Exam 3 Review Questions

International monetary fund became operational in:

1946

Possible causes of trade deficits:

A stronger Domestic Currency, Foreign Trade Practices, Loss of Competitiveness, The Growth of Multinational Companies, Intra-Firm Trade.

The world price is P(w). If a tariff is imposed, the price rises to P(w+t). Because of the tariff, consumers' surplus is reduced by an amount equal to the area of ---------:

Above the world price, below the tariff and under the demand curve.

The General Agreement on Tariffs and Trade (GATT) was established in:

After WW2 in 1948

The term "emerging markets" refers to:

Are developing countries that are transitioning from closed economies to open economies. Potential major markets for other countries.

If Japan and Australia enter into a voluntary export restraint agreement and Australia agrees to limit its exports to Japan, then we would expect that the VER's revenue effect would accrue to:

Australia.

Which of the following is an agreement regulating intellectual property?

Balance between the financial interests of pharmaceutical industries in developing nations and the public health needs of developing countries.

The difference between the price the consumer is willing to pay for a good or service and what he would have to pay for that unit is called:

Consumer surplus.

A closed economy is a national economy that:

Does not engage in trade with other countries.

Tariffs and quotas are often imposed when a government is responsive to ---------- interests, and the benefits of those trade restrictions are often ----------:

Domestic, that holders of import licenses and domestic producers benefit.

"Dumping" refers to:

Dumping refers to selling a good or service in another country at a price below cost of production or at a price below the domestic market price.

Which of the following is NOT an example of a trade restriction?

Examples: tariffs, import quotas, export subsidies, voluntary export restraints, bureaucratic procedures, local content requirements.

What is the relationship between foreign direct investment (FDI) and multinational enterprises (MNEs)?

FDI is the formal term for the shared interest of a company owning at least 10% of a company overseas. This method of cross-border investment shows a long lasting interest in the day-to-day operations of said company.

Which of the following institutions was established following World War 2 to regulate the trade between countries?

GATT

Which of the following was the same of one of GATT negotiating grounds?

GATT negotiating grounds: Geneva, Annecy, Torquay, Dillon, Kennedy, Tokyo, Uruguay, Doha.

Because export subsidies tend to result in domestic exporters charging lower prices on their goods sold overseas, the home country's:

GDP goes down, trade agreements worsen

In contrast to a tariff, a quota does not:

Generate revenue for the government.

Determinants of bilateral trade flows and impediments to trade are:

Geography, Cultural affinity, Multinational corporations, Government policy, Trade agreements.

"Apple" has opened its own retail stores are a classic example of:

Greenfield investment.

Which organization of the World Bank Group deals with matters related to the development of the poorest countries in the world?

IBRD deals with matters related to the development of the poorest countries in the world.

How are IMF activities funded?

IMF activities are funded by quotas, borrowing, and gold reserves.

Goals of the World Bank includes

Its main focus today is alleviating poverty and fostering sustainable development in middle-income and low-income countries.

Which trade restriction stipulates the percentage of a product's total value that must be produced domestically in order for that product to be sold domestically?

Local content requirement.

Assume that the current price of sugar in the United States $300 per ton (which includes a $100 per ton tariff on sugar imports). The government collects tariff revenues on sugar imports in the amount of --------- million:

Look at the amount demanded and multiply the units by 100.

Assume that the current price of sugar in the United States $300 per ton (which includes a $100 per ton tariff on sugar imports). Americans purchase ------- million tons of sugar from U.S. producers and import ------- million tons of sugar from abroad:

Look at the shortage of goods after domestic production.

The Organization which is not a member of the World Bank Group is:

Members of the WBG: the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), International Development Association (IDA), Multilateral Investment Guarantee Agency (MIGA), International Center for Settlement of Investment Disputes (ICSID).

Which of the following is Not a function of the WTO?

Nondiscrimination between foreign and locally produced goods, Moving toward freer trade through negotiations, Binding tariffs and transparency, Fair competition, Development and Economic Reform.

The world price of X is $15. If imports of X are legally limited to 30 units, the price of X in the United States would be:

Not enough information

The difference between the price the seller receives for a good or service and the minimum price he would be willing to accept for that unit is called:

Producer surplus.

The effects of tariffs and quotas: a(n)--------- in consumers' surplus, and a(n) -------- in producers' surplus:

Tariffs and quotas result in a decrease in cs and an increase in ps.

The BRIC nations are:

The BRIC nations are Brazil, Russia, India, and China.

The International Monetary Fund is headquartered in:

The IMF is headquartered in Washington DC

Where does the IMF receive its funds?

The IMF receives funds from member country quotas based on the relative size of its economy. Sometimes if quotas fall short, they utilize a multilateral system of borrowing.

What is the IMF's primary mandate?

The IMF's primary mandate is to insure stable currency exchange rate systems in order to facilitate international transactions.

The merger of JPMorgan and Bank One is an example of:

The JPMorgan and Bank One merger is an example of horizontal merger.

The World Bank Group is made up of how many organizations:

The World Bank Group is made up of five organizations.

Assume that the current price of sugar in the United States is $300 per ton (which includes a $100 per ton tariff on sugar imports). Consumers' surplus is equal to the area -------- while producer's surplus is equal to the area ----------:

The area under the demand curve and above the tariff line, the area above the supply curve and under the tariff line.

Factors affecting bilateral trade flows:

The effect of Economic Size of countries, The Effect of Proximity, Distance may have two distinct effects on trade flows (higher transportation/shipping costs, social and cultural detachment).

Which of the following is NOT one of the three primary activities of the International Monetary Fund?

The three primary activities of the IMF are to establish a multilateral system of payments, to provide temporary funding to countries with balance of payments problems, and to lessen the duration and severity of balance of payments disequilibrium. Now they monitor macroeconomic policies in member countries for any vulnerability that exposes the countries' economies to potential crises, provide technical assistance, and to provide financial assistance to countries facing severe balance of payment problems.

Major functions of the IMF are:

To promote exchange rate stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.

In the 1980s and the 1990s, the United States has had a:

Trade deficit.

Which of the following is not a type of trade restriction?

Trade restrictions: tariffs, Import quotas. 2. Exports subsidies. 3. Voluntary export restraints. 4. Bureaucratic procedures. 5. Local content requirements.

A "voluntary export restraint" is an agreement between:

Two countries that is a quota imposed by the exporting country at the request of the importing country.

U.S. imports are good and services:

United States is the number one importer in the world. United States is the number two in exports second to China. We have increased service trade and technological advances.

Voluntary exports restraints (VER):

VERs restrict imports and total domestic supply of the good in the importing country. The domestic price of the good increases due to limited supply. Domestic quantity demanded falls, while domestic quantity supplied increases. Domestic consumer surplus falls, while domestic producer surplus increases. Loss in welfare in the importing country.

Which two of the following are regarded as the main aims of the World Trade Organizations (WTO)?

WTO was a formalization of the GATT, and trade without discrimination (nondiscrimination across countries).

Walt Disney's acquisition of ABC television network is an example of:

Walt Disney's acquisition of ABC television network is an example of a conglomerate merger.

A tax on imports equal to a percentage of the cost for those imports is known as:

ad valorem tariff

The world price P(w). If a tariff is imposed, the price rises to P(w+t). Because of the tariff, producers' surplus is ------ by an amount equal to the area of --------:

increased, the increase of the area between World Price with the tariff, the World price in general (if small country), and above the supply curve (Area 1).

A tariff can be defined simply as a:

tax levied on a good when it crosses a national border.