Ch. 16: Exchange Rates and Intl Capital Flow, Ch. 20: International Trade, Ch. 21: International Trade

There is currently about ______________ worth of goods and services exchanged among countries in International trade each year around the world.

$20 trillion

Zena can produce either 18 hats or 9 shirts an hour, while Danu can produce either 16 hats or 4 shirts an hour. The opportunity cost of producing 1 hat for Zena and Danu, respectively, are:

0.5 shirts; 0.25 shirts

The membership of the WTO includes about __________ nations.

150

Production Possibilities from One Day's Labor Input: USA: 12 tons of corn or 3 tons of tomatoes. India: 3 tons of corn or 12 tons of tomatoes. The opportunity cost of one ton of corn in India is:

4 tons of tomatoes.

Despite interlocking import quotas, tariffs, and nontariff barriers, the share of apparel sold in the United States that is imported rose from about _________ in 1999 to about ________ today.

50%-75%

The acronym GATT stands for:

General Agreement on Tariffs and Trade

Which of the following is true?

It is impossible to have a comparative advantage in the production of all goods for a nation.

It is sometimes argued that nation should not depend too heavily on other countries for supplies of certain key products. This argument is commonly known as the _______________.

National Interest Argument

__________________ are ways that a nation can draw up regulations, inspections, and paperwork to make it more costly or difficult to import products.

Nontariff barriers

The race to the bottom scenario of global environmental degradation is explained roughly like this:

Profit-seeking multinational companies shift their production from countries with strong environmental standards to countries with weak standards, thus reducing their costs and increasing their profits.

if Willie can produce 32 tons of chocolate per year or 16 tons of almonds per year, but Hershey can produce 24 tons of chocolate per year or 12 tons of almonds. Which of the following is true?

Willie has an absolute advantage in producing chocolate but will not trade with Hershey.

Which of the following is the best example of a tariff?

a $1000-per-car fee imposed on all small cars imported

Politicians often argue for tariff increases in order to reduce the nation's dependence on imports. If tariffs are increased, the long-run effect is most likely to be:

a decrease in both American imports and exports.

Which of the following is the best example of a quota?

a limit imposed on the number of men's suits that can be imported from a foreign country

Comparative advantage identifies the area in a graph where ___________________ greatest.

a producer's absolute advantage is relatively

If China produces tea with less labor and land than any other country; then we can say that China has:

an absolute advantage in tea production

As international trade increases, it contributes to a shift in jobs away from industries where that economy does not have a(n) __________ advantage and toward industries where it has a(n) ___________ advantage.

comparative; comparative

An import quota or tariff on French wine that raises the prices for wine will probably:

hurt domestic wine drinkers but help domestic wineries, which will gain from the higher prices.

According to international trade theory, a country should:

import goods in which it has a higher opportunity cost to produce.

Which of the following best describes why trade benefits both sides of a trading arrangement?

opportunity cost

Low-wage U.S. workers suffer from protectionism in all the industries that they don't work in, because:

protectionism forces them to pay higher prices for basic necessities like clothing and food.

For firms engaged in international lending and borrowing, ____________________ can have an enormous effect on profits.

swings in exchange rates

Foreign direct investment is the term used to describe purchases of firms in another country that involve ______________________.

taking a management responsibility

If $1.00 U.S. bought $1.40 Canadian dollars in 2006 and in 2010 it bought $1.00 Canadian dollar, then;

the Canadian dollar appreciated against the U.S. dollar.

Tariffs result in a decrease in consumer surplus because:

the price of the protected good increases and quantity consumed decreases.

If Japan does not have a comparative advantage in producing rice, the consequences of adopting a Japanese policy reducing or eliminating imports of rice into the country would include:

the real incomes of Japanese rice producers would rise, but the real incomes of Japanese rice consumers would fall.

Exchange rates are an effective way to analyze the price of one currency in terms of another currency with _________________________.

the tools of demand and supply

International trade is fundamentally a

win-win situation

A central bank must be concerned about whether a large and unexpected ___________________________ will drive most of the country's existing banks into bankruptcy.

Exchange rate depreciation

Suppose that Alaska can produce 90,000 peppermint sticks or 10,000 gallons of maple syrup in a typical workweek, while France can produce 100,000 peppermint sticks or 10,000 gallons of maple syrup in a typical workweek. From these numbers, we can conclude:

France has a comparative advantage in the production of peppermint sticks.

Idaho could produce 1 ton of potatoes or 0.5 tons of barley per worker per year, while Maine could produce 3 tons of potatoes or 2 tons of barley per worker per year, there can be mutual gains from trade if:

Idaho specializes in potatoes because of its comparative advantage in producing potatoes.

There are nontariff barriers in the form of _______________ regulations, in which certain textiles are made in the United States, shipped to other countries, combined in making apparel with textiles made in those other countries—and then re-exported back to the United States at a lower tariff rate.

Rules of origin

Which of the following would be expected if the tariff on foreign-produced automobiles were increased?

The supply of foreign automobiles to the domestic market would be reduced, causing auto prices to rise.

Why would foreign firms export a product at less than its cost of production—which presumably means making a loss?

This may be part of a long-term strategy in which foreign firms would sell at below the cost of production in the short-term for a time, and when they have driven out the domestic U.S. competition, they would then raise prices.

If the U.S. dollar weakens, which of the following parties will benefit?

U.S firms selling in Europe

If Bob excels in all aspects of camping (faster at carrying a backpack, gathering firewood, paddling a canoe, setting up tents, making a meal, and cleaning up) we can conclude that Bob has a(n) ____________ over all his camping friends.

absolute advantage

When Mexico produces avocados at a lower cost than Canada, Mexico is said to have a(n) __________________ in producing avocados.

absolute advantage

Suppose the government of Taiwan subsidized its watch-making industry, enabling Taiwanese producers to undersell foreign watch producers. The law of comparative advantage indicates that watch-importing nations would best take advantage of the Taiwanese subsidization policy by:

accepting the subsidy of the Taiwanese government, making the appropriate adjustment for the resources temporarily displaced from the domestic watch-making industry.

Movements in exchange rates can have a powerful effect on incentives to export and import, and thus on ________________ in the economy as a whole.

aggregate demand

Which of the following denotes a common misunderstanding about exchange rates?

an appreciating currency must be better than a depreciating currency

The gains from international trade do not just result from the absolute advantage of producing at a lower cost, but also from pursuing comparative advantage and producing ________________.

at a lower opportunity cost

What do the economies of Greece, Ireland and Germany all share?

common currency

If countries increase production where they have a(n) _________________ and trade with each other, both sides can benefit.

comparative advantage

____________ matters most in determining the efficient distribution of production over the world.

comparative advantage

During the second half of the twentieth century, trade barriers have in general:

declined quite substantially both in the U.S. economy and in the global economy.

The infant industry argument for protectionism suggests that an industry must be protected in the early stages of its development so that:

domestic producers can attain the economies of scale to allow them to compete in world markets.

____________ means selling goods below their cost of production.

dumping

Which of the following best describes the concept where as the production of output increases for a good the average costs of production declines for the good, at least up to a point.

economies of scale

The _____________ is an example of a large-scale common currency.

euro

If a central bank focuses on preventing either high inflation or deep recession by using low and reasonably steady interest rate policy, then:

exchange rates will have less reason to vary.

If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to:

floating exchange rate

People or firms use one currency to purchase another currency at the _______________________.

foreign exchange market

The _____________________________ is the largest market in the world economy.

foreign exchange market

When Mataeo buys Euros through _________________________, he will use his U.S. dollars to pay for them.

foreign exchange market

Which of the following is not a short-run impact of imposing quotas on the American industries they seek to protect?

government tax revenues increase

Production Possibilities from One Day's Labor Input: USA: 12 barrels of oil or 3 barrels of ethanol. India: 3 barrels of oil or 12 barrels of ethanol. From the data, the USA:

has an absolute advantage over India in the production of oil.

After the USA introduces a tariff in the market for gigastraps, the price of gigastraps in the USA will:

increase

Raising an existing tariff on grapes from Argentina will:

increase American consumption of domestically produced grapes.

Introducing a tariff on vitamin Z would:

increase American consumption of domestically produced vitamin Z.

A new American import quota on imported steel would be likely to:

increase American production of steel.

________________________ is theoretically possible, even sensible: give an industry a short-term indirect subsidy through protection, and then reap the long-term economic benefits of having a vibrant healthy industry.

infant industry argument

If a government uses monetary policy to alter the exchange rate, then it cannot at the same time use monetary policy to address issues of ______________________.

inflation or recession

Expansionary monetary policy lowers ______________, and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________________.

interest rates; right

Tariffs and other trade restrictions increase the domestic scarcity of products from abroad. Such policies benefit domestic producers of the restricted products at the expense of domestic consumers." This statement:

is essentially correct.

Intra-industry trade between similar trading partners allows the gains from ______________________ that arise when firms and workers specialize in the production of a certain product.

learning and innovation

The concept of comparative advantage explains how one country:

may be able to produce something at a lower opportunity cost than another country.

One of the reasons that countries participate in international trade is that:

no single country can produce all of the goods that consumers of the country want.

Of the following which best explains how the slope of the production possibility frontier is determined while expanding production of one good, compared to the measured loss of another good?.

opportunity cost

________________ determines the slope of the production possibility frontier by measuring the gains from expanding production of one good against how much of another good would be lost by shifting resources.

opportunity cost

Governments that attempt to intervene in exchange rate markets through soft pegs or hard pegs:

risk causing even greater fluctuations in foreign exchange markets.

A soft peg policy typically allows the exchange rate to move up and down by relatively small amounts in _________________, but seeks to avoid extreme short-term fluctuations.

short run

When a government uses a ______________ exchange rate policy, it usually allows the exchange rate to be set by the market.

soft peg

If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then:

the dollar depreciated against the yen

If 1000 Mexican pesos could buy $1.00 U.S. dollar in 2006 and 87 U.S. dollars in 2010, then:

the dollar strengthened against the peso.

The opportunity cost of producing a pair of shoes in Italy is 5 bushels of corn, while in Spain, it is 2 bushels of corn. As a result:

there can be mutual gains from trade to the two countries if Italy exports corn to Spain in exchange for shoes.

A ______________________ monetary policy can be used to decrease aggregate demand because it _____________ exports and _________________ imports .

tight; stimulates; reduces

The Canadian dollar will most likely strengthen against the U.S. dollar if:

the Canadian inflation rate becomes extremely low

Economists would say tariffs:

limit voluntary exchanges.

Which of the following is no longer one of the most commonly traded currencies in foreign exchange markets?

French franc

A tariff differs from a quota in that a tariff is:

a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.

A stronger British pound is beneficial for:

exchange students with a British scholarship studying in Canada.

_____________ are numerical limitations on the quantity of products that can be imported.

import quotas

Tariffs are taxes imposed on _________________.

imported products

Import tariffs generally ________ the output of domestic producers of the affected products and also _________ the output of domestic exporters.

increase, decrease

An import quota does which of the following?

increases the price of the domestic goods to consumers

International trade among countries allows each country to take advantage of _________________ in other countries.

lower opportunity costs

The idea behind comparative advantage reflects the possibility that one country:

may be able to produce something at a lower opportunity cost than another country.

________________________ equalizes the prices of internationally traded goods across countries.

purchasing power parity

Short run speculation in currencies can create ________________________, at least for a time, where an expected appreciation leads to a stronger currency and vice versa.

self-fulfilling prophecy

Some countries that try producing all of their own goods and services face the problem that:

some industries are too small to be efficient if restricted to their domestic markets alone.

In Cambodia one person can produce 330 tons of barley or 110 hats in one year. In Panama one person can produce 400 tons of barley or 200 hats in one year. Which of the following is true?

Cambodia has a comparative advantage in the production of barley.

If Canada has a comparative disadvantage in the production of toilet paper:

Canada can still gain from international trade in toilet paper, by trading for it at a lower opportunity cost than producing it domestically.

Orlando can produce either 18 bracelets or 9 necklaces an hour, while Daytona can produce either 16 bracelets or 4 necklaces an hour. Which of the following statements is true?

If Orlando specializes in making necklaces and Daytona specializes in making bracelets, they could both gain by specialization and trade.

If Australia's exchange rate is stronger than the PPP rate for several years, which of the following will likely result?

its imports will increase