ECON340 Exam 2

Today, multinational corporations account for what percent of the world's output? A) 5% B) 15% C) 25% D) 50%

C) 25%

Which of the following products was most affected by protectionist measures in 2008-2009? A) Agricultural products B) Textiles C) Basic metals D) Transport equipment

C) Basic metals

The following table lists the 'Income Share of Bottom 20% Population" and 'Income Share of Top 20% Population" for four countries. Which country appears to have the most unequal income distribution? A) Argentina B) China C) Columbia D) South Korea

C) Columbia

_________ often takes the form of starting a subsidiary or taking control of another firm. A) Private investment B) Portfolio investment C) Direct investment D) Indirect investment

C) Direct investment

Which of the following countries had the highest spending on agricultural subsidies in 2009? A) U.S. B) Japan C) EU D) Canada

C) EU

The United States is the main supplier of foreign direct investments to what countries? A) India and Vietnam B) Former communist countries in Eastern Europe C) Latin America, the Philippines, and Saudi Arabia D) Taiwan and South Korea

C) Latin America, the Philippines, and Saudi Arabia

During the postwar period, A) Nontariff trade barriers (NTBs) and tariffs have both increased in importance and use. B) NTBs and tariffs have both decreased in importance and use. C) NTBs have increased and tariffs have decreased in importance and use. D) NTBs have decreased and tariffs have increased in importance and use.

C) NTBs have increased and tariffs have decreased in importance and use.

At which international trade gathering was there a successful reduction in trade restrictions and protectionism, averting a revival of inward-looking policies in developing countries? A) Kennedy Round B) Doha Round C) Uruguay Round D) Tokyo Round

C) Uruguay Round

The World Trade Organization (WTO) was established by the _____ of multilateral trade negotiations. A) Kennedy Round B) Tokyo Round C) Uruguay Round D) Doha Round

C) Uruguay Round

The Smoot-Hawley Tariff Act of 1930 has often been associated with: A) tariff reductions B) increasing volume of trade for the US C) decreasing exports and imports in the US D) reduction in non-tariff barriers

C) decreasing exports and imports in the US

Suppose the price level in the US is 110 in 2010 and 121 in 2017, and the price level in the UK is 150 in 2010 and 180 in 2017. According to the relative purchasing-power parity theory, what would happen to the exchange rate between dollar and pound over the period of 2010- 2017? A) dollar depreciated by 10% B) dollar depreciated by 19% C) dollar appreciated by 10% D) dollar appreciated by 19%

C) dollar appreciated by 10%

Strategic trade policy is advanced for industrial nations to acquire a comparative advantage in the _____. A) agricultural sector B) manufacturing sector C) high-tech sector D) energy sector

C) high-tech sector

Why was US direct investment in Latin America lower in 1985 than in 1980? A) civil wars in the Latin American countries B) a trade war between the US and the Latin American countries C) international debt problems in the Latin American countries D) a recession in the US

C) international debt problems in the Latin American countries

When a small country experiences an upward shift in the demand curve, a given import tariff would result in ___ and ___. A) higher domestic price, more imports B) higher domestic price, same imports C) same domestic price, more imports D) same domestic price, same imports

C) same domestic price, more imports

From which of the following does a nation's demand for foreign exchange arise? A) inflow of foreign investments B) exports of goods and services to other nations C) speculators when they expect the foreign currency to appreciate D) all of the above

C) speculators when they expect the foreign currency to appreciate

IBM does not want to license foreign producers because it wants to retain complete control over its ____________ and to ensure consistence in quality and services. A) workforce B) accounting process C) trade secrets and patents D) marketing strategies

C) trade secrets and patents

Suppose the price for a Big Mac in the US is $2 and the exchange rate between the dollar and the pound is $1.6=₤1. What is the price for a Big Mac in the UK according to the law of one price? A) ₤3.2 B) ₤2 C) ₤1.25 D) ₤0.8

C) ₤1.25

Suppose under free trade, textile producers in Vietnam (a small nation) need to import $150 of cotton in order to produce $200 worth of finished cloth. If Vietnam imposes a 10% nominal tariff on imports of finished cloth and no tariff on cotton imports, what is the effective rate of protection enjoyed by the Vietnamese cloth producers?

40%

The US government introduced the trigger-price mechanism in 1978 in response to dumping in what industry? A) Steel B) Cotton C) Automobiles D) Consumer Electronics

A) Steel

When a multinational corporation controls the raw material used in the production of its final good through a vertical integration, which of the following is most likely to happen? A) The MNC will obtain an uninterrupted supply of the raw material at the lowest possible cost. B) Consumers will pay lower a price for the final good. C) The MNC will face anti-trust charges for owning firms that produce both the raw material and the final good. D) The MNC will get favorable tax treatment in the foreign country.

A) The MNC will obtain an uninterrupted supply of the raw material at the lowest possible cost.

_____ raised average import duty in the U.S. to the all-time high. A) The Smoot-Hawley Tariff Act of 1930 B) The U.S. Tariff Assignment Act of 1954 C) The Trade Agreements Act of 1934 D) The Sarbanes-Oxley Act

A) The Smoot-Hawley Tariff Act of 1930

Which of the following statement is true about the voluntary export restraints (VERs)? A) WTO members are not allowed to impose new VERs. B) Government of the importing country captures the revenue effect of VERs. C) VERs were mostly negotiated by developing countries to curb exports from industrial nations. D) All of the above

A) WTO members are not allowed to impose new VERs.

It has been found that firms with a strong international orientation tend to A) be more profitable than purely domestic firms. B) have greater variability in profits than purely domestic firms. C) pay more taxes than purely domestic firms. D) all of the above

A) be more profitable than purely domestic firms.

If less than full employment is present, then foreign investments tend to ________ the level of employment in the investing country and __________ the level of employment in the host country. A) decrease; increase B) increase; decrease C) decrease; decrease D) increase; increase

A) decrease; increase

Suppose nation A is capital abundant and nation B is labor abundant. If capital is free to move internationally, then capital will flow from _______ to________ until ________ A) nation A; nation B; the returns on capital are equalized between the two nations. B) nation B; nation A; the returns on capital are equalized between the two nations. C) nation A; nation B; the two nations have equal amount of capital. D) nation B; nation A; the two nations have equal amount of capital.

A) nation A; nation B; the returns on capital are equalized between the two nations.

The basic motive for international portfolio investments is A) to earn higher returns abroad. B) to secure the supply of raw materials. C) to avoid tariffs and non-tariff trade barriers. D) to earn returns abroad that cannot be taxed domestically.

A) to earn higher returns abroad.

Which of the following is NOT a primary reason for a firm to make foreign direct investment? A) To preserve unique production knowledge or managerial skill B) A safe and secure return on its investment C) Obtain control of a key raw material D) To bypass tariff and other restrictions that foreign nations impose on imports

B) A safe and secure return on its investment

Which of the following nations was targeted for protectionist measures by most other nations in 2008-2009? A) U.S. B) China C) Japan D) Germany

B) China

Figure 12.3 in Salvatore shows the relationship between changes in relative national price levels and changes in exchange rates for 18 industrial nations from 1973 to 2010. For which country is the relative PPP theory clearly violated? A) Australia B) Demark C) Germany D) Spain

B) Demark

According to the ______________ model, returns on capital are originally higher in the nation having the ___________ overall relative capital-labor ratio. A) Heckscher-Ohlin; higher B) Heckscher-Ohlin; lower C) Stolper-Samuelson; higher D) Stolper-Samuelson; lower

B) Heckscher-Ohlin; lower

Which of the following will happen when dollar appreciates in real terms against Chinese yuan? A) US exporters gain competitiveness in the Chinese market B) Imports from China are sold at a lower price in the US C) Chinese tourists find it cheaper to travel in the US D) None of the above

B) Imports from China are sold at a lower price in the US

With which type of dumping do domestic consumers get better off in the short run but worse off in the long run? A) Persistent dumping B) Predatory dumping C) Sporadic dumping D) All of above

B) Predatory dumping

The rapid growth in US direct investment in Europe from 1950 to 2009 was due to _____? A) The US desire to join the European Union. B) The US desire to avoid the common external tariff imposed by the EU. C) The relatively slow growth of the European Union. D) To retaliate against European exports to the United States.

B) The US desire to avoid the common external tariff imposed by the EU.

If the exchange rate between US dollar and Japanese yen changes from $1 = ¥100 to $1 = ¥80, the dollar is said to have __________ against yen and the yen has __________ against dollar. A) appreciated, depreciated B) depreciated, appreciated C) appreciated, appreciated D) depreciated, depreciated

B) depreciated, appreciated

Countervailing duties are intended to neutralize any unfair advantage that foreign exporters might gain over domestic producers because of foreign: A) tariffs B) export subsidies C) quotas D) voluntary export agreements

B) export subsidies

When a small country experiences an upward shift in the demand curve, a given import quota would result in ___ and ___. A) higher domestic price, more imports B) higher domestic price, same imports C) same domestic price, more imports D) same domestic price, same imports

B) higher domestic price, same imports

Two-way international portfolio investments are often explained by A) higher returns in foreign countries. B) portfolio theory and risk diversification. C) comparative advantage and specialization in production. D) economies of scale.

B) portfolio theory and risk diversification.

Which of the following is NOT a problem created in the home country by multinational corporations? A) loss of unskilled and semiskilled production jobs B) reduced return to capital C) loss of tax revenue and loss of tax base D) undermining of government's monetary policy

B) reduced return to capital

If Japan ____, then Japan is guilty of dumping cars into the US market. A) sells cars in the US for a price above production costs B) sells cars in the US for a price below production costs C) produces cars at a lower cost than the US can produce them D) produces cars at a higher cost than the US can produce them

B) sells cars in the US for a price below production costs

In large developed nations, ___ is the sector most protected by nontariff trade barriers. A) food, beverage and tobacco B) textile and apparel C) wood and wood products D) basic metal industries

B) textile and apparel

Direct foreign investments have been greatly facilitated by the rapid advancements in _______________ since the end of World War II. A) manufacturing technology B) transportation and communication C) accounting practices D) anti-trust legislation

B) transportation and communication

If the price index is 120 in the US and 90 in the UK, what is the equilibrium exchange rate between the dollar and the pound according to the absolute purchasing-power parity? A) ₤1 = $0.75 B) ₤1 = $1.33 C) ₤1 = $0.25 D) ₤1 = $0.33

B) ₤1 = $1.33

When a large nation imposes an import tariff, the volume of trade will ____, and the nation's terms of trade will ____.

decline, improve

When an import tariff is imposed on commodity X, there is a(n) ____ in consumer surplus and a(n) ____ in producer surplus.

decrease, increase

In a large nation, who bears the burden of an import tariff?

domestic consumers and foreign producers of the imported good

In a small nation, an import tariff redistributes income from ____ to ____ of the commodity.

domestic consumers, domestic producers

A(n) ____ is a tariff sufficiently high to stop all international trade so that the nation returns to autarky

prohibitive tariff

A defining characteristic of a "small nation" relative to a "large nation" with respect to identifying the welfare effects of a tariff is that a ____.

small nation cannot influence the world price of its imports as a large nation can

When a large nation imposes an import tariff, the reduction in the price of the import commodity is called the _____, which constitutes a ______ of welfare for the tariff-imposing nation.

terms of trade effect of the tariff, gain

Which of the following is NOT a problem created in the host country by the multinational corporations? A) MNCs dominate the host country's economy B) Overexploitation of natural resources and environmental degradation C) Siphoning of R&D fund to the home country D) Adverse effect on the host country job market

D) Adverse effect on the host country job market

According to Table 10.4 and the trade (elasticity) approach to exchange rate determination, US dollar would depreciate relative to which of the following currency? A) Japanese Yen B) Canadian dollar C) Chinese Yuan D) All of the above

D) All of the above

According to the law of one price, in order for commodity arbitrage to equalize the price of homogeneous traded commodities, it is necessary that which of the following do not exist? A) Transportation costs B) Tariffs C) Nontariff barriers D) All of the above

D) All of the above

The New International Economic Order called for which of the following? A) The renegotiation of the international debt of developing countries and the reduction in interest payments B) The establishment of international commodity agreements C)Preferential access in developed nations' markets to all the manufactured exports of developing nations D) All of the above

D) All of the above

U.S. has reached bilateral trade agreements with ___. A) Australia B) Peru C) South Korea D) All of the above

D) All of the above

Upon which of these principles was GATT founded? A) Unconditional acceptance of the most-favored-nation principle B) Elimination of nontariff trade restrictions (with a few exceptions) C) Consultation among nations in solving trade disputes within the GATT framework D) All of the above

D) All of the above

Which of the following characterizes the HPAE? A) Low rates of inflation B) Export-oriented industrialization C) Competitive labor markets D) All of the above

D) All of the above

Which of the following countries is characterized by rapid growth in real GDP and exports since the1960s? A) Hong Kong B) Korea C) Singapore D) All of the above

D) All of the above

Which of the following is NOT explained by the trade (elasticity) approach? A) The large volatility of exchange rates over the past three decades B) The sharp appreciation of the dollar from 1995 to 2002 C) The failure of the US trade deficits to decline when the dollar depreciated sharply from 1985 to 1988 D) All of the above

D) All of the above

Which of the following is a form of export subsidies? A) Tax relief to (potential) exporters B) Subsidized loans to (potential) exporters C) Low-interest loans to foreign buyers of the nation's exports D) All of the above

D) All of the above

Which of the following is one of the most serious problems facing developing countries today? A) The conditions of stark poverty prevailing in many countries B) The unsustainable foreign debt of some of the poorest developing countries C) Rising trade protectionism in developed countries against imports from developing countries D) All of the above

D) All of the above

Which of the following is one of the problems being addressed in the Doha Round of trade negotiations? A) The persistence of high agricultural tariffs and subsidies B) The frequent abuse of antidumping measures C) The need to establish environmental and labor standards D) All of the above

D) All of the above

Which of the following protectionist measures was adopted by the US Congress during the 1950s? A) Peril-point provisions B) Escape clause C) National security clause D) All of the above

D) All of the above

Which of the following statements is true about the prices of primary commodities? A) Primary commodity prices tend to fluctuate dramatically over time. B) Overall, primary commodity prices had gone up significantly from 1990 to 2009. C) Among all primary commodities, energy experienced the largest increase in price from 1990 to 2009. D) All of the above

D) All of the above

Which of the following will happen when dollar depreciates in real terms against Chinese yuan? A) US exporters gain competitiveness in the Chinese market B) Imports from China are sold at a higher price in the US C) US import-competing sectors gain competitiveness against imports from China D) All of the above

D) All of the above

Which of the following would occur if the interest rate in the US increases relative to that in the UK? A) US dollar will appreciate against British pound B) The demand curve for pound will shift down (to the left) C) The supply curve for pound will shift down (to the right) D) All of the above

D) All of the above

Which of the following would occur if the price level in the US decreases relative to the UK? A) The US will now find imports from the UK more expensive B) The demand curve for pound will shift down (to the left) C) The supply curve for pound will shift down (to the right) D) All of the above

D) All of the above

Table 1 above gives the price indices of U.S. imports and exports in 1990 and 2000. Which of the following statement is true for the U.S. net barter terms of trade (BTOT)? A) BTOT in 2000 is 133.3, a 8.3% improvement from 1990 B) BTOT in 2000 is 133.3, a 6.64% improvement from 1990 C) BTOT in 2000 is 75, a 5% deterioration from 1990 D) BTOT in 2000 is 75, a 6.25% deterioration from 1990

D) BTOT in 2000 is 75, a 6.25% deterioration from 1990

Table 1 above gives the prices indices of U.S. imports and exports as well as the volume of U.S. exports in 1990 and 2000. Which of the following statement is true for the U.S. income terms of trade (ITOT)? A) ITOT in 2000 is 90, a 10% deterioration from 1990 B) ITOT in 2000 is 90, a 12.5% deterioration from 1990 C) ITOT in 2000 is 90, a 10% improvement from 1990 D) ITOT in 2000 is 90, a 12.5% improvement from 1990

D) ITOT in 2000 is 90, a 12.5% improvement from 1990

Which of the following countries was the #1 user of antidumping measures in 2010 (by initiations)? A) China B) US C) EU D) India

D) India

Which of the following is not a characteristic of a developing country? A) A high proportion of the labor force in agriculture B) A high illiteracy rate C) Low life expectancy D) Low population growth rate

D) Low population growth rate

Compared to the export-oriented industrialization, the import substitution industrialization policy has often resulted in a ___. A) Higher level of openness B) Lower price for domestic consumers C) Increase in export earnings for the traditional sectors D) Lower rate of economic growth in the long run

D) Lower rate of economic growth in the long run

When the purchase of voting stock in a corporation becomes _____________, the US government considers such investment by a foreign entity as direct investment. A) More than 50% B) More than 15% C) More than 20% D) More than 10%

D) More than 10%

Which of the following would occur if labor productivity in the UK increases relative to that in the US? A) The US will now find imports from the UK more expensive B) The demand curve for pound will shift down (to the left) C) The supply curve for pound will shift down (to the right) D) None of the above

D) None of the above

Which of the following countries is now considered a new economic giant? A) Japan B) Germany C) Singapore D) Russia

D) Russia

From which of the following does a nation's supply of foreign exchange arise? A) inflow of foreign investment B) exports of goods and services to other nations C) investment returns received from abroad D) all of the above

D) all of the above

International capital flows lead to A) greater efficiency in the use of capital internationally. B) increased world output. C) increased world welfare. D) all of the above.

D) all of the above.

In the international community, direct investments are undertaken usually by multinational corporations engaged in all of the following activities EXCEPT? A) manufacturing B) resource extraction C) services D) basic agriculture

D) basic agriculture

____ have historically been the most important and most used type of trade restriction?

Import tariffs

True or False? Export tariffs are prohibited by the U.S. Constitution.

True

True or False? Industrial countries often impose lower tariffs on imports of raw materials than imports of final products

True

Suppose under free trade, textile producers in Vietnam (a small nation) need to import $150 of cotton in order to produce $200 worth of finished cloth. If Vietnam imposes a 10% nominal tariff on imports of finished cloth and a 5% nominal tariff on cotton imports, what is the effective rate of protection enjoyed by the Vietnamese cloth producers?

25%

Suppose nation A is a small nation with demand and supply of commodity X given by Qd=120-10P and Qs=20P, respectively. Let Px be the world market price of commodity X under free trade. Which of the following constitutes a prohibitive tariff?

100% tariff for Px=$2

True or False? Any country that imposes an import tariff would always experience a net welfare loss

False

True or False? On average, tariffs on non-agricultural products are higher in developed countries than in developing countries

False

True or False? Tariffs in industrial countries have been sharply reduced for finished products after the Uruguay Round of multilateral trade negotiation, but not for raw materials.

False