Chapter 6- Global Business

According to Paul Krugman, a country that attempts to use strategic trade policy to establish a domestic firm in a dominant position in a global industry will probably: A. dominate the industry. B. move away from protectionism. C. provoke retaliation. D. incur huge financial debts.

C

According to the text, most economists would probably argue that the best interests of international business are served by a free trade stance, but not a _____ stance. A. facilitating B. open market C. laissez-faire D. ad valorem

C

According to the text, the only reason Great Britain pushed the case for trade liberalization for as long as 80 years in the 19th century was that: A. it was starting to lose the military stranglehold over much of its colonies. B. the emergence of the U.S. threatened its position as the most industrialized nation. C. it stood to lose the most from a trade war. D. it had experienced severe famines and droughts in the earlier part of the 19th century.

C

The strategic trade policy arguments of the new trade theorists challenge the rationale for unrestricted free trade found in the work of classic trade theorists. In response to this challenge to economic orthodoxy, a number of economists—including some of those responsible for the development of the new trade theory, such as Paul Krugman are: A. advocating a world-wide swing toward mixed economies. B. debunking assertions made by Adam Smith and David Ricardo. C. making a revised case for free trade. D. pointing out that in practice free trade may be unworkable.

C

The two US agencies that deal with antidumping complaints are the: A. Economic Offences Wing and Conciliation Services. B. International Trade Commission and the Industry Council. C. Commerce Department and the International Trade Commission. D. Federal Trade Commission and the Economic Council.

C

Which of the following groups would most benefit from receiving subsidies? A. Governments B. Consumers C. Domestic producers D. Importers

C

Which of the following is considered to be the ultimate objective of antidumping policies? A. Protect consumers from competitive pricing B. Prevent domestic firms from unloading their excess production in domestic markets C. Protect domestic producers from unfair foreign competition D. Protect consumers from substandard and hazardous products

C

Which of the following is perhaps the most common political argument for government intervention into the free flow of trade? A. Protecting national identity B. Protecting national sovereignty from being usurped by supranational organizations C. Protecting jobs and industries from unfair foreign competition D. Improving efficiency of domestic labor

C

All of the following were provisions of the Uruguay Round Agreement EXCEPT: A. clearer and stronger GATT rules. B. extension of GATT fair trade and market access rules to cover a wider range of services. C. substantial reduction in agricultural subsidies. D. increase in tariffs on industrial goods in lieu of the reduction in agricultural subsidies.

D

Bilateral voluntary export restraints, or VERs, circumvented GATT agreements, because: A. these nations withdrew their membership to the GATT. B. the member nations had ceased to recognize GATT as a regulatory body for international trade. C. VERs were not a recognized trade barrier under the GATT constitution. D. neither the importing country nor the exporting country complained to the GATT bureaucracy.

D

By lowering production costs, _____ help domestic producers compete against foreign imports. A. tariffs B. custom duties C. quotas D. subsidies

D

Which of the following countries, with minor exceptions, is fully open to inward investment by foreign banks, insurance, and security companies? A. Russia B. Cuba C. Venezuela D. The United States

D

Which of the following has been excluded from the agenda for the Doha round of WTO talks that began in 2001? A. Reducing barriers to cross-border investment B. Phasing out subsidies to agricultural producers C. Limiting the use of antidumping laws D. Attempts to tie trade to labor standards in a country

D

Which of the following statements regarding GATT is true? A. GATT attempted to liberalize trade restrictions in one go. B. In its early years, GATT was unsuccessful and hence was superseded by the WTO. C. GATT regulations failed as they were enforced by an unshared monitoring mechanism. D. Tariff reductions through negotiations were spread over eight rounds

D

While _____ tariffs are levied as a fixed charge for each unit of a good imported, _____ tariffs are levied as a proportion of the value of the imported good. A. ground; ceiling B. ad hoc; nonconvertible C. posited; floating D. specific; ad valorem

D

_____ are specific duties representing a special tariff for punishing foreign firms engaged in dumping, which can be fairly substantial and stay in place for up to five years. A. Punitive damages B. Civil duties C. Import damages D. Countervailing duties

D

In the context of dumping, predatory behavior can be described as foreign producers: A. attempting hostile takeovers of domestic firms and usurping the available resources for production. B. indiscriminately exploiting the natural resources of a foreign country to create a later demand that can be met only by imports. C. eliminating competition by subsidizing prices in a foreign market with home market profits and eventually raising prices to earn substantial profits. D. buying goods of competing domestic firms and hoarding them to create an artificial demand, and exporting those goods at higher prices.

C

An alleged example of _____ occurred in 1997, when two Korean manufacturers of semiconductors, LG Semicon and Hyundai Electronics, were accused of selling dynamic random access memory chips in the U.S. market at below their costs of production. A. dumping B. monopolizing C. slicing D. subsidizing

A

Both import quotas and VERs benefit _____ by limiting import competition, but they result in higher prices, which hurt _____. A. domestic producers; consumers B. governments; domestic producers C. importers; foreign producers D. consumers; governments

A

By lowering production costs, subsidies help domestic producers in: A. gaining export markets. B. curtailing exports to other countries. C. meeting voluntary export restraints. D. regulating the quality of services they offer.

A

One of the objectives of export tariffs is to: A. improve the efficiency of utilization of resources. B. curb the competition offered by foreign firms to domestic firms. C. reduce exports from a sector, often for political reasons. D. maintain a positive trade deficit

C

Established under U.S. leadership in 1947, which of the following was a multilateral agreement whose objective was to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like? A. General Agreement of Tariffs and Trade (GATT) B. North American Free Trade Agreement (NAFTA) C. Central American Free Trade Agreement (CAFTA) D. Free Trade Areas of the Americas (FTAA)

A

Furthering the goals of foreign policy and advancing the human rights of individuals in exporting countries are examples of issues covered by _____ for government intervention. A. political arguments B. humanitarian arguments C. legal arguments D. economic arguments

A

One of the motives for foreign firms engaged in dumping may be: A. unloading excess production in foreign markets. B. cutting labor costs to reduce the costs of production. C. offering a wider range of products for consumers in foreign markets. D. offering competitive pricing for goods that are not produced in foreign countries.

A

Some argue that governments should use the threat of _____ to intervene in trade policy as a bargaining tool to help open foreign markets and force trading partners to "play by the rules of the game." A. free trade B. deregulation C. retaliation D. liberalization

C

Tariffs cause damage to _____ because this group must pay more for certain imports. A. investors B. governments C. consumers D. producers

C

One of the reasons that protectionist pressures arose around the world during the 1980s was: A. that many countries found ways to get around GATT regulations. B. the opening up of national markets to cheap products from China. C. the fall of the Soviet Union. D. the persistent trade lead taken by the United States.

A

Protection of manufacturing from foreign competition does no good unless the protection: A. helps make the industry efficient. B. provides guaranteed employment for the citizens. C. affects the standards of living and per capita income of the people. D. promotes foreign direct investment

A

The Multi-Fiber Agreement (MFA) of 1974 fixed upper limits on exports of textiles from all major exporting countries to all major importing countries. The MFA is an example of: A. voluntary export restraint. B. local content requirement. C. subsidy. D. specific tariff.

A

Two of the first industries targeted for reform by the WTO with a view to encompass regulations governing foreign direct investment were: A. global telecommunication and financial services industries. B. scientific research and defense sector. C. pharmaceuticals and heavy metal industry. D. agriculture and biotechnology.

A

Under a(n) _____, a lower tariff rate is applied to imports within the quota than those over the quota. A. tariff rate quota B. voluntary import restraint C. import tariff rent D. quota rent

A

Which of the following actions reflect the use of trade policies by governments to further their foreign policy objectives? A. Pressuring "rogue states" that do not abide by international law or norms B. Enforcing tougher intellectual property regulations C. Threatening high tariffs and quotas D. Limiting or banning imports of unsafe or substandard products

A

Which of the following is NOT true about agricultural subsidies? A. They clear distortions in the production and international trade of agricultural products. B. They encourage countries to overproduce heavily subsidized agricultural products. C. They reduce international trade in agricultural products. D. They raise the prices of agricultural products to consumers.

A

Which of the following is one of the reasons offered to explain the high levels of carbon dioxide emissions in developed countries like the U.S.? A. Richer societies are more energy intensive and use carbon dioxide rich hydrocarbons extensively. B. Developed countries tend to be more densely populated than other countries and hence reflect higher carbon dioxide emissions. C. Companies in developed countries are less likely to take up social responsibility initiatives than those in developing countries. D. Developed countries generally have environmental pollution regulations less stringent than those in developing countries.

A

Which of the following is one of the seven main instruments utilized in trade policy? A. Local content requirements B. Licensing C. Foreign direct investment D. Employment guarantees

A

The WTO's Agreement on _____ is an attempt to narrow the gaps in the way intellectual property rights are protected around the world and to bring them under common international rules. A. International Body on Intellectual Property (IBIP) B. Court of Arbitration of Intellectual Property (CAIP) C. Trade-Related Aspects of Intellectual Property Rights (TRIPS) D. Intellectual Property Rights Enforcement and Resolution (IPER)

C

Which one of the following aimed at avoiding rising unemployment by protecting domestic industry and diverting consumer demand away from foreign products, erected an enormous wall of tariff barriers? A. Smoot-Hawley Act B. D'Amato Act C. Helms-Burton Act D. Buy America Act

A

_____ arguments for government intervention into international trade are typically concerned with boosting the overall wealth of a nation. A. Economic B. Political C. Legal D. Commercial

A

_____ has recognized the infant industry argument as a legitimate reason for protectionism. A. GATT B. North Atlantic Treaty Organization C. United Nations D. International Monetary Fund

A

_____ is one of the ways in which countries can circumvent GATT regulations and is exemplified by the agreement between Japan and America under which Japanese producers promised to limit their auto imports into the United States. A. Voluntary export restraint B. Import quota C. Specific tariff D. Quota rent

A

_____ status allows countries to export goods to the U.S. under favorable terms. A. Most favored nation B. Preferred trade partner C. Strategic ally D. Friendly state

A

The millennium round of talks of WTO attempted to get the assembled countries to agree to work toward: A. agreeing on raising barriers to cross-border trade. B. strengthening their defense ties and carry on with their war against terror. C. reducing barriers to cross-border trade in agricultural products and trade and investment in services. D. increasing average tariff rates imposed by developing nations on manufactured goods to more than four percent of value, the highest level in modern history.

C

Human rights activists see WTO rules as _____ the ability of nations to stop imports from countries where child labor is used or working conditions are hazardous. A. enabling B. outlawing C. supplementing D. facilitating

B

If China were to export vast quantities of cheap toys to India, selling them at below their costs of production, it would constitute: A. monopolism. B. dumping. C. slashing. D. safeguarding.

B

In the context of international trade, _____ is defined as selling goods in a foreign market at a price below their costs of production or as selling goods in a foreign market at below their "fair" market price. A. monopolizing B. dumping C. slashing D. subsidizing

B

Local content regulations have been widely used by developing countries to shift their manufacturing base from the simple _____ of goods whose parts are manufactured elsewhere into the local _____ of component parts. A. production; integration B. assembly; manufacture C. design; assembly D. generation; packaging

B

Tariffs: A. reduce the price of foreign goods. B. reduce the overall efficiency of the world economy. C. help in efficient utilization of resources. D. are unambiguously pro-consumer and anti-producer.

B

The U.S. government imposed an eight to thirty percent tariff on steel imports into the United States in March 2002. This belongs to which of the following categories? A. General B. Ad valorem C. Specific D. Ad hoc

B

The economically damaging effects of the Great Depression were worsened in 1929 by the _____. A. First World War B. U.S. stock market collapse C. spread of communism through Europe D. Cold War between the world's superpowers

B

The extra profit that producers make when supply is artificially limited by an import quota is referred to as a: A. trade surplus. B. quota rent. C. trade reconciliation. D. profit hike margin.

B

The main effect of the Uruguay Round Agreement on agricultural products was that: A. caps were imposed on textile exports. B. farm subsidies were reduced. C. tariffs on industrial goods were increased. D. a wide range of agricultural services were exempted from GATT rules.

B

U.S. trade sanctions against Cuba, Libya, and Iran are examples of: A. governments protecting domestic consumers from unsafe products. B. governments using trade policy to support their foreign policy objectives. C. governments protecting local businesses from international competition. D. governments punishing foreign companies for dumping products in their markets.

B

Which of the following has taken over responsibility to arbitrate trade disputes and monitor the trade policies of member countries and resulted because of the Uruguay Round agreement? A. World Bank B. World Trade Organization C. International Trade Commission D. International Monetary Fund

B

Which of the following historical events signified the first official embracing of free trade as a government policy by Great Britain? A. The Union of the Crowns in 1603 B. The repeal of the Corn Laws by the British Parliament in 1846 C. The Treaty of American Independence in 1783 D. The Industrial Revolution of the 18th and 19th centuries

B

Which of the following is a government payment to a domestic producer? A. Duty B. Subsidy C. Quota D. Tariff

B

Which of the following is by far, the oldest economic argument for government intervention into the free flow of trade? A. Impoverished industry argument B. Infant industry argument C. Sick industry argument D. National security-related industry argument

B

Which of the following represents the reason for the British Parliament repealing the Corn Laws in 1846? A. Opium wars that polarized world opinion against Great Britain B. Prospect of harvest failure in Britain and famine in Ireland C. Imminent threat of rebellions in most of its colonies D. Labor party taking over the government from the Liberal Conservatives

B

Which one of the following Acts represents U.S. legislation that is similar to the Helms-Burton Act, but is aimed at Libya and Iran? A. Perkin's Act B. D'Amato Act C. Williams Act D. Cato Act

B

Why is retaliation by government intervention a risky strategy? A. It may liberalize trade and bring with it resulting economic gains. B. A country that is being pressured may respond by raising trade barriers of its own. C. It may expose certain industries that are important for national security to foreign competition. D. It allows firms to sell goods in foreign market at below their fair market value.

B

_____ take many forms including cash grants, low-interest loans, tax breaks, and government equity participation in domestic firms. A. Ad valorem tariffs B. Subsidies C. Quota rents D. Specific tariffs

B

According to the text, which of the following factors is likely to be the least important in determining location decisions for businesses? A. Labor productivity B. Transportation costs C. Pollution abatement costs D. Access to technological know-how

C

At one time, the French government required that all imported videotape recorders arrive in France through a small customs entry point that was both remote and poorly staffed. This is an example of a(n): A. regional trade inhibitor. B. domestic business hurdle. C. administrative trade policy. D. ad hoc red tape.

C

At times, countries contend that it is necessary to protect industries such as those related to defense—aerospace, advanced electronics, and semiconductors—because these industries are important for: A. retaining innovation. B. national entrepreneurial spirit. C. national security. D. diplomatic reasons.

C

China did not join the WTO until 2001, so historically the decision of whether to grant MFN status to China was a real one. The decision was made more difficult by the perception that China had a(n) _____. A. unskilled and unemployable population B. high-cost labor structure C. poor human rights record D. large population

C

Empirical evidence suggests the relationship between income levels and pollution is not a linear one—rather it is an inverted U-shaped relationship—implying that international trade, and the growth that results from it, may not be damaging to the environment. Important exceptions to this trend are: A. pollution levels evidenced in burgeoning economies like China and India. B. incidents like the Chernobyl disaster and Tokaimura nuclear accident. C. results revealing rise in carbon dioxide emissions with rise in income levels. D. frequent oil spills occurring in various seas across the world.

C

Environmental organizations pushing for greater regulation of international trade argue that there is a strong relationship between _____ and environmental pollution and degradation. A. dumping B. trade sanctions C. income levels D. factor endowments

C

Foreign producers agree to VERs because they fear: A. a fall in demand for their products in foreign markets. B. the aggravation of protectionist pressures in their home markets. C. more damaging punitive tariffs or import quotas might follow if they do not. D. political and economic instability in foreign markets.

C

Given financial support, firms based in countries with a potential comparative advantage have an incentive to endure the necessary initial losses in order to make long-run gains without requiring _____. A. good governance B. latest technology C. government protection D. regular monitoring

C

In 2006, several countries of the European Union and U.S. banned imports of Mattel toys with high levels of lead, manufactured in China. The underlying motive for such a move could be: A. protecting domestic businesses from unfair pricing. B. protesting the pricing of toys below their costs of production. C. protecting consumers from unsafe products. D. increasing the trade surplus of the U.S.

C

In general, what are the two paths of arguments for government intervention into the free flow of trade? A. Political and cultural B. Economic and legal C. Political and economic D. Legal and social

C

Advocates of _____ believe that subsidies can help a firm achieve a first-mover advantage in an emerging industry. A. strategic trade policy B. free trade C. open market system D. justice theories

A

Governments typically pay for subsidies by: A. selling junk bonds. B. taxing individuals and corporations. C. foreign direct investment in poorer countries. D. privatization of public holdings.

B

A government should use subsidies to support promising firms that are active in newly emerging industries, according to the _____ argument. A. strategic trade policy B. infant industry C. absolute advantage D. product life-cycle

A

According to Krugman, the ideal way for a country to respond when one's competitors are already being supported by government subsidies is probably not to engage in retaliatory action but to: A. help establish rules that minimize the use of trade-distorting subsidies. B. adopt the strategic trade policy as a way to establish domestic firms in a dominant position in the global industry. C. move to an industry where the competitors have not had the benefit of such strategic trade policies. D. use a combination of home-market protection and export-promoting subsidies.

A

According to experts, which of the following groups most benefits from the imposition of tariffs? A. Government and producers B. Consumers and trade associations C. Exporters and importers D. Producers and foreign competitors

A

According to the text, given efficient global capital markets, the only industries that would require government protection would be: A. those that are not worthwhile. B. defense-related, such as aerospace and semiconductors. C. chemical and processing industries. D. those that require efficient administration.

A

According to the text, governments should target technologies that may be important in the future and use _____ to support development work aimed at commercializing those technologies. A. subsidies B. sanctions C. factor endowments D. personnel

A

A(n) _____ requires that some specific fraction of a good must be produced domestically. A. international allocation requirement B. local content requirement C. specific quota requirement D. ad valorem portion requirement

B

According to Krugman, one of the reasons for not embracing strategic trade policy is that such a policy might: A. hamper the chances of a country's firms to effectively exploit first-mover advantages. B. be captured by special-interest groups within the economy for personal benefits. C. be used to establish rules of the game that minimize use of trade-distorting subsidies. D. divert attention from the need to establish domestic firms in a dominant position in the global industry.

B

Agreeing to a VER is seen by foreign producers as a way to make the best of a bad situation by appeasing _____ pressures in a country. A. free trade B. protectionist C. libertarian D. consumer

B

An import quota is a direct restriction on the quantity of some good that may be __________ by a country. A. subsidized B. imported C. dumped D. produced

B

An important component of strategic trade policy is that it might pay governments to intervene in an industry if it helps domestic firms overcome the barriers to entry created by foreign firms that have already reaped _____. A. all available profits B. first-mover advantages C. comparative advantage D. foreign direct investment

B

Countries that have been found by the arbitration panel to violate GATT rules may appeal to _____ of the World Trade Organization, but its verdict is binding. A. human rights commission B. permanent appellate body C. International Court of Justice D. Security Council

B

Which of the following would be a likely action motivated by the desire of governments to protect their consumers from unsafe products? A. Placing tariffs on imports of foreign steel, by the Bush administration in 2002 B. Threatening 100 percent tariffs on a range of Chinese products violating intellectual property laws C. Outlawing importation, sale, or use of genetically modified organisms by Austria and Luxembourg D. Passing legislations such as the D'Amato Act and the Helms-Burton Act targeting products from Libya, Iran, and Cuba

C

With the development of the _____ and _____, the economic arguments for government intervention have undergone a renaissance in recent years. A. technology; WTO B. free trade; democratic governments C. new trade theory; strategic trade policy D. democratic governments; anti-globalization movement

C

_____ are the highest rate that can be charged, which is often, but not always, the rate that is charged. A. Ceiling rates B. Specific tariffs C. Bound tariff rates D. Ad maximum rates

C

_____ tend(s) to be one of the largest beneficiaries of subsidies in most countries. A. Banks B. Commercial airlines C. Agriculture D. Defense

C

A particularly odd aspect of the Smoot-Hawley tariff-raising binge was that the United States was running a balance-of-payment surplus at the time and it was the world's largest _____ nation. A. debtor B. free-trade C. importing D. creditor

D

A protective tariff encourages domestic firms to produce products at home that, in theory, could be produced more efficiently abroad. This results in: A. an establishment of a comparative advantage over firms from other countries. B. improved productivity of the labor workforce in that country. C. higher mobility of resources within the country. D. an inefficient utilization of resources.

D

A(n) _____ is a quota on trade imposed by the exporting country, typically at the request of the importing country's government. A. tariff rate quota B. quota rent C. import quota D. voluntary export restraint (VER)

D

According to _____, many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with well-established industries in developed countries. A. mercantilism B. comparative advantage theory C. product life-cycle theory D. infant industry argument

D

If Apple won an order to sell 500 new minicomputers to Australia, but the Australian government stipulated that 20 percent of the component parts of the minicomputers it purchased must be produced in Australia, that stipulation would be an example of a(n): A. voluntary export restraint. B. administrative policy. C. import quota. D. local content requirement.

D

If countries do not meet their targets for reducing carbon emissions specified in international treaties, they may find themselves the targets of _____. A. dumping B. inflation C. economic crisis D. retaliatory action

D

In addition to the formal instruments of trade policy, informal bureaucratic rules that are designed to make it difficult for imports to enter a country are referred to as: A. regional trade inhibitors. B. back-door trade policies. C. domestic trade hurdles. D. administrative trade policies.

D

Legislation that allows Americans to sue foreign firms that use property in Cuba confiscated from them after the 1959 revolution is known as the: A. Frederick-Peterson Act. B. D'Amato-Perkins Act. C. Perkins-Dole Act. D. Helms-Burton Act.

D

Local content regulations provide protection for a domestic producer of parts in much the same way a(n) _____ does, by limiting foreign competition. A. greenfield investment B. international content requirement C. specific content requirement D. import quota

D

One of the loopholes in antidumping laws that is being exploited by many countries to pursue protectionism is the: A. toothlessness of the enforcement agencies. B. WTO's non-committal approach to antidumping laws. C. bilateral VERs which subvert antidumping laws. D. rather vague definition of what constitutes "dumping."

D

One of the main reasons why many economists remain critical of the infant industry argument is its assumption that: A. protection of manufacturing from foreign competition is harmful. B. absolute advantage cannot sustain productivity of an industry. C. foreign firms too come under the definition of infant industry when they newly enter a foreign market. D. firms are unable to make efficient long-term investments through domestic or international capital markets.

D

The _____ in the U.S. specifies that government agencies must give preference to American products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage. A. Export Administration Act B. Helms-Burton Act C. Hawley-Burton Act D. Buy America Act

D

The threat of antidumping action limits the ability of a firm to: A. raise capital in the primary market. B. raise prices in response to high demand. C. disperse its productive activities in an efficient manner. D. use aggressive pricing to gain market share in a country.

D

To try and establish Airbus as a global competitor against Boeing, the governments of Britain, France, Germany, and Spain: A. threatened 100% tariffs on the import of Boeing aircraft. B. drafted legislations that required 25% of Boeing's aircraft by value to be manufactured in Europe. C. imposed import quotas on American-manufactured Boeing aircraft. D. pooled in subsidies worth $15 billion.

D