Ch. 17 Reading Guide – pp. 466-489
Section 1
1. What is the importance of international trade in today’s economy?
2. What is the basis for international trade?
3. Why does total output increase when countries specialize?
Section 2
4. How can international trade be restricted to protect certain interests?
5. What is the main argument used in favor of protection?
6. How has Free Trade “evolved”?
Section 3
7. How is foreign currency used in trade?
8. Why is a trade deficit a problem?
9. What is a solution to a trade deficit?
True/False
Indicate whether the statement is true or false.
____ 10. Health inspections on food products limit trade between nations.
____ 11. Free traders often argue that new or emerging industries should be protected from foreign competition.
____ 12. The use of trade barriers to protect domestic industries and jobs works only if other countries do not retaliate with
their own trade barriers.
____ 13. Imports are goods and services that one country sells to other countries.
____ 14. A country has a comparative advantage in trade when it is able to produce a product relatively more efficiently.
____ 15. Free traders favor few or even no trade restrictions.
____ 16. One effect of tariffs and quotas is higher prices on domestic products.
____ 17. Congress passed the Smoot-Hawley Tariff in 1930 and successfully protected U.S. industry while increasing
trade.
____ 18. The foreign exchange rate is the price of one country's currency in terms of another country's currency.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 19. Tariffs and quotas can have all of the following effects EXCEPT
a. promoting third-world development.
b. increasing prices consumers pay for goods.
c. protecting domestic industry.
d. reducing trade deficits.
____ 20. Revenue tariffs are levied to
a. increase imports.
c. raise money.
Ch. 17 Reading Guide – pp. 466-489
b. lower exports.
d. protect domestic producers.
____ 21. The Smoot-Hawley Tariff of 1930 resulted in
a. the lowest tariff rates in U.S. history.
b. the highest tariff rates in U.S. history.
c. rapid growth of international trade.
d. significant growth of domestic industry.
____ 22. The international agency that administers trade agreements and settles trade disputes is
a. GATT.
c. NAFTA.
b. WTO.
d. the United Nations.
____ 23. A protective tariff is used to
a. give inefficient domestic industries an advantage.
b. expand trade.
c. increase revenue.
d. gain a comparative advantage.
____ 24. The Reciprocal Trade Agreements Act
a. allowed the United States to increase tariffs.
b. allowed the United States to reduce tariffs up to 50 percent if other nations agreed to do
the same.
c. stated that tariffs on imports could not be higher than tariffs on exports.
d. provided for a balance of payments.
____ 25. The North American Free Trade Agreement proposed free trade between the United States and
a. Central American countries.
c. the European Union.
b. Brazil and Mexico.
d. Canada and Mexico.
____ 26. The United States trade deficit causes
a. the value of the dollar to strengthen in foreign exchange markets.
b. the value of the dollar to fall in foreign exchange markets.
c. increased employment opportunities for Americans in import industries.
d. worldwide recessions.
____ 27.
For which product shown on the graph does the U.S. rely most on other countries?
a. automatic data processing equipment
b. fuels
c. clothing
d. photo equipment
Ch. 17 Reading Guide – pp. 466-489
United States Merchandise Trade by Area
(in billions of dollars)
Area of the World
Western Europe
Canada
Japan
Australia, New Zealand, South Africa
OPEC Members (Saudi Arabia, Kuwait,
Iran, and others)
U.S. Imports from
$215
$201
$131
$10
U.S. Exports to
$163
$167
$56
$16
$42
$19
Source: Economic Report of the President.
____ 28. The U.S. has the largest trade deficit in merchandise with which area of the world shown in the table?
a. Canada
b. Australia, New Zealand, South Africa
c. Japan
d. OPEC
____ 29. With which area or areas shown in the table does the U.S. have a positive trade balance in merchandise?
a. OPEC
c. Western Europe
b. Canada
d. Australia, New Zealand, South Africa
____ 30. The graphs show the production possibilities frontiers for two countries who can produce only two products.
Before the countries specialize, what is the total output sugar?
a. 5 pounds
c. 25 pounds
b. 20 pounds
d. 21 pounds
____ 31. The graphs show the production possibilities frontiers for two countries who can produce only two products. How
much more total wheat will be produced after the countries specialize than before?
a. 1 bushel
c. 6 bushels
b. 5 bushels
d. 4 bushels
Ch. 17 Reading Guide – pp. 466-489
____ 32. The graphs show the production possibilities frontiers for two countries who can produce only two products.
Country X has an absolute advantage in which product or products, if any?
a. sugar
c. both sugar and wheat
b. wheat
d. neither sugar nor wheat
____ 33. On the day shown in the illustration, how much American money would an importer receive in exchange for one
British pound?
a. $0.7042
c. $0.42
b. $1.42
d. $1.7042
____ 34.
If the price of buying a car starts rising in the United States, consumers may need to look no
further than the dollar’s recent slide against major foreign currencies.
On the other hand, economically depressed Midwestern farmers may find it easier to sell
surplus grain overseas if a weak dollar makes it cheaper for foreigners to buy U.S. goods.
The dollar spent much of last week on the skids, flirting with its lowest level of the year
against the Japanese yen.... It also has lost ground to the euro.
Source: The Columbus Dispatch, September 7, 1999.
According to the passage, why might the price of buying a car start rising in the United States?
a. The dollar is becoming more expensive on the foreign exchange market.
b. The dollar is becoming less expensive on the foreign exchange market.
c. Foreign car manufacturers might raise their prices to make up for the weak dollar.
d. Foreign car manufacturers might raise their prices to take advantage of greater demand in
the U.S.
Ch. 17 Reading Guide – pp. 466-489