425 test 2

Which of the following 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.

The ________ benefits inefficient farmers and the politicians in the EU who rely on the farm vote, but not consumers in the European Union, who end up paying more for their foodstuffs.

Common Agricultural Policy (CAP)

Identify the correct statement regarding the direction of FDI inflows.

Developed nations still account for the largest share of FDI inflows.

Which regional trade bloc includes Kenya, Uganda, and Tanzania?

EAC

The emerging role of the ________ in competition policy suggests the EU is increasingly willing and able to intervene and impose conditions on companies proposing mergers and acquisitions.

European Commission

An import quota is a specific tax levied on imports.

False

By limiting imports through quotas, governments decrease the attractiveness of FDI and licensing.

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 protecting the environment or human rights.

False

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

False

In a free trade area, countries are not allowed to determine their own trade policies with nonmembers.

False

The European Parliament is the primary legislative body within the European Union.

False

The emergence of single markets will make the business environment within each grouping less competitive.

False

The fast-food industry is a good example of a business sector where licensing is a poor option for FDI.

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

The location-specific advantages argument associated with John Dunning explains why firms prefer FDI to licensing or to exporting.

False

There is consensus that EU is what economists would call an optimal currency area.

False

Trade diversion occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area.

False

To achieve full economic union, the European Union introduced a common currency, the euro, controlled by a central EU bank. Although most member states have signed on, ________ remains an important holdout.

Great Britain

________ theory is also known as the market imperfections theory.

Internalization

Johan's company has made a greenfield investment. What does this mean?

It established a new operation in a foreign country

Regional economic integration offers significant opportunities for businesses. Which of the following is one of these opportunities?

Markets that were formerly protected from foreign competition are increasingly open.

________ 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

________ are controls over the behavior of the MNE's local subsidiary. The most common of these are related to local content, exports, technology transfer, and local participation in top management.

Performance requirement

________ can be seen as an attempt to achieve additional gains from the free flow of trade and investment between countries beyond those attainable under global agreements.

Regional economic integration

The total accumulated value of foreign-owned assets at a given time is called the ________ of FDI.

Stock

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

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

A Chinese petroleum company sets up a crude oil refining facility in Vietnam. This is an example of a greenfield investment.

True

According to the radical political ideology view, the MNE is a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries.

True

Direct effects of FDI on unemployment arise when a foreign MNE employs a number of host-country citizens.

True

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

True

GATT's objective was to liberalize trade.

True

Offshore production refers to FDI undertaken to serve the home market.

True

The movement toward regional economic integration has been most successful in Europe.

True

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

True

While a nation as a whole may benefit significantly from a regional free trade agreement, certain groups within the country may lose.

True

In which of the following situations would FDI deteriorate the current account of the host country's balance of payments?

When a foreign subsidiary imports a substantial number of its inputs from abroad

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

a free trade stance

A lobbyist from California argues that the U.S. government needs to protect the U.S. semiconductor industry from foreign competition. She argues that semiconductors are now such important components of defense products 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 farm bill that passed the U.S. Congress in 2007 contained subsidies of $289 billion for the next 10 years. This is an example of

a subsidy

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

an ad valorem tariff

One of the impediments to integration arises from

concerns over national sovereignty.

Ion the balance of payments, how does a country record transactions involving the export and import of its goods and services?

current account

The EU began as a ________, which eliminates trade barriers between member countries and adopts a common external trade policy, but does not allow free movement of factors of production between member nations.

customs union

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

forging ahead with their own bilateral agreements

According to the ________ view, international production should be distributed among countries according to the theory of comparative advantage.

free market

Identify the most popular form of regional economic integration, accounting for almost 90 percent of regional agreements.

free trade areas

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

global economic growth would rise

Initially, the Andean Community struggled, but in the late 1980s, this trend started to reverse when

governments of Latin America began to adopt free market economic policies.

Computer Contractors has given a foreign entity the right to produce and sell its computer parts in return for a royalty fee on every unit sold. This is called

licensing

The basic objective of ASEAN is to foster freer trade among member countries and to achieve cooperation in their industrial policies. The progress of ASEAN is best described as

limited

Which of the following is a home-country policy aimed at limiting outward FDI flow?

limiting capital outflows

The threat of antidumping action affects a firm by

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

Five airlines control 90 percent of the aviation sector of a country. The aviation industry in the country would be an example of a(n)

oligopoly

Host governments use a wide range of controls to restrict FDI in one way or another. The two most common are ________ and performance requirements.

ownership restraints

The ________ view is that FDI has both benefits and costs. FDI can benefit a host country by bringing capital, skills, technology, and jobs, but those benefits come at a cost.

pragmatic nationalist

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

What is the ultimate controlling authority within the EU because it has the power to turn legislation into law?

the European Council

Country A and Country B entered into a free trade agreement recently. After this, Country A started importing heavy machinery from Country B, which Country A had previously produced domestically at a higher cost. Which of the following has occurred in this scenario?

trade creation

When higher-cost external producers are replaced by lower-cost external producers within the free trade area, ________ occurs.

trade creation

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

trade in services