been too high to survive.
4. I travel to Mexico, give a lecture, and am paid a fee of 10,000 pesos in cash. Under which of the following circumstances will the United States current account not be affected? a. I keep the pesos, because the currency is pretty. b. I deposit the pesos in a Mexican bank that I find on the Internet. c. I sell the pesos in the foreign exchange market to an American student who keeps them in his wallet for later use. d. I sell the pesos to a Mexican immigrant, working in Ann Arbor, who sends them to his family in Mexico City e. I use the pesos to buy 100% ownership of a Mexican Internet company that is being sold cheap.
I sell the pesos to a Mexican immigrant, working in Ann Arbor, who sends them to his family in Mexico City
2. Which of the following were the "beggar thy neighbor" policies used during the Great Depression I. Export subsidies II. High tariffs on imports III. Competitive devaluations of currencies IV. Prohibitions on capital inflows a. I and II b. I and III c. I and IV d. II and III e. II and IV
II and III
16. Suppose that a country has a mixture of individuals and companies that are in the following situations: I. These have borrowed in domestic currency to finance assets whose values are also in domestic currency. II. These have borrowed in foreign currency to finance assets valued in domestic currency. III. These have borrowed in domestic currency to finance assets valued in foreign currency. IV. These have borrowed in foreign currency to finance assets valued in (the same) foreign currency. Which of these groups sees the domestic-currency value of its wealth fall when the country devalues? (Assume in each case that the initial value of the assets is at least as great as what was borrowed.) a. I only. b. II only. c. III only. d. IV only. e. None.
II only.
deals with labor rights
ILO
has sometimes imposed misguided policies
IMF
3 main institutions
IMF World Bank WTO
never ratified
ITO
An advantage of a floating exchange rate is that b. If a country's costs rise due to inflation, the exchange rate provides across the board adjustment to restore competitiveness. d. Exchange-rate appreciation increases aggregate demand and thereby stimulates the domestic economy. e. It permits central bankers to sterilize the effects of their intervention
If a country's costs rise due to inflation, the exchange rate provides across-the board adjustment to restore competitiveness.
12. When a country with a pegged exchange rate has an over-valued currency, a. There is a black market in which the currency trades for less than the official rate. b. If the central bank is sterilizing the effects of its intervention, then it is buying bonds. c. If the central bank is not sterilizing the effects of its intervention, then the country's money supply is expanding. d. The country is adding to its reserves of foreign currency. e. If the central bank is sterilizing the effects of its intervention, then the country's money supply is contracting.
If the central bank is sterilizing the effects of its intervention, then it is buying bonds.
30. An advantage of a pegged exchange rate in comparison to a flexible exchange rate is that a. The pegged rate permits the country to use inflation to reduce the value of a government debt. b. By keeping the exchange rate unchanged, prices of different goods and services are forced to move together, avoiding disruptive changes in relative prices. c. It provides investors with confidence that markets are being allowed to do their work. d. Because exchange rate changes, when they occur, are managed by the central bank, they avoid hurting anyone. e. If the peg is able to be sustained over time, it avoids costly movements up and down in exchange rates.
If the peg is able to be sustained over time, it avoids costly movements up and down in exchange rates.
15. By restricting imports with a tariff, a large country will a. Improve its terms of trade. b. Increase the welfare of other countries. c. Raise the price of the imported good on world markets. d. Cause domestic producers of the imported good to reduce their output and raise their price. e. Hurt itself, compared to what it could have accomplished by subsidizing imports.
Improve its terms of trade.
4. Suppose the world has two countries, Alpha and Beta, producing two goods. If Alpha has a CA in producing odds compared to Beta, then a. In autarky the relative price of ends must be higher in Alpha than in Beta. b. In autarky Beta must produce more ends than Alpha. c. In free trade, the wage in Alpha must be higher than in Beta.
In autarky the relative price of ends must be higher in Alpha than in Beta.
14. Trade Adjustment Assistance a. Is money given by the WTO to developing countries to help them implement their obligations as members. b. Is assistance provided by the World Bank to countries seeking to subsidize their exports. c. Is a permanent subsidy given by the U.S. government to firms so that they can avoid closing down in the face of import competition. d. Includes extended unemployment compensation for workers laid off due to increased imports. e. Is a popular form of industrial policy, designed to help strong firms become even more competitive on world markets.
Includes extended unemployment compensation for workers laid off due to increased imports.
18. Trade Adjustment Assistance a. Includes extended unemployment compensation for workers laid off due to increased imports. b. Is money given by the WTO to developing countries to help them implement their obligations as members. c. Includes assistance provided by the World Bank to countries seeking to subsidize their exports. d. Is a permanent subsidy given by the U.S. government to firms so that they can avoid closing down in the face of import competition. e. Is a popular form of industrial policy, designed to help strong firms become even more competitive on world markets.
Includes extended unemployment compensation for workers laid off due to increased imports.
42. Offshoring of economic activity a. Accounts for more than a third of new unemployment in the United States today. b. Increases the productivity of firms by allowing them to concentrate on what they do best. c. Threatens the jobs only of blue-collar workers. d. Increases the bargaining power of workers relative to employers, resulting in higher wages. e. Creates jobs in the US only if it is done by foreign companies, offshoring into our economy.
Increases the productivity of firms by allowing them to concentrate on what they do best.
Which of the following is not assumed in the H-O Model of international trade? a. Increasing returns to scale. b. Perfect competition. c. Production requires more than one factor of production. d. Countries differ in their relative factor endowments. e. Industries differ in their relative factor intensities.
Increasing returns to scale.
country hit worse by the Asian crisis of 1997
Indonesia
Maquiladora industry
Industry located in an export processing zone in Mexico, in which inputs are imported duty-free, and outputs then exported to the U.S. subject to tariff only on the Mexican value added.
IMC
Information Management Consultants
4. The original name of the World Bank was a. International Trade Organization b. International Monetary Fund c. Bretton Woods Institute d. International Aid Institution e. International Bank for Reconstruction and Development
International Bank for Reconstruction and Development
IBRD
International Bank for Reconstruction and Development
first name of World Bank
International Bank for Reconstruction and Development
ILO
International Labor Organization
IIT
Intra-Industry Trade
trade between 2 subsidiaries of a company
Intra-firm Trade
11. Which of the following is not a member of the WTO? a. United States b. China c. Russia d. Taiwan e. Iraq
Iraq
15. Organization for Economic Cooperation and Development a. Was created after World War II in order to prevent countries from using competitive devaluations. b. Is a group of mostly rich countries that collects data and discusses reforms. c. Acts as the voice of developing countries. d. Is an agreement among most countries that export oil to manage its price. e. Was a group of countries formed in the late 1920s in an effort to prevent the Great Depression.
Is a group of mostly rich countries that collects data and discusses reforms.
40. Official development assistance by the US government to developing countries a. Is more than that of any other developed country, both in dollars and as a fraction of GDP. b. Is less than that of most other developed countries in dollars, but is higher than most as a fraction of GDP. c. Is more than that of any other developed country in dollars, but less than most as a fraction of GDP.
Is more than that of any other developed country in dollars, but less than most as a fraction of GDP.
17. Regarding the GSP, Glassman argues that it is "illogical" because a. It grants tariff preferences to rich countries. b. It violates MFN. c. The US cannot afford to lose tariff revenue from the government budget. d. It hurts the countries that it is supposed to help. e. It benefits countries that oppose the US in trade negotiations.
It benefits countries that oppose the US in trade negotiations.
27. How does offshoring affect an industry's productivity? b. It reduces productivity by replacing workers with low-quality machines, produced abroad. c. It increases productivity by scaring workers into working harder. d. It increases productivity by eliminating the activities at which the firm is least efficient.
It increases productivity by eliminating the activities at which the firm is least efficient.
3. As an advisor to the firm, which of the two options would you advise? Why?
It is obvious that for tax reasons, it is more profitable to not repatriate profits in this case.
18. An advantage of a floating exchange rate is that a. It causes wages in different regions of a country to be equal. b. It raises the value of the currency to a higher level than could be achieved with a pegged rate. c. It permits the country to conduct an independent monetary policy. d. It constrains the government from issuing excessive debt. e. It prevents inflation.
It permits the country to conduct an independent monetary policy.
8. A tariff on imports benefits domestic producers of the imported good because a. They get the tariff revenue. b. It raises the price at which they can sell their product on the domestic market. c. It prevents imports from rising above a specified quantity. d. It reduces their producer surplus, making them more efficient. e. All of the above.
It raises the price at which they can sell their product on the domestic market.
10. If a country pegs its exchange rate at a level that is overvalued, then it will eventually be the case that a. Its exports will expand as foreign markets recognize the high value. b. It will run out of international reserves. c. People will engage in smuggling to avoid the official exchange rate.
It will run out of international reserves.
When the US imposed a VER on cars from Japan a. Japanese firms received the rents from the quantitative restriction. b. Japanese car companies responded by lowering the U.S. prices of their cars. c. Japanese car companies responded by lowering the quality of the cars they sold in the U.S. e. The VER was implemented by the U.S. levying a 25% tariff on cars from Japan.
Japanese firms received the rents from the quantitative restriction.
L
L
33. Dealing with asymmetric shocks is harder among the countries of the Eurozone than among the states of the United States because a. Labor is less mobile across countries than across states. b. Exchange rates are flexible within the Eurozone. c. Wages are more flexible in Europe than in the U.S. d. Europe has a mechanism for fiscal transfers among countries e. Countries, unlike states, have no separate monetary policies
Labor is less mobile across countries than across states
pauper labor
Labor with very low wages.
16. Compared to the average of tariffs levied by the United States, the Trade Restrictiveness Index of the US is a. Smaller, because many US tariffs eliminate trade entirely. b. Larger, because the TRI includes tariffs levied by other countries against US exports. c. Smaller, because it is measured on a scale of zero to one. d. Larger, because US tariffs are not all the same. e. The same thing; the TRI is just another name for the average tariff.
Larger, because US tariffs are not all the same.
2. Which of the following receives more than $10 of FDI for every dollar of FDI that goes abroad? a. United States b. Japan c. Europe d. Other Asia e. Latin America
Latin America
economic populism common in
Latin America
LDCs
Less Developed Countries
LICs
Low-income countries
MCC
Millennium Challenge Corporation
OECD
Organization for Economic Cooperation and Development
TRQ
Tariff-Rate Quota
TOT
Terms of Trade
The Swiss FORMULA
Tf= (A*TO)/(A+TO)
first country to be hit by the Asian Crisis of 1997
Thailand
Quota Rent
The difference between the domestic and foreign prices of a good caused by a quota
spot market
The market (for foreign exchange) in which currencies are exchanged in the present.
economic sanction
The use of a trade restriction intended to put pressure on another country to change their behavior.
21. Which of the following is not one of the WTO's permitted exceptions to the MFN requirement? a. Anti-dumping duties b. Countervailing duties c. GSP d. VERs e. Free trade areas
VERs
VER
Voluntary Export Restraint
Which job does Alan Binder code as "offshorable"?
architects
intangible capital
human capital and the value of institutions
R/F: capital assets
real
price of labor
wage
a government program to give displaced workers, for a limited time, payments equal to a fraction of the difference between the old wage and the lower one they get when they accept a new job
wage insurance
when does trade creation occur:
when tariffs are reduced on imports from the partner
winners/loser of trade, offshoring
winners: countries as a whole gain, losers: some people within the country lose, scarce factors
which has grown faster in more recent years: world trade or GDP?
world trade
If all international transactions were included and measured accurately, then the statistical discrepancy would be
zero bitch
US most in debt
US government assets
GATT negotiating round
Uruguay
exchange transactions in the present
spot market
outsourcing
a firm having someone else do part of what it previously did itself
3. Tariff Jumping occurs when a. A firm that otherwise would have exported to a country invests there instead, in order to avoid paying the country's tariff. b. A country raises a tariff against a foreign exporter who sells to it below cost. c. Countries raise (and lower) their tariffs in an effort to stabilize the price of a product on the domestic market. d. A firm buys inputs from domestic firms rather than importing them from abroad subject to a tariff. e. A government levies a tariff, adding to the price of a good that already has been increased by another tariff.
A firm that otherwise would have exported to a country invests there instead, in order to avoid paying the country's tariff.
In spite of its name, a "free trade area" is not as economically desirable as simply "free trade," because a. It provides all of the gains of "free trade," but only to the countries that are part of the free trade area. b. A free trade area may reduce the economic welfare of its member countries. c. A free trade area is beneficial only to corporations, not to labor. d. A free trade area is beneficial only to the extent that it causes trade diversion. e. A free trade area is mostly about the free movement of capital, not free movement of goods.
A free trade area may reduce the economic welfare of its member countries.
wage insurance
A government program that temporarily pays laid-off workers a fraction of the gap between their old wage and their new wage.
21. At the Cancún Ministerial of the WTO in September 2003, the "G20" (sometimes called the G21 or G22) was a. A group of developed countries that wanted negotiations on the Singapore Issues. b. A group of developing countries that favored international rules governing investment. c. A group of developed countries that insisted on elimination of export subsidies on agricultural products. d. A group of developing countries that insisted on elimination of export subsidies on agricultural products. e. A nongovernmental organization arguing that the legal drinking age should be raised to 21 (or 22).
A group of developing countries that insisted on elimination of export subsidies on agricultural products
Appellate body
A group of trade experts in the WTO to whom countries can appeal panel decisions in dispute settlement cases.
24. Since our first exam, which of the following has happened to the Chinese currency: a. The Chinese Central Bank switched from pegging it to the US dollar to pegging it to the euro. b. China responded to US political pressure and caused the currency to appreciate relative to the US dollar. c. The Chinese Central Bank tightened its control of its exchange rate, limiting its day-to-day movement to a smaller band than before. d. China announced a currency reform, under which it will create a "new renminbi" that will be worth 100 units of the old currency. e. After appreciating fairly steadily for some time, the Chines currency fell in value relative to the US dollar by an unprecedented amount.
After appreciating fairly steadily for some time, the Chines currency fell in value relative to the US dollar by an unprecedented amount.
With a freely floating exchange rate determined by supply and demand for foreign exchange, which of the following would cause a country's currency to appreciate? a. An increase in demand for its exports. b. A rise in its interest rate. c. An increase in remittances from its citizens working abroad to their families at home d. All of the above e. None of the above
All of the above
22. Which of the following transactions would appear as a debit in the current account of the United States balance of payments? a. A Detroit auto parts manufacturer buys rubber from Malaysia. b. A Detroit rock musician makes a contribution to the British nongovernmental organization, Oxfam. c. A Detroit professor pays interest on a loan he had previously borrowed from a Dutch bank. d. All of the above. e. None of the above.
All of the above.
6. Paul Krugman, although known for having discovered new theoretical rationales for the use of policies that restrict international trade, nonetheless concludes in his assigned article that these policies are not likely to be usable because a. Empirical difficulties make it hard to know in which sectors to intervene. b. Governments will choose policies based on lobbying rather than on the national interest. c. Use of these policies is likely to cause other countries to retaliate with policies of their own, undermining the benefits. d. All of the above. e. None of the above.
All of the above.
The subsidy paid to Airbus by its government causes a. Airbus to want to produce whether or not Boeing produces. b. Boeing to cease production c. Airbus and its government, combined, to benefit. d. All of the above. e. None of the above.
All of the above.
When a large country levies a tariff on imports a. The world price falls. b. Demanders of the good on the domestic market are hurt. c. Foreigners are hurt. d. The domestic price rises by less than the tariff. e. All of the above.
All of the above.
ATAA
Alternative Trade Adjustment Assistance
15. Which of the following would enter positively in the accounts of U.S. international transactions? a. A U.S. bank makes a loan to a German corporation. b. A British author receives royalties on a book that she published in the United States. c. The American subsidiary of a Japanese car company sells a car, manufactured in Ohio, to an American living in Michigan. d. An American teacher sells shares of stock that she previously owned in a corporation based in Thailand. e. An Australian tourist in China buys counterfeit CDs of an American rock music group.
An American teacher sells shares of stock that she previously owned in a corporation based in Thailand.
17. When U.S. industries claim that imports are "unfair," that claim is evaluated by a. The International Trade Commission b. An agency that is part of the Commerce Department c. The U.S. Department of International Trade and Industry d. The Ways and Means Committee of the U.S. House of Representatives e. USTR
An agency that is part of the Commerce Department
19. The Plaza Accord was a. The decision after World War II to create the International Monetary Fund. b. The car used to transport gold between the Federal Reserve Bank and the U.S. Treasury. c. An agreement among major central banks in the 1985 to reduce the value of the U.S. dollar.
An agreement among major central banks in the 1985 to reduce the value of the U.S. dollar.
Dirty float
An exchange market that is left free to determine the exchange rate (without a peg), but in which the central bank intervenes behind the scenes in an effort to influence the rate.
13. Which of the following is not a NTB? a. VER. b. Tariff-rate quota. c. Variable levy. d. National treatment e. Discriminatory product standard
National treatment
2. One of the institutions created at Bretton Woods was designed to oversee a system that ultimately collapsed in the mid-1970s. Nonetheless, the institution continues to be important today, helping countries to manage and survive crises. Which institution is it? a. World Bank b. Worth Trade Organization c. International Monetary Fund d. OPEC e. ITO
International Monetary Fund
IMF
International Monetary Fund
ITA
International Trade Administration
ITC
International Trade Commission
ITO
International Trade Organization
2. The acronym ITO stands for a. International Trade Organization, which governed international trade policy for almost five decades before being replaced by the WTO. b. Interbank Transfer Operation, the mechanism overseen by the IMF to facilitate the pegging of exchange rates. c. International Tariff Office, the part of the UN within which national Customs Offices cooperate. d. International Trade Organization, which was proposed to govern trade policy but was never ratified. e. International Tariff Office, the independent agency of the US government that levies tariffs against subsidized imports.
International Trade Organization, which was proposed to govern trade policy but was never ratified.
PPP
Purchasing Power Parity
5. According to the theory of comparative advantage, a country will export a good only if a. It can produce it using fewer hours of labor than other countries. b. Its productivity is higher in producing the good than the productivity of other countries in producing it. c. Its wage rate in producing the good is lower than in other countries. d. Its cost of producing the good, relative to other goods, is at least as low as in other countries. e. All of the above.
Its cost of producing the good, relative to other goods, is at least as low as in other countries.
31. If a country with a floating exchange rate expands its money supply, this will cause a. Its interest rate to rise and its currency to appreciate. b. Its interest rate to fall and its currency to appreciate. c. Its interest rate to rise and its currency to depreciate. d. Its interest rate to fall and its currency to depreciate. e. No change in either its interest rate or its exchange rate, both of which are being managed by the central bank.
Its interest rate to fall and its currency to depreciate.
1. Which of the following countries and groups of countries is not a significant host of foreign direct investment? a. United States b. Japan c. Europe d. Asia other than Japan e. None of the above; that is, all of the above are major host of FDI.
Japan
20. Which of the following countries or groups of countries is the source for a significant portion of the world's FDI, yet is the host to hardly any? a. The United States b. Europe c. Latin America d. Japan e. Other Asia
Japan
6. Which of the following countries was not one of those hit by the East Asian financial crisis of 1997? a. South Korea b. Indonesia c. Japan d. Thailand e. Malaysia
Japan
Mastel countries
Japan, Korea, Brazil
Suppose that a fiscal expansion causes income, the price level, and the interest rate all to rise in the US, while unemployment falls and the US government budget moves into deficit. Which of the following would you not expect to happen in Japan as a result? a. Japanese income rises b. Japanese price level rises c. Japanese interest rate falls d. Japanese unemployment falls e. Japanese yen depreciates
Japanese interest rate falls
25. In the news, Prime Minister Abe committed Japan to joining the talks for a TransPacific Partnership (TPP) trade agreement. Who, besides Mr. Abe himself, is in favor of Japan joining the TPP? a. Japanese rice farmers, because they wish to export rice to other countries in Asia. b. US trade negotiators, because they believe that Japan's negotiators will speed up the negotiating process. c. US car companies, because they hope to import cheap cars from Japan. d. Japanese manufacturers, because that expect the TPP to help them export to the US. e. Nobody. Mr. Abe is the only person who thinks this is a good idea.
Japanese manufacturers, because that expect the TPP to help them export to the US.
US-South Korea FTA
KORUS
Which country adopted the euro in 2014?
Latvia
13. The political-economy explanation of why countries have positive tariffs, summarized in the phrase "protection for sale," says that a. Importers pay bribes to customs officers to let them pay tariffs that are lower than legally required. b. Protection is provided by import quotas that are auctioned off to the highest bidder. c. Industries seeking protection from imports pay bribes to customs officers to get them to charge tariffs higher than legally required. d. Insurance companies sell policies that promise to pay any tariff charges on traded goods when requested. e. Legislators provide tariff protection to industries in response to political campaign contributions.
Legislators provide tariff protection to industries in response to political campaign contributions.
14. The political-economy explanation of why countries have positive tariffs, summarized in the phrase "protection for sale," says that a. Legislators provide tariff protection to industries in response to political campaign contributions. b. Importers pay bribes to customs officers to let them pay tariffs that are lower than legally required. c. Protection is provided by import quotas that are auctioned off to the highest bidder. d. Industries seeking protection from imports pay bribes to customs officers to get them to charge tariffs higher than legally required. e. Insurance companies sell policies that promise to pay any tariff charges on traded goods.
Legislators provide tariff protection to industries in response to political campaign contributions.
21. Countries that are part of the euro zone are committed by the Maastricht Treaty to keep their government budget deficits a. In surplus. b. Equal to zero. c. Less than 3% of their country's GDP. d. Less than 60% of their country's GDP. e. Smaller than the average of the deficits of the other member countries.
Less than 3% of their country's GDP.
The Escape Clause permits the United States to a. Provide extended unemployment compensation to workers displaced by trade. b. Resign from the World Trade Organization. c. Shift its trade in a good to a different trading partner. d. Limit imports in an industry if those imports are being priced unfairly. e. Limit imports in an industry if imports are causing injury to domestic interests.
Limit imports in an industry if imports are causing injury to domestic interests.
6. Letting C=consumption, S=saving, I=investment, X=exports, M=imports, and assuming that G=government purchases=0, then a. X-M = I-S b. X+M = I+S c. M-X = I-S d. M+X = C-I-S e. X-M = C+I-2S
M-X = I-S
MCA and MCC
MCA is the money Congress has appropriated for this purpose, MCC is the organization that allocates the money
the ministry of Japanese government that played a major role in guiding the industrial policies of Japan's economic development
METI
an RTA is a violation of
MFN
2 fundamental principles of GATT/WTO
MFN Principle, National Treatment
difference between MFN principle and National Treatment
MFN principle: rules on discrimination between OTHER MEMBER countries, National Treatment rules out discrimination between DOMESTIC AND FOREIGN FIRMS
MOFA
Majority Owned Foreign Affiliate
MOFA
Majority-owned foreign affiliate
1. Which of the following makes up the largest portion of world exports of goods? a. Agricultural goods b. Oil c. Manufactured goods d. Textiles and apparel e. Financial capital
Manufactured goods
Foreign direct investment was not large during the 1950s and 1960s. Why? a. Many countries still had controls on capital flows and the exchange of currencies. b. The World Bank discouraged FDI as being detrimental to economic growth.
Many countries still had controls on capital flows and the exchange of currencies.
16. Early rounds of multilateral trade negotiations under the GATT were faster and easier than later rounds because a. Many tariffs were previously set above the level that would stop imports entirely, so that reductions were possible without much pain. b. The GATT had a stronger enforcement mechanism than the WTO. c. The early rounds included more countries than the later rounds, and therefore had fewer problems with free riders. d. Countries had fewer tariffs than they do today, so there was less to negotiate. e. The United States was in charge of the GATT and was therefore able simply to dictate what the agreements would say.
Many tariffs were previously set above the level that would stop imports entirely, so that reductions were possible without much pain.
Industry located in an export processing zone in Mexico, in which inputs are imported duty-free, and outputs then exported to the U.S. subject to tariff only on the Mexico value added.
Maquiladora industry
industry located in an export processing zone in Mexico, in which inputs are imported duty-free, and outputs then exported to the US (once between processed) and with very low tariffs (only on value added)
Maquiladora industry
Customs Union of Brazil, Argentina, Paraguay, Uruguay and most recently Venezuela
Mercosur
The customs union of Brazil, Argentina, Uruguay, Paraguay and most recently, Venezuela.
Mercosur
MIC
Middle Income Countries
MCA
Millennium Challenge Account
the actual money Congress has appropriated for the program, foreign aid program introduced by President Bush to promote economic growth in developing countries
Millennium Challenge Account
the organization that allocates the money
Millennium Challenge Corporation
MDG
Millennium Development Goals
a meeting of the trade ministers of the members of the WTO every 2 years
Ministerial
METI
Ministry of Economy, Trade and Industry
MITI
Ministry of International Trade and Industry
20. A lesson of the "impossible trinity" is that, if a country wants to have both exchangerate stability and financial market integration (i.e., free capital mobility), then it must give up a. Deficit spending b. Free trade c. Protection d. Monetary independence e. Chocolate
Monetary independence
the international agreement in 1987 to limit the emission of CFCs into the atmosphere, which had been destroying the ozone layer
Montreal Protocol
23. As of 2012, how many preferential trading arrangements have been notified to the WTO? a. None. PTAs exist, but the WTO has nothing to do with them. b. None. PTAs were made illegal in the Uruguay Round agreement. c. Three d. Almost 100 e. More than 300
More than 300
MFN
Most Favored Nation
45. Which of the following best characterizes the extent to which countries have ratified the fundamental conventions of the International Labour Organization? a. The United States and other developed countries have ratified all of them, while most developing countries have ratified only a few, if any. b. The United States has ratified more of them than any other country and is putting pressure on others, both developed and developing, to do the same. c. The ILO is a very new organization, and only a handful of countries have yet ratified any of its conventions. d. All but two of the fundamental conventions have been ratified by well over 100 countries, including the United States. e. Most countries of the world have ratified most of the fundamental conventions, but the United States has not.
Most countries of the world have ratified most of the fundamental conventions, but the United States has not.
Offshoring
Movement of an activity outside of the country where it was previously done.
MFA
Multi-Fiber Arrangement
MNC
Multinational Corporation
MNE
Multinational Enterprise
MNE
Multinational enterprize
9. According to the Asset Theory of the Exchange Rate, a country's exchange rate a. Must already be whatever people think it is about to be. b. Causes the prices of its government bonds to be equal to the prices of foreign government bonds of the same maturity. c. Is set by intervention of the Central Bank to maximize its return on assets. d. Equals the reciprocal of its trading partner's exchange rate. e. Depends primarily on interest rates at home and abroad.
Must already be whatever people think it is about to be
provision of the WTO
National Treatment
19. In the early rounds of trade negotiations under the GATT, a country that was a major supplier of a good to world markets would typically a. Stay out of the negotiations for fear of losing that favored position. b. Seek that this good be exempted from tariff cuts by it and other countries. c. Negotiate with another country that was a large demander of the same good. d. Form a negotiating partnership with other large suppliers of the same good. e. Try to impose its will on countries that were too small and weak to assert their own interests.
Negotiate with another country that was a large demander of the same good.
In which of the following countries is the ratio of exports to GDP closest to that ratio for the United States? a. Canada b. Germany c. Singapore d. Nepal e. Mexico
Nepal
Are trade policies used to enforce labor standards?
No, not in the WTO in way some would like
29. Should all countries have the same environmental standards? a. Yes. Otherwise countries with low standards will have an advantage in international trade. b. Yes. The environment is a global problem and needs to be dealt with globally. c. No. Sovereign nations have the right to set their own standards. d. No. The costs and benefits of environmental standards vary across countries, requiring different standards. e. It doesn't matter. Environmental standards are ineffective anyway.
No. The costs and benefits of environmental standards vary across countries, requiring different standards.
Should all countries have the same environmental standards?
No: the costs and benefits of environmental standards vary across countries, requiring different standards
NTB
Non Tariff Barriers
NTM
Non Tariff Measures
NGOs
Non-Governmental Organizations
4. In a two-country, two-good Ricardian model with free trade, Estonia exports carrots to Latvia and Latvia exports tomatoes to Estonia. From this we can conclude that a. An hour of Estonian labor can produce more carrots than an hour of Latvian labor. b. Production of tomatoes in Latvia requires less labor than would be required to produce tomatoes in Estonia. c. Estonian labor is more productive than Latvian labor in producing carrots, but less productive than Latvian labor in producing tomatoes. d. All of the above e. None of the above
None of the above
11. If the US subsidizes production of corn, who is hurt? c. Consumers of corn in foreign countries that import corn. d. Consumers of corn in foreign countries that export corn. e. None of the above.
None of the above.
The experts of the Copenhagen Consensus 2008 Project were asked how they would allocate $75 billion on projects to aid developing countries. How much of that did they choose to spend on completing the Doha Development agenda?
None: They favored trade liberalization, but said that its cost would be political, not economic.
24. The President of the World Bank, Robert Zoellick, recently announced that he will be stepping down. The next President of the World Bank is likely to be from a. North America b. Asia c. Europe d. South America e. Africa
North America
NAFTA
North American Free Trade Agreement
What country, in 2005, gave the largest amount of official development assistance in proportion to its Gross National Income?
Norway
gathers and publishes data on the international economy
OECD
high income countries do research on policies/how to handle issues
OECD
Why has US production risen, but wages have not?
OS?
ODA
Official Development Assistance
Freedom of association
One of the core labor standards of the International Labor Organization, signifying the right of workers to talk with union organizers.
The US and the EU recently agreed to a change in policies that will likely increase the trade between them in a. Steel b. Aircraft c. Designer apparel d. Oil e. Organic food
Organic food
OPEC
Organization of Petroleum Exporting Countries
OS
Out-Sourcing, Off-Shore
What, according to our lecture on the topic, is the difference between "outsourcing" and "offshoring"?
Outsourcing is movement of an activity outside the firm while offshoring is movement of an activity outside the country
PIIGS
PIGS + Italy
same as MFN in US
PNTR
8. Suppose that the spot rate for the British pound is $1.50 and the 1-month forward rate is $1.53. That means that if you buy one thousand pounds, £1000, today on the 1-month forward market, you will a. Pay $1500 today and receive £1000 one month from now. c. Pay $1530 today and receive £1000 one month from now. d. Pay $1530 one month from now and receive £1000 one month from now.
Pay $1530 one month from now and receive £1000 one month from now.
PNTR
Permanent Normal Trade Relations
30. In US trade law, the Escape Clause a. Is what allowed President Nixon to increase tariffs on all imports. b. Is the law under which the US forced foreign shrimpers to stop catching sea turtles in their nets. c. Permits tariffs on imports that have caused injury to American firms and workers. d. Would allow the US to exit from the North American Free Trade Agreement. e. Implements the WTO anti-dumping provision.
Permits tariffs on imports that have caused injury to American firms and workers.
22. According to the Infant Industry Argument a. Countries that allow children to work have an unfair advantage in international trade. b. Poor countries can foster economic development by using tariffs to protect new firms while they learn to become more productive. c. Costs of young firms are low because their workers lack seniority, and this contributes to comparative advantage. d. If a new firm exports for a price lower than it charges in its domestic market, that constitutes unfair trade. e. When technological change creates a new product, it is the innovating country that is likely to be able to export it.
Poor countries can foster economic development by using tariffs to protect new firms while they learn to become more productive.
PIGS
Portugal, Ireland, Greece, Spain
According to the assigned article by Feenstra, "How Costly is Protectionism," trade barriers in the United States cause losses of economic efficiency that are a. Negative. That is, the world is made better of by U.S. protectionism. b. Zero. Protectionism does not matter for efficiency, and merely transfers income from one group to another. c. Positive but small, less than one percent of U.S. GDP. d. Comparable in size to the share of exports in U.S. GDP. e. Larger today than at any time in the last century.
Positive but small, less than one percent of U.S. GDP.
PTAs
Preferential Trade Agreements
PTA
Preferential Trading Agreement
PSI
Private Sector Investment
30. When a country switches from high-cost imported inputs to lower-cost imported inputs from a different country, a. Productivity appears to rise because GDP rises while actual output remains unchanged. b. Productivity appears to fall because GDP rises while actual output remains unchanged. c. Productivity appears to rise because GDP falls while actual output remains unchanged. d. Productivity appears to fall because GDP falls while actual output remains unchanged. e. Measured GDP remains unchanged, but actual output falls.
Productivity appears to rise because GDP rises while actual output remains unchanged.
32. The International Labor Organization a. Defends the right of developing countries to pay low wages. b. Advocates a weaker set of labor standards than the United States has been willing to sign onto in ILO conventions. c. Promotes a long list of labor standards, only a few of which the United States has been willing to ratify. d. Has the power to restrict exports of countries that mistreat their workers. e. Is said to be dominated by the interests of large multinational corporations.
Promotes a long list of labor standards, only a few of which the United States has been willing to ratify.
6. Which of the following would not be included as contributing negatively to the U.S. balance of trade on goods and services? a. Purchase of a case of French wine by a member of the Arizona Highway Patrol. b. Purchase of shares of stock in an Egyptian corporation by a retired school teacher in Flint, Michigan. c. Sale of an insurance policy by the British Firm, Lloyds of London, to the city council of Lubbock, Texas. d. The hiring of a Canadian trucking company by a U.S. firm to transport horseradish into Canada. e. Sale of 1.4 tons of ripe tomatoes by a Mexican farmer to members of a fraternity at the University of Michigan.
Purchase of shares of stock in an Egyptian corporation by a retired school teacher in Flint, Michigan.
22. The Maastricht Treaty called for convergence of all of the following except a. Real wages b. Inflation rates c. Interest rates d. Budget deficits e. Government debts
Real wages
1. Which of the following is not an example of a negative externality? a. Air pollution caused by coal-fired electricity generation. b. Drowning of dolphins accidentally trapped in the nets of tuna fishers. c. Reduced fertility of soil when a farmer fails to rotate crops on his land. d. Emission of sulfur dioxide into the air by automobiles. e. Runoff of fertilizer from cropland into streams and rivers.
Reduced fertility of soil when a farmer fails to rotate crops on his land.
Race to the bottom
Reduction of government standards (on labor or the environment, for example) in response to competitive pressures from lower standards abroad.
RTA
Regional Trade Agreement
Chinese currency known as both yuan and
Renminbi
43. Which of the following creates "phantom GDP," as the term was used in the assigned article from Business Week by Michael Mandel? a. People working outside of organized firms. b. Employment of workers who are in the country illegally. c. Production of illegal substances. d. Replacing domestic production with imports at a lower cost. e. Failure to adjust for inflation.
Replacing domestic production with imports at a lower cost
UNCTAD is a United Nations institution that a. Enforces intellectual property rights. b. Represents the interests of developing countries. c. Oversees the placement and well-being of refugees. d. Administers international treaties regarding labor standards and labor rights. e. Makes loans to poor countries.
Represents the interests of developing countries.
Why would it not be a good idea for countries to restrict capital outflows in order to prevent such crises?
Restrictions on capital outflows would discourage capital inflows and ultimately slow development.
34. In March, Japan's Prime Minister committed Japan to joining the talks for the Transpacific Partnership, in spite of opposition from Japanese producers of a. Cars b. Rice c. Manufactures d. Shark-fin soup e. Nobody. Most people and firms in Japan favor joining the TPP.
Rice
ROO
Rules of Origin
added to make G-8
Russia
part of IMF
SDRs
a provision of US trade law that requires USTR to take action against foreign unfair trade practices, defined as policies that restrict US commerce unreasonably and unjustifiably
Section 301
"unfair trade policies" what and where?
Section 301: policies that restrict US commerce unreasonably and unjustifiably
23. Which of the following did not contribute to the debt problems that many developing countries encountered in the early 1980s? a. The rise in oil prices. b. Recession in the United States. c. Appreciation of the U.S. dollar. d. The drop in developed country tariffs negotiated in the Tokyo Round. e. Developing country inflation.
The drop in developed country tariffs negotiated in the Tokyo Round.
According to the Heckscher-Ohlin Model of international trade, if a country reduces its trade barriers, it will a. Export a good in which it has a comparative disadvantage. b. Specialize in an industry with increasing returns to scale. c. See its factor prices become more similar to those in other countries. d. Increase its tariff revenue. e. Expand production of the good that uses intensively its scarce factor.
See its factor prices become more similar to those in other countries.
17. If Canada were pegging the Canadian dollar to the U.S. dollar and also acting to sterilize the effects of its exchange market intervention, then when it buys U.S. dollars on the foreign exchange market, it should a. Buy Canadian dollars. b. Sell Canadian government bonds. c. Buy Canadian government bonds. d. Sell U.S. government bonds. e. Buy U.S. government bonds.
Sell Canadian government bonds.
27. Before the Peso Crisis of 1994, Mexico was pegging the peso to the U.S. dollar. Shortly before the crisis, capital outflows required massive intervention by the Mexican central bank in order to maintain the peg. In order to prevent the peso from depreciating, and in order also to sterilize the effects of their intervention, they would have had to a. Buy dollars in the foreign exchange market and sell bonds in the Mexican bond market. b. Sell pesos in the foreign exchange market and sell bonds in the Mexican bond market. c. Sell pesos in the foreign exchange market and buy bonds in the Mexican bond market. d. Sell dollars in the foreign exchange market and sell bonds in the Mexican bond market. e. Sell dollars in the foreign exchange market and buy bonds in the Mexican bond market.
Sell dollars in the foreign exchange market and buy bonds in the Mexican bond market.
2. When a company engages in "tariff-jumping" FDI, its purpose is to a. Enter a foreign market before other firms from its home country can get there. b. Invest in lobbying of foreign governments to persuade them to raise tariffs. c. Sell to the local market in the foreign country from behind the protection provided by its tariff. d. Take advantage of foreign low-cost inputs in order to produce for export. e. Take advantage of a low rate of effective protection.
Sell to the local market in the foreign country from behind the protection provided by its tariff.
31. Environmentalists sometimes object to the World Trade Organization because it decided against the United States in a dispute involving a. Shrimp and turtles b. Avocadoes and white-tailed deer c. Bananas and soft-wood lumber d. Coal and nuclear power e. The Byrd amendment
Shrimp and turtles
raised at ministerial in 1996: investment, competition policy, and transparency in government procurement and trade facilitation (EU wanted to negotiate on them, developing countries did not)
Singapore Issues
32. In class we saw that Singapore's exports are 160% of Singapore's GDP. Why? a. Singapore's exports are made using imports. b. Singapore's GDP is actually much larger than reported due to misreporting by tax-evading firms. c. Singapore's households save an unusually large fraction of their income. d. Singapore's exports are over-stated by firms who claim to have been paid higher prices than they actually received. e. These data came from the CIA, which tries to make Singapore look good because it is an ally of the United States
Singapore's exports are made using imports.
SMECS
Slovenia, Malta, Estonia, Cyprus, Slovakia
raised US tariffs on hundreds of products at the start of the 1930s
Smoot-Hawley Tariff Act
The use of a tariff to assist the growth of an infant industry is said to be "second best" because a. A tariff will actually make the protected industry shrink, not grow. b. Some other policy exists that will provide the same assistance at lower economic cost. c. The benefit to the protected industry spills over, through an external economy, to another industry. d. It will only work if the industry is able, by producing, to learn to be more productive. e. The tariff reduces the price of the protected good in some other, "second," country.
Some other policy exists that will provide the same assistance at lower economic cost.
20. Compared to 1970, immigration now into the United States, as measured by the foreign-born fraction of the US population, is a. Much greater (more than ten times as large) b. Somewhat greater (between twice as large and ten times as large) c. About the same d. Somewhat smaller (between one tenth as large and half as large) e. Much smaller (less than one tenth as large)
Somewhat greater (between twice as large and ten times as large)
SACU
Southern Africa Customs Union
SDR
Special Drawing Right
SDRs
Special Drawing Rights
SGP
Stability and Growth Pact
22. How does the presence of strong labor unions in a country affect the amount of immigration into it? a. Strong unions increase immigration because unions seek larger membership. b. Strong unions decrease immigration because migrants prefer to avoid paying union dues. c. Strong unions have ambiguous effect on immigration because they attract more workers from abroad but also resist letting them in. d. Strong unions are irrelevant to immigration because immigrants are not eligible to join them. e. Strong unions increase immigration because immigrants advocate for worker rights.
Strong unions have ambiguous effect on immigration because they attract more workers from abroad but also resist letting them in.
A
Swiss coefficient
8. How do US tariffs today compare to what they were 60 years ago? a. Tariffs today have been eliminated; 60 years ago they averaged 100%. b. Tariffs today are only one tenth as large, on average, as they were then. c. Tariffs have been cut in half. d. Although different products have high tariffs than before, the average tariff is about the same. e. Recent concerns over outsourcing have pushed US tariffs about ten percentage points above what they were just after World War II.
Tariffs today are only one tenth as large, on average, as they were then.
10. Based on the supply and demand for foreign exchange, which of the following should cause the Thai currency, the baht, to appreciate? a. Thais develop a taste for French wine. b. Thai consumers reduce their saving, causing interest rates in Thailand to increase. c. Scandal in Bangkok reduces the willingness of foreign aid agencies to give money to Thailand. d. Major exporters from Thailand relocate to produce in China. e. Thailand begins enforcing intellectual property rights, forcing Thai companies to pay licensing fees to foreign owners of patents.
Thai consumers reduce their saving, causing interest rates in Thailand to increase.
19. On what do Nobel Prize winners Friedman and Mundell agree? a. That floating exchange rates are bad b. That fixed exchange rates are bad c. That pegged exchange rates are bad d. That pegged exchange rates are good e. That fixed and floating exchange rates are equally good
That pegged exchange rates are bad
Which of the following is a plausible reason for an American to buy 1,000,000 British pounds on the 30-day forward market when the forward rate is 1.42 $/£? a. The current spot exchange rate is 1.41 $/£ and the American expects the rate of inflation in Britain to be at least one percentage point higher than in the U.S. b. The American's firm has just sold a quantity of American-made machine tools to a British importer and will be paid £1,000,000 for it in 30 days. c. The American believes that the pound is likely to appreciate substantially from its current spot price of 1.41 $/£.
The American believes that the pound is likely to appreciate substantially from its current spot price of 1.41 $/£.
According to a chart in an article assigned in The Economist, how does the share of world GDP in the Emerging Markets compare to the share of Developed Countries? b. The Emerging Market share is less than that of Developed Countries and will surpass it only in about 50 years. c. The Emerging Market share is currently approaching that of the Developed Countries and will surpass it before 2020. d. The Emerging Market share surpassed that of the Developed Countries in 2008, when the world fell into recession.
The Emerging Market share is currently approaching that of the Developed Countries and will surpass it before 2020.
Since early 2011, the euro has fallen relative to the US dollar by more than 10%. As a result of the effect of this change on relative prices of goods, we would expect a. US exports to rise. b. Eurozone imports to rise. c. The US economy to expand in the long run. d. The Eurozone economy to expand in the short run.
The Eurozone economy to expand in the short run.
3. During the half century since the end of World War II, a. The major currencies of the world, which initially had flexible exchange rates, have become fixed. b. The GATT has been transformed into the WTO. c. The World Bank has switched from providing assistance to poor countries to primarily settling transactions among rich countries. d. The IMF has changed from being a members-only bank to being a mutual fund for investment in emerging-economy stock markets. e. Average tariffs levied by developed countries against developing country exports have increased.
The GATT has been transformed into the WTO.
13. Which of the following was not true of the Bretton Woods system of exchange rates? a. The official value of the U.S. dollar was fixed to gold. b. The IMF prohibited all countries, except the United States, from devaluing their currencies. c. Currencies other than the U.S. dollar were pegged to the dollar. d. Central banks other than the Fed used U.S. dollars as reserves. e. Persistent U.S. deficits led to an accumulation of dollars outside the United States.
The IMF prohibited all countries, except the United States, from devaluing their currencies.
18. The NAFTA was expected to reduce migration from Mexico into the United States because a. The NAFTA agreement included a provision for increased enforcement of migration restrictions at the border. b. The NAFTA would reduce the movement of vehicles crossing the border in which illegal migrants could hide. c. The NAFTA was expected raise wages in Mexico, reducing the incentive for migration. d. The NAFTA was expected to reduce American wages below Mexican wages, causing migration to flow into Mexico instead of into the U.S. e. The NAFTA would improve the air quality in Mexico, so that Mexicans would not want to leave.
The NAFTA was expected raise wages in Mexico, reducing the incentive for migration.
23. The NAFTA was expected to reduce migration from Mexico into the United States because a. The NAFTA agreement included a provision for increased enforcement of migration restrictions at the border. b. The NAFTA would reduce the movement of vehicles across the border in which illegal migrants could hide. c. The NAFTA was expected raise wages in Mexico, reducing the incentive for migration. d. The NAFTA was expected to reduce American wages below Mexican wages, causing migration to flow into Mexico instead of into the U.S. e. The NAFTA would improve the air quality in Mexico, so that Mexicans would not want to leave.
The NAFTA was expected raise wages in Mexico, reducing the incentive for migration.
the part of the U.S. government that negotiates trade policy issues with other countries is:
The Office of the United States Trade Representative
4. Which of the following was the name of one of the GATT negotiating rounds? a. NAFTA b. Wilbur c. Nixon d. Seattle e. Uruguay
Uruguay
24. In recent news about the trade of tomatoes between Mexico and the US, it was reported that a. The US will levy a tariff on imports of Mexican tomatoes. b. Mexico will levy a tariff on imports of US tomatoes. c. The US and Mexico agreed to increase the minimum price of tomatoes exported from Mexico to the US. d. Mexico promised to increase the wages of Mexican tomato growers. e. The US restricted Mexican tomato exports to varieties available only during seasons when US tomato output is small.
The US and Mexico agreed to increase the minimum price of tomatoes exported from Mexico to the US.
28. Comparing cotton farmers in the US and West Africa in recent years, a. US farmers lost market share to African farmers. b. US farmers are 3 times more efficient than African farmers. c. Prices received by African farmers rose, while prices received by US farmers fell. d. The United Nations paid subsidies to African farmers, but not to US farmers. e. The US government paid subsidies to US farmers, but not to African farmers.
The US government paid subsidies to US farmers, but not to African farmers.
29. In class we saw that a decline in aggregate demand in the United States can be expected to cause a decline in GDP in Canada. Which of the following is not part of the transmission mechanism that brings this about? a. US imports fall. b. The US interest rate rises. c. The US dollar depreciates. d. Canadian exports fall. e. Canadian aggregate demand falls.
The US interest rate rises.
34. Which of the following did not happen this year with regard to China's currency? a. China announced it was doubling the band of permitted variation of its exchange rate. b. The Chinese currency depreciated suddenly. c. China's reserves of foreign currency rose to almost $4 trillion. d. The US named China as a currency manipulator. e. China attempted to penalize currency speculators who had been the source of large inflows of currency.
The US named China as a currency manipulator.
37. The cotton farmers of several African countries are desperately poor. What US policy is making matters worse for these farmers? a. The US uses rules of origin that prevent cotton from Africa being used in cotton clothing imported to the US. b. The US has high tariffs on imports of cotton from Africa. c. The US has poured billions of dollars into research on synthetic substitutes for cotton, keeping its price low. d. The US pays subsidies to US cotton farmers, pushing down the price of cotton that the African farmers receive. e. The US bans imports of African cotton on because African cotton plants have been genetically modified.
The US pays subsidies to US cotton farmers, pushing down the price of cotton that the African farmers receive.
Levy argues that pressuring China to appreciate the yuan will do no good, since even if they appreciate, the US trade deficit will remain unchanged because a. The dollar is a reserve currency. b. The US will continue to import just as much, but from other countries. e. Of US tariffs on Chinese goods.
The US will continue to import just as much, but from other countries.
20. The "snake in the tunnel" refers to a. How a prominent exchange-rate speculator was described by the Prime Minister of Malaysia after a currency crisis. b. The arrangement in which European currencies were pegged within a wide band to the dollar and also within a narrow band to each other. c. One of the symbols depicted on euro notes, as an alternative to showing national landmarks and statesmen from individual countries. d. A derogatory term for a crawling pegged exchange rate. e. The supply and demand diagram used to analyze the effects of non-monetary expansion on the exchange rate.
The arrangement in which European currencies were pegged within a wide band to the dollar and also within a narrow band to each other.
21. Under a crawling peg a. The exchange rate moves, but by amounts too little to notice. b. The exchange rate is permitted to change, but only within a fixed band and only slowly. c. The par value of the currency is kept secret and changed slowly over time. d. The central bank intervenes to slow down the exchange rate movements that occur within a day. e. The central value of a pegged exchange rate is changed frequently, by small amounts, and with advance notice.
The central value of a pegged exchange rate is changed frequently, by small amounts, and with advance notice.
17. If a member country of the WTO uses a policy against which another country files a complaint, and if the policy is ruled illegal by the WTO but the offending country does not remove it, what is the ultimate remedy? a. The offending country must pay a fine to the WTO. b. The offending country must pay a fine to the complaining country. c. The complaining country is permitted to levy tariffs against the offending country's exports. d. The offending country is required to levy tariffs against all countries except the one that complained. e. Nothing. The WTO has no "teeth."
The complaining country is permitted to levy tariffs against the offending country's exports.
Which of the following explains why trade diversion is undesirable for an importing country that lowers its tariff against a partner in a free trade area? a. The country imports from the partner at higher cost than it previously imported from outside. b. Domestic producers suffer a loss of income as demand is diverted toward producers in the partner country. c. Workers are laid off as their employers shift production into the partner country.
The country imports from the partner at higher cost than it previously imported from outside.
16. A surplus in the balance of trade or the (balance on current account) implies that a. The country's economy is healthy. b. The country's volume of employment is expanding. c. The country is acquiring more assets abroad than foreigners are acquiring in it.
The country is acquiring more assets abroad than foreigners are acquiring in it.
6. A surplus in the balance of trade or in the balance on current account (assume they're the same for this question) implies that a. The country's volume of employment is expanding. b. The country is spending on goods and services more than it is earning from producing them. c. The country is lending to foreigners more than foreigners are lending to it. d. The country is accumulating reserves of foreign currency. e. All of the above.
The country is lending to foreigners more than foreigners are lending to it.
27. In "Why Is the World Bank Still Lending?" Adam Lerrick argues that the World Bank should stop making loans to developing countries in part because a. The World Bank should make a profit. b. In the past, World Bank loans have gone mostly to friends and relatives of World Bank staff. c. The credit of the more successful developing countries has improved in private financial markets. d. The least successful developing countries have shown themselves undeserving of assistance. e. The countries whose governments provide financing for the World Bank can no longer afford to do so.
The credit of the more successful developing countries has improved in private financial markets.
Import substitution
The development strategy of using high import tariffs and other policies to foster the production of goods that will replace imports.
38. Which of the following did not contribute to the debt problems that many developing countries encountered in the early 1980s? a. The rise in oil prices b. Recession in the United States c. Appreciation of the U.S. dollar d. The drop in developed country tariffs negotiated in the Tokyo Round e. Developing country inflation
The drop in developed country tariffs negotiated in the Tokyo Round
19. Suppose that the European Central Bank were to raise interest rates in the Eurozone. Based on your knowledge of how macroeconomic changes such as this affect the exchange market, which of the following would you expect to see happen as a result? (You should assume that this policy change does not cause the European economies to expand or contract.) a. Capital will flow out of the Eurozone. b. The ECB will lose international reserves. c. The euro will appreciate. d. The Eurozone money supply will get larger. e. There should be no effect. The ECB controls only the domestic interest rate within Europe, not the interest rate on international transactions.
The euro will appreciate.
9. According to the asset theory of the exchange rate, a. The exchange rate cannot be in equilibrium at a rate different from what people in the market expect. b. The value of a currency reflects the value of assets dominated in that currency. because of its expected low price. d. The exchange rate must be whatever people think that it recently has been.
The exchange rate cannot be in equilibrium at a rate different from what people in the market expect.
The Wall Street Journal reports the 30-day forward exchange rate for the British pound. This rate represents a. The best guess of the Journal's reporters about what the spot rate for the pound will be 30 days from now. b. The amount of U.S. dollars one would need to hand over today in order to get pounds 30 days from now. c. The amount of U.S. dollars one would need to pay thirty days from now for pounds that they receive today. d. The exchange rate that one will get today if they are one of the first 30 people in line at the foreign exchange market. e. The exchange rate one will both pay and receive 30 days from now if they enter into a contract today.
The exchange rate one will both pay and receive 30 days from now if they enter into a contract today.
3. Given your answers in Table 1, explain why it is said that A is also the maximum tariff, besides being the Swiss coefficient.
The final tariff in the second column approaches 30 as the original tariff increases. It is impossible for the final tariff to be above 30.
7. Comparing the extent of globalization today with 50 and 100 years ago, which of the following is not true? a. Trade as a fraction of GDP is greater today than it was 100 years ago. b. Trade as a fraction of GDP declined during the first half the 20th century. c. There is greater international movement of financial capital today than there was in 1950. d. The fraction of the US population that is foreign born was higher at the end of the 20th century than it was at the end of the 19th century.
The fraction of the US population that is foreign born was higher at the end of the 20th century than it was at the end of the 19th century.
4. Given your answers in Table 1, explain the reason why developing countries did not support the use of the formula.
The general complaint of developing countries is that tariff cuts in Table 1 increase with the initial tariff. Since developing countries rely more heavily on tariffs as a source of revenues, the liberalization effort imposed by the Swiss formula is larger for developing than for developed countries.
Natural rate of output
The level of GDP that a country can sustain without being inflationary.
24. Davos, Switzerland, is a. The home of the last remaining banks that refuse to divulge the identities of their account holders. b. The location of an annual meeting of politicians, business leaders, and others. c. The site of the WTO ministerial meeting where talks on the Doha Round fell apart.
The location of an annual meeting of politicians, business leaders, and others.
20. "Independently Floating Exchange Rates" describes the exchange regimes of a. The major industrialized countries outside Europe. b. All but a small minority of the countries of the world. c. More than 75% of very poor countries. d. Most very small countries. e. More currencies than have pegged exchange rates.
The major industrialized countries outside Europe
20. A country's "bound tariff" on a good is a. The tariff that it intends to levy after it escapes from poverty. b. The maximum that it may normally charge without violating its GATT commitments. c. The tariff level imposed on it by its partners in a preferential trade agreement. d. The highest tariff it can charge without driving imports to zero. e. 100%.
The maximum that it may normally charge without violating its GATT commitments.
Ministry of Economy, Trade, and Industry
The ministry of the Japanese government that played a major role in guiding the industrial policies of Japan's economic development.
Explain why is the ERP cascading?
The nominal tariff on the final good should be larger than the nominal tariff on intermediate goods.
11. Under a crawling peg a. The exchange rate moves, but by amounts too little to notice. b. The exchange rate is permitted to change only very slowly, but within a wide band. c. The par value of the currency is kept secret and is changed only very slowly over time. d. The central bank intervenes to slow down exchange rate movements during a day. e. The official value of a pegged exchange rate is changed frequently, by small amounts, and with advance notice.
The official value of a pegged exchange rate is changed frequently, by small amounts, and with advance notice.
The assigned article by Kulish is critical of the euro on the grounds that a. Although it claims to be a new currency, its value has been pegged to the US dollar, making it no more than a proxy for the dollar. b. The European Central Bank has been irresponsible, expanding the currency unduly and leading to the current crisis in the Eurozone. d. The paper currency lacked personality, as it depicted not actual people or places, so as to treat all the member countries equally.
The paper currency lacked personality, as it depicted not actual people or places, so as to treat all the member countries equally.
Most favored nation
The principle of the GATT and WTO that members should charge, on imports from all members, the lowest tariff that they charge against any member.
Race to the bottom
The progressive reduction of environmental regulations, in response to pressure from firms on their own government to help them compete with foreign producers.
Suppose that a country starts in autarky, then opens to free trade, whereupon it exports a certain good, call it widgets. Which of the following is a prediction of the HO Model and is not a prediction of the Ricardian Model? a. Output of widgets will increase. b. Labor will move from another sector of the economy into the widget sector. c. The technology in the widget sector will improve. d. Consumers in the country will have access to a larger variety of widgets. e. The real wage of the country's scarce factor will fall.
The real wage of the country's scarce factor will fall.
7. An implication of the Heckscher-Ohlin (Factor Proportions) Model of international trade is that free international trade causes a. Consumers to have access to a greater variety of goods. b. Countries to expand production of goods in which they have absolute advantage. c. Owners of scarce factors of production to increase their real incomes. d. The real wages of labor in different countries to become more nearly alike. e. Each country to export the good that uses less intensively its abundant factor.
The real wages of labor in different countries to become more nearly alike.
Terms of trade
The relative price, on world markets, of a country's exports compared to its imports.
Trade creation
The replacement of purchases from domestic producers by purchases from producers in the partner country of a preferential trading arrangement that occurs when tariffs are reduced on imports from the partner/
Autarky
The situation in which a country does not engage in international trade; self-sufficiency.
Difference between spot market and forward market
The spot market involves transactions in the present; the forward market involves contracts today for transactions that will take place in the future.
21. The "floating snake" referred to a. Italy's managed floating exchange rate during the interwar period. b. The damage done by hyperinflation that was experienced by Argentina after its exchange-rate crisis. c. The system in which European currencies were pegged to each other but floated relative to the US dollar. d. A floating exchange rate's propensity to undermine a country's competitiveness when it appreciates. e. The wide-band exchange rate system adopted by European Central Bank.
The system in which European currencies were pegged to each other but floated relative to the US dollar.
Mercantilism
The system of nationalistic economics (from the 1700s) stressing exports over imports as a way to build revenues.
Bound Tariff
The upper limit on the tariff that a country can levy on a particular good, according to its commitments under the GATT/WTO
9. Suppose that the dollar appreciates relative to the euro, and at the same time the dollar depreciates relative to the yen. You can be sure that, also at the same time, a. The $/€ exchange rate rises. b. The ¥/€ exchange rate rises. c. The ¥/$ exchange rate rises. d. The £/$ exchange rate rises. e. The €/¥ exchange rate rises.
The €/¥ exchange rate rises.
Which of the following is not one of the reasons why countries of the Eurozone have difficulty adjusting to asymmetric shocks? a. Wages are rigid so that markets don't adjust. b. Without monetary policy, and with constraints on use of fiscal policy, the countries have fewer policies to deal with shocks. c. Migration among Eurozone countries, though permitted, is not very common. d. There is no mechanism for financial assistance from countries enjoying cyclical peaks to other countries that are in recession. e. Their commitment to common tax rates makes it impossible to use tax cuts to stimulate their economies.
Their commitment to common tax rates makes it impossible to use tax cuts to stimulate their economies.
Estonia has a currency board. If we see that the money supply of Estonia has expanded, what must have happened? a. The Estonian central bank purchased bonds on the open market. b. The currency board sold foreign currency on the exchange market. c. There was excess supply of foreign currency on the exchange market.
There was excess supply of foreign currency on the exchange market.
16. The statement "the yen rose today from 121 to 117" makes sense because a. The U.S. gains when Japan loses. b. These numbers measure yen per dollar, not dollars per yen. c. These numbers are indexes, defined relative to a base of 100. d. These numbers refer to time of day that the change took place. e. The yen is a reserve currency.
These numbers measure yen per dollar, not dollars per yen.
24. Developing countries sometimes object to free trade that will lead them to specialize in primary products because a. Only poor countries export agricultural goods. b. They believe that the prices of primary products tend to fall over time. c. Their costs of producing primary products are higher than the costs of producing them elsewhere. d. Production of primary products is harmful to the environment. e. They would rather consume manufactured goods.
They believe that the prices of primary products tend to fall over time.
28. The Asian Crisis of 1997 was marked by a large and painful change in the value of each country's currency on the exchange market. What was the direction of this change (did the countries' currencies appreciate or depreciate?), and why was it painful? a. They appreciated, which was painful because this made their exports uncompetitive on world markets. b. They depreciated, which was painful because this raised the value of their debts compared to their assets. c. They appreciated, which was painful because their central banks then had to defend over-valued exchange rates. d. They depreciated, which was painful because it reduced the value of what they were paid for exporting. e. They appreciated, which was painful because it caused political friction with their largest trading partners.
They depreciated, which was painful because this raised the value of their debts compared to their assets
39. Which of the following is not an argument against the use of controls on international capital flows by developing countries? a. They make it more costly for firms in the developing countries to borrow. b. They limit the ability of financial firms to profit from an anticipated devaluation. c. They are difficult and costly to enforce. d. Like tariffs protecting producers of goods, they protect inefficient firms in the financial services industry. e. They induce market-distorting behaviors to avoid the costs of the controls or to evade them.
They limit the ability of financial firms to profit from an anticipated devaluation.
24. In the news, we saw that Indonesia was banning exports of unprocessed minerals. Why? a. In order to push up the world price of minerals, so as to improve Indonesia's terms of trade. b. They were concerned about the health effects of these minerals. c. They wanted to weaken other countries that export minerals and are their competitors. d. They sought to push mineral companies to process minerals inside Indonesia. e. They wanted to keep minerals cheap inside Indonesia to keep down the cost of living for their consumers.
They sought to push mineral companies to process minerals inside Indonesia.
9. Hufbauer and Greico say that some workers who lose their jobs due to trade liberalization suffer a loss of $240,000. How is that possible? a. This is the average yearly wage of workers in import-competing industries. b. Such workers typically lose their houses as well as their jobs, and this is mostly the value of their houses. c. This is a typographical error. They meant $24,000. d. This figure refers to the lifetime loss per worker, not the loss in just a single year. e. The hardest hit by trade liberalization are the CEOs of large corporations, who are highly paid.
This figure refers to the lifetime loss per worker, not the loss in just a single year
22. When it came into existence on Jan 1, 1999, the euro was worth $1.18 because a. Europeans sought purchasing power parity with the U.S. dollar. b. This happened to be the value of the Deutsche Mark at the time. c. This made the after-tax value of one euro equal to one dollar. d. The number was chosen to commemorate the year of the end of World War I. e. This was the market value of the basket of currencies in one ECU.
This was the market value of the basket of currencies in one ECU.
23. When it came into existence on Jan 1, 1999, the euro was worth $1.18 because a. Europeans sought purchasing power parity with the U.S. dollar. c. This made the after-tax value of one euro equal to one dollar. d. This was the market value of the basket of currencies in one ECU.
This was the market value of the basket of currencies in one ECU.
aid that is required to be spent on the donor's exports
Tied aid
10. The main reason why developed countries today use import tariffs is a. To sustain a distinctive national culture. b. To help a domestic industry. c. To help domestic consumers. d. At the request of foreign governments. e. As a major source of government revenue.
To help a domestic industry.
33. Why, in the news, did Indonesia announce a ban on unprocessed mineral exports? a. To improve Indonesia's balance of trade. b. To improve Indonesia's terms of trade. c. To push mineral companies to process minerals inside Indonesia. d. Mining companies in Indonesia were fouling the environment. e. As retaliation against trade sanctions imposed by the US and Europe because Indonesia is a Muslim state.
To push mineral companies to process minerals inside Indonesia.
3. Which of the following was the name of one of the GATT negotiating rounds conducted before the WTO was created? a. NAFTA b. Tokyo c. Nixon d. Seattle e. Doha
Tokyo
led to reductions in tariff and some NTBs
Tokyo Round
the round of multilateral trade negotiations under the GATT that occurred during the 1970s and led to reductions in tariffs and NTBs
Tokyo Round
Where was the Swiss formula used?
Tokyo round
TAA
Trade Adjustment Assistance
TPA
Trade Promotion Authority
Fast Track Authority or
Trade Promotion Authoriy
TRIPs
Trade Related Aspects of Intellectual Property Rights
TRIMs
Trade Related Investment Measures
TRI
Trade Restrictiveness Index
6. Josh Bivens, in his assigned article "Marketing the Gains from Trade," argues several things. Which is the following is not among his claims? a. The claim by the Peterson Institute that the US could gain roughly 4% of GDP from trade liberalization is not generally accepted by economists. b. Estimates of trade barriers in services are very uncertain. c. Trade is not beneficial to countries as a whole. d. Computer models of the gains from trade typically ignore effects on the distribution of income. e. Advocates of free trade have greatly exaggerated the benefits from trade.
Trade is not beneficial to countries as a whole.
TRIP
Trade-Related Intellectual Property
35. In the news we learned of a scandal involving the foreign exchange (Forex) markets. What was it alleged to be about? a. Bankers were manipulating the London Interbank Offer Rate, Libor. b. Traders at large banks were agreeing to fix certain benchmark exchange rates. c. People were buying luxury cars in the US and taking them to China to sell them. d. Smugglers were bringing foreign currency into China in the bellies of live pigs. e. Speculators were attempting to undermine the Eurozone's efforts to maintain a fixed exchange rate
Traders at large banks were agreeing to fix certain benchmark exchange rates.
TPP
Trans-Pacific Partnership
TNC
Transnational Corporation
TNC
Transnational corporation
Denmark and the U.K. chose to "opt out" of the adoption of the euro, even though they ratified the Maastricht Treaty.
True
Denmark and the U.K. chose to "opt out" of the adoption of the euro, even though they ratified the Maastricht Treaty.
True
Foreigners own more assets in the U.S. than the U.S. owns abroad
True
If a country's currency depreciates, that is expected to increase its exports.
True
Most countries of the world had pegged exchange rates during the 1950s and 1960s.
True
On average over the last ten years, world trade has grown more than twice as fast as world GDP
True
Rich country governments pay more in subsidies to their farmers than they pay in aid to poor countries.
True
The U.S., Canada, and Mexico export more to each other than they export to South America
True
The United States exports more services than it imports
True
World trade in manufactured goods has not been growing as rapidly as world trade in fuels and mining
True
tuna-dolphin case
US banned imports on Tuna from countries that did not effectively prohibit Tuna fishers from killing Dolphins when they caught Tuna with nets, GATT struck down the ban
Fast track authority is provided by
US congress
19. A rising U.S. trade deficit usually means that a. U.S. industrial competitiveness is declining b. Other countries are dumping in the U.S. c. Foreign countries are restricting imports from the U.S. d. U.S. GDP is rising
U.S. GDP is rising
15. Which of the following is not included in the U.S. current account? a. U.S. exports. b. U.S. imports. c. U.S. unilateral transfers to foreigners. d. Interest paid by the U.S. on bonds held by foreigners. e. U.S. foreign direct investment abroad.
U.S. foreign direct investment abroad.
UNCTAD
UN Conference for Trade and Development
pushes interests of developing countries run by developing countries
UNCTAD
not a possible reason for CA
UNusually large # of firms producing good
international trade is a larger fraction of total world trade than that of any other country
US
USAID
US Agency for International Development
1. How have US average tariffs on imports changed since the end of World War II? a. Although some tariffs have fallen, others have risen so that the average has remained approximately unchanged. b. Because of the unique position of the US in World War II, we ended the war with zero tariffs. Over time, these have risen to about 10%. c. US tariffs against other rich countries have remained over 20%, but to help developing countries we have reduced tariffs on their exports, so that our average tariff is now just under 12%. d. US average tariffs today are only about 1/10 as large as they were at the end of World War II. e. The US has been the world's strongest champion of free trade since well before World War II, and our tariffs have been near zero, with only minor exceptions, ever since.
US average tariffs today are only about 1/10 as large as they were at the end of World War II.
the tuna-dolphin case
US ban on imports of tuna that were not certified as "dolphin safe," meaning that they had been caught without harming dolphins. The GATT ruled against this policy, saying imports cannot be restricted on the basis of how they were produced.
Suppose that aggregate domestic investment in the United States falls because of a worsening of business expectations. This would be expected to cause a decline in aggregate income in Canada in part because a. The US interest rate will rise. b. The US dollar will appreciate relative to the Canadian dollar. c. Canadian Aggregate Demand will rise. d. Canadian exports to the US will rise. e. US imports from Canada will fall.
US imports from Canada will fall.
Which of the following, in recent years, has been the largest entry in the US balance of payments? a. US exports of goods and services. b. US imports of goods and services.
US imports of goods and services.
Marshall Plan
US plan to assist Europe with economic and political reconstruction post WWII
G-7
US, Canada, UK, Germany, France, Italy, Japan
20. Which of the following countries was not among the 12 that initially adopted the euro? a. United Kingdom b. Germany c. Portugal d. Finland e. Italy
United Kingdom
Which country had its government debt downgraded by the Moody's credit rating agency in February 2013? a. United States b. United Kingdom c. Greece d. China e. Germany
United Kingdom
2. Which of the following has been called the "voice of developing countries"? a. World Intellectual Property Organization b. United Nations Conference on Trade and Development c. World Bank d. Organization for Economic Cooperation and Development e. International Monetary Fund
United Nations Conference on Trade and Development
26. In 2005 (the year for which data on aid were reported in class), which country gave the largest total dollar amount of official development assistance to developing countries? a. Denmark b. Germany c. Japan d. Luxembourg e. United States
United States
USITC
United States International Trade Commission
USTR
United States Trade Representative
8. According to the Heckscher-Ohlin model of international trade, countries have a comparative advantage in goods that a. Use relatively intensively their relatively abundant factors. b. Display the strongest increasing returns to scale. c. Use less labor, per unit of output, than is used to produce the same good in other countries. d. Use less labor, per unit of output, than is used in the same country in other industries. e. Have the most competition among the largest number of firms.
Use relatively intensively their relatively abundant factors.
31. A "currency board" a. Varies the money supply of a country one-for-one with its international reserves. b. Varies the exchange rate of a country one-for-one with its price level. c. Sets the exchange rate by vote among its members. d. Uses interest-rate variation to keep its international reserves constant. e. Is an archaic exchange arrangement that is no longer used by any country
Varies the money supply of a country one-for-one with its international reserves.
VRA
Voluntary Restraint Agreement
patents, copyrights, and trademarks
WIPO
dominated by rich countries, corporations
WTO
not created after WW2
WTO
tariffs and other trade barriers in many countries
WTO
4 institutions of the international economy
WTO IMF World Bank OECD
21. According to economic theory, when labor migrates from a low-wage country to a high-wage country a. Wages in both countries rise. b. Wages in both countries fall. c. Wages rise in the low-wage country and fall in the high-wage country. d. Wages fall in the low-wage country and rise in the high-wage country. e. Wages in both countries remain unchanged because the world supply of labor has not changed.
Wages rise in the low-wage country and fall in the high-wage country.
2. During the 1950s, foreign direct investment a. Was greater, in proportion to GDP, than it is today because of the need to rebuild after World War II. b. Was greater, in proportion to GDP, than it is today because of the opportunity to apply new technologies that had been invented during the 1940s. c. Took place at about the same rate, in proportion to GDP, as it does today. d. Was smaller, in proportion to GDP, than it is today because governments placed controls on capital flows and exchange of currencies. e. Was smaller, in proportion to GDP, than it is today because only the less developed countries wanted it, and they were too poor to afford it.
Was smaller, in proportion to GDP, than it is today because governments placed controls on capital flows and exchange of currencies.
18. The main drawback of a system of pegged exchange rates is that a. It leaves governments free to print money and cause inflation. b. It deprives governments of the policy tool of setting exchange rates. c. It is subject to corruption, as government officials accept bribes to permit illegal transactions. d. Market participants are uncertain about which way the exchange rate is likely to change. e. When pegging fails, there is a crisis and a large devaluation.
When pegging fails, there is a crisis and a large devaluation.
12. When is a product standard a nontariff barrier? a. When procedures for certifying compliance are biased against imports. b. When its purpose is only to protect the health of domestic consumers. c. When it requires a technology that only foreigners have. d. When it conforms to best practices of domestic producers. e. When it is enforced by an international organization.
When procedures for certifying compliance are biased against imports.
scarce factor
a factor that a country has less of compared to other countries than it has of other factors
cumulation
a feature of rules of origin in FTAs that extends the concept of origin to additional countries
22. In the assigned reading by Borjas on immigration, the author argues that, compared to earlier waves of immigrants to the US, recent immigrants a. Will assimilate more slowly because of religious differences. b. Will assimilate more rapidly because of their higher incomes and levels of education. c. Will assimilate more slowly because their countries of origin are further away. d. Will assimilate more rapidly because the US population is more welcoming. e. Will assimilate more slowly because they are less diverse ethnically
Will assimilate more slowly because they are less diverse ethnically.
WB
World Bank
provide economic assistance to developing countries
World Bank
wastes resources on corrupt elites
World Bank
WEF
World Economic Forum
WIPO
World Intellectual Property Organization
WTO
World Trade Organization
5. According to the theory of comparative advantage, countries gain from trade because a. World output can rise when each country specializes in what its does relatively best. b. Trade makes firms behave more competitively, reducing their market power. c. All firms can take advantage of cheap labor. d. Output per worker in each firm increases. e. Every country has an absolute advantage in producing something.
World output can rise when each country specializes in what its does relatively best.
11. Which of the following is likely to happen when a large country levies a tariff and would not happen if a small country did the same? a. Domestic output of the protected good rises b. Domestic demand for the protected good rises c. Domestic price of the protected good rises d. World price of the protected good falls e. Government collects tariff revenue
World price of the protected good falls
23. A "transaction tax" is c. Would tax all financial transactions. d. Is distinct from a tariff, in that it would tax both exports and imports. e. Unlikely to be adopted, because it would increase volatility in foreign exchange and bond markets
Would tax all financial transactions.
24. The table below shows a portion of the exchange rate report from the Wall Street Journal. U.S. $ EQUIVALENT CURRENCY PER U.S. $ Country Tue Mon Tue Mon Japan (Yen) 0.009108 0.009051 109.79 110.49 1-month forward 0.009144 0.009090 109.36 110.04 Based on these data, which of the following statements is correct, as of the date this appeared in the paper? a. The most recent reported change in the value of the yen was that it depreciated. b. A single yen is worth more than $100. c. You would have had to promise more dollars to buy yen for delivery in the future than you would pay for yen in the present.
You would have had to promise more dollars to buy yen for delivery in the future than you would pay for yen in the present.
% Tariff Cut
[(TO-Tf)/(TO)]*100
ERP formula
[(VA*-VA)/(VA)]*100
pollution haven
a country that competes internationally by offering foreign firms a reduced set of environmental compliance requirements
"snake in the tunnel"
a narrow peg among several currencies that collectively float within a wide band
a currency board consists of a commitment to:
a pegged exchange rate
developing countries have often chosen to establish pegged exchange rates because:
a pegged exchange rate imposes discipline on their government and central banking, helping to prevent inflation
Millennium Challenge Account
a performance-based aid program that would provide assistance only to countries with a proven record of good policies
tariff-rate quota
a policy that levies a low tariff on imports up to a certain quantity, and a higher tariff on imports above that
current account
a record of transactions in goods, services, investment income, and unilateral transfers between the residents of a country and the rest of the world
voluntary export restraint
a restriction on the quantity of a country's exports that is implemented at the request of the importing country
import substitution
a strategy of economic development that relies on limiting imports and replacing them with domestic production
6. Suppose that USAID were to fund an infrastructure project in Ghana, paying a US construction firm to build a road there. Which of the following are among Eberstadt and Adelman's "characteristics for success" that are violated by this project?
a. Local ownership and initiative, since local government is not involved. b. Partnership, since the USAID alone initiates the project. c. Leverage, since USAID pays for it itself.
difference between current and financial account
account represents trade balance (exports - imports) and financial account represents (loans and investments).
Regional Trade Agreement
agreement between 2 or more countries offering preferential access to their markets
aid does not fluctuate with income
aid does not fluctuate with income
What is missing, in measures of official development assistance, that may make figures misleading?
aid provided by private individuals and foundations
tied aid
aid that is required to be spent on the donating country's goods and services
capital-intensive industry
an industry that uses relatively more capital than other industries
a tax on exports from abroad equal to the difference between their price in their domestic market and their price for export
anti-dumping duty
revaluation>>
appreciation
2011 US had surplus in
balance on financial account
Why is the Millennium Challenge Account needed?
because so much foreign aid has been wasted
Balance on Financial Account
borrowing by domestic residents from abroad-lending by domestic residents to abroad
When a central bank is trying to maintain an over-valued currency by buying its own currency on the foreign exchange market, sterilization of that transaction means for it to
buy domestic bonds
How does offshoring increase an industry's productivity?
by eliminating the activities at which the firm is least efficient
international movement; the acquisition of assets in another country (real or financial)
capital flow
ways the countries interact economically
capital flows: financial (holdings of financial assets abroad), real (international ownership of real assets)
with a floating exchange rate, a monetary contraction causes a
capital inflow
Deep Integration
changes in policies that relate to barriers to trade
an action by a group of individuals that will benefit them all by small amounts and that none individually has an incentive to undertake
collective action
fast track
commitment by the Congress to consider trade legislation on an up or down basis, without amendment
a country has it in a good relative to another good and another country if the relative cost of producing the good is lower than the other country's
comparative advantage
Conditionality
conditions imposed by the IMF on countries to which it makes loans requiring various changes in their national economic polices
the excess that a consumer would be willing to pay above what they are actually paying for a good
consumer surplus
much more efficient in raising revenue
consumption tax
PPP Exchange Rate
cost of good in local currency/cost of good in other currency
increasing returns to scale
costs decrease as output by a firm increases
a tariff on imports that are subsidized by the government of the foreign exporter, set equal to the size of the subsidy
countervailing duty
same thing as interest rate arbitrage accompanied by a forward-market transaction to protect against changes in exchange rates
covered interest arbitrage
when specialists make a profit form discrepancies involving the forward rate, the spot rate, and interest rates in the two countries
covered interest arbitrage
difference between interest rate arbitrage and covered interest arbitrage
covered interest arbitrage is accompanied by a forward-market transaction to protect against changes in the exchange rates
an exchange rate regime usually seen as a part of fixed exchange rate regimes that allows depreciation or appreciation in an exchange rate gradually
crawling peg
a record of transactions in goods, services, investment income, unilateral transfers between residents of a country and the rest of the world
current account
A US farmer sells a truckload of artichokes to a Canadian restaurant.
current account (+)
AT&T pays dividends to holders of its stock in Brazil
current account (-)
a German professor is paid royalties on a textbook published by a Boston publishing firm
current account (-)
what did central banks do in response to world financial crisis?
cut interest rates and extended credit
2 things done with Stimulus Package:
cut taxes, increased spending
12. Those in high-wage countries who fear trade with low-wage countries are often forgetting that a. Prices of imports will fall due to trade. b. Trade is a zero-sum game. c. People with low wages are happier than people with high wages. d. Low wage countries have lower productivity. e. Production causes pollution.
d. Low wage countries have lower productivity.
demand= , supply=
debit, credit
odious debt
debt incurred without the consent of the people and that was not used for their benefit
trade causes factor demands for scarce factors to
decrease
trade causes factor prices for scarce factors to
decrease
trade causes production of import good to
decrease
supply of foreign currency=
demand for domestic currency
supply of foreign currency>>
demand for domestic currency
difference between demand pull and supply push factors that are involved in the determination of international migration
demand pull factors are economic conditions in the receiving country, supply push factors are economic conditions in the sending country
the shift from high birth and death rates to low birth and death rates, which is a shift that typically accompanies successful economic development
demographic transition
R/F: stocks
depends: real if ownership share is large
devaluation>>
depreciation
depreciation
devaluation
depreciation>>
devaluation
if a country with a pegged exchange rate has a high rate of inflation, then it will ultimately have to
devalue or abandon the peg
Trade Adjustment Assistance
government programs that offer temporary assistance to workers who lose their jobs because of competition with imports or due to firms moving abroad
Which is more capital or labor ABUNDANT?
greater ratio
Which is more capital or labor INTENSIVE?
greater ratio
European Monetary Union
group of countries that set out through the Maastricht Treaty to unify their economies and adopt a common currency
Development Assistance Committee
group of richer countries in the OECD who confer on providing aid to developing countries
Developing Assistance Committee
group of richer countries within the OECD who confer on providing aid
HIPC
heavily indebted poor countries
What to do when labor standards are violated?
hold local governments responsible (they need pressure to enforce labor standards)
official reserve assets
holdings by governments and central banks of assets for use in settling international debts and intervening in the exchange market
How could US firms doing FDI abroad save jobs in the US?
if moving part of a firm's operations abroad permits it to stay in business when it otherwise would have not, thus saving the jobs of those it continues to employ in the US
by devoting more resources to keeping illegal immigrants from crossing the U.S.-Mexico border, the US has caused
immigrants to be exploited by those who offer to help them cross the border
if you are a buyer in a high-price country, you will
import
a permit to import a specified quantity of a good that is subject to a quota
import license
Mercantilist
imports are not desirable
optimal policy may depend on a country's
income
when a country devalues its currency:
income will rise because the devaluation stimulates aggregate demand
trade causes factor demands for abundant factors to
increase
trade causes factor prices for abundant factors to
increase
trade causes production of export good to
increase
in the context of the exchange market, "leaning against the wind" refers to:
intervention intended to slow the change of the exchange rate over time
policy Warren Buffett suggests in order to eliminate the U.S. trade deficit
issue import certificates to exporters, to be used by importers
GSP illogical because
it benefits countries that oppose the US in trade negotiations
advantage of a floating exchange rate
it permits the country to conduct an independent monetary policy
What do immigrants have to do in order to benefit from a country's "intangible capital"?
just arrive in the country
Mastel: there are several practices in exporting countries that
justify the use of anti-dumpting duties
a country with a pegged exchange rate is likely to be forced to devalue if:
speculators believe that it will devalue
applications of the division of labor
outsourcing, offshoring
a pegged exchange rate that is set higher than the rate at which supply would equal demand for foreign exchange
over-valued exchange rate
Who are the losers from trade?
owners of a country's scarce factor
labor with a very low wage
pauper labor
6. Which of the following is not included as one of the "Fundamental" labor standards according to the ILO? a. Payment of a minimum wage b. Elimination of child labor c. The right to collective bargaining d. Abolition of forced labor e. Avoidance of discrimination
payment of a minimum wage
Which of the following currency arrangements is currently used by the largest # of countries? b. Pegged exchange rate c. Managed floating d. Crawling peg e. Independently floating exchange rate
pegged exchange rate
fixed exchange rate>>
pegged exchange rate
industry US imports more than exports
petroleum, automotive products, textiles, clothing
the interaction between political processes such as lobbying and economic policies such as tariffs
political economy
a country that competes internationally be offering foreign firms a reduced set of environmental compliance requirements
pollution haven
Why should the US seek to reduce poverty in developing countries?
poor countries can be breeding grounds for terrorists and extremists
Infant Industry Argument
poor countries can foster economic development by using tariffs to protect new firms while they learn to become more productive
does not permit a country to use a tariff/quota that is more restrictive than its bound tariff
preferential trade agreements
P*
price converted into domestic currency
value added
price of a good minus the costs of the intermediate goods used to produce it
dumping
pricing of imports either below the exporter's domestic market price or below cost
Mastel sectors
primarily steel (also semiconductors and autos)
US spends more than income: who is bigger part: government or private?
private
current account surplus, CA
private savings-domestic investment + net taxes-government purchases
stated by some environmental opponents of trade
produce-more-pollute-more model
the idea that trade stimulates production and production increases pollution
produce-more-pollute-more model
Ricardo's 3 key assumptions
production uses only labor, labor is internationally immobile, technology
prices are determined by
productivity of labor, price of labor, exchange rate
the reading by Purvis argues that the Millennium Challenge Account should:
promote sustainable development and include environmental safeguards
World Bank
provide aid to developing countries
Section 301
provision of US trade law that requires USTR to take action against foreign unfair trade practices
docking provision
provision of a FTA that permits new countries to easily add themselves to it
economic conditions in the receiving country demand
pull factors
law of one price>>
purchasing power parity
economic conditions in the sending country demand
push factors
the difference between the domestic and foreign prices of a good caused by a quota and thus the excess price or profit received by the holder of the quota
quota rent
the excess price or profit received by the holder of a quota
quota rent
In the first half of the 1980s, the value of the U.S. dollar [ rose / fell ] by around 50%, causing sales of U.S. auto companies to [ increase / decrease ]. After this in the second half of the 1980s, the dollar [ rose / remained about constant / fell ]
rose decrease fell
In the first half of the 1980s, the value of the US dollar
rose by about 50%
gold standard
rules that a central bank of a country must follow in order to maintain a "gold exchange standard"
when the value of the US dollar rose by about 50% in the first half of the 1980s:
sales of US auto companies decreased
exchange rate anchor
se of a pegged exchange rate to constrain policy and expectations (so as to reduce inflation)
demographic transition
shift from high birth and death rates to low birth and death rates
taxes on local pollution should/should not be the same
should not
Wages in Mexico before NAFTA were only a small fraction of wages in the US. Prior to NAFTA, we should infer that:
since US tariffs against Mexico were small, the productivity of Mexican workers must also have been only a small fraction of that in the US
Autarky
situation when a country does not trade
related to push and pull factors and are the linkages between people in both countries
social networks
third factor
social networks: linkages between people in both countries
Which of the following policies deals optimally with a polluting industry? a. Pass and effectively enforce a law that prevents the industry from polluting. b. Tax producers, setting the tax equal to the harm done to others by their pollution. c. Issue permits for each producer to pollute at only half the level that they have done in the past, and make it illegal to pollute more than that.
tax producers, setting the tax equal to the harm done to others by their pollution
An appreciation of a country's currency causes it to experience a _____________ (temporary / permanent) _____________ (rise / fall ) in its GDP and a _____________ (temporary / permanent) _____________ (rise / fall) in its price level.
temporary fall permanent fall
Powell on globalization
tends to reduce taxes and the resources available to provide a safety net for the poor
On what do Nobel Prize winners Friedman and Mundell agree, with regard to exchange rate systems?
that pegged exchange rates are bad
Why had China been able to maintain a pegged exchange rate?
the Chinese currency was not convertible to and from other currencies
The EU has a "variable levy" on imports of butter. This means that when the world price of butter goes up, a. The EU must have increased its tariff on butter. b. Consumers of butter in the EU benefit. c. The EU reduces the size of the tariff that it levies on butter. d. The EU tariff on butter goes up with it. e. Cows in the EU get angry.
the EU reduces the size of the tariff that it levies on butter
Mexico's international reserves fell during the year after NAFTA went into effect, prepitating
the Peso Crisis
Section 421
the Special China Safeguard, negotiated as part of the agreement to let China into the WTO
"shrimp-turtle" case
the US banned imports of shrimp from countries that failed to use turtle excluder devices
According to the Food and Agriculture Organization of the UN, cotton farmers in West Africa are hurt by competition with US cotton farmers because:
the US government provides large subsidies to US cotton farmers
Absolute Advantage
the ability to produce a good at a lower cost than another country
Stability and Growth Pact
the agreement that countries adopting the euro must keep budget deficits below 3% of GDP
Exchange Rate Mechanism
the arrangement of mutually pegged exchange rates (part of the EMS)
Exchange Rate Mechanism
the arrangement of mutually pegged exchange rates that was part of the EMS
terms of trade
the average price of a country's exports compared to its imports
European Currency Unit
the basket of European currencies that formed the basis of the European Monetary System
difference between real and nominal exchange rate
the nominal exchange rate is expressed in units of one currency per unit of the other, a real exchange rate adjusts this for changes in price levels in both currencies
forward exchange rate
the price (exchange rate) for exchanging currencies at some time inthe future
Dispute Settlement Mechanism
the procedures within the GATT/WTO for resolving disagreements about trade policy among countries
Fund for investment in Mexico
the proposed fund in exchange for guarantees of trade unions, minimum wages, increased education, and other social spending
5. The term "conditionality" refers to a. the requirements that the IMF imposes on developing countries in return for loans. b. the advantage that a country has in trade if its labor requirement per unit of output of a good is less than that of all other countries. c. the tariff reductions that the US and EU expected from developing countries in the Doha Round in return for reducing agricultural subsidies. d. the bribes that customs officers in some countries require before they let imported goods in. e. the rules in GATT that permit a country to treat another better than its most favored nation.
the requirements that the IMF imposes on developing countries in return for loans.
Why are international financial transactions inherently more risky than domestic ones?
the risk of exchange-rate changes
Tokyo Round
the round of multilateral trade negotiations under the auspices of the GATT that occurred during the 1970s
European Monetary System
the system established in 1979 in which the European currencies pegged to each other but floated against outsiders and used adjustments of the pegs and some capital controls to remain viable
nominal tariff rate
the tariff rate that is levied on a given product
interest rate arbitrage
the transfer of funds to another currency to take advantage of a higher interest rate
euro
the unit by which all new financial transactions in member countries of the Economic and Monetary Union were denominated as of January 1999
economic sanction
the use of a trade restriction intended to put pressure on another country to change their behavior
"Greenspan Put"
the use of interest-rate cuts to rescue financial markets
sterilization
the use of offsetting open market operation to keep the money supply unchanged when pegging a currency
hedging
the use of the forward market to protect oneself against risk of exchange-rate change
trade balance
the value of a country's export minus the value of its imports
trade balance
the value of a country's exports minus the value of its imports
Based on the supply-and-demand model of migration, who does not gain when workers migrate from low-wage Mexico to high-wage United States?
the workers in who were already in the US
keep the supply of domestic money fixed in some constant proportion to their supply of gold>
their money supply rises and falls as they acquire and lose gold
Developing countries sometimes object that free trade will lead them to specialize in primary products. This is undesirable because:
they believe that the prices of primary products tend to fall over time
when central banks stopped the US dollar from appreciating at the Plaza Accord:
they intervened in the exchange market, selling dollars
movements of a country's exchange rate tend to be undesirable because:
they make it hard to strike a balance between inflation and unemployment
How do Levinsohn and McMillan determine who gains and who loses from food aid?
they survey households in a developing country to find which buy more than they sell of food products provided as aid
stand ready to redeem their own currency with payments in gold and permit gold to be exported and imported>
this causes the market exchange rate to equal the official one and causes the gold stock (and money supply) to respond to excess supply and demand for the currency
When it came into existence, the euro was worth $1.18 because:
this was the market value of the basket currencies in one ECU
What policy does Krugman argue in favor of in order to induce China to let its currency appreciate?
threaten a tariff on Chinese exports
the Maquiladora system permitted US producers:
to take unfinished goods to Mexico, perform further processing on them there, and bring them back into the US with reduced tariffs
"balkanization has replaced assimilation"
today's immigrants live in enclaves with others like themselves, instead of intermingling with the larger population
trade causes factors to move industries
toward export sector
importing goods from the partner when previously produced at home
trade creation
What is the difference between "trade creation" and "trade diversion"?
trade creation: importing from a PTA partner something that you previously produced at home, trade diversion: importing from a PTA partner something that you previously imported from a country outside the PTA
importing from the partner when previously importing from a third country
trade diversion
biggest agreement in Bali
trade facilitation
streamlining the administrative and physical procedures involved in actually moving goods across borders
trade facilitation
US has not ratified many of the conventions but US enforces many labor standards through its:
trade laws
purchasing something is:
trade not capital flow
WTO function
trade policy regulation and negotiation
Bhagwati on globalization
trade raises the incomes of the poor (India, China)
interest rate arbitrage
transfer of funds to another currency to take advantage of a higher interest rate
it is widely believed that Chinese currency is:
under-valued
What does a "haircut" have to do with Eurozone crisis?
used as a way to reduce the government debt of Greece closer to its GDP
Gross Domestic Product
value of all final goods and services produced within a nation's borders with in a time period
Opportunity Cost
value of the best forgone alternative when something is chosen
International capital markets are more prone to mistakes than goods markets because:
values of assets depend on the future, which is hard to know
A tariff on imports that is varied automatically in order to maintain a set domestic price.
variable levy