Econ 360 Exam 1 homework study guide

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trade is about

improving living standards through a more efficient allocation of resources.

Free trade in goods is predicted to

increase competition for workers and firms. provide consumers with greater variety. provide consumers with lower prices.

Using the HO​ model, assume that the United States is capital abundant and Mexico is labor abundant. If soybeans

increase soybean​ production, but still produce some avocados.

Suppose that Brazil is capital abundant and Chile is natural resource abundant. If timber is natural resource intensive and computers are capital​ intensive, then according to the Heckscher−Ohlin ​Theorem, Chile should export goods that

intensively use natural resources.

The current process of increasing economic integration among national​ economies, better known as​ globalization,

is actually the​ world's second wave of such integration.

A country has a comparative advantage in the production of a good because

its endowments of production inputs determine the relative costs of products.

A country has a comparative advantage in producing a good if

its opportunity cost of producing that good is lower than elsewhere.

International capital markets

may have smaller capital flows​ (relative to the size of their​ GDP) today than around the late​ 19th/early 20th century and often have higher transaction costs than domestic capital markets.

The economic philosophy that favors strict limits on imports and strong support for exports is called

mercantilism.

Public goods differ from private goods in that the former are

nondiminishable often provided collectively. nonexcludable.

If a good or service does not get used up as it is​ consumed, then it is said to be

nonrival.

A typical measure or criteria for judging the degree of international economic integration is

people flows. similarity of prices. capital flows. trade flows.

Regional trade agreements​ (RTAs) or trade blocs are trading arrangements that allow __________________ treatment between members.

preferential

Mercantilism advocated that a country

promote exports over imports because it viewed trade as zero​ sum, believing that one​ nation's gain was another​ nation's loss.

The primary mission of the World Bank today is to

provide capital to underdeveloped countries.

The original mission of the World Bank was to

provide financial assistance for the reconstruction of war−damaged nations.

Suppose again that furniture production is more​ capital-intensive relative to clothing​ production, which is more​labor-intensive. If the relative price of furniture to clothing​ rises, this will

raise the income of capital owners.

The opposition to expanded trade comes from people who fear that it will

reduce the demand for their labor or capital and lead to a decline in income.

Suppose a country is abundant in capital and the relative price of the good that intensely uses capital for its production increases. The​ Stolper-Samuelson theorem predicts that it​ will:

see wage decreases for​ labor, because of the higher demand for the good that uses capital intensively.

Within each country that opens itself to international​ trade,

some factor owners​ gain, but other factor owners lose.

If a nation has no absolute​ advantage, then it

still gains from trade.

Wage inequality has been on the rise in virtually all high−income industrial economies since the 1970s. The causes are probably​ numerous, but the leading explanation for the greatest share of the increase in inequality is

technological change which increased the relative demand for skilled workers.

An important factor that increased international capital flows in the second half of the nineteenth century was

technological innovations

International Monetary Fund​ (IMF) "quotas" refer to

the IMF membership fee paid by countries.

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

the United States has a comparative advantage in corn production.

The international organization that serves as a forum for trade discussions and the development of trade rules is called

the WTO.

A nation gains from trade even though some individuals benefit while others are hurt because

the economic gains of the winners exceed the economic losses of the losers.

The Stolper−Samuelson Theorem predicts

the income distribution effects of trade.

Suppose a country has two​ factors, land and​ labor, and assume that wheat is a​ land-intense product. If the relative price of wheat increases by 10​ percent, the​ "magnification effect" implies that

the income earned by land owners will increase by more than 10 percent.

A country possesses a comparative advantage in the production of a product if

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

the presence of international bodies such as the IMF and World Bank.

Economists use the term opportunity cost to refer to

the value of the next best alternative occurring as a result of making a particular choice.

With​ trade, the slope of the Consumption Possibilities Curve​ (CPC) is equal to

the world price of the good on the horizontal axis.

The Tokyo Round of the GATT negotiations was notable because it was the first round

to begin establishing rules on subsidies.

Economic nationalists in developed countries worry that international trade is destroying the national economy. A common complaint is that trade agreements open the economy to increased trade with countries where workers are paid a fraction of what they earn at home. This argument is faulty since it fails to recognize that

wage differentials reflect productivity differences.

The Heckscher−Ohlin Theorem predicts

which goods will be exported.

If the world price for a good is above a​ nation's pre−trade equilibrium​ price, then the nation

will export the good.

In our simple trade​ model, having a comparative advantage in a product implies that a country will specialize completely in the product

with the lowest opportunity cost.

Suppose that strawberries are a​ labor-intensive good. An increase in the price of strawberries will​ ________ the demand for​ strawberries, which will​ ________ the demand for strawberry pickers.

​increase, increase

The​ trade-to-GDP ratio is computed using

(Exports + Imports) / GDP

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

0.5.

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?

1 corn for 1 auto

A high correlation of national savings and investment​ is:

A signal that countries may not be able to lend and borrow as freely as we thought.

Until the Uruguay Round of trade​ negotiations, which of the following sectors were NOT included in the rules for international​ trade?

Agriculture and apparel

If two countries agree to specialize and trade based on comparative​ advantage, which of the following is most likely to be​ TRUE?

Both of the countries will consume outside their respective production possibilities curves.

A​ counter-example to the​ Stolper-Samuelson theorem has firms using more skilled labor as it becomes more​expensive, and less unskilled labor as it become less​ expensive, even if the firms have time to adjust their labor mix. How can this possibly​ be?

Broader technology applications require more skilled labor and less unskilled labor.

Suppose that Brazil is capital abundant and Chile is natural resource abundant. If timber is natural resource intensive and computers are capital​ intensive, then

Chile will produce more timber after trade begins with Brazil.

If the case studies are correct in their analysis of factor​ abundance,

Chinese unskilled labor should see their income rise as trade increases.

International trade is the major cause of rising income inequality in the United States.

FALSE

A nation must have an absolute advantage in order to have a comparative advantage in producing a good or service.

False

The gains from trade rely on overall productivity​ (absolute advantage).

False

Which list places regional trade agreements in an order moving from the least provisions to the​ most?

Free-trade Area, Common​ market, Economic Union.

From the late 1940s until the creation of the​ WTO, the organization that was primarily responsible for conducting rounds of trade negotiations was the

GATT.

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?

Mexico has a comparative advantage in grain production.

How does the​ Heckscher-Ohlin (HO) model differ from the specific factors​ (SF) model?

SF allows a third factor that is used in each of two​ goods, while HO does not.

Ensures that nations follow a set of rules governing fair trade.

The General Agreement on Tariffs and Trade

Keeps markets for goods as open as possible.

The General Agreement on Tariffs and Trade

Acts as a lender of last resort in case of debt crisis or foreign exchange

The International Monetary Fund

Assists national governments with necessary but difficult reorganizations.

The International Monetary Fund

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.

The United States is​ competitive, but does not have a comparative advantage.

Assists developing nations through the provision of loans and advice.

The World Bank

Economists do​ not, generally, stress the income redistribution effects of international trade. Which of the following is NOT a reason why economists tend to​ de-emphasize the impact of international trade on the distribution of​ income?

Those that lose from trade tend to be marginally impacted by​ trade, poorly​ organized, and largely devoid of political influence.

Why was the IMF​ created?

To manage the system of fixed exchange rates after World War II.

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

Mercantilists perceived trade as a zero sum game.

True

Which of the following was NOT a creation of the Bretton Woods​ conference?

WTO

What is the relationship between GATT and​ WTO?

WTO continues and expands the efforts of GATT.

When are regional trade agreements​ (RTAs) welfare-improving?

When they lead to net trade creation.

If one nation is able to produce a good at a lower opportunity cost than​ another, it has

a comparative advantage in that good.

Gains from trade can only be achieved​ if:

a country has a comparative productivity advantage.

A free trade agreement plus a common set of tariffs toward non−members is called

a customs union.

Institutions are

a set of rules governing​ behavior, whether written or not.

In​ general, which of the following does not tend to promote the probability of trade volumes between two​ countries:

ability to produce more than another country.

The United States is an example of

an economic union.

The GATT was

an international treaty governing trade.

Using the HO​ model, assume that the United States is capital abundant and Mexico is labor abundant. If soybeans are capital intensive and avocados are labor​ intensive,

avocado prices in the United States will fall once trade begins.

An important insight of international trade theory is that when countries exchange goods and services one with the​other, it

benefits both​ countries, and is usually not equally beneficial to both countries.

Suppose that Brazil is capital abundant and Chile is natural resource abundant. If timber is natural resource intensive and computers are capital​ intensive, then according to the Stolper−Samuelson ​Theorem, the incomes of the owners of​ __________ are likely to rise in Brazil after trade with Chile begins.

capital

IMF conditionality refers to the

changes a country must make in order to receive IMF financial assistance.

Suppose furniture production is more​ capital-intensive relative to clothing production. If the U.S. is capital abundant compared with​ Thailand, the​ Heckscher-Ohlin model implies that the U.S. should import

clothing.

The basis for free trade is the concept of

comparative advantage.

The elimination or reduction of trade barriers caused by​ non-trade-related domestic policies is referred to as

deep integration.

It is often costly for developing countries to adjust to trade agreements because

developing countries often have limited social safety nets to provide support to workers in transition.

The potential for gains from the rearrangement of production among countries is due to

differing opportunity costs.

The Ricardian trade model put forth by British economist David Ricardo nearly two centuries ago is one that

expounds principles still valid in​ today's world.

To judge the degree of international​ integration, economists turn to information on

flows of goods. the similarity of prices in different markets. flows of capital and people.

One reason markets may fail to provide the optimal quantity of public goods is the problem of

free riders.

Labor mobility was

greater in 1900 than in 2010.

If a country has lower overall productivity levels than its trading​ partners, then it will

have a lower standard of living than its trading partners.

For each hour​ worked, a U.S. worker can produce 4 loaves of​ bread, or 2 tons of steel. Canadian workers can produce 2 loaves of​ bread, or 1 ton of steel per hour. The information indicates that

he U.S. has absolute advantage in​ bread, and the U.S also has absolute advantage in steel.

One of the strongest motivations for holding the Bretton Woods Conference was to design new international institutions that would

help countries avoid the mistakes of the 1920s and 1930s.

Countries that have high rates of savings also have

high rates of investment.


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