ECO 336 Mid Term
Suppose Turkey has exports of 2 billion Turkish Lira, while its imports are 2 billion Turkish Lira. Calculate Turkey's "Index of Openness" (Trade-to-GDP ratio) assuming Turkey has 10 billion Turkish Lira of output, or GDP.
4
One of the distinguishing characteristics of capital mobility today is that A. there are far more kinds of financial instruments than there were 100 years ago. B. nations are no longer dependent on their own national savings for their investment funds. C. the bulk of foreign capital flows are tied to labor flows. D. currency markets play a less significant role than they did in the past.
A. there are far more kinds of financial instruments than there were 100 years ago.
Which of the following is TRUE? A. A common market is more deeply integrated than a customs union. B. Customs unions require the creation of a common currency. C. NAFTA is an example of a customs union. D. The European Union is a shallower and broader form of integration than NAFTA.
A. A common market is more deeply integrated than a customs union.
Which of the following is NOT a proposition of the Heckscher-Ohlin model? A. Countries will completely specialize in the product in which they have a comparative advantage if free trade is allowed to occur. B. If Mexico is an unskilled labor abundant country, then Mexico has a comparative advantage in the production of goods that use unskilled labor more intensively. C. A country has a comparative advantage in the production of that commodity which uses more intensively the country's more abundant resource. D. If the United States is a skilled labor abundant country, then the United States has a comparative advantage in the production of goods that use skilled labor more intensively. E. The effect of international trade is to tend to equalize factor prices between the trading nations.
A. Countries will completely specialize in the product in which they have a comparative advantage if free trade is allowed to occur.
Your text mentions several ways that international trade flows are qualitatively different than they were a century ago. Which of the following is NOT one of those ways? A. International trade in raw commodities and agricultural products is more important than it was in the past. B. It is possible to trade some types of services in a way that was not possible in the past. C.Firms' investment spending on capital goods is more important than in the past. D. Multinational corporations play a bigger role in production than they did in the past.
A. International trade in raw commodities and agricultural products is more important than it was in the past.
Which of the following is FALSE about intraindustry trade? A. Intraindustry trade is due to comparative advantage. .B. Intraindustry trade increases consumer choice. C. Intraindustry trade creates gains from trade. D. Intraindustry trade may involve heightened competition and lower prices for consumers.
A. Intraindustry trade is due to comparative advantage.
The Nobel Prize winning Economist who felt that trade is really about geography? A. Paul Krugman B. David Ricardo C. Gregory Mankiw D. Adam Smith
A. Paul Krugman
Certain kinds of tropical fruits are impossible to grow outdoors in the United States. Suppose, however, that in order to create jobs in Wyoming, the U.S. government offered extensive subsidies to firms to produce bananas. With the subsidies, firms could build greenhouses and offer the fruit at world prices. A. The United States is competitive, but does not have a comparative advantage. B. The United States has a comparative advantage and is competitive. C. The United States now has a comparative advantage in bananas. D. The United States has a comparative advantage, but is not competitive.
A. The United States is competitive, but does not have a comparative advantage.
An internal economies of scale is defined as A. a firm with falling costs over a relatively large range of output. B. a firm with falling costs over a relatively large range of output, but definite declining profits. C. an industry with costs that fall for all firms. D. a firm with falling costs over a specific level of output.
A. a firm with falling costs over a relatively large range of output.
Nominal rates of protection A. cannot be negative. B. are always greater than effective rates of protection. C. refer to the tariffs placed on intermediate goods used to make the final good or service. D. are always smaller than effective rates of protection.
A. cannot be negative.
A production possibilities curve that is a straight line represents the case of' A. constant costs. B. increasing costs. C. constant opportunity costs but decreasing real costs. D. constant opportunity costs but increasing real costs.
A. constant costs.
High tariffs on intermediate inputs A. decrease the effective rate of protection on final goods. B. lower the nominal rate of protection on final goods. C. increase the effective rate of protection on final goods. D. have no impact on the effective rate of protection on final goods.
A. decrease the effective rate of protection on final goods.
An internal economy means that ________, while an external economy means that ________. A. firm costs fall as firm output increases, firm costs fall as industry output increases B. firm costs fall as firm output increases, firm costs rise as industry output increases C. firm costs fall as industry output increases, firm costs rise as firm output increases D. firm costs fall as industry output increases, firm costs fall as firm output increases
A. firm costs fall as firm output increases, firm costs fall as industry output increases
One reason markets may fail to provide the optimal quantity of public goods is the problem of A. free riders. B. nondiscrimination. C. determining what the public wants. D. economic integration.
A. free riders.
Countries that have high rates of savings also have A. high rates of investment. B.stock market bubbles. C.low rates of investment. D.low rates of growth.
A. high rates of investment.
Interindustry trade refers to A. international trade of products made across different industries. B. the exchange of similar items that are differentiated. C. domestic trade of products made within the same industry. D. international trade of products made within the same industry.
A. international trade of products made across different industries.
The economic philosophy that favors strict limits on imports and strong support for exports is called A. mercantilism. B. absolute advantage. C. zero sum. D. comparative advantage.
A. mercantilism.
Internal economies of scale means that A. simply expanding the size of the market the firm serves reduces overall per unit costs, since the firm can spread costs over more output. B. firms will have lower profits after international trade begins, because costs will be higher than when they just focused on the domestic market. C.firms are experiencing lower average production costs due to a geographical concentration of firms in their industry that make it cheaper and easier to hire highly specialized workers and inputs. D.consumers will have less choices once trade begins, because firms will be squeezed out of the market.
A. simply expanding the size of the market the firm serves reduces overall per unit costs, since the firm can spread costs over more output.
Most economists attribute the growing income inequality in the United States to A. technological change. B. taxes. C. changing values. D. trade. E. macroeconomic policies.
A. technological change.
The international organization that serves as a forum for trade discussions and the development of trade rules is called A. the WTO. B. the World Bank. C. the United Nations. D. the IMF.
A. the WTO.
A country possesses a comparative advantage in the production of a product if A. the opportunity cost, in terms of the amount of other products that it gives up to produce this product, is lower than it is for its trading partners. B. it can produce more of this good per hour than its trading partners. C. it possesses an absolute advantage in the production of this good compared to its trading partners. D. it is able to produce less of this good per worker than its trading partners.
A. the opportunity cost, in terms of the amount of other products that it gives up to produce this product, is lower than it is for its trading partners.
One important difference between the international economy of today and the economy of 100 years ago is A. the presence of international bodies such as the IMF and World Bank. B. that labor is so much more mobile. C. for the first time, technological innovations have reduced the barrier of distance. D. that price differences in different markets have narrowed. E. that capital is mobile.
A. the presence of international bodies such as the IMF and World Bank.
In order for large countries to successfully use tariffs to increase well being, A. they must have significant market power so that foreign firms will cut prices to preserve their sales. B. domestic consumption and imports must decrease more significantly than in the small country case. C. the deadweight loss created by the tariff must be greater than the government revenue the tariff generates. D. domestic production must increase more significantly than for the small country case.
A. they must have significant market power so that foreign firms will cut prices to preserve their sales.
Suppose Mexico can produce 5 autos or 10 corn. Suppose the United States can produce 4 autos or 20 corn. If opportunity costs are constant for both countries, which of the following would NOT be a potential terms of trade? A.1 corn for 1 auto B.1 corn for 1/3 of an auto C. 1 auto for 3 corn D. 1 auto for 4 corn
A.1 corn for 1 auto
Until the Uruguay Round of trade negotiations, which of the following sectors were NOT included in the rules for international trade? A.Agriculture and apparel B. Automobiles and agriculture C. Steel and agriculture D. Steel and textiles
A.Agriculture and apparel
Comparative advantage has mixed results when it comes to predicting a country's trade patterns. Which of the following is FALSE? A.Comparative advantage has proven completely incapable of predicting trade. B.Comparative advantage is a dynamic concept, which means that the spread of technology, improvement in skills, and learning-by-doing may alter a country's comparative advantage over time. C. There are many potential products an economy might export that use the same comparative advantage. D. A large share of international trade is not based on comparative advantage.
A.Comparative advantage has proven completely incapable of predicting trade.
Which of the following would NOT be associated with the LATE PHASE of the product cycle? A.There is experimentation and improvement in design and manufacturing. B.Increasing share of output is moving to developing countries where abundant low skilled and semi-skilled labor keep production costs low. C. Consumption in high income countries begins to exceed production. D. Consumption continues to grow in low income countries.
A.There is experimentation and improvement in design and manufacturing.
An example of a foreign direct investment (FDI) would include A.a U.S. couple buying land for their dream retirement home in Costa Rica. B.a U.S. mutual fund manager buying shares of stock in a Brazilian oil company. C.a wealthy Mexican buying U.S. Treasury bills. D.a U.S. firm expanding its U.S. operations.
A.a U.S. couple buying land for their dream retirement home in Costa Rica.
The International Monetary Fund (IMF), the World Bank, the General Agreement on Tariffs and Trade (GATT) were formed A.after World War II. B.before 1900. C.to respond to the formation of the European Community in 1957. D.after World War I.
A.after World War II.
Intraindustry trade relies on A.economies of scale. B.differences in factor endowments. C.the product cycle. D.monopoly pricing.
A.economies of scale.
One of the most important and most visible roles of the IMF is to A.intercede by invitation when countries cannot pay their international debts. B.investigate countries that are charged with being unfair traders. C. provide loans to countries that need capital to develop their economies. D. hold regular negotiations over tariff reductions.
A.intercede by invitation when countries cannot pay their international debts.
In our simple trade model, having a comparative advantage in a product implies that a country will specialize completely in the product A.with the lowest opportunity cost. B. with the highest opportunity cost. C. where total output is lower per worker-hour. D. where total output is greater per worker-hour.
A.with the lowest opportunity cost.
If two countries agree to specialize and trade based on comparative advantage, which of the following is most likely to be TRUE? A. One of the countries will end up receiving all of the gains from trade. B. Both of the countries will consume outside their respective production possibilities curves. .C. Only one of the countries will produce on and consume outside its production possibilities curve. D. One of the countries will both consume and produce on its production possibilities curve.
B. Both of the countries will consume outside their respective production possibilities curves.
When the United States gives MFN status to China, it means that A. China is treated worse than other U.S. trading partners. B. China is treated the same as other U.S. trading partners. .C. China is treated better than other U.S. trading partners. D. China is legally bound to reciprocate.
B. China is treated the same as other U.S. trading partners.
Which of the following is FALSE? A. Government revenue increases after a tariff is imposed. B. Consumer surplus increases after a tariff is placed on imports. C. Producer surplus increases after a tariff is imposed. D. Deadweight losses result from tariffs.
B. Consumer surplus increases after a tariff is placed on imports.
Economists A. believe that changing domestic policies affecting trade is a relatively simple process. B. describe reducing tariffs and quotas as shallow integration. C. believe that the work of reducing trade barriers is done since most tariffs are low and most quotas eliminated. D. describe reducing tariffs and quotas as deep integration.
B. Describe reducing tariffs and quotas as shallow integration
Which of the following is NOT a reason social returns might be greater than private returns? A. Knowledge spillovers B. Excess competition between firms C. Spillovers from research and development D. Capital market imperfections
B. Excess competition between firms
Which of the following is an example of an institution whose primary concern is global stability? A. Asian Development Bank B. IMF (International Monetary Fund) C. OPEC (Oil Producing and Exporting Countries) D. NAFTA (North American Free Trade Agreement)
B. IMF (International Monetary Fund)
Which type of restriction on quantity of imports is the most transparent? A. Licensing requirements B. Quota C. Voluntary export restraints D. Government procurement policies
B. Quota
Which of the following is NOT an example of an international public good? A. Last- resort lending B. Regional trade agreements C. Open markets during a recession D. Capital flows to less-developed countries
B. Regional trade agreements
Which of the following is NOT a feature of a common market? A.Common external barriers to trade B. Substantial coordination of macroeconomic policies among the members C.Factor mobility D.Free trade in goods and services between the members
B. Substantial coordination of macroeconomic policies among the members
Which of the following is NOT correct about the effects of a tariff on an imported product? A. Tariffs benefit domestic producers by raising price and domestic output. B. Tariffs increase the efficiency of how resources are allocated. C. Tariffs mean higher prices and less consumption for consumers of the product. D. Tariffs increase government revenue.
B. Tariffs increase the efficiency of how resources are allocated
In which way are tariffs different from quotas? A. They increase the domestic quantity supplied of the product. B. They raise government revenue. .C. They reduce the volume of imported products. D. They raise the price of the imported products to consumers.
B. They raise government revenue.
Which of the following does NOT indicate intraindustry trade? A. Trading Japanese- made films for Hollywood- made films B. Trading oil for trucks C. Trading Bush beer for Heineken beer D. Trading Jeeps for Toyotas E. Trading Boeing airplanes for Airbus airplanes
B. Trading oil for trucks
Made in the USA or Made in China has less meaning for products that A. are a product that is produced and consumed domestically. B. are technological and involve assembling many different types of sometimes sophisticated components. C. are a commodity such as iron ore. D. are an agricultural product such as wheat.
B. are technological and involve assembling many different types of sometimes sophisticated components.
IMF conditionality refers to the A.minimum-sized loan the IMF will make. B. changes a country must make in order to receive IMF financial assistance. C. technical assistance the IMF gives. D. maximum-sized loan the IMF will make. E. minimum size of a national debt problem that a country must have before the IMF gets involved.
B. changes a country must make in order to receive IMF financial assistance.
Tariffs reallocate income from A. consumers to foreigners. B. consumers to producers. C. government to producers. D. producers to consumers.
B. consumers to producers.
Under some circumstances, trade could stifle the development of new industries and reduce global efficiency. All of the following describe conditions that could lead to that situation except A. an initial headstart gives a scale advantage to already existing firms in one country. B. diseconomies of scale make it impossible for new firms to enter the market. C. a historical accident, such as the shifting of airplane production to the United States to avoid World War II bombings, causes firms in one location to have a competitive advantage. D. a location has a better-developed linkage between suppliers and producers, giving it a cost advantage.
B. diseconomies of scale make it impossible for new firms to enter the market.
Countries such as the United States that have large populations tend to have A. relatively smaller capital outflows. B. lower trade-to-GDP ratios. C.higher trade-to-GDP ratios. D.relatively greater capital outflows.
B. lower trade-to-GDP ratios.
Suppose that the United States decided to subsidize a major competitive effort by the semiconductor industry to bring to market the next generation computer chip. Under the current rules of the WTO and GATT, the U.S. effort is A. allowed as long as the subsidies are a small percent of the total cost. B. not allowed. C. allowed as long as the subsidies do not succeed in creating a new product. D. allowed as long as the subsidies do not involve a direct payment to the industry.
B. not allowed.
An important function of international institutions during times of crisis is to A. make goods nonexcludable. B. prevent free riding. C. prevent nondiscrimination. D. make goods nonrival.
B. prevent free riding.
The primary mission of the World Bank today is to A. provide capital to firms around the world. B. provide capital to underdeveloped countries. C. help countries manage their exchange rates. D. provide financial assistance for the reconstruction of war-damaged nations.
B. provide capital to underdeveloped countries.
If a nation has no absolute advantage, then it A. can only gain from trade if it raises its productivity levels. B. still gains from trade. C. cannot gain from trade. D. can only gain from trade if it produces outside its production possibilities curve.
B. still gains from trade.
Statistical empirical evidence consistently shows that countries that are more open A. experience more rapid rates of capital outflow. B. tend to grow faster than countries that are closed. C. experience persistent price gaps with other countries. D. are more likely to run trade deficits.
B. tend to grow faster than countries that are closed.
International Monetary Fund (IMF) "quotas" refer to A. country quantity restrictions on imported products. B. the IMF membership fee paid by countries. C.the amount of foreign exchange reserves that each member country is obligated to hold at its central bank. D. the fixed amount of borrowing that each country is allowed to undertake from the IMF.
B. the IMF membership fee paid by countries.
Efficiency losses are A. deadweight losses caused by consumers being prevented by tariffs from buying products at the world price, products that they value more highly than that price. B. the deadweight loss that is created because domestic firms have to charge higher prices to produce units of output than foreign firms would have to charge. C. the total loss in consumer surplus from a tariff. D. the increase in producer surplus that is created by a tariff.
B. the deadweight loss that is created because domestic firms have to charge higher prices to produce units of output than foreign firms would have to charge.
The production side efficiency loss of a tariff is caused by A. the increase in government revenue. B. the expansion of relative inefficient domestic production. C. higher profits gained by foreign producers. D. the contraction of domestic consumption.
B. the expansion of relative inefficient domestic production.
In a small country, the net national cost of tariff protection is equal to the reduction in consumer surplus minus A. the increase in government revenue. B. the increase in government revenue and the increase in producer surplus. C.the efficiency loss and the consumption side loss. D. the increase in producer surplus.
B. the increase in government revenue and the increase in producer surplus.
A country's foreign exchange reserves refers to A. the country's Special Drawing Rights (SDRs) at the IMF. B. the country's holdings of gold and internationally accepted currencies. .C. the total amount of a country's currency held by other nations. D. the currency of the nation itself.
B. the country's holdings of gold and internationally accepted currencies.
If social returns to the production of a good are greater than private returns, then we can conclude that relative to the social optimum, the good will be A. overproduced and underpriced. B. underproduced and overpriced. C. underproduced and underpriced. D. overproduced and overpriced.
B. underproduced and overpriced.
The trade-to-GDP ratio for a nation that had $600 million in exports, $400 million in imports, and GDP of $2,000 million would be A.0.1. B.0.5. C.-0.1. D.0.2.
B.0.5.
Which of the following kinds of agreements between two or more countries would be an example of a deep integration measure? A.An agreement to reduce exports B.An agreement to impose the same limits on cartels and monopolies C.An agreement to reduce tariffs and quotas D.An agreement to unify customs forms in order to speed up cross-border traffic
B.An agreement to impose the same limits on cartels and monopolies
A major impact of the transatlantic telegraph was A.an increase in trade conflicts between the United States and Europe. B.a reduction in time required to obtain market information and conclude a transaction between New York and London C.an increase in labor flows across the Atlantic. D.a decrease in trade barriers between the United States and Europe.
B.a reduction in time required to obtain market information and conclude a transaction between New York and London
Labor mobility was A.less in 1900 than in 2010. B.greater in 1900 than in 2010. C.unimportant to global integration until the 1960s. D.never controversial.
B.greater in 1900 than in 2010.
Which of the following statements is FALSE? A. Comparative advantage is the principle upon which trade patterns are based. B. Opportunity cost measures the real cost to a country of producing a certain product. C. A country that possesses an absolute advantage will always have a comparative advantage. D. The gains from trade are the result of differences in opportunity cost and comparative advantage.
C. A country that possesses an absolute advantage will always have a comparative advantage.
Which of the following is NOT an expected benefit of reducing nontariff barriers to trade? A. Lower prices for many goods B. Improved overall economic welfare C. Fewer firms to compete with D. Increase in the volume of exports and imports
C. Fewer firms to compete with
From the late 1940s until the creation of the WTO, the organization that was primarily responsible for conducting rounds of trade negotiations was the A. IMF. B. ITO. C. GATT. D. World Bank. E. United Nations.
C. GATT.
Which of the following is TRUE about monopolistic competition? A. Firms do not have economies of scale. B. A small number of firms serve the entire market. C. It is competition among many firms producing similar but differentiated products. D. One firm serves as the entire industry.
C. It is competition among many firms producing similar but differentiated products.
Which of the following is a problem that arises when trying to classify regional trade agreements? A. The definition of free trade area includes that of a customs union. B. The most favored nation clause includes all of them. C. Many agreements combine elements from different categories. D. Some agreements include cultural issues while others do not.
C. Many agreements combine elements from different categories.
Which of the following would be a deadweight loss from a tariff? A. The shift of consumer surplus to government B. The increase in producer surplus C. The decrease in consumer surplus due to a drop in consumption D. The decrease in consumer surplus
C. The decrease in consumer surplus due to a drop in consumption
D.help countries avoid the mistakes of the 1920s and 1930s. A. IBRD B. World Bank C. WTO D.IMF
C. WTO
An example of foreign direct investment is A. a Mexican buying dollars for pesos. B. buying stock in a German company. C. building a Starbucks shop in Canada. D. All of the above.
C. building a Starbucks shop in Canada.
It is often costly for developing countries to adjust to trade agreements because A. trade agreements systematically expect more liberalization by developing countries than is expected of developed countries. B. their economies are more diversified than those of developed countries. C. developing countries often have limited social safety nets to provide support to workers in transition. D.All of the above.
C. developing countries often have limited social safety nets to provide support to workers in transition.
If a country has lower overall productivity levels than its trading partners, then it will A. be unable to export. B. not be able to obtain gains from trade. C. have a lower standard of living than its trading partners. D. have a trade deficit.
C. have a lower standard of living than its trading partners.
Economic restructuring that takes place as a result of opening to trade with other countries A. worsens the nation's allocation of resources. B. causes some trading activity to be zero sum. C. improves the nation's allocation of resources. D. contradicts the idea of gains from trade.
C. improves the nation's allocation of resources.
Intraindustry trade refers to A. international trade of products made across different industries. B. trade that occurs as a result of comparative advantage. C. international trade of products made within the same industry. D. the exchange of dissimilar items.
C. international trade of products made within the same industry.
Large countries can improve their welfare by levying a tariff only if it does not A. increase domestic production of the good. B. create a deadweight loss. C. lead to retaliation by the nation's trading partners. D. reduce rent seeking elsewhere in the economy.
C. lead to retaliation by the nation's trading partners.
Average tariff rates are highest for A. industrialized countries. B. high-income countries. C. low-income countries. D. middle-income countries.
C. low-income countries.
If a good or service does not get used up as it is consumed, then it is said to be A. nonconsumable. B. nondiscrimination. C. nonrival. D.nonexcludable.
C. nonrival
Suppose Mexico can produce 5 autos or 10 corn. Suppose the United States can produce 4 autos or 20 corn. If opportunity costs are constant for both countries, then A. Mexico has a comparative advantage in corn production B. the United States has a comparative advantage in auto production. C. the United States has a comparative advantage in corn production. D. the United States cannot gain from trade with Mexico.
C. the United States has a comparative advantage in corn production.
The Stolper-Samuelson Theorem predicts A. which goods will be exported. B. the level of productivity in export industries. C. the income distribution effects of trade. D. which factors are abundant.
C. the income distribution effects of trade.
One of the reasons we know that international labor mobility has been higher at other times is because A. the population was younger. B. wages were lower. C. the percent of our population that was foreign born was higher. D. labor was important in agriculture.
C. the percent of our population that was foreign born was higher.
All of the following are true except A. trade between nations will not benefit all citizens. B. trade makes nations dependent on each other. C. the principle of comparative advantage does not apply to countries with extremely limited resources. D. trade between two nations reduces their opportunity costs.
C. the principle of comparative advantage does not apply to countries with extremely limited resources.
Suppose that Brazil is capital abundant and Chile is natural resource abundant. If timber is natural resource intensive and computers are capital intensive, then A. Chile will produce more computers after trade begins with Brazil. B.Brazil will completely specialize in computers once trade begins with Chile. C.Chile will produce more timber after trade begins with Brazil. D.Brazil will produce more timber after trade begins with Chile.
C.Chile will produce more timber after trade begins with Brazil.
A key institution that did NOT directly arise from post-WWII negotiations was the A.IMF. B.World Bank (IBRD). C.WTO. D.GATT.
C.WTO.
When world capital is allowed to flow freely between countries, it is expected that capital will flow from A.countries with a high level of international trade to countries with lower levels of international trade. B.countries with low income to countries with high income. C.countries with abundant savings and capital to countries with low savings and capital. D.countries with high income to countries with low income.
C.countries with abundant savings and capital to countries with low savings and capital.
Financial capital flows could include A.the purchase of the physical assets and operations of a multinational corporation by another. B.construction of factories. C.currency market transactions. D.sales of a business. E.real estate purchases.
C.currency market transactions.
Since the end of World War II, A.trade is less important to most nations' economies than in the early part of the twentieth century. B.world trade has grown more slowly than world GDP in the same time period. C.world trade has grown more rapidly than world output. D.world trade has grown more slowly than during the years leading up to World War II. E.the trade-to-GDP ratios of most countries have fallen.
C.world trade has grown more rapidly than world output.
Critics of regional trade agreements argue that the formation of regional trade agreements A. undercuts country efforts directed to multilateral trade liberalization (as through the World Trade Organization). B. often discriminate against lower income countries. C. are bad, since free trade is not a worthy goal in a typical context. D. A and B only.
D. A and B only.
Which of the following is FALSE? A. Common markets allow for labor mobility between participating nations. B. NAFTA is an example of a free trade area. C. The European Union is a deeper form of integration than NAFTA. D. A common market is more deeply integrated than an economic union.
D. A common market is more deeply integrated than an economic union.
The goals of Bretton Woods included the formation of organizations and institutions that would A. create an international organization to help nations that are unable to pay their international debts. B. facilitate agreements to reduce trade barriers. C. create an exchange rate system to help stabilize exchange rates. D. All of the above.
D. All of the above.
Which of the following are true statements regarding public goods? A. They are non-rival. B. They are non-excludable. C. Private markets in public goods often fail due to free riding. D. All of the above.
D. All of the above.
Which of the following kinds of agreements between two or more countries would be an example of a shallow integration measure? A. An agreement to accept another nation's certification of architects B. An agreement to use the same environmental standards C. An agreement to impose the same limits on cartels and monopolies D. An agreement to unify customs forms in order to speed up cross-border traffic
D. An agreement to unify customs forms in order to speed up cross-border traffic
Which of the following is FALSE? A. National sovereignty limits outsiders' ability to change the trade laws and practices of individual nation states. B. Foreign investors may not have a legal right to impose policies on a nation state, but the nation state may still experience consequences of poor policies. C. Because trade policies are laws of individual nations, it is difficult for other nations and international organizations to force changes on unwilling nation states. D. Because of international recognition of national sovereignty, individual nations are unaffected by global trade and capital flows.
D. Because of international recognition of national sovereignty, individual nations are unaffected by global trade and capital flows.
Which of the following is NOT a likely result of intraindustry trade based on internal economies of scale? A. Increased sales and lower per unit costs for the firm doing the exporting B. Lower prices for the domestic consumers of the product now being traded C. Job creation at domestic firms entering international trade D. Higher prices for the exported product
D. Higher prices for the exported product
Suppose that Canada can produce 15 units of timber or 3 units of grain. Suppose that Mexico can produce 6 units of timber or 2 units of grain. Which of the following is CORRECT? A. Mexico has an absolute advantage in timber production. B. The countries would find trade mutually beneficial at a trading ratio of 1 grain for 2 timber. C. Canada has a comparative advantage in grain production. D. Mexico has a comparative advantage in grain production.
D. Mexico has a comparative advantage in grain production.
Which of the following would be associated with the early phase of the product cycle? A. More consumption in lowminusincome, developing countries B. Large amounts of production in low-income, developing countries C. A standardized product with an assembly-line style production process D. Sophisticated marketing and customer feedback mechanisms
D. Sophisticated marketing and customer feedback mechanisms
Which of the following is TRUE? A. The World Trade Organization has no power to resolve trade disputes and to enforce their resolution. B. A country experiencing a debt or currency crisis would contact the World Trade Organization. C. The World Trade Organization was formed at the Bretton Woods conference. D. The General Agreement on Tariffs and Trade created the World Trade Organization in the negotiations and treaty known as the Uruguay Round.
D. The General Agreement on Tariffs and Trade created the World Trade Organization in the negotiations and treaty known as the Uruguay Round.
Which of the following is NOT a criticism of international institutions such as the IMF, the World Bank, or the WTO? A. They ignore potentially large adjustment costs for developing nations of implementing their policies. B. They violate national sovereignty by imposing unwanted domestic policies. C. They fail to understand the effects of their policies on the vulnerable. D. Their decision-making is biased in favor of underdeveloped nations.
D. Their decision-making is biased in favor of underdeveloped nations.
If one nation is able to produce a good at a lower opportunity cost than another, it has A. an absolute advantage in that good. B. a technological advantage in that good. C. a productivity advantage in that good. D. a comparative advantage in that good.
D. a comparative advantage in that good.
A free trade agreement plus a common set of tariffs toward non-members is called A. an economic union. B. a free trade area. C.a common market. D. a customs union.
D. a customs union.
Institutions are A.associations of individuals or groups. B. the same thing as organizations. C. always embodied in a written set of rules. D. a set of rules governing behavior, whether written or not.
D. a set of rules governing behavior, whether written or not.
Producer surplus is equal to the area A. under the demand curve and above the supply curve. B. under the supply curve. C. under the demand curve and above the price line. D. above the supply curve and below the price line.
D. above the supply curve and below the price line.
Based on the theory of comparative advantage, nations maximize their well being when they A. create more jobs. B. increase exports. C. increase trade surpluses. D. allocate resources more efficiently
D. allocate resources more efficiently
The elimination or reduction of trade barriers caused by non-trade-related domestic policies is referred to as A. quota reduction. B. regional trade integration. C. shallow integration. D. deep integration.
D. deep integration.
The straight- line production possibilities curve introduced in the text A. fails to benefit trading nations. B. refutes the principles of comparative advantage. C. fails to reflect tradeoffs. D. does not show increasing opportunity costs.
D. does not show increasing opportunity costs.
The trade-to-GDP ratio is calculated by A. imports divided by GDP. B. exports divided by GDP. C. exports minus imports divided by GDP. D. exports plus imports divided by GDP.
D. exports plus imports divided by GDP.
In an industry where transportation costs are high and there are limited scale economies, A. firms might locate in either area. B. firms will locate close to their input sources. C. firms will locate where policy makers decide. D. firms will locate close to the market.
D. firms will locate close to the market.
A production possibilities curve that is bowed out represents the case of A. external costs. B. decreasing costs. C. constant costs. D. increasing costs.
D. increasing costs.
The original mission of the World Bank was to A. provide capital to firms around the world. B. provide capital to underdeveloped countries. C. help countries manage their exchange rates. D. provide financial assistance for the reconstruction of warm-damaged nations.
D. provide financial assistance for the reconstruction of warm-damaged nations.
Deep integration A. does not require changing domestic policies unrelated to tariffs and quotas. B. is easier to achieve than shallow integration. C. is less controversial than shallow integration. D. requires cooperation with other national governments or international bodies.
D. requires cooperation with other national governments or international bodies.
Empirical tests of the theory of comparative advantage have provided A. no support for either the Ricardian or the HeckscherminusOhlin models. B. mixed support for both Ricardian and Heckscher-Ohlin models. C. mixed support for the Ricardian model and strong support for the Heckscher-Ohlin model. D. strong support for the Ricardian model and mixed support for the Heckscher-Ohlin model. E. strong support for both the Ricardian and Heckscher-Ohlin models.
D. strong support for the Ricardian model and mixed support for the Heckscher-Ohlin model.
An important factor that increased international capital flows in the second half of the nineteenth century was A. the creation of numerous regional trade agreements. B. the creation of the International Monetary Fund. C. the rapid rate of East Asian economic growth. D. technological innovations.
D. technological innovations.
When economists talk about the gains from trade they mean that A. business firms benefit from trade but not necessarily individuals. B. no one ever gets hurt by trade. C. economic restructuring is usually quick and painless. D. the benefits of trade outweigh the losses. E. trade increases government revenue through taxes on imports.
D. the benefits of trade outweigh the losses.
All of the following are differences in capital flows today from the past, EXCEPT A. the increasing variety of financial instruments. B. the larger number of companies listed on world stock exchanges. C. the need to protect from sudden changes in currency values. D. the problem of volatility in financial capital flows.
D. the problem of volatility in financial capital flows.
If the price of a good rises, then the effect on the income of the factors that are used intensively in its production will be A. to raise income by a smaller percentage than the rise in prices. B. to raise income by an absolute amount that is less than the rise in prices. C. to raise income by an absolute amount that is more than the rise in prices. D. to raise income by a greater percentage than the rise in prices.
D. to raise income by a greater percentage than the rise in prices.
With a partial trade agreement A. goods and services are allowed to cross boundaries without tariffs. B. two or more countries set common tariffs toward non-members. C. two or more countries allow the free mobility of inputs such as labor and capital. D. two or more countries agree to liberalize trade in a selected group of categories.
D. two or more countries agree to liberalize trade in a selected group of categories.
Consumer surplus is equal to the area A. under the demand curve. B. above the supply curve and below the price line. C. under the supply curve. D. under the demand curve and above the price line. E. under the demand curve and above the supply curve.
D. under the demand curve and above the price line.
The Heckscher- Ohlin Theorem predicts A. who benefits and who loses from trade. B. the income distribution effects of trade. C. which factors are abundant. D. which goods will be exported.
D. which goods will be exported.
If the world price for a good is above a nation's preminustrade equilibrium price, then the nation A. cannot gain from trade. B. will neither export nor import the good. C. will import the good. D. will export the good. E. Both C and D.
D. will export the good.
After trade opens, the short run impact on the income of the variable factor will be A. a decrease. B. an increase. C. zero. D. indeterminate, income effects are not possible to know
D. indeterminate, income effects are not possible to know
Free trade in goods is predicted to A.provide consumers with lower prices. B.increase competition for workers and firms. C.provide consumers with greater variety. D.All of the above.
D.All of the above.
When comparing current international capital flows with capital flows of the past, A.the number of financial instruments has increased over time. B.transactions costs appear to have fallen. C.the level of financial flows compared to GDP has not changed significantly. D.All of the above. E.A and B only.
D.All of the above.
Which of the following criticisms is NOT directed to the IMF? A.It serves the interests of wealthier countries. B.It lacks openness in its decision-making process. C.It violates national sovereignty. D.It creates a free-riding problem.
D.It creates a free-riding problem.
The United States is an example of A. a free trade area. B. customs union. C. a common market. D.an economic union.
D.an economic union.
One of the strongest motivations for holding the Bretton Woods Conference was to design new international institutions that would A. contain communism. B. ensure that world prices were not rising too rapidly. C. provide a collective defense security for Western Europe and North America. D.help countries avoid the mistakes of the 1920s and 1930s.
D.help countries avoid the mistakes of the 1920s and 1930s.
One reason that a large share of the trade between high-income industrial economies is intraindustry trade is because A. high-income industrial economies are wealthier than developing countries. B. high-income industrial economies have dissimilar resource endowments in absolute terms. C. it is more advantageous than interindustry trade. D.it allows firms to take advantage of internal economies of scale. E. high-income industrial economies produce in the first stage of the product cycle.
D.it allows firms to take advantage of internal economies of scale.
The Tokyo Round of the GATT negotiations was notable because it was the first round A.that included textiles and apparel. B.that included Japan. C.to begin discussions of exchange rates. D.to begin establishing rules on subsidies.
D.to begin establishing rules on subsidies.
A relative measure of the importance of trade is A.the dollar value of trade. B.the dollar value of trade adjusted for inflation. C.trade as a percentage of investment. D.trade as a percentage of GDP.
D.trade as a percentage of GDP.
If trade in a particular good interindustry, the expansion of an industry in one country is likely to lead to the ________ of that industry in the other country. If trade in that good is intraindustry, expansion of the industry in one country is likely to lead to the ________ in the other country.
Decline, Expansion
Which of the following is NOT a problem in the implementation of industrial policies? A. The encouragement of rent seeking by firms in other industries B. Knowing the optimum amount of resources to provide the targeted industry C. Choosing the industry to target D. The benefits are partly captured by foreign firms. E. All of the above are problems.
E. All of the above are problems.
Market failures occur whenever A. the free market produces less than what is socially optimal. B. private returns may be greater than social returns. C. social returns may be greater than private returns. D. monopolies exist in a market. E. All of the above.
E. All of the above.
In economic terms, tariffs are preferred to quotas because A. domestic manufacturers gain more producer surplus. B. tariffs are easier to administer. C. quotas create a greater production inefficiency. D. there is less loss of consumer surplus. E. given the way quotas are usually administered, tariffs cause a smaller net national welfare loss.
E. given the way quotas are usually administered, tariffs cause a smaller net national welfare loss.
A country experiencing a debt or currency crisis would contact the World Bank. True or False
False
A country is likely to be better off in the long run if it pursues self sufficiency. True or False
False
A nation must have an absolute advantage in order to have a comparative advantage in producing a good or service. True or False
False
Adam Smith created the theory of comparative advantage. True or False
False
A nation's votes at the IMF are proportional to its population. True or False
False
Capital and labor only very recently have been free to move across international borders. True or False
False
Capital flows between countries are smaller than in past decades in absolute terms. True or False
False
Deadweight losses are the only potential cost associated with tariffs, which is why they are preferred to quotas. True or False
False
Domestic agricultural subsidies intended to support the nation's farmers would not be considered a trade barrier so would not be disputed internationally. True or False
False
Economies of scale are an important determinant of comparative advantage based trade. True or False
False
If the effective rate of protection is greater than the nominal rate of protection, there must be tariffs on intermediate products. True or False
False
Interindustry trade is not based on comparative advantage since it consists of the export and import of similar countries and mostly between countries that have similar productivity, technology, and factor endowments. True or False
False
Intraindustry trade tends to be more controversial than interindustry trade. True or False
False
Nontariff measures are generally much more difficult to eliminate than tariffs and quotas because they are embedded more deeply in national economic policies. True or False
False
Open economies grow more slowly than closed economies. True or False
False
Since the mid-1980s tariff rates in most nations have risen. True or False
False
Tariff revenue is an important source of operating revenue for many governments of high income countries. True or False
False
The United States does not use subsidies as part of its policies. True or False
False
The World Bank formed the World Trade Organization when it became clear that to alleviate poverty in developing nations, agricultural trade barriers were going to have to be reduced. True or False
False
The IMF, because it can force nations to take loans and bail out packages, has more power than other international governmental organizations dealing with the global economy. True or False
False
Transactions costs in international financial markets are higher today than they were in the past. True or False
False
Elimination of barriers to trade (tariffs and quotas) are referred to as _________ integration. Negotiation over domestic policies that impact international trade are referred to as ________ integration
Shallow, Deep
A country that creates competitive advantage where there are not comparative advantages misallocates its resources and has lower national well being. True or False
True
A substantial amount of trade between industrialized countries is intraindustry or intrafirm trade rather than interindustry trade. True or False
True
Both tariffs and quotas lead to a decrease in imports, a decrease in domestic consumption, and an increase in domestic production. True or False
True
Chinese exports of toys and footwear can be explained by factor endowments, while Chinese exports of telecommunications equipment and computers and accessories can be explained by product- cycle analysis. True or False
True
Comparative advantage cannot account for a significant portion of world trade. True or False
True
If countries have similar factors of production and similar productivities, most of their trade is likely to be intraindustry. True or False
True
Intraindustry trade can lead to lower prices and job creation in both the exporting and the importing nation. True or False
True
Many of the important international governmental institutions that deal with the global economy have their roots in the Bretton Woods conference at the end of World War II. True or False
True
Mercantilists perceived trade as a zero sum game. True or False
True
Most economists support open trade because it increase our choices as consumers, lowers costs for producers, increases competition and innovation, and leads to greater diffusion of technological change. True or False
True
Most migrants move from developing to developed nations. True or False
True
Most of what we buy and sell never makes it out of domestic markets. True or False
True
Nontariff barriers to trade are less transparent than tariffs. True or False
True
Offshoring became a concern in the 1980s when modern communication and transport technology made it possible for firms to relocate production abroad. True or False
True
The World Bank was created as a result of the Bretton Woods conference and was originally focused on the reconstruction of Europe after World War II. True or False
True
The four criteria for economic integration include trade flows, capital flows, people flows, and the similarity of prices in separate markets. True or False
True
While the world was fairly integrated at the turn of the last century, most trade was in agricultural and raw materials, whereas today manufactured consumer and producer goods play a much greater role in determining exports and imports. True or False
True
