Test 5 - Final Questions (Tophat Ch. 17/18) International Trade and Finance

17) If a country imposes a tariff on an imported good, the tariff ________ the price in the importing country and ________ the quantity of imports. A) raises; decreases B) raises; increases C) raises; does not change D) lowers; does not change

A

18) The main component of the current account is A) net exports. B) investment both abroad and domestically. C) net interest income. D) the official settlements account.

A

18) A government that currently has a budget deficit can balance its budget by ________. A) increasing tax revenues by more than it increases outlays B) increasing both tax revenues and outlays by the same amount C) decreasing tax revenues by more than it decreases outlays D) decreasing tax revenues by more than it increases outlays

A

18) The Ricardo-Barro effect implies that a budget deficit will not raise interest rates or reduce investment. A) True B) False

A

Based on the table below, at what world price would the country import? Price QDemanded QSupplied 2 100 70 4 95 75 6 90 80 8 85 85 10 80 90 12 75 95 A) all prices below $8 B) at exactly $8 C) all prices above $8 D) it is impossible to say

A

17) Who benefits from an import quota on a good? A) Domestic consumers of the good B) Foreign governments C) Domestic producers of the good D) Foreign producers of the good

C

17) The most efficient way to encourage the growth of an infant-industry is through a A) voluntary export restraint. B) tariff. C) subsidy. D) an import quota.

C

18) Economic data for a mythical economy in the years 2006-2010 are summarized in the figure above. Assume that the spending formulas and tax schedules are identical for all years. When the economy is at less than full employment, the government has a A) budget surplus. B) balanced budget. C) budget deficit. D) procyclical policy

C

17) According to the principle of comparative advantage, if the United States trades with Mexico, most likely, A) the United States will benefit and Mexico will lose. B) the United States will lose and Mexico will benefit. C) neither of the countries will benefit. D) both countries will benefit.

D

18) In order for the United States to repay its international debt, the United States would need to A) have a current account deficit. B) cut taxes. C) have a surplus of imports over exports. D) have a surplus of exports over imports.

D

17) Between August 2007 and July 2008, Brazil exported more than 3.5 billion pounds of coffee to the rest of the world. Because of this, we know definitively that: A) Brazil has comparative advantage in coffee production B) The rest of the world has comparative advantage in coffee production C) The rest of the world has absolute advantage in coffee production D) Brazil has absolute advantage in coffee production

A

17) A tariff A) is a tax imposed on imported goods. B) is a tax imposed on exported goods. C) encourages worldwide specialization according to the principle of comparative advantage. D) has no effect on prices paid by domestic consumers even though it increases the revenue collected by domestic producers.

A

17) In 2006, the European Union (EU) threatened to ban imports of long-grain rice because traces of genetically modified rice were found mixed in to commercial supplies. Instead of a ban, suppose the EU placed a tariff on the import of long-grain rice. Which of the following would be an outcome of this tariff? A) The EU would gain tariff revenue B) The social loss would decrease C) European rice producers would decrease production D) The price of long-grain rice in the EU would be higher with a tariff than if rice imports were completely banned

A

17) International trade is restricted because A) there is an uneven distribution of benefits and costs of free trade. B) free trade creates an inefficient use of resources. C) free trade leads to higher costs. D) free trade stifles diversity and stability.

A

17) One reason that international trade is restricted is that A) the individual gain to parties who benefit from the protection will be much larger than the individual loss to parties who lose. B) the government completely pays the losers from international trade for their losses. C) protectionism benefits consumers. D) the government cannot measure the cost of protectionism.

A

17) The U.S.—Colombia Trade Promotion Agreement was signed on November 22, 2006, in Washington, D.C. This comprehensive trade agreement eliminated tariffs and other barriers to goods and services. Colombia will immediately eliminate tariffs on wheat, barley, peanuts, and many other products in which Columbia does not have a comparative advantage. This policy means that the price of peanuts in Columbia will become A) equal to the free trade price B) lower than the free trade price C) higher than the price when a tariff was in place D) higher than the free trade price

A

17) The United States has a comparative advantage in producing cotton if the U.S. price of cotton before international trade is ________ the world price A) less than B) equal to C) greater than D) not comparable to

A

17) When does the domestic government gain the MOST revenue? A) when it imposes a tariff B) when it imposes an import quota C) when it negotiates a voluntary export restraint D) The amount of revenue it gains is the same with a tariff and a voluntary export restraint.

A

17) A tariff is imposed on a good. The tariff will ________ quantity supplied, ________ quantity demanded, and ________ price in the home country. A) increase; decrease; increase B) increase; remain unchanged; remain unchanged C) increase; increase; increase D) increase; decrease; decrease

A

17) The winners from a tariff on imports are A) producers and government B) producers C) consumers D) consumers, producers, and government

A

18) In a market open to international trade, at the world price the quantity demanded is 150 and quantity supplied is 200. This country will A) export 50 units. B) import 50 units. C) export 200 units. D) import 150 units.

A

18) In 2007, Norwayʹs government had revenue of $226.3 billion and expenditures of $158.7 billion. At the same time, GDP totalled $392 billion and government debt was about 67 percent of GDP. In 2007, Norwayʹs government ran a government budget ________ and government debt ________. A) surplus; decreased B) deficit; decreased C) surplus; increased D) deficit; increased

A

18) When does the domestic government gain the MOST revenue? A) when it imposes a tariff B) when it imposes an import quota C) when it negotiates a voluntary export restraint D) The amount of revenue it gains is the same with a tariff and a voluntary export restraint.

A

18) One problem with the ripple effect from the Fedʹs monetary policy is A) the fact that the monetary policy transmission process is long and drawn out. B) that changing the Federal funds target rate seldom has an effect on the markets for reserves and loanable funds. C) the tight relationship between that the Federal funds rate has to aggregate spending. D) the frequent misalignment of the spread between the Federal funds rate and the Federal funds rate target.

A

18) The U.S.—Colombia Trade Promotion Agreement was signed on November 22, 2006, in Washington, D.C. This comprehensive trade agreement eliminated tariffs and other barriers to goods and services. Colombia will immediately eliminate tariffs on wheat, barley, peanuts, and many other products in which Columbia does not have a comparative advantage. This policy means that the price of peanuts in Columbia will become A) equal to the free trade price B) lower than the free trade price C) higher than the price when a tariff was in place D) higher than the free trade price

A

Consider a market that, with no international trade, is initially in equilibrium with quantity demanded equal to quantity supplied at a price of $20. If the world price of the good is $10 and the country opens up to international trade then in this market A) imports will increase, price will fall, and quantity supplied will fall B) exports will increase, price will be unchanged, and quantity supplied will increase C) imports will increase, price will decrease, and the supply curve will shift to the left D) quantity demanded will decrease, quantity supplied will decrease, and price will decrease

A

Which of the following statements is true? A) Dumping is illegal under the rules of the WTO. B) Dumping occurs when a foreign firm sells its exports at a higher price than its cost of production. C) Both statements are true. D) Neither of the statements is true.

A

Which of the following statements is true? A) International trade raises wages in developing countries. B) International trade with reach industrial countries forces people in the developing countries to work for lower wages. C) International trade leads to job losses in both import competing industries and exporting industries. D) Unlike other types of international trade, offshoring does not bring any gains from trade.

A

17) The figure shows the market for helicopters in the United States, where D is the domestic demand curve and S is the domestic supply curve. The United States trades helicopters with the rest of the world at a price of $36 million per helicopter. *Separate Answers with "," and no space (i.e. A,B,C) Insert Link: i) In the figure above, with international trade U.S. companies buy ________ helicopters per year. A) 240 B) 480 C) 720 D) 360 ii) In the figure above, with international trade ________ helicopters per year are produced in the United States. A) 360 B) 480 C) 720 D) 240 iii) In the figure above, the United States ________ helicopters per year. A) exports 480 B) exports 720 C) imports 480 D) imports 240

A,C,A

17) Lowering the tariff on good X will A) increase domestic employment in industry X. B) increase the domestic imports of good X. C) increase the domestic price of good X. D) have no effect unless the nationʹs trading partner also lowers its tariff on good X.

B

17) ________ occurs when a foreign firm sells its exports at a lower price than its cost of production. A) A quota B) Dumping C) A tariff D) A nontariff barrier

B

17) Compared to the situation before international trade, after the United States exports a good production in the United States ________ and consumption in the United States ________. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

B

17) Tariffs A) generate revenue for consumers. B) generate revenue for the government. C) encourage domestic consumers to buy more imports. D) encourage domestic producers to produce less.

B

17) The idea of dynamic comparative advantage is the basis for which of the following arguments for protection from foreign competition? A) the cheap foreign labor argument B) the infant-industry argument C) the dumping argument D) the saves jobs argument

B

18) In 2007, Denmarkʹs government had expenditures of $157 billion and spending of $171 billion. GDP in 2007 was $312 billion. The government ran a budget ________ and government debt ________. A) deficit; decreased B) deficit; increased C) surplus decreased D) surplus; increased

B

18) As the Fed Chases Inflation, Critics Shout, ʹFaster!ʹ ʺFor weeks, the Fed has broadcast its intention to raise interest rates glacially.ʺ The Fed was moving slowly, according to an economist because ʺ... the declining price of oil, economic fundamentals, including productivity and global competition, will keep inflation in check.ʺ The Fed, recognizing that the economy was improving stated it planned to ʺrespond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.ʺ Other economists disagree with the Fedʹs restrained policy as a ʺmistakeʺ www.nytimes, 7/1/2004 The goal of the Fedʹs policy in 2004 was to decrease A) the exchange rate B) consumption expenditure C) the long-term interest rate D) the short-term interest rate

B

18) The major component of the capital and finance account is A) net exports. B) investment both abroad and domestically. C) imports and exports of services. D) the official settlements account.

B

18) Comparative advantage implies that a country will A) import those goods in which the country has a comparative advantage. B) export those goods in which the country has a comparative advantage. C) find it difficult to conclude free trade agreements with other nations. D) export goods produced by domestic industries with low wages relative to its trading partners.

B

18) Comparing the U.S. budget position for 2010 to the rest of the world, we see that as a percentage of GDP, the ________ than in most other countries. A) U.S. budget deficit is smaller B) U.S. budget deficit is larger C) U.S. budget surplus is smaller D) U.S. budget surplus is larger

B

18) If a government imposes a quota on imports of a popular doll, the price of the doll in the country will ________ and the quantity purchased in the country will ________. A) rise; increase B) rise; decrease C) fall; increase D) fall; decrease

B

18) An increase in the government ________ reduces the governmentʹs ________. A) budget deficit; debt B) budget surplus; debt C) debt; budget deficit D) None of the above answers is correct.

B

17) Increasing a tariff will ________ the domestic quantity consumed of the good, while ________ the domestic production of the good. A) increase; increasing B) increase; decreasing C) decrease; increasing D) decrease; decreasing

C

17) Tariffs and import quotas both result in A) lower levels of domestic production. B) the domestic government gaining revenue. C) lower levels of imports. D) higher levels of domestic consumption.

C

17) As a trade barrier, Voluntary export restraints (VERs) A) do not protect domestic producers. B) raise revenue for the governments involved. C) raise the prices paid by domestic consumers. D) Both answers B and C are correct.

C

17) A key difference between a quota and a tariff is that A) a quota has a larger effect on quantity than on price. B) a tariff has a larger effect on quantity than on price. C) the government of the importing country gains revenue from a tariff, but the price gap caused by a quota benefits domestic importers. D) All of the above answers are correct.

C

17) An import quota specifies the A) highest price that can be charged for an imported good. B) per unit tax that must be paid on an imported good. C) maximum quantity of a good that may be imported during a specified time period. D) minimum quantity of a good that must be exported during a specified time period.

C

17) Compared to the situation before international trade, after the United States imports a good production in the United States ________ and consumption in the United States ________. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

C

17) The United States imports cars from Japan. If the United States imposes a tariff on cars imported from Japan, American A) consumers will lose and Japanese producers will gain. B) tariff revenue will equal the loss inflicted on American consumers. C) consumers will lose and American producers will gain. D) car manufacturers will gain revenue equal to the revenue lost by Japanese car manufacturers.

C

18) If the Fed hikes the U.S. interest rate relative to interest rates in other countries, in the foreign exchange market the demand for dollars will ________, the supply of dollars will ________, and the exchange rate will ________. A) increase; increase; rise B) decrease; decrease; fall C) increase; decrease; rise D) decrease; increase; fall

C

18) If the government has a balanced budget, the total amount of government debt is A) increasing. B) decreasing. C) constant. D) zero.

C

18) In the foreign exchange market, if the supply of dollars ________ and simultaneously the demand for dollars ________, then the exchange rate definitely ________. A) increases; increases; depreciates B) decreases; increases; depreciates C) increases; decreases; depreciates D) decreases; decreases; appreciates

C

18) The federal government debt or national debt is equal to the A) obligations of benefits from federal taxes and expenditures. B) sum of all annual federal government outlays. C) sum of past budget deficits minus the sum of past budget surpluses. D) annual difference between federal government tax revenues and outlays.

C

18) In October 2008, central banks around the world coordinated a decrease in interest rates. Ben Bernanke, Chairman of the Federal Reserve stated that ʺpolicy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant.ʺ If all the banks enacted the policy simultaneously, the U.S. interest rate differential would ________ and so the U.S. exchange rate would ________. A) increase; fall B) decrease; rise C) not change; not change D) not change; rise

C

17) If the United States imposes a tariff on imported cars, the A) U.S. demand curve shifts rightward. B) U.S. demand curve shifts leftward. C) U.S. supply curve shifts rightward. D) price in the United States rises but neither the U.S. demand curve nor the U.S. supply curve shift..

D

17) Which of the following statements about U.S. international trade in 2009 is correct? Topic: Study Guide Question, International Trade Today A) The value of U.S. exports exceeded the value of U.S. imports B) The value of U.S. exports was about 33 percent of the value of total U.S. production C) The United States imported only goods. D) The United States was the worldʹs largest trader.

D

17) Which of the following is a valid reason for protecting an industry? A) The industry is unable to compete with low-wage foreign competitors. B) Protection penalizes lax environmental standards. C) Protection keeps richer nations from exploiting the workers of poorer countries. D) None of the above reasons is a valid reason for protection.

D

18) If two currencies allow for the equal value of money so that the same bundle of goods cost the same in two countries, there is A) trade equalization parity. B) interest rate parity. C) tariff application parity. D) purchasing power parity.

D

18) If taxes exactly equaled government outlays the A) federal government debt would be zero. B) federal government debt would decrease. C) budget deficit would not change. D) budget deficit would be zero.

D

18) The use of fiscal policy is limited because A) there is never a long enough time lag. B) the economy is almost always at full employment. C) the President may have different goals than Congress. D) time lags associated with fiscal policy may cause the policy to take effect too late to solve the problem it was supposed to address.

D

18) Economists usually agree with which of the following arguments that favor protectionism? A) the competition with cheap foreign labor defense B) the job protection defense C) the dumping defense D) None of the above. Economists generally agree that arguments in favor of protection are flawed.

D

18) The governmentʹs budget deficit or surplus equals the A) change in outlays divided by change in revenue. B) average outlay divided by average revenue. C) change in revenue minus change in outlays. D) total tax revenue minus total government outlays.

D

18) When tax revenues exceed outlays, the government has a ________, and when outlays exceed tax revenues, the government has a ________. A) budget surplus; budget debt B) budget deficit; budget surplus C) budget debt; budget surplus D) budget surplus; budget deficit

D

18) If the United States imposes a tariff on imported cars, the A) U.S. demand curve shifts rightward. B) U.S. demand curve shifts leftward. C) U.S. supply curve shifts rightward. D) price in the United States rises but neither the U.S. demand curve nor the U.S. supply curve shift

D