Global Econ

A non-financial cost of non-tariff barriers that is often overlooked is the A) diminished incentive to innovate by firms that are protected by the non-tariff barrier. B) lost tax revenues for the government imposing the non-tariff barriers. C) cost to foreign producers because they must lower their prices to compensate for the trade barriers. D) cost to domestic consumers from the increased price that importers have to charge.

A

A policy by which a government offers temporary protection to a domestic industry as it adjusts to increased competition from imports is a(n) A) safeguard policy. B) infant industry policy. C) protectionist policy. D) import-resistance policy.

A

A tariff is generally a tax on _____, while a duty is generally a tax on_____ A) imports; exports. B) the number of goods; the value of goods. C) goods; services. D) businesses; individuals.

A

An export subsidy raises domestic prices for the product, so, for an export subsidy to be successful A) there must be some mechanism in place to keep domestic consumers from buying the product on the international market. B) domestic demand for the product must be inelastic. C) the World Trade Organization (WTO) must approve the export subsidy. D) foreign demand for the product must be inelastic.

A

For persistent dumping to be successful, firms will maximize profits by A) charging a higher price in the more inelastic market. B) charging a higher price in the larger market. C) charging the same price in all markets. D) only selling in the more inelastic market.

A

Growth that expands a country's willingness to trade and results in a large decline in the country's terms of trade so that the country is worse off than before its growth is referred to as A) immiserizing growth. B) reverse growth. C) negative growth. D) measured growth.

A

How does the sudden-damage effect impact a government's protectionist sentiments? A) Since the sudden-damage effect is the result of a group within a country suffering a sudden and unexpected significant loss of income, the political reaction is often to deploy protectionist measures in support of that group. B) Since the sudden-damage effect is likely to be felt globally, protectionist responses are not effective and sentiment in favor of protectionist measures is lacking. C) Since the sudden-damage effect is not something that can be planned for, it has no effect on a government's protectionist sentiments. D) Since the sudden-damage effect is usually limited to a specific and relatively powerless group, protectionist sentiment is usually lacking.

A

If a country has _____, the country's foreign liabilities are growing faster than its foreign assets. A) a current account deficit B) a financial account deficit C) an official settlements surplus D) negative statistical discrepancy

A

The U.S. current account does not include A) the sale of U.S. bonds to foreign interests. B) net exports of goods. C) U.S. grants to foreign countries. D) income receipts from foreigners.

A

The three broad categories that make up a country's balance of payments are the A) current account, the financial account, and the changes in official international reserves. B) current account, the debt account, and the equity account. C) financial account, the changes in official international reserves, and the capital account. D) financial account, the goods and services account, and the capital account.

A

When a firm sells products at lower prices to foreign purchasers, it is known as: A) international dumping. B) restraint of trade. C) price gouging. D) reciprocal dumping.

A

When a tariff is imposed on an imported product A) domestic producers of the product can increase their prices. B) world prices for the product will rise in the short term. C) there is no change in consumption or price if the importing country is a small country. D) foreign producers of the product will increase their production.

A

When we compare a tariff levied on an import where the home firm is a monopoly with an import tariff where the home firms are competitive, we find: A)the exact same result—both the monopolist and the competitive firm charge the world price plus the tariff and both firms produce a quantity where MC = MR = world price plus the tariff. B) that the monopoly firm will be able to charge a higher price and limit its quantity. C) that the competitive firm will not be able to survive the impact of the tariff. D)the monopoly firm will pay its workers less and earn higher profits.

A

_____ is selling exports at a price that is less than the normal value of the exports. A) Dumping B) Free trade C) Monopolistic competition D) Aggressive exporting

A

_____ mean(s) that the choices and actions of buyers and sellers in a market affect others who are not involved in that market. A) Externalities B) Protectionism C) Market distortions D) Free-rider effects

A

A country's goods and services balance measures the country's net exports and is often called the country's A) balance of payments. B) trade balance. C) international reserve. D) financial account.

B

An export subsidy usually A) increases the world price of the product, if the exporting country is large. B) lowers the price paid for a product by foreign buyers relative to the price that domestic consumers pay for the subsidized product. C) discourages domestic buyers from importing substitute products at lower prices than the subsidized domestic product. D) increases domestic production of the subsidized product, thereby decreasing the price of the product in domestic markets.

B

Assume that a capital-abundant country trades only two goods with the rest of the world, medical equipment and corn. Medical equipment is relatively capital-intensive. According to the Rybczynski theorem, with the relative price of the goods remaining unchanged, an increase in the country's endowment of capital will cause the output of medical equipment to ________ and the output of corn to A) remain the same; fall. B) rise; fall. C) rise; remain the same. D) fall; rise.

B

How does the fact that each state has two senators regardless of the population of the state affect protectionist policies with regard to agricultural industries? A) It means that states with agricultural industries are under-represented in the Senate, so agricultural products are not as well-protected from imports as are other products. B) States with agricultural industries are usually less-populated than other states, so the states with agricultural industries are over-represented in the Senate and are often better-protected from imports than other products. C) It does not make any difference with respect to protection for agricultural industries because each senator gets a single vote on any proposed legislation. D) It depends on the political party of each senator and the political make-up of the Senate at any particular time.

B

If an item in an international transaction results in a resident of a foreign country getting a monetary claim against a resident of the United States, then in the U.S. balance of payments that item is a(n) A) official international reserve. B) debit item (or subtraction). C) credit item or a debit item, depending on which foreign country is involved. D) credit item (or addition).

B

What is the net impact on the producer surplus of the export subsidy provided by the domestic government? A) The producer surplus increases by area (a + b + c + d). B) The producer surplus increases by area (a + b + c). C) The producer surplus falls by area (a + b + c + e + f + g + h). D) The producer surplus falls by area (a + b).

B

When a government's purchasing procedures are biased in favor of domestic products and against foreign products, the nontariff barrier being employed is a(n): A)resource-using practice. B)government procurement practice. C)domestic content requirement. D)illegal import restriction.

B

Will a home monopolist prefer a quota or a tariff to protect its output? A) The home monopolist will prefer a tariff, because a tariff allows it to earn higher profits than a quota. B) The home monopolist will prefer a quota, because a quota may allow it to earn higher profits than a tariff. C) It is immaterial to the home monopolist because it will earn the same higher profits with each form of protection. D) The home monopolist will prefer neither, because it earns higher profits in a free-trade situation.

B

_____ of a tariff shows the loss to the country because domestic output replaces cheaper imports. A) Consumption effect B) Production effect C) Long-term effect D) Deflection effect

B

A country's _____ reflects all of its exports and imports of goods and services, its income receipts and income payments, and its gifts. A) trade balance B) international reserve C) current account D) balance of payments

C

An export subsidy imposed by a large country can be more damaging to national welfare than an export subsidy imposed by a small country because A) the net national gains of the large country are overshadowed by the net welfare loss of the world. B) the consumption effect is necessarily larger for the large country. C) the terms of trade worsen for the large country but not for the small country. D) the production effect is necessarily larger for the large country.

C

Fish stocks have been depleted worldwide because A) The Convention on International Trade in Endangered Species of Wild Fauna and Flora(CITES) does not apply to fish. B) fish are subject to numerous diseases. C) property rights in fisheries are not well-defined, which has led to overfishing. D) pollution has killed them.

C

If a country's net foreign investment is positive, that country A) imports more than it exports. B) is acting as a net borrower from the rest of the world. C) is acting as a net lender to the rest of the world. D) is increasing its holdings of official international reserve assets.

C

If the objective of government policy is to redistribute incomes, the best policy strategy is to A) impose an import quota that favors disadvantaged groups. B) impose a tariff that favors disadvantaged groups. C) address the problem directly with taxes and transfer payments, not with trade policies. D) do nothing.

C

If we add up all of the value outflows and value inflows in a country's balance of payments, the difference in the outflows and inflows will be A) a positive value for the country since no country is going to be involved in a transaction where they receive less than they give. B) a positive value because countries gain from trading. C) zero because there is value that flows out and value that flows in for every transaction. D) different for every country since some countries have advantages over other countries.

C

Perishable agricultural products are good candidates for _____ since big harvests tend to lower market prices and provide a large quantity of the product available for export. A) allowable dumping B) predatory dumping C) seasonal dumping D) cyclical dumping

C

Persistent dumping, in which the home-country price is maintained but where the price in foreign markets is lowered, can be a successful tactic for the selling firm if two conditions are present. What are those conditions? A) The foreign demand for the product is relatively inelastic and antidumping measures are imposed by the foreign country. B) There is a surplus of the product from other sellers and the product is freely transported from one market to another. C) The home-country demand for the product is relatively inelastic and home-country buyers cannot buy the product from foreign markets. D) Demand for the product is stable in both the home-country and the foreign market and the product is adequately differentiated from similar products.

C

The Rybczynski theorem says that in a two-good world, assuming that product prices are constant, growth in one factor of production has two effects A) increase in the output of any good that uses the growing factor and no effect on production of other goods. B) increase in the output of the good that uses the growing factor intensively and decrease in the country's terms of trade. C) increase in the output of the good that uses the growing factor intensively and decrease in the output of the other good. D) increase in the output of any good that uses the growing factor and decrease in the total production of the country.

C

The _____ is the statement that shows the amounts of a country's foreign assets and foreign liabilities at a point in time. A) overall balance B) financial account C) international investment position D) balance of payments

C

The primary difference between a free-trade area and a customs union is that A) a free-trade area can include parts of a country and a customs union includes entire countries. B) a free-trade area is considered a trade bloc and a customs union is not. C) members of a customs union adopt a common set of external trade barriers. D) members of a free-trade area adopt a common set of barriers for trade between the members.

C

Trade blocs can attract more foreign direct investment into member countries because A) production costs within the trade bloc countries are lower than outside of the trade bloc because of technology sharing. B) the trade bloc countries offer export subsidies to firms producing within the bloc. C) the market within the trade bloc is larger than the market in any of the member countries and foreign firms often seek to establish locations on the basis of market size. D) the World Trade Organization (WTO) allows firms that make foreign direct investments in trade bloc countries to avoid import quotas and tariffs imposed by non-trade bloc countries.

C

Which of the following correctly identifies the net change in national welfare due to the provision of the export subsidy by the domestic government? A) The net gain in well-being for the exporting country is area (b + d + f + g + i +j). B) The net gain in well-being for the exporting country is area c. C) The net loss in well-being for the exporting country is area (b + d + f + g + h + i + j). D) The net loss in well-being for the exporting country is area (b + d).

C

Which would a domestic monopoly prefer, an import quota or an import tariff? A) An import tariff has the same effect on the domestic price of the imported product as an import quota, so a domestic monopoly would not have a preference between the two. B) A domestic monopoly would prefer an import tariff because the tariff applies to all imports and the monopoly would have to compete for an import quota. C) A domestic monopoly would prefer an import quota because the import quota limits the quantity imported and leaves the monopoly free to set the price of the product. D) A domestic monopoly would prefer an import quota because, as a monopoly, it could use its power to acquire all of the import quota for itself.

C

A country's current account balance A) is approximately equal to the difference between the value of the country's domestic production of goods and services and the country's expenditures on goods and services. B) is approximately equal to the difference between the country's national saving and its domestic real investment. C) equals the country's net foreign investment. D) All of these are correct.

D

As a result of joining a trade bloc, Country A finds that it is purchasing relatively more expensive cars from Country B, a fellow bloc member, rather than purchasing the less expensive cars from Country C, a trading bloc outsider. This phenomenon is called A) trade creation. B) trade lifting. C) a trade embargo. D) trade diversion.

D

Countries that export a diversified selection of products are not at much risk of experiencing _____, but developing countries that export a few primary products are at a higher risk for this negative effect. A) biased growth B) measured growth C) reverse growth D) immiserizing growth

D

For a country to reduce its current account deficit, the country also must: A) reduce its net foreign borrowing. B) increase its national saving (relative to its domestic real investment). C) reduce its national expenditure on goods and services (relative to its domestic production of goods and services). D) all of the above.

D

If an Italian investor sells U.S. government securities to a U.S. buyer, how will this item be entered in the balance of payments? A) It will appear in the trade account as an export. B) It will appear in the trade account as an import. C) It will appear in the financial account as an increase in foreign assets held by U.S. residents. D) It will appear in the financial account as a decrease in the U.S. assets held by foreigners.

D

In the case of a small country, the effects of a quota and a tariff are identical if A) the government allocates import licenses directly to the public using a free lottery system. B) the government allocates licenses to importers through application and selection procedures that require the use of substantial resources. C) the government allocates licenses for free to importers using a rule or process that involves (almost) no resource cost. D) the government auctions off import licenses to the highest bidder.

D

In the context of a country's balance of payments, unilateral transfers arise from A) payments that are made now for goods or services to be received in the future. B) transactions in which the inflow of value and the outflow of value are equal. C) transactions where only one country is involved. D) transactions for which there are no offsetting transfers of value, such as gifts.

D

In the context of international trade, a small country is one that: A) has combined imports and exports that are less than half of the combined imports and exports of the European Union. B) has a population to gross domestic product (GDP) ratio below the level established by theWorld Trade Organization (WTO). C) has a total population below the level established by the World Trade Organization (WTO). D) is a price-taker in the sense that the price it must pay for imported goods is not affected by the amount of the goods that it imports.

D

Most researchers have concluded that _____ rather than trade is the primary reason for changing demands for skilled and unskilled labor. A) Politics B) Growth C) factor availability D) technological change

D

The guiding principle of the concept of most-favored nations is A) that every nation has a preferred trading partner. B) that each nation should be able to decide what other nations it prefers as trading partners. C) that nations should cooperate with other nations that cooperate with them. D) nondiscrimination among trading partners.

D

The infant-industry argument asserts that A) new domestic industries are a drain on a country's resources if those new industries cannot compete with imports, so new, inefficient domestic industries should be discouraged. B) new domestic industries that compete with imports should be encouraged because they can decrease imports so the country's balance of trade can remain positive. C) protection of new domestic industries from competition by imports has a long-term negative effect on new domestic industries because the new domestic industries never mature into competitive industries. D) a temporary tariff is justified when it reduces imports while a new domestic industry develops to the point that it can produce at low enough costs to compete internationally.

D

What is the net impact on the consumer surplus of the export subsidy provided by the domestic government? A) The consumer surplus falls by area (a + b + e + f + g). B) The consumer surplus increases by area a. C) The consumer surplus increases by area (a + b + c). D) The consumer surplus falls by area (a + b).

D

When an import quota is imposed and import licenses are auctioned off, the quota rents are captured by A) domestic consumers. B) foreign producers. C) domestic producers. D) the government.

D

_____ occurs when a producer temporarily charges a very low price for a product in an export market for the purpose of driving foreign competitors out of business. A) Cyclical dumping B) Seasonal dumping C) Protective dumping D) Predatory dumping

D

Absolute Purchasing Power Parity

exchange rate between two countries will be identical to the ratio of the price levels for those two countries

Relative Purchasing Power Parity

the idea that a currency in one country should depreciate relative to the currency in a second country by the amount by which the inflation rate is higher in the first country than the second