IBUS Ch7 Quiz

_________ argues that a strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry boosts national income at the expense of other countries.

Paul Krugman

A lobbyist from New York argues that the U.S. government needs to protect the U.S. aerospace industry from foreign competition. She argues that aerospace technology is so important for national security that it would be dangerous to rely primarily on foreign producers for them. This is an example of _________ argument for government intervention.

a political

The WTO argues that by removing all tariff barriers and subsidies to agriculture,

global economic growth would rise.

The threat of antidumping action affects a firm by

limiting its ability to use aggressive pricing to gain market share in a country.

In the 1986 Uruguay Round, GATT negotiations extended global trading rules to cover

trade in services.

The _________ benefits Europe's politically powerful farmers by restricting imports and guaranteeing prices but not consumers in the European Union, who end up paying higher prices overall.

Common Agricultural Policy (CAP)

Most economists would probably argue that the best interests of international business are served by

a free trade stance.

Suppose the United States wants to encourage the production of tree nuts by domestic producers. To do so, the government provides low-interest loans for the purchase of harvesting equipment and gives cash grants and tax breaks to the producers. Which instrument of trade policy is in use by the United States government?

a subsidy

The government is considering placing additional taxes on foreign lumber imports that are a proportion of the value of the imported lumber. This is an example of

an ad valorem tariff.

A country limits the amount of sugar that can be imported into its country. This is an example of an import tariff.

False

Economic arguments for trade policy intervention are concerned with protecting the interests of certain groups within a nation, often at the expense of other groups, or with achieving some objective that lies outside the sphere of protecting the environment or human rights.

False

Governments always act in the national interest of their countries when they intervene in the economy.

False

The infant industry argument relies on an assumption that firms can make efficient long-term investments by borrowing money from the domestic or international capital market.

False

Which trade policy argument suggests that a government should use subsidies to support promising firms that are active in newly emerging industries?

strategic trade policy

Dumping is viewed as a method by which firms unload excess production in foreign markets.

True

The strategic trade policy arguments of the new trade theorists suggest an economic justification for government intervention in international trade.

True

Which statement is true with respect to multinational firms?

Because of their pivotal role in international trade, firms can and do exert a strong influence on government policy toward trade.

Tariff barriers raise the costs of exporting products to a country (or of exporting partly finished products between countries). What is a likely consequence of these barriers?

This may put a firm at a competitive disadvantage to indigenous competitors in that country.

GATT's objective was to liberalize trade.

True

The lack of progress in the Doha Round negotiations has resulted in countries that are

forging ahead with their own bilateral agreements.