International Econ Final- HW #9 (Ch. 12)

Which of the following statements about a trade bloc is accurate?

A trade bloc may lower firms' costs by allowing them to exploit economies of scale.

WTO

Administer member agreements and settle disputes between the members

The Southern Common Market (MERCOSUR) is actually a _____.

customs union

One deviation from the most favored nation principle that the WTO accepts is that developing countries have a right to:

exchange preferences among themselves and receive preferential access to markets in industrialized countries

Although regional trading agreements violate the most favored nation principle of the World Trade Organization, exceptions are made if the proposed agreement

has an internal tariff rate of zero, and does not raise tariffs for non-participants.

Although regional trading agreements violate the most favored nation principle of the World Trade Organization, exceptions are made if the proposed agreement:

has an internal tariff rate of zero, and does not raise tariffs for non-participants.

The primary difference between a free trade area and a customs union is that:

members of a customs union adopt a common set of external trade barriers.

Fast Track Authority (aka Trade Promotion Authority) allows the U.S. president to:

negotiate trade agreements that will only be subject to a yes/no vote in Congress.

The World Trade Organization was created in 1995 to:

oversee global rules of government policy toward international trade

The Generalized System of Preferences enables developing countries to

receive preferential access to markets in industrialized countries.

Because goods produced within a free-trade area are entitled to be traded freely within the free-trade area, determining what goods are produced within the free-trade area is important and relies on:

rules of origin

Trade blocs can attract more foreign direct investment into member countries because:

the market within the trade bloc is larger than the market in any of the member countries and foreign firms often seek to establish locations on the basis of market size.

The World Bank was founded in 1944 as the International Bank for Reconstruction and Development for the purpose of financing

the reconstruction of Europe after World War II.

As a result of joining a trade bloc, Country A finds that it is purchasing relatively more expensive cars from Country B, a fellow bloc member, rather than purchasing the less expensive cars from Country C, a trading bloc outsider. This phenomenon is called:

trade diversion

Section 301 of the Trade Act of 1974 allows the U.S. president to:

unilaterally use threats of retaliation to open foreign markets for U.S. trade.

Controversy of IMF

Conditionality requirements that undermine domestic sovereignty.

Which of the following was an observable effect of NAFTA?

Imports of clothing and textiles into the member countries were diverted away from low-cost suppliers in Asia.

Controversy of WTO

International regulations that undermine domestic regulatory goals.

Which of the following identifies a nondiscrimination policy among trading partners?

Most favored nation status

If an unfair trade complaint is filed with the WTO and a panel appointed by the WTO determines that the complaint is valid, the WTO will instruct the offending country to alter its trade policy to avoid the unfair effects that were found to exist. If the offending country fails to correct its trade policy as directed by the WTO, what can the WTO do?

The WTO can authorize the countries filing the unfair trade complaint to impose retaliatory trade policies against the offending country.

Suppose that the WTO determines that one of the member countries has a trade policy that is violating a WTO rule and that country refuses to change the policy. What does the WTO NOT do to encourage the country to change the policy?

The WTO can expel the country from the WTO. The WTO can impose a fine against the country. The WTO can raise the membership fees for the country.

The goal of developing international institutions, such as the World Bank, the IMF, and the WTO, is to address which of the following sources of market inefficiency?

The public good nature of global economic stability.

Which of the following characterized the Doha Round of international trade negotiations?

The rise of developing countries as a voting bloc.

Which of the following is a controversy associated with the major international institutions (IMF, WTO, and World Bank)?

Their decisions sometimes conflict with the national decisions of their members, raising questions about sovereignty.

Why are international institutions (such as the World Bank, the IMF, and the WTO) a public good?

They support international economic stability, which is a NONRIVAL and NONEXCLUDABLE good.

What effect does a trade bloc have on scales of production?

When the markets of the various countries in the trade bloc are joined, firms within those countries are presented with larger markets than they had before the trade bloc was created, and those larger markets present opportunities for firms within the trade bloc countries to expand to take advantage of additional scale economies.

Suppose a specific tariff of $2 is imposed on shoes, which cost $20, in 1930. The ad valorem equivalent of the tariff is ___% (Note: round answer to one decimal place)

10

Suppose the price of a pair of shoes falls to $16 in 1932. The ad valorem equivalent of the tariff is now ___% (Note: round answer to one decimal place.)

12.5

Controversy of World Bank

Economic development goals that undermine domestic economic policy.

Goods that are produced within the free trade agreement between Country A and Country B can be traded freely (without facing tariffs or other trade barriers) between the countries. How can the participants in the agreement determine which goods are produced within the free trade area?

Establish rules of origin.

Gains are shared equally by each member in a free trade agreement (TRUE/FALSE)

FALSE

In a free trade agreement, it can increase the opportunities for domestic business investments but will decrease foreign direct investment into the member countries (TRUE/FALSE)

FALSE

increased competition can result in higher commodity prices in the domestic markets of the member countries in a free trade agreement (TRUE/FALSE)

FALSE

Function of World Bank

Provide economic development financing

Function of IMF

Serve as a lender of last resort

Supplier firms might benefit from economies of scale that allow them to lower average costs (TRUE/FALSE)

TRUE

Which US agency is responsible for negotiating trade agreements on behalf of the US government?

The Office of the US Trade Representative

What was the effect of the Smoot-Hawley Act?

The Smoot-Hawley Act increased tariffs on certain imports into the U.S. and contributed to the severity of the Great Depression.

Which of the following is NOT true of the Uruguay Round of the multilateral trade negotiations?

The Uruguay Round narrowed down the set of NTB codes as set up by the Kennedy Round and the Tokyo Round.

Suppose that the WTO determines that one of the member countries has a trade policy that is violating a WTO rule and that country refuses to change the policy. What can the WTO do to encourage the country to change the policy?

The WTO can authorize other countries to impose retaliatory trade policies against the country that is in violation of the rules.