EARL N. PHILLIPS SCHOOL OF BUSINESS
HIGH POINT UNIVERSITY
COURSE SYLLABUS
International Economics (ECO 3460)
Course Materials
Spring 2014
Professor Gerald Fox
1
Table of Contents
Table of Contents ............................................................................................................................ 2
COURSE SYLLABUS ................................................................................................................... 4
HPU Final Exam Schedule ............................................................................................................. 9
Guidelines for Research Paper ...................................................................................................... 10
Research Paper Outline Assignment ......................................................................................... 11
Chapter 1: Introductory concepts .................................................................................................. 12
Chapter 2: Comparative Advantage (part 1) ................................................................................. 14
Chapter 3: Comparative Advantage (part 2) [Economic Liberalism] ........................................... 17
Chapter 4: Tariff Protectionism (neomercantilism) ...................................................................... 18
Chapter 5: NTBs (protectionism or neomercantilism).................................................................. 19
Three Politico-economic ideologies regarding globalism ............................................................ 25
Chapter 6: trade regulations, industrial policy, trade law ............................................................. 27
Chapter 7: trade and economic policies for developing countries
(structuralist perspective) . 29
Chapter 8: regional trading and other economic arrangements .................................................... 31
Chapter 9: Factor (resources) movements and MNCs .................................................................. 35
Chapter 10: Balance of Payments-net flow of money (hard currencies) across countries ........... 37
Chapter 11: introduction to exchange rates .................................................................................. 38
Chapter 12: supply/demand analysis for exchange rates .............................................................. 39
Elements of the Bretton Woods System—set up in 1944, near the end of WWII—(reading on the
global monetary order) .................................................................................................................. 43
Review Questions for First Test ................................................................................................... 44
Review Questions for Second Test ............................................................................................... 51
Review Questions for Third Test. ................................................................................................. 58
Review Questions for Final Exam ................................................................................................ 62
Additional Practice Questions from the textbook test bank.......................................................... 74
Chapter 1 Review test questions ............................................................................................... 74
Chapter 2 Review Test Questions ............................................................................................. 76
Chapter 3 Review Test Questions ............................................................................................. 78
Chapter 4 Review Test Questions ............................................................................................. 82
Chapter 5 Review test questions ............................................................................................... 86
Chapter 6 Review Test Questions ............................................................................................. 86
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Chapter 7 Review Test Questions ............................................................................................. 95
Chapter 8 Review Test Questions ............................................................................................. 98
Chapter 9 Review Test Questions ........................................................................................... 101
Chapter 10 Review Test Questions ......................................................................................... 103
Chapter 11 Review Test Questions ......................................................................................... 105
Chapter 12 Review Test Questions ......................................................................................... 109
Quota, Production Subsidy, and Export Subsidy (Example 1) ................................................... 114
Quota, Production Subsidy, and Export Subsidy (Example 2) ................................................... 117
PBS Video Segments .................................................................................................................. 120
Creating a trendline in a scatter graph using Numbers ............................................................... 121
Web-based Questions on Trade and Exchange Rates ................................................................. 122
Midterm Student Evaluation ....................................................................................................... 123
Global Studies General Education Assessment Prompt ............................................................. 124
Rubric for Global Studies Learning Outcomes Assessment ................................................... 125
Supply-Demand Table ................................................................................................................ 126
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EARL N. PHILLIPS SCHOOL OF BUSINESS
HIGH POINT UNIVERSITY
COURSE SYLLABUS
INTERNATIONAL ECONOMICS: ECO/GBS 3460-01
Professor:
Jerry Fox, Ph.D.
Semester:
Spring 2014
Credits:
Four Semester Hours
Prerequisites
ECO 2010 or ECO 2030
Time & Location:
TTh 3:30 PM - 5:10 PM, Wilson 226
Office Hours:
MWF 4:35-5:35PM; TTh 5:10-6:10 PM
Office Location:
Phillips 228
Phone/Email/Web: 841-4559; jfox@highpoint.edu
Textbook:
Robert J. Carbaugh, International Economics, 14th edition.
(Mason, Ohio: South-Western Cengage Learning, 2013).
Additional
Materials:
Blackboard files; worksheets, handouts, additional readings, videos
Computer Lab:
Computers and software are available in the business computer lab to be
used for completion of homework and writing assignments.
-Please your bring notebook computer to class as much as possible for
classwork assignments. Computer classwork and homework involves use
of the internet, MS Excel, and MSWord.
CATALOG DESCRIPTION:
An overview of international trade and finance. Students will learn comparative advantage
theories, and practical lessons for exporting. Other topics will include national trade barriers and
the WTO, trade deficits, exchange rates, and the debate about trade's impact on labor and the
natural environment. Four credits. Prerequisite: ECO 2030.
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COURSE CONTENTS: The course material and class discussions are grouped into the four
main subjects. Refer to the table of contents in the textbook for a more detailed description.
I.
International Trade, chapters 1-5
Introduction, globalism, history, U.S. trade characteristics,
comparative advantage, tariffs, quotas, NTBs
II.
Trade Policies and Trade Areas, chapters 6-9
Regulations, industrial policies; DC, NICs, and LDCs,
regional economic integration, factor mobility, MNCs
III.
International Monetary System, chapters 10-15
Balance of Payments, foreign exchange, exchange rates,
currency crises
IV. Open-Economy Macroeconomics, chapters 16-17
Fiscal policy, monetary policy, international banking
COURSE OBJECTIVES AND SCOPE:
This course will teach the student common tools and theories used in the analysis of international
trade and finance. The student will learn to apply these tools and theories to gain insight into
contemporary world institutions and issues. By the end of the semester, students will be able to:
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Define Smith and Ricardo’s absolute/comparative advantage theory and use it for
predictions.
Describe Heckscher-Ohlin factor proportions theory and its strengths and weaknesses.
Identify other useful trade theories (e.g., product cycle theory, intra-industry trade
explanations) and recognize their implications.
Analyze the economic effect and welfare effect of tariffs and non-tariff barriers. Describe
the political economy of choosing trade barriers vs. choosing free trade. Describe the
policies of the World Trade Organization (WTO) and debate the impact of these policies.
Describe developing countries' trade situation, focusing on commodity exporters. Discuss
cartel theory. Analyze reasons for OPEC’s fluctuating power over the oil market.
Define the types of trade blocs and describe their theoretical effects. Analyze one or more
actual trade blocs.
Debate the implications of international factor movements, e.g., labor migration and direct
foreign investment.
Define balance-of-payments terminology, and explain influences on the size of a trade
deficit, and potential adjustment processes.
Define exchange-rate markets such as spot and forward. Analyze how various factors will
cause movement in flexible exchange rates. Discuss business strategies in a flexible system
(e.g., hedging).
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TEACHING METHODS:
Class discussions, newspaper and journal readings, internet research, computer lab work, video
segments, lectures, short analytical papers, class group work, homework, class experiments,
game theory exercises, exams, research paper, blackboard documents.
ATTENDANCE POLICY:
Class attendance will be recorded for each class period. Success in this course depends on
regular attendance, active participation during class discussions and study. Students should
come prepared for each class period by bringing their textbooks, notes, relevant handouts,
worksheets and calculators.
The Phillips School of Business at HPU has adopted a universal attendance
policy. Following the third absence, a student will be placed on Class Attendance Probation. If
the student misses one more class after being placed on probation, the student may be dropped
from the class with a grade of W, WA, or FA as appropriate (see 2013-2014 Undergraduate
Bulletin, p. 46).
Please inform the professor ahead of time if you must miss class, especially for exams.
OUT OF CLASS WORK:
In addition to attending class, students are expected to spend at least 2 hours each week engaged
in out-of-class work (i.e., reading, studying, doing homework, etc.) for every hour of credit
earned in this course.
THE WRITING CENTER provides writing assistance for students at any level of study – from
freshman to graduate – at any stage in the writing process, from invention through revision. The
Writing Center staff will be available in a variety of locations during various hours throughout
the day, Sunday through Thursday. Go to https://highpoint.mywconline.com/ to make an
appointment. Appointments can only be made through the online portal. Appointments will be
available starting September 2, 2013.
Writing consultants do not proofread or edit students’ papers for them, but they do work
with students to help them develop strategies for improving their writing in light of their
respective assignments, instructors, and writing styles. For more information, contact the
Writing Center Director, Dr. Leah Schweitzer, at lschweit@highpoint.edu or (336) 841-9106.
GRADING POLICY:
Course grades are based on three regular exams, comprehensive final, periodic short essay
assignments, research paper assignment, homework, class work, and participation. The final
exam consists of approximately 50 percent new material and 50 percent review material from
previous exams.
Students should bring a calculator to all exams.
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The overall course grade is determined according to the following criteria:
Requirements
Percentage of Course Grade
1. First exam
2. Second exam
3. Third exam
4. Homework, Classwork,
Class Participation,
Individual Effort
5. Research Paper
6. Comprehensive final exam
Total:
Examination Dates
16%
16%
16%
16%
1/28
2/27
4/1
Throughout the semester
16%
20%
4/29 before starting final exam
Tue, 4/29, 4-7pm
100%
Grading scale for exams and research paper:
A+
A
A-
97-100 B+
93-96 B
90-92 BF
87-89 C+
77-79 D+
83-86 C
73-76 D
80-82 C70-72 Dbelow 60
67-69
63-66
60-62
STUDENTS WITH DISABILITIES:
Students who require classroom accommodations due to a diagnosed disability must submit the
appropriate documentation to Disability Support in the Office of Academic Development, 4th
Floor Smith Library. A student’s need for accommodations must be made at the beginning of a
course. Accommodations are not retroactive.
ELECTRONIC DEVICES IN THE CLASSROOM:
Laptops and other computers are to be used in the classroom for note taking or other teacherassigned activities. Text messaging, web browsing or e-mailing should not occur during class
time. Please do not accept phone calls or use your phone for picture taking or videos during
class time. Any such activities during an exam will be considered as cheating.
COURSE EVALUATIONS:
All students are expected to complete course evaluations in the week preceding final
exams. These evaluations, which are delivered online, are an important part of High Point
University’s assessment program, so your cooperation in completing them is greatly
appreciated. As the end of the semester or academic session draws near, you will receive
information from the Office of Institutional Research and Assessment about how to complete the
online evaluations.
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IMPORTANT NOTE: All communications from the Office of Institutional Research and
Assessment will be sent to your High Point University e-mail account, so please be sure to check
and maintain your account regularly.
HONOR CODE:
The High Point University Honor Code expects all students to act in a manner so as not to
infringe upon the rights and responsibilities of others. It is crucial to the development of a
college student that one have the right to learn and prosper in a society free from fraudulence and
dishonesty. It is the responsibility of each student to help maintain such a society.
The High Point University Honor Code affirms that:
Every student is honor-bound to refrain from conduct which is unbecoming of a High Point
University student and which brings discredit to the student and/or to the University;
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Every student is honor-bound to refrain from cheating;
Every student is honor-bound to refrain from collusion;
Every student is honor-bound to refrain from plagiarism;
Every student is honor-bound to confront a violation of the University Honor Code;
Every student is honor-bound to report a violation of the University Honor Code.
Full details of the High Point University Honor Code are found in the Student Handbook
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HPU Final Exam Schedule
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Guidelines for Research Paper
Format
1.
Double-spaced, 12 point font
2.
1 inch margins—top, bottom and sides
3.
Subheadings (e.g., introduction, conclusion, main subtopics)
4.
Bibliography—five or more references
5.
Footnotes or endnotes: reference all statistics, quotes and key ideas
6.
Tables, graphs, relevant data and statistics, and direct quotes are useful
7.
Term paper should be 7 to 10 pages of text in length, excluding bibliography, endnotes,
tables, graphs.
8.
Term paper counts for 16 percent of the course grade.
Subject Matter
1.
Choose a topic from one of the chapters of the textbook. Identify 1, 2 or 3 of the endof-chapter questions.
2.
Answer the research questions thoroughly, using outside sources in addition to the
textbook. Give examples and elaborate on the key concepts.
3.
Use critical thinking.
4.
Submit the topic to the professor for approval on the assigned date.
5.
Submit an outline to the professor for approval on the assigned date.
6.
You may submit an optional rough draft of your term paper prior to the final paper
due date, so as to receive feedback from the professor regarding possible
improvements for your final paper.
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Research Paper Outline Assignment
(Outline should be ¾ - 2 pages in length)
I. Title: provide a tentative title for your term paper
(Identify the chapter from the textbook; or indicate special topic)
II. Introduction: brief explanation on what the term paper is about
(For the actual term paper, the introduction should be ½ page to1 page in length)
-From the chapter you selected, identify 1, 2, or 3 end-of-chapter questions to be the
focus of your term paper. For example:
III. For example, Question 2: brief paraphrase or explanation
(For the actual term paper, each of the main sections should be about 2 pages in
length)
***You may also refer to summary points at the end of the chapter to narrow
your term paper topic
IV. For example, Question 4: brief paraphrase or explanation
(For the actual term paper, each of the main sections should be about 2 pages in
length)
V. For example, Question 5 brief paraphrase or explanation
(For the actual term paper, each of the main sections should be about 2 pages in
length)
VI. Conclusion: main points or results; you may express your opinion on any major results
(For the actual term paper, the conclusion, implications, and opinions should be 1-2
pages in length)
VII.
Bibliography: 5 or more references for actual term paper
Tips for the actual term paper due at the end of the semester:
-Make use of graphs, tables, important statistics, direct quotes.
-You may submit a rough draft of the term paper for feedback from the professor.
-Term paper text should be 7-10 pages in length, double-spaced, 12 point font, 1 inch margins.
-Make sure to use subheadings on the actual term paper.
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Chapter 1: Introductory concepts
1. Globalization or globalism; different from MNC internationalization process
Definition: Spread of technology, resources, trade, financial assests,
international economic commerce, interconnectedness of countries
and people throughout the world.
A. Spread of technology,
1.
including communication such as spread of ideas and information, etc.
2.
and transportation of products, people, financial assets
Commercial technology causes the global economy to grow. But is the growing economy
adversely affect the natural environment?
Does globalism help or hurt LDCs?
Hopefully, the growing global economy benefits both rich and poor countries. Is this
outcome really the case?
2. Three perspectives on globalism:
a. economic liberalism (free market perspective, small role of government in the
economy, reduce trade barriers, globalism generally beneficial)
b. neomercantilism (countries should pursue their economic self-interest through
government policy or intervention, whether free trade or protectionism or
industrial policy; use globalism to benefit your economy)
c.
structuralism (market forces cause the rich to get richer and the poor get poorer,
global economic classes: DCs, NICs, LDCs); poor states unable to compete
because too far behind in know-how, technology, economic infrastructure,
education, capital, money, etc.); Richer countries have an obligation to help poor
countries.
3. International trade math formulas:
a. trade openness (p.9) = (exports plus imports)/gdp
b. trade balance (net exports) = exports minus imports
c. terms of trade = Average price of exports/average price of imports
(DCs have higher terms of trade than LDCs)
4. open economy – yes international trade and finance.
5. closed economy – no international trade and no international finance
6. autarky = closed economy
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Essay: What is globalism? What are some of the positive and negative effects of
globalism? What is the net impact of globalism? Beneficial or detrimental? Explain.
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Chapter 2: Comparative Advantage (part 1)
1. Absolute Advantage—Adam Smith
2. Comparative advantage—country perspective, economic theory, based on resource
abundance, David Ricardo
-Definition: countries should specialize on producing and exporting the products that
they are better at making (based on costs). Comparative advantage is based on
products that are cheaper for countries to produce. Comparative advantage is based
on the abundant resource.
3. Competitive advantage--business perspective that emphasizes innovation, competition,
differentiation of product, technology, etc
4. benefits from international trade
5. costs from international trade
6. 3 waves of globalization (industrial revolution, post WWII era (1950-1980), post-1980
era to the present day
7. complete specialization
8. partial specialization
9. free trade
10. fair trade versus unfair trade
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11. consumption gains from trade
12. mercantilism
13. production possibilities model and trade
14. David Ricardo—comparative advantage
15. Costs and productivity and trade
15
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Chapter 3: Comparative Advantage (part 2) [Economic
Liberalism]
1. Factor endowments theory (Heckscher-Ohlin theory)-comparative advantage based on
abundant resource
2. Relation between resource endowments, resource prices, product prices, trade
3. Factor price equalization (such as wages)
4. Product price equalization
5. Specific factors theory
6. Dynamic comparative advantage—government industrial policies that create comparative
advantage over time; goes against the free trade approach; more consistent with
neomercantilism (use of government policies such as grants, loans, tax breaks,
deregulation, etc. to improve certain industries)
7. Stolper-Samuelson theorem—increase in income that goes to the abundant resource b/c
exports based on the abundant resource
8. Does trade make the poor countries even poorer? (structuralist view says yes in many
cases)
9. **Increasing returns to scale to gain a comparative advantage (mass production of a
product causes the average cost to go down. e.g., autos)
10. Product life cycle—products or goods go through different stages of development
(introduction, growth, maturity, decline)
11. Industrial policies
12. Impact of government regulation, deregulation, subsidies, and taxes upon comparative
advantage
13. Effects of transportation costs on trade
14. Interindustry trade—exporting different products across countries; fits with comparative
advantage model
15. Interindustry specialization
16. Intra-industry trade—exporting the same products across countries: difficult to explain
using comparative advantage theory
17. Intra-industry specialization
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Chapter 4: Tariff Protectionism (neomercantilism)
1.
2.
3.
4.
5.
Tariffs: tax on imports
Specific tariff: fixed monetary amount per unit of import
Ad valorem tariff: percentage tax on the price of import
Compound tariff: combination of the above two types
Effects of tariff on price of imports, consumption, production (import prices rise, total
amount of consumption would decline, imports decline, domestic production would
rise)
6. Beggar-thy-neighbor policies
7. Trade war: excessive use of trade barriers that leads to trade retaliation, and world trade
declines
8. Job protection
9. Trade fairness: level playing field
10. Free trade versus fair trade
11. Maintain high income and jobs as argument from protectionism
12. Infant-industry argument for industrial policies and protectionism against imports
(relates to industrial policies; e.g., sunrise and sunset industries)
13. Scientific tariff
14. National security arguments for tariffs (military security: weapons, nuclear, reduced trade
with enemy, high tech)
15. Political economy of protectionism: protection-biased sector (e.g., economic security:
agriculture, communication, transportation, energy)
16. Free-trade biased sector
17. Optimum tariff
18. Outsourcing
19. Revenue effect of tariff: government collects tax revenues from imports
20. Tariff avoidance—legal methods (shift from exporting to producing your goods in the
other country)
21. Tariff evasion—illegal exporting of goods and not paying the tariff
22. Non-tariff barriers (NTBs)
23. Tariff retaliation: may lead to a trade war
24. Import-competing industries versus export industries
Math for first test
Trade balance = NX = exports minus imports = 1000 billion – 750 billion = +250 billion
Trade Openness = (Exports plus imports)/ gdp; gdp = 15 trillion; 1.75/15 = .1167 or 11.67%
Terms of Trade = Price of exports divided by average price of imports; Px =200; Pm = 150;
Terms of Trade = 200/150 =1.33 or 133%
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Chapter 5: NTBs (protectionism or neomercantilism)
1.
2.
3.
4.
5.
6.
What are NTBs? Non-tariff barriers
Import and export quotas
Graphical analysis of quota, p157
Effects of quotas versus tariffs, p160
Domestic content requirements, graph p166
Production subsidies: government provides aid based on amount produced;
(import-substitution strategy: reduce imports), graphical analysis, p167
7. Export subsidies: government provides aid based on the amount of exports
(export-led growth strategy: increase exports), graphical analysis, p167
8. Trade Dumping: sporadic (legal), predatory, persistent (predatory pricing strategy)
9. Antidumping duties
10. Margin of dumping
11. Price-based definition of dumping, p173
12. Cost-based definition of dumping, p173
13. Is antidumping law unfair? Trade dumping gives cheap prices to consumers
14. Government procurement policies: buy-national policies
15. Health, safety, and environmental regulations upon trade
16. Transportation and freight regulations
17. Other restrictions on trade: customs valuations and rules, marketing restrictions,
18. Exchange rate manipulation: depreciation or weakening of the currency (exchange rate)
so as to make export prices cheaper, import prices more expensive, reduce the amount
of imports, and increase the amount of exports, which increases net exports overall.
GDP = C + I + G + NX
NX = X - M
Graphing
a. No trade
b. Free trade—exports and imports
c. Import tariffs
d. Import quotas
e. Production subsidy
f. Export subsidy
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Page 159 of textbook
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Tariff, Quota, Production Subsidy, and Export Subsidy
Quota and Production Subsidy Exercise
1. Determine the no-trade equilibrium price and quantity.
2. Suppose the free-trade price equals $225. Determine the following: amount
produced=20, amount consumed=170, amount of imports=150.
3. Suppose a quota of 120 units is imposed. Determine the following: amount produced=40,
amount consumed=160, amount of imports=120 = 160 - 40, after-quota price = 250.
4. What tariff rate will give the equivalent result of a quota of 120 units? Tariff =25
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5. Suppose a production subsidy of $75 is adopted. What happens to the supply curve?
Shifts right
6. In the case of a production subsidy, determine the following: amount produced= goes
from 20 to 80, amount consumed = stays the same at 170, amount of imports = decreases
from 150 to 90, after-subsidy price = stays the same as free trade at 225.
7. Calculate the total cost to the government of the production subsidy.
(Cost of production subsidy=subsidy per unit x amount produced after subsidy)
= 75 x 80 = 6000
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Export Subsidy Exercise
8. Suppose the free-trade price equals $450. Determine the following: amount produced =
200, amount consumed =80, amount of exports = 200-80=120.
9. Suppose an export subsidy of $100 is adopted. Determine the following: amount
produced = goes up from 200 to 280, amount consumed = goes down from 80 to 40,
amount of exports = goes up from 120 to 240, after-subsidy price to exporters = 550.
10. Calculate the total cost to the government of the export subsidy.
(total cost of export subsidy to govt= export subsidy x amount of exports after the subsidy)
= 100 x 240 = 24000
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Three Politico-economic ideologies regarding globalism
Ideas and Issues
Classical View
(based on early
perspective and
experience)
Modern Variations
(20th-21st century)
Economic interest
and moral critique
of capitalism
Neomercantilism
Feudal Monarchies (preindustrial revolution);
monarchy control of
economy; goal--king's
control of wealth and power
Democratic Capitalism
(post-industrial revolution);
government intervention in
international markets for
national aims (e.g., gdp,
employment, income)
State manipulation of
international capitalism for
national self interest;
Government policies create
win-lose outcomes among
nation-states; possible loselose outcomes (e.g., trade
war)
Trade Barriers-International tarrifs, quotas,
Trade***
NTBs
Economic Liberalism
Laissez-faire, invisible hand,
comparative advantage
(Adam Smith, Francios
Quesnay, David Ricardo);
goal--economic freedom;
small role of government in
the economy
Structuralism
Marx & Lenin--four laws of
capitalism (falling profits,
disproportionality,
concentration, capitalist
imperialism); capitalism
flawed; goal--business
wealth; gap between rich
and poor countries
Microeconomic failures (John
Stewart Mill), Macroeconomic
failures (John Maynard
Keynes); government
correction of market failures
World Systems Theory,
Dependency Theory;
vulnerability and lop-sided
power structure (Raul
Prebisch)
Individual economic interest
creates mutually beneficial
outcomes; capitalism
generally beneficial (based on
the principle of economic
freedom)
Corporate economic
interests simultaneously
creates wealth and poverty;
emphasis on gap between
rich and poor (domestically
and internationally)
Free Trade, Fair
Trade--trade
treaties (WTO,
NAFTA, etc.)
LDC Preferential
Treatment-UNCAD, GSP
(Generalized
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System of
Preferences)
International
Finance
Fixed Exchange Rates,
External Measures (trade
barriers, capital controls,
currency devaluation)
Austerity, Market Forces,
Flexible Exchange Rates
Liquidity (low interest loans
and increased foreign aid),
External Measures
International
Security
Malevolent
Neomercantilism--use of
war for economic gain
Use of war to promote
freedom (political and
economic) versus avoidance
of foreign entanglements
Foreign wars by DCs against
LDCs are the worst form of
exploitation
Foreign Aid
Motivated by self-interest;
strings attached
Often ineffective; promotes
dependency; market forces
superior to foreign aid
DCs should increase aid to
LDCs
Technology
Transfer
Protect technology for
national interest
Free market forces
determines flow of technology
Faster, cheaper technology
transfer from DCs to LDCs
Environment
National interest motivation-win/lose outcomes (pursue
economic interests, while
other states pursue
environmentalism?)
Market forces with some
government policies to deal
with externalities (cooperative
solution)
Harm to the environment is a
consequence of the profit
incentive of capitalism
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Chapter 6: trade regulations, industrial policy, trade law
1. US tariffs were high during and prior to Great Depression; trade war, beggar-thyneighbor policies
2. U.S. has promoted the free trade view in the post-WWII era, US superpower (hegemon:
promotion of free flow of trade and finance internationally; promotion of democracy)
3. UN set up in 1948
4. Average tariff rates, p188
5. Smoot-Hawley Act of 1930: increased US tariffs to protect US jobs; trade partners
retaliated with their trade barriers, which caused trade war; world trade shrinks and
the Depression got worse.
6. Reciprocal Trade Agreements Act of 1934—decision-making power shifted from
Congress to the President. Effects: faster trade laws, the President is more likely to
consider the national interest rather than local interests
7. GATT (General Agreement on Tariffs and Trade, 1948) & WTO, 1994 (part of UN);
GATT was the predecessor of WTO; GATT/WTO set up trade treaties and monitor
them.
8. IMF and IBRD (World Bank) part of UN, 1948
9. *Trade without discrimination between foreigners and locals
10. *Binding and Transparency: treaties and rules
11. Multilateral and bilateral trade
12. Kennedy Round (1960s): reduced tariffs on manufactured goods an average of 35%;
agriculture not even addressed in the treaty b/c too controversial (countries want to be
self reliant on food); GATT treaty
13. Tokyo Round (1970s): focus was to reduce NTBs; GATT treaty; NTBs includes quotas,
production subsidies, export subsidies, trade dumping, excessive rules, regulations,
and other government policies that reduce trade
14. Uruguay Round (1980s): created the WTO; WTO has greater enforcement powers than
GATT to deal with unfair trade through tribunal; the Uruguay Round addressed
agriculture; the round also increased freer trade in services and international banking,
attempted to enforce intellectual property rights (patents, copyrights, trademarks)
15. Doha Round (Qatar; negotiations began in late 1980s up through present day?): countries
cannot yet reach agreement; DCs versus LDCs. US wants to import less because of
the US trade deficit, but LDCs want to DCs to import more; increased trade
protectionist sentiment on agriculture.
16. WTO and national sovereignty; libertarian view often opposes the idea of the UN and
the WTO because it conflicts with national sovereignty
17. WTO and the environment
18. Retaliatory tariffs or removal from MFN list as WTO enforcement
19. Trade promotion authority or fast-track authority—president negotiates and Congress
approves
20. Escape clause—temporary relief against surge in imports through fair trade
--21. Multifiber Arrangement—quotas on textiles against LDCs because of cheap labor; give
time for DCs to adjust to international competition
27
22. Countervailing duties (retaliatory tariff) against subsidies or dumping or other types of
unfair trade.
23. Section (super) 301 clause of Trade and Competitiveness Act of 1974: retaliatory tariff
on unfair imports up to 100 percent of price
24. Intellectual property rights (IPR) relating to Uruguay Round
25. Trade adjustment assistance—wage and health insurance in the form of tax breaks and
subsidies/programs; government funding for job retraining
26. US industrial policy—agriculture and the military; export/import bank
27. Japan—METI (Ministry of Economy, Trade, and Industry)
28. Strategic trade policy—government subsidies to help domestic industries (aircraft, high
tech, electronics, energy, green industries)
29. Economic trade sanctions: politically–motivated tariffs and quotas against enemy states: -Embargoes (refuse to export)
-Boycotts (refuse to import)
-limited effectiveness?
28
Chapter 7: trade and economic policies for developing countries
(structuralist perspective)
1.
2.
3.
4.
5.
DCs, LDCs, NICs (rich, middle-come, poor)
Tensions between DCs and LDCs/NICs (e.g., Doha Round)
Dependency on primary exports for LDCs, p234
Unstable prices for LDC exports (commodities, oil, food)
Worsening low terms of trade for LDCs: Px/Pm is low for LDCs, because Px is low, and
- LDCs must export a lot of cheap goods in order to import a few expensive goods
from DCs
-LDCs mainly export inexpensive products such as food, clothing, manufactured
goods.
6. Limited market access in agriculture in agriculture, manufacturing, textiles, p239
7. LDCs impose higher tariffs than DCs, p240
8. International Commodity Agreements (ICAs)—stabilize prices of primary exports
(production/export controls, buffer stocks (gov or agency buys and sells
commodities)
9. *OPEC—oil producing and exporting countries
10. International commodity cartels
11. *World Bank: loans to LDCs for economic infrastructure development (hospitals,
schools, telephone lines, roads, electricity)
12. *IMF: special loans to LDCs to help alleviate financial debt crises, including help with
exchange rates (excessive international debt)
13. *Generalized System of Preferences (GSP): LDCs are permitted to have higher tariffs on
imports than is the case for DCs.
14. *Does foreign aid help LDCs? LDCs request increased foreign aid.
15. Import substitution
16. Export-led growth: LDCs export more goods to grow their economies
17. China’s economic transformation
18. India’s economic transformation
29
19. Effect of GDP upon NX: inverse relation as shown below
NET EXPORTS and GDP
100.0
y = -0.0402x + 60.676
R² = 0.8335
0.0
0.0
5000.0
10000.0
15000.0
20000.0
-100.0
-200.0
-300.0
NETEXP
-400.0
Linear (NETEXP)
Linear (NETEXP)
-500.0
-600.0
-700.0
-800.0
-900.0
30
Chapter 8: regional trading and other economic arrangements
1.
Regional economic integration or multilateralism:
-continuance of globalism or market forces in the world
-3 major regional trading blocks
a. (EU/EMU (28 countries),
b. NAFTA/FTAA,
c. Pacific Asian Basin [Japan, China, S. Korea, India])
-Worst Case Scenario: Fortress America versus Fortress Europe
(neomercantalist outcome: free trade within the trade region, but high trade barriers
among nonmember countries)
2.
Comparative advantage effects of regional trade agreements
-static effects: lower trade barriers, efficiency, consumer welfare (lower prices, better
quality, greater variety of goods)
-dynamic effects: impact on countries (LDCs v. DCs), long-run economic growth
3.
European Union and European Monetary Union. Maastrict Treaty of 1991,
For example, common agricultural policy across EU countries
4.
NAFTA and FTAA: role of the US dollar—strongest currency in the Western
Hemisphere;
-Much of NAFTA trade involves textiles, apparel, manufactured goods
Trade data involving Mexico: http://www.census.gov/foreign-trade/balance/c2010.html
5.
Effects of NAFTA: beneficial and detrimental; single currency for FTAA?
-Views of economic liberalism, neomercantilism, structuralism
31
Worsening US trade deficit with Mexico after NAFTA
32
6
Transition economies: former communist countries in the world and China
—effects of political and economic freedom, see graph in
textbook.
33
7. *Regional Economic Integration (p.273):
a.
Free Trade Area (FTA); NAFTA, CAFTA, FTAA
-seek to remove trade barriers such as tariffs and NTBs
b.
Customs Union = FTA + common trade policy with nonmember countries
-no trade barriers among member countries, but member countries have the same
tariffs and quotas with China and other nonmember states
c.
Common Market = customs union + open resource movements of factors of
production (natural resources, labor, capital, money) back and forth across
member countries
d.
Economic Union = common market + similar fiscal policies (taxes, government
spending, similar business laws); example: European Union
e.
Monetary Union = Economic Union + same or similar monetary policy and
interest rates and inflation; including use of the same currency; example:
European Monetary Union (EMU); Eurocurrency
8. Advantages/disadvantages of single currency or economic integration in general:
-grow the regional economy (advantage, refer to the static and dynamic effects);
-lose some autonomy or self-determinism (disadvantage)
9.
EU bailout fund
Essay: Discuss each of the five levels of regional economic integration. What are the
similarities and differences of each of the five stages?
34
Chapter 9: Factor (resources) movements and MNCs
1. What is an MNC? Firm that engages in business in 2 or more countries
2. Why international business? Motivations? (not in the textbook)
Profitability: make more profits by going into international business
Survivability: avoid bankruptcy by expanding into international commerce
Diversification: reduce risk by conducting business in multiple markets
3. MNC Internationalization process (not in the textbook):
a. Trade: simplest, least risky
- trade is least profitable compared to other forms of internationalization
(transportation costs, trade protectionism)
b. Licensing: intermediate stage of business activity between trade and FDI
c. Direct Investment (FDI): set up ownership of a foreign firm, foreign affiliate,
foreign venture, strategic alliances; most risky, but high profit potential
Boomerang Effect: foreign business partner becomes a competitor through
sharing of technology
4. Effects of MNCs: do MNCs exploit resources and workers or help the host country?
Beneficial or detrimental overall?
5. Produce domestically or abroad?
6. Country risk analysis
7. MNCs: an instrument of comparative advantage?
8. Direct investment structures for MNCs (foreign affiliates):
a. joint ventures: 2 or more private businesses form a new company
b. whole ventures: 100% ownership by MNC
c. mixed ventures: partially owned by MNC and partially owned by state-owned
enterprises (SOE).
***danger: expropriation or nationalization of MNC by the host government
9. Other controversial effects of MNCs: employment, technology transfer, national
sovereignty, balance of payments, transfer pricing
10. Technology transfer—commercial technology spread through MNCs mainly from
DCs to NICs and LDCs
11. The tax code and MNCs: tax avoidance by locating headquarters elsewhere
Immigration: positive and negative effects, -legal and illegal immigration
12. -brain drain effect: high-skilled workers immigrate from LDCs to DCs; poor
countries lose their most talented people as they emigrate to DCs
(this concept is not in the book)
35
Essay: What is an MNC? Discuss the MNC internationalization process?
Discuss the types of MNC business structures.
36
Chapter 10: Balance of Payments-net flow of money (hard
currencies) across countries
1. US balance of payments = current account (-) + capital/finance accounts (+)
2. current account—trade balance, transfers, and income flows
-similar to income statement for the country in its international dealings
-US trade deficit leads to current account deficit; loss of money from US, which
shows up as a “minus sign” on the BofP.
-types of trade—merchandise, services
3. capital/finance accounts—international investments: securities or portfolio investment
(stocks and bonds, bank accounts), FDI, official reserve assets, international debt
-similar to a balance sheet for a country in its international dealings
-Two types of international investment: FDI + portfolio investment
4.
5.
6.
7.
8.
9.
12.
13.
14.
business cycles, economic growth, and the current account
US current account deficits offset by capital/finance account surpluses
Current account deficits and external debt
Hard currencies (international money): money from DCs with international usage
Soft currencies: money from LDCs and NICs primarily for domestic usage only
International financial crisis:
-large B of P deficit; massive amount of hard currencies leaving the country
(outflow of money)
-large amount of international debt (capital account)
-LDCs run out of hard currencies
exchange rates: appreciation and depreciation; and its impact on net exports
*dollar gets stronger, price of imports go down, amount of imports go up
*dollar gets stronger, price of exports go up, amount of exports go down
*dollar gets stronger, net exports go down
**dollar gets weaker, then . . . . ?
capital flight
Exchange rates—
-fixed exchange rates: government determined (primarily LDCs)
-flexible (floating) exchange rates: determined by supply and demand (primarily
DCs)
37
Chapter 11: introduction to exchange rates
1.
2.
3.
4.
Currency futures, forwards, and options: managing exchange rate risk
Supply and demand for foreign exchange, p382
Exchange rate speculation
(Pencast on circular flow of balance of payments; Adobe Reader 11 or higher
required for audio)
38
Chapter 12: supply/demand analysis for exchange rates
1. short-term and long-term exchange rates
2. Determinants of exchange rates: pp394-404
An increase in inflation – dollar devalues – domestic goods become more
expensive – consumers demand more foreign goods or imports – Americans sell
dollars to buy foreign currency to purchase foreign goods – reduced demand for
US dollars because consumers are purchasing less domestic goods; therefore
weaker dollar.
An increase in business productivity—dollar appreciates—Why? –domestic
prices become cheaper, and consequently consumers (domestic and foreign) wish
to buy more domestic goods. The demand for the dollar goes up, which causes
an appreciation of the currency.
An increase in domestic interest rates—dollar gets stronger—Why?—an
increase in demand for dollars so as to invest those dollars in interest bearing
assets in the domestic country.
An increase in U.S. protectionism—dollar strengthens—why?—imports become
more expensive, which reduces demand for foreign goods and increases demand
for domestic goods—domestic currency strengthens because of increased
demand for domestic goods
An increase in preferences (popularity) for domestic goods—dollar
strengthens—why?—increased demand for domestic goods means an increase in
demand for the domestic currency, which strengthens the currency.
3. shifts in supply and demand for foreign exchange, p409
4. effect of interest rates on supply/demand for foreign exchange, p418
5. purchasing power parity or law of one price
What is purchasing power parity? Discuss some of the determinants that affect the exchange rate.
39
Resolving a Large Balance of Payments Deficit (International Financial Crisis)
Refer to reading on the global monetary order
Balance of Payments—capital account (FDI, Portfolio Investment), current account
(merchandise trade, trade in services); net flow of international reserves into and from nations.
--Fixed and flexible (floating) exchange rates: DCs tend to have floating exchange rates, and
NICs and LDCs often have fixed exchange rates
--poor states have soft currencies; rich states have strong currencies
--DCs have strong currencies (international money) because other nations are willing to use that
money for international commerce
--What causes an international financial crisis? Trade deficit, paying international debt, capital
flight
--Most international financial crises occur for LDCs and NICs
--How do poor countries obtain hard currencies? From exporting goods and from income earned
on foreign investment
--How do rich countries obtain hard currencies? By printing it.
40
Three Main Policies for resolving an international financial crisis
A. Liquidity—temporary solution for a temporary problem
1.
2.
Spend existing international reserves; eventually reserves will be exhausted.
Borrow hard currencies from abroad; principal and interest must be paid back. The debt
is rolled over and may become larger if the underlying causes for the balance of
payments deficit are not resolved.
B. External Measures—adjustment is shifted outside the country; neomercantilist in nature.
1.
Trade Protectionism—tariffs, quotas, subsidies, dumping, other barriers, quotas
(improves the current account by promoting exports and limiting imports)
2.
Capital Controls—prohibit financial capital from leaving the country (improves capital
account)
3.
Promotion of direct investment from abroad into the home country (improves the capital
account as a long-term strategy), tax holidays.
4.
Exchange Rate Devaluation. (This policy improves both current and capital accounts;
exports and direct investment become cheaper; imports become more expensive)
C. Internal Measures or Austerity—adjustment is borne by the country with the deficit
1.
Restrictive fiscal policy—Reduce government spending, increase taxes, reduce budget
deficit, privatize state-owned enterprises, reduce social programs.
(These policies raise government funds to pay for international payments such as
debt and imports)
2.
Restrictive monetary policy—Reduce money supply growth, increase interest rates,
reduce inflation (This policy stabilizes the financial system and attracts foreign
investment in the capital account)
***
**
**
**
**
Internal measures may cause a recession; but in the process the current and capital
accounts may be improved ( reduced imports due to lower domestic income, increased
direct investment from abroad due to higher domestic interest rates)
Liberals favor short term liquidity and internal measures. The government should
minimize its role in the economy.
Radicals favor external measures and liquidity. The burden of adjustment should be
shifted to DCs instead of LDCs.
Neomercantilists favor external measures. The government intervenes with international
economic outcomes.
International bankers favor internal measures and external measures. The IMF and
multinational banks seek to be paid back for the loans they make.
41
(Reading on the balance of payments)
(data on net exports, exchange rates, and GDP)
42
Elements of the Bretton Woods System—set up in 1944, near the end of WWII—
(reading on the global monetary order)
1.
2.
3.
4.
5.
Domestic Gold Standard Discontinued
International Gold Standard--$35 per oz. of gold
International Monetary Fund—determine fixed exchange rates, monitor balance of
payments, provide loans to countries that experience international financial crises.
(Voting power in the IMF based on economic size)
Fixed Exchange Rates
Role of the American Dollar as the international reserve currency
History of the Bretton Woods System
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
U.S. was the financial hegemon of western world
--U.S. trade surpluses due to American economic strength
--American foreign investment abroad (Marshall Plan, rebuilding of Western Europe and
Japan following WWII, military aid during Cold War)
--U.S. ran balance of payments deficits due to capital account outflow
U.S. supplied dollars to the international economy through balance of payments deficits
--U.S. dollar remained strong due to high international demand for American dollars
In early 1960s, dollars abroad began to exceed gold reserves
Creation of SDRs
Western Europe (especially France) began to oppose American hegemony
Large U.S. Trade Deficit in 1971
Smithsonian Agreement
Collapse of Bretton Woods in 1973
Shift to flexible exchange rates and abandonment of the international gold standard;
hedging through currency futures, forwards and options.
Three time periods of the modern international financial system (early success of Bretton
Woods, later stresses and breakdown of Bretton Woods, Flexible exchange rate system)
43
Review Questions for First Test
First Midterm Exam, ECO3460, Spring 2013, Dr. Fox
1. According to comparative advantage, specialization refers to:
a. Producing and exporting the good that is more expensive to manufacture
b. The specializing nation should behave as a monopoly
c. Production emphasis upon the product that is cheaper to manufacture
d. High wages should be paid to domestic workers
2. If a nation has a closed (autarky) economy, it means that the nation:
a. Allows only government ownership of capital
b. uses flexible exchange rates
c. Has fixed interest rates
d. Does not import or export with other countries
3. International trade compels domestic businesses to become more competitive in:
a. Paying high wages to employees
b. reducing product quality and innovation
c. Charging a lower price for products
d. Increasing excessive government regulation
4. The movement from autarky to free trade most likely increases jobs in which industries?
a. Industries in which there is no trade
b. Import-competing industries
c. Industries that sell products to foreign consumers (export industries)
d. No change in the distribution of jobs throughout the economy
5. The country that has provided the largest amount of trade with the U.S. in recent years is:
a. U.K.
b. India
c. Canada
d. China
6. ____ is the ability of an industry, under free market conditions, to produce and export goods based
on the underlying abundant resource in that country.
a. Autarky
b. Protectionism
c. Comparative advantage
d. Government regulations
7. Which of the following is a major determinant of industry competitiveness?
a. Worker productivity
b. High taxes
c. No international trade
d. Business complacency and entropy
8. International trade in goods and services tends to:
a. lead to lower product prices, greater variety of goods, better quality of goods for
consumers
b. Keep costs and prices at a high level
c. reduce the amount of international competition facing home manufacturers
d. reduce the level of stress facing workers in import-competing industries
44
9. In the United States, the automobile industry is
a. An example of intraindustry trade
b. An example of extra-industry trade
c. Exported, but not imported
d. An example of interindustry trade
10. A shift from free trade to import tariffs may induce increasing jobs in:
a. Import-competing industries
b. Industries that export
c. No change in employment
d. Industries that neither import nor export
11. Increasing globalization is caused by:
a. Increased governmental barriers that restrict trade
b. Technological advance in communication and transportation
c. higher transportation expenses
d. Non-tariff barriers
12. An open economy is one in which:
a. Autarky takes place
b. Domestic firms invest in domestic activity only
c. The home economy is isolated from international business
d. International trade and investment takes place
13. Adam Smith’s trading principle focuses on:
a. Demand side of the economy
b. investment side of an industry
c. The importance of comparative costs
d. The concept of absolute advantage
14. According to comparative advantage, specialization and trade increase a nation's total consumption
because:
a. Resources are directed to their least productivity
b. The productivity of the nation's trading partner declines
c. The nation can consume beyond its production possibilities curve
d. The nation must consume inside of its production possibilities curve
15. A nation that gains from trade will find its production point being located:
a. Inside its production possibilities curve
b. On the production possibilities curve
c. At the zero point of the production possibilities curve
d. In the inefficiency region of the model
Table 2.1. Output Possibilities of the U.S. and the U.K.
Country
United States
United Kingdom
Output per Worker per day
Tons of Steel
Televisions
20
10
60
20
16. Referring to Table 2.1, the United Kingdom has an absolute advantage in the production of:
a. Steel
b. Televisions
c. Both steel and televisions
d. Neither steel nor televisions
45
17. Referring to Table 2.1, the United States has a comparative advantage in the production of:
a. Steel
b. Televisions
c. Both steel and televisions
d. Neither steel nor televisions
18. Refer to Table 2.1. If trade opens up, U.K. firms should specialize in producing and exporting:
a. Steel
b. Televisions
c. Both steel and televisions
d. Neither steel nor televisions
19. The earliest statement on the concept of comparative advantage is associated with:
a. David Ricardo
b. Ben Franklin
c. Milton Friedman
d. Thomas Jefferson
20.
When a nation achieves comparative-advantage equilibrium:
a. Labor costs are greater than product prices
b. Imports equal zero
c. Labor productivity equals the exchange rate
d. Consumption occurs beyond the production possibilities curve
21. According to Ricardo, a nation will have a comparative advantage in the product in which its:
a. Underlying resource is most available in the country
b. Underlying resource is least abundant in the country
c. Labor mobility is relatively low
d. Underlying resource is very scarce
22. The terms of trade is given by the prices:
a. Paid for all goods produced inside the home nation
b. Of raw materials used in the production process
c. of both exports and imports
d. Of primary products as opposed to manufactured products
23.
For recent years, which statement is descriptive of U.S. net exports?
a. Trade surplus
b. Imports equal exports
c. Imports exceed exports
d. Total exports are negative
24. A drop in the price of exports or an increase in the price of imports will:
a. Improve the terms of trade
b. Worsen the terms of trade
c. Expand the volume of world trade
d. Contract the market supply curve
25. Which of the following goods would least likely apply to a rapid product life cycle?
a. computers
b. crude oil
c. Cell phones
d. High tech products
46
26. Assume that Country A, in the absence of trade, finds itself relatively abundant in labor and
relatively scarce in capital. The factor endowment theory reasons that with free trade, the internal
distribution of national income in Country A will change in favor of:
a. Labor
b. Land
c. capital
d. Natural resources
27.
When considering the effects of transportation costs, the conclusions of the trade model must be
adjusted. This is because an increase in transportation costs result in:
a. higher trade volume, higher import prices, smaller gains from trade
b. Lower trade volume, higher import prices, smaller gains from trade
c. Higher trade volume, higher import prices, higher gains from trade
d. lower trade volume, lower import prices, greater gains from trade
28.
Heckscher and Ohlin (factor abundance theory) are associated with the comparative advantage
concept that stresses:
a. Exchange rate levels among countries
b. Tastes and preferences inside an economy
c. Relative resource abundance and scarcity among nations
d. The importance of autarky for increasing trade in the world
29. China is relatively abundant in labor, while the U.S. is relatively abundant in capital. In both
countries the production of cars is relatively more capital intensive than the production of clothing.
According to the factor endowment theory, the U.S. will have a(n):
a. absolute disadvantage in the production of both cars and shirts
b. comparative advantage in the production of shirts
c. comparative advantage in the production of cars
d. product life cycle advantage in the production of clothing
30.
Which trade theory suggests that similar kinds of goods are often exported between countries?
a. Factor endowment theory
b. Product life cycle theory
c. Interindustry trade
d. Intraindustry trade
31. What is one of the main benefits to a firm that enjoys economies of scale in production?
a. average production costs rise, which allows for increasing investment opportunities
b. Reduced exports abroad
c. Average production costs decrease, which allows for cheaper export prices
d. lower productivity
32. Stolper-Samuelson theorem focuses on the effect of trade upon
a. Economies of large-scale production
b. Transportation costs
c. The product life cycle of products
d. The distribution of income to resources in a country
33.
Which trade theory suggests that a country that initially develops and exports a new product may
eventually become an importer of this product?
a. Theory of factor scarcity
b. Product life cycle
c. Economies of scale theory
d. Theory of overlapping demands
47
34. Should transportation costs decrease, the impact on international trade would include:
a. A decrease in the gains from trade
b. An expansion in the volume of exports and imports
c. An drop in the GDP of the home country
d. An increase in international trade prices.
35.
Proponents of ____ suggest that the government should adopt tariffs to protect jobs.
a. Resource scarcity cycle theory
b. comparative advantage
c. protectionist trade policy
d. Free trade
36. Legislation requiring domestic manufacturers to install pollution abatement equipment tends to
cause:
a. Lower production costs and an increase in output
b. A decrease in the international competitiveness of domestic manufacturers
c. lower production costs and an increase in prices
d. Increased international competitiveness of domestic manufacturing firms
37.
The import of food and export of clothing by Italy is an example of:
a. Intraindustry trade
b. Interindustry trade
c. Monopoly
d. Trade tariffs
38.
Suppose that the United States removes a tariff on steel imports, causing foreign-produced steel to
enter the U.S. market. Steel prices to U.S. consumers would be expected to:
a. Increase, and the amount of imports would rise
b. Decrease, and the foreign amount of imports would increase
c. Stay the same
d. Decrease, and the amount of imports would decrease
39.
A higher tariff on imported aluminum would most likely harm which economic participant?
a. Domestic consumers
b. Domestic manufacturers of aluminum
c. The government
d. Financial intermediaries
40. Which of the following trade policies permits a specified amount of goods to enter a country?
a. Import quota
b. Import tariff
c. Specific tariff
d. Market forces policy
41. The goal of the "infant industry" tariff is to:
a. Benefit consumers with lower prices
b. Protect “sunset industries”
c. subsidize a sunrise industry until it becomes more competitive
d. Reduce import prices to consumers
42.
Which of the following refers to a fixed-percentage for each unit of an imported product as it enters
the country?
a. Specific tariff
b. Ad valorem tariff
c. Nominal tariff
d. Effective tariff
43. A one dollar tax on imported coffee would be an example of:
48
44.
a. Compound tariff
b. Effective tariff
c. Ad valorem tariff
d. Specific tariff
A decline in the tariff rate will cause:
a. A rise in the amount of imports and a decrease in domestic production
b. A drop in imports and a higher price for imports
c. An decrease in price and an increase in quantity purchased
d. Less imports
Figure 4.1. Import Tariff Levied by a "Small" Country
45. Consider Figure 4.1. In the case of a closed economy, the equilibrium quantity is:
a. 10
b. 110
c. 60
d. 40
46. Consider Figure 4.1. Suppose the world price equals $3. With free trade, Mexico produces:
a. 10 calculators
b. 60 calculators
c. 80 calculators
d. 110 calculators
47. Consider Figure 4.1. Suppose the world price is $3. With free trade, the amount of Mexico's
imports equal:
a. 40
b. 60
c. 80
49
d. 100
48. Consider Figure 4.1. With a per-unit tariff of $3, the total amount of tariff revenue collected by the
government equals
a. $120
c. $330
b. $40
d. $80
49. An argument in opposition to U.S. trade restrictions includes which of the following:
a. The benefits of market forces
b. More monopoly power is needed
c. Higher wages in import-competing industries
d. Industrial policy
50. The most vocal political pressure in favor of tariffs is generally made by:
a. Supporters of free trade
b. consumers
c. Businesses who lose profits because of international competition
d. Producers lobbying for less protectionism
50
Review Questions for Second Test
Second Midterm, International Economics, ECO3460, Fall 2011, Dr. Fox
Answer the following 50 multiple choice questions. (2 points each for 100 points)
1. A quota on imported steel causes:
a. Lower steel prices
b. Increased steel consumption
c. An increase in steel prices
d. Increased steel imports
2. Domestic content legislation applied to autos causes which of the following?
a. lower wages for American autoworkers
b. Lower steel prices in the global economy
c. Have no impact upon the industry
d. higher prices for American cars
3. The practice of Canadian firms dumping their products in Sweden
a. Adversely affects Swedish consumers
b. benefits Swedish producers
c. Causes lower prices in Sweden
d. Causes higher prices in Sweden
4. Export subsidies levied by overseas governments upon goods sold to the United States:
a. Helps American producers
b. Hurts American producers
c. Hurts American consumers
d. Reduces imports to the U.S.
5. Import quotas cause which of the following?
a. Domestic producers of the imported good are harmed
b. Domestic consumers of the imported good are helped
c. Prices decrease in the importing country
d. Prices increase in the importing country
6. To claim that South Korea is dumping VCRs in the U.S. is to maintain that:
a. Koreans are selling VCRs in the United States above their production cost
b. Koreans are selling VCRs in the United States at high prices
c. The cost of manufacturing VCRs in Korea is low
d. Korea is selling VCRs in America at excessively low prices
7. If a country grants a subsidy on a domestically produced good:
a. Imports tend to increase
b. the level of domestic production declines
c. Domestic production rises
d. The price will go up
8. Production subsidies to domestic firms may lead to
51
a. An increase in prices
b. lower volume of exports
c. Higher volume of imports
d. lower amount of imports
9. The World Trade Organization replaced which trade organization:
a. Clinton Round
b. GATT
c. World Bank
d. IMF
Figure 5.1. Alternative Nontariff Trade Barriers
(No quota or subsidy)
(With quota or subsidy)
500
5
10. Consider Figure 5.1. With no trade, the equilibrium quantity of steel is:
a. 2 tons
b. 4 tons
c. 5 tons
d. 8 tons
11. Consider Figure 5.1. With free trade at a price of $200, the quantity of steel produced is:
a. 2 tons
b. 4 tons
c. 6 tons
d. 8 tons
12. Consider Figure 5.1. Suppose the government provides a subsidy of $200 as indicated by
supply schedule SM (with subsidy). The quantity of steel consumed equals:
a. 1 ton
52
b. 2 tons
c. 6 tons
d. 8 tons
13. Consider Figure 5.1. Suppose the world agrees to reduce steel shipments to Mexico vis-a-vis
an export quota of 2 tons. What is the after-quota quantity of steel consumed?
a. 1 ton
b. 2 tons
c. 6 tons
d. 8 tons
14. Consider Figure 5.1. Imports are greater in which scenario?
a. Free trade
b. No trade
c. tariff
d. quota
15. A trade war refers to which of the following?
a. Military conflict caused by economic disagreements
b. The effects of trade dumping upon consumers
c. Increasing trade barriers among countries
d. Increasing trade among nations
16. Under U.S. policy, the escape clause:
a. Provides permanent free trade opportunities to importers
b. Provides temporary trade protection against excessive imports
c. Offers special tax breaks to minority-owned businesses
d. Requires more manufacturing imports from LDCs
17. Trade adjustment assistance:
a. helps workers who lose their jobs because of imports
b. Refers to a particular kind of import quota
c. Provides aid to foreign firms injured by our tariffs
d. Opposes government interference in international trade
18. The Export-Import Bank of the United States:
a. provides loans to foreign buyers of American goods.
b. Is a part of the World Bank system
c. Determines the tariff rate upon U.S. imports
d. Was implemented through the success of the Doha Round
19. The Smoot-Hawley Tariff Act of 1930:
a. Brought an end the Great Depression episode
b. made the economic depression worse because of the trade war
c. Removed all trade barriers upon imports except for agriculture
d. Was a major step toward free trade in the world
20. Which trade law gave the U.S. president more power in determining trade law?
a. Smoot-Hawley Act of 1930
b. General Agreements on Tariffs and Trade in 1947
c. Trade Reduction Act of 1962
d. Reciprocal Trade Agreements Act of 1934
21. Countervailing duties:
a. Are implemented to get rid of trade tariffs on exported goods
53
b. Are not a form of protectionism
c. are tariffs upon unfair trade
d. Refer to the nationalistic responsibility of consumers to buy American goods
22. Throughout the post-World War II era:
a. U.S. tariffs have increased
b. U.S. tariffs have declined
c. U.S. trade has decreased dramatically
d. Trade treaties have not taken place
23. The strongest political pressure for higher protectionism comes from:
a. Free traders
b. Domestic workers lobbying for export restrictions
c. Import-competing industries
d. exporters
24. In U.S. trade law, Section 301 cases (of the Trade and Competitiveness Act) involve
accusations of:
a. Unfair trade activities by foreign companies in the U.S. market
b. Partial-cost pricing by American companies
c. Fair trade practices by foreign nations
d. Free trade practices by domestic firms
25.Which institution negotiates and helps determine international trade treaties?
a. World Bank
b. WTO
c. IMF
d. NATO
26. Which round of multilateral trade negotiations opened up trade in agriculture?
a. Kennedy Round
b. Tokyo Round
c. Uruguay Round
d. Geneva Round
27. Economic trade sanctions (such as boycotts and embargoes) upon other countries:
a. Are often not very successful in getting dictators to change their policies
b. Are set up to reduce international trade barriers
c. were a major achievement of the Kennedy Round
d. Consist of unfair trade dumping practices
28. Which institution was the predecessor to the World Trade Organization?
a. U.S. Trade Representative
b. Organization for Economic Cooperation and Development
c. United Nations
d. The General Agreement on Tariffs and Trade
29. International trade cartels:
a. Often seek to raise the price of their commodities
b. attempt to sell their traded goods at very low prices
c. Relate only to domestic products, not international goods
d. Are a sub-organization of the U.N.
30. Which trade strategy is designed to increase exports of manufactured goods?
a. International commodity agreement
54
b. Export-led growth
c. Multilateral contract
d. Import substitution
31. The Generalized System of Preferences (GSP):
a. allows LDCs to have reduced tariffs on their exports to DCs.
b. Opposes export-led growth policies
c. Was part of the Tokyo round
d. Is a reciprocal trade arrangement
32. Which nation accounts for the greatest oil reserves and production?
a. Venezuela
b. Mexico
c. Iraq
d. Saudi Arabia
33. Which of the following is an international commodity cartel?
a. OPEC
b. IMF
c. General Motors
d. NATO
34. Developed countries:
a. Refer to nations with low trade per capita
b. Denote nations with high average income per capita
c. Generally occur in tropical regions
d. Suffer higher poverty rates than LDCs
35. Lesser-developed countries:
a. are nations with high trade per person
b. reflect nations with high income levels
c. Denote countries with high levels of GDP
d. Suffer higher poverty rates than DCs
36. Which country has recently adopted an export-led growth strategy?
a. Brazil
b. U.S.
c. South Korea
d. Hawaii
37. For many developing countries:
a. GDP tends to high
b. Poverty is quite low
c. High Tech industries are most important
d. Agriculture is the dominant industry
38. Which of the following relates to the Kennedy Round of GATT?
a. establishment of the EU
b. continuation of gold trade
c. reduction in tariff rates on manufactured goods
d. creation of WTO
39. The World Bank:
a. provides foreign aid to rich nations
55
b. was accomplished through the Obama Round
c. provides loans to countries for economic development
d. is the same thing as the IMF
40. The Uruguay Round achieved which major accomplishment?
a. Set up the WTO
b. Trade dumping became a legal trade practice
c. the creation of the IMF
d. the continuation of NAFTA
41. Trade sanctions
a. are never effective in causing other countries to change foreign policies
b. are always effective in getting other nations to change foreign policies
c. were included as part of the Russia Round of the EU
d. seek to penalize a enemy country
42. The Tokyo round focused upon
a. agricultural policies
b. reducing non-tariff barriers
c. reducing tariffs on manufactured goods
d. increasing neomercantilism
43. The International Monetary Fund
a. eliminates all loans to LDCs to promote an increase in trade
b. was established by the London Round to increase trade deficits
c. provides loans to poor countries to deal with financial troubles
d. offers loans to rich countries to resolve high tax burdens
44. The Uruguay Round achieved which major accomplishment?
a. Increase in NTBs
b. reduced trade in services
c. the creation of NAFTA
d. trade tribunal to resolve trade disputes
45. Which of the following is an example of an NTB?
a. quotas
b. free trade
c. fair trade
d. tariffs
46.
Import substitution is best described as
a. quotas designed to increase the amount of imports
b. A policy aimed at reducing the level of importation
c. an example of comparative advantage
d. a no-trade equilibrium
47.
Export-led growth is best described as
a. Export subsidies to increase exports
b. a comparative disadvantage strategy
c. free trade
d. trade quota policy
48.
An industrial policy:
a. Relies on free market incentives and actions
56
b. Refers to government strategies to promote trade in certain industries
c. Consists of exporting goods at excessively high prices
d. Implements fair trade practices
49.
50.
Countervailing duties relate to which of these statements?
a. Retaliatory tariffs in reaction to unfair trade
b. The duty of government to oppose intellectual property rights
c. The removal of hindrances in free trade areas
d. a classic example of comparative advantage
A quantity limitation on imports is known as:
a. subsidy
b. Tariff
c. Quota
d. Open Trade
57
Review Questions for Third Test.
Answer the following multiple choice questions.
1.
The European Union is an example of which type of economic integration?
a.
Economic union
b.
Customs union
c.
Monetary union
d.
Common market
2.
Which of the following is an example of a free trade area?
a.
EU
b.
EMU
c.
NAFTA
d.
WTO
3.
Which nation is a member of the North American Free Trade Association?
a.
China
b.
Greenland
c.
Mexico
d.
United Kingdom
4.
A customs union involves which of the following?
a.
Increasing trade restrictions among member countries
b.
monetary union
c.
high restrictions on factor movements
d.
A common tariff levied upon imports from nonmembers
5.
If the U.S. and Canada agree to use the same currency, then their association would
be a:
a.
Free-trade area
b.
Customs union
c.
Common market
d.
Monetary union
6.
A main advantage of the European Monetary Union is:
a.
Each country loses its ability to determine economic growth
b.
Economic efficiency associated with using the same currency
c.
The countries as susceptible to recession
d.
lack of labor mobility across nations
7.
Which of the following refers to a common market?
a.
free movement of trade among countries
b.
countries adopt the same currency
c.
labor and capital mobility among member countries
d.
different tariffs across different countries
8.
Which of the following refers to portfolio investment? (balance of payments
question)
a.
financial investment in international stocks and bonds
b.
building a factory in a foreign country
c.
technology transfer
d.
tariffs on exports
58
9.
a.
b.
c.
d.
10.
a.
b.
c.
d.
11.
a.
b.
c.
Multinational corporations:
Do business only in their home country
Conduct business commerce in two or more nations
Refer to organizations such as the IMF and WTO
are government-owned entities
Which of the following refers to a whole venture?
a firm that is 100% owned by another company
a business that is controlled by two or more private corporations
a risky endeavor to raise international capital
a business this is jointly owned by government and a private firm
One problem concerning U.S. immigration policy is that
It has increased the wages for many Americans
It has increased the supply of less educated workers in the United States
It has a positive impact on the employment opportunities of high-skilled American
workers
d.
it has lead to high economic growth in the U.S.
12.
Which entity refers to creation of a new business owned by two or more companies?
a.
United Nations
b.
joint venture
c.
EMU
d.
free trade association
13.
Firms undertake international business operations in order to: (internationalization
process)
a.
survivability, profitability, diversification
b.
increase their likelihood of bankruptcy
c.
reduce profits
d.
pay higher tariffs
14.
Technology transfer refers to which of the following?
a.
the price of foreign computers
b.
the spread of commercial technology though international business, primarily FDI
c.
the tariff rate on imports to the U.K.
d.
government control over exchange rates
15.
With the balance-of-payments, international trade is classified in the:
a.
Current account
b.
Unilateral transfer account
c.
Capital account
d.
Official settlements account
16.
Which of the following is considered a U.S. capital outflow of hard currencies?
a.
sale of U.S. assets to a foreign purchaser
b.
purchase of foreign financial assets by an American buyer
c.
A purchase of domestic stocks by a U.S. buyer
d.
American citizen repays a loan to a local bank
59
17.
International investment is classified in the:
a.
Current account
b.
foreign aid account
c.
Capital account
d.
government revenue account
18.
A country has a balance of trade surplus when its:
a.
exports exceed its imports
b.
imports exceed its exports
c.
Goods and services exports exceed zero
d.
Goods and services imports equal zero
19.
The balance of payments refers to which of the following?
a.
flow of money between countries
b.
flow of technology among nations
c.
increasing free trade in the world
d.
the exchange rate level in the foreign exchange market
20.
Which of the following is included in the balance of payments?
a.
employment account
b.
interest rates
c.
prices of non-traded goods
d.
current account
21.
Concerning the business cycle, slow economic growth is commonly associated with:
a.
Large or growing trade deficits and current account deficits
b.
Large or growing trade deficits and current account surpluses
c.
no change on trade deficits and current account deficits
d.
Small or shrinking trade deficits b/c less income and less imports; that improves trade
balance
22.
Which of the following refers to the U.S. dollar decreasing in value?
a.
appreciation
b.
revaluation
c.
devaluation
d.
fixed exchange rate
23.
Which type of exchange rate is determined by the government?
a.
efficient rate of exchange
b.
flexible exchange rate
c.
floating exchange rate
d.
fixed exchange rate
24.
Which category of exchange rate is determined by market forces?
a.
effective rate of exchange
b.
flexible exchange rate
c.
purchasing power parity
d.
fixed exchange rate
25.
A depreciation (weaker) of the U.S. dollar against the British pound would tend to:
a.
Discourage the British from buying American goods
b.
Discourage Americans from buying British goods b/c price of imports increase
c.
Increase the number of pounds that could be bought with a dollar
d.
Encourage U.S. tourists to travel to Britain
60
26.
a.
b.
c.
d.
27.
a.
b.
c.
d.
28.
a.
b.
c.
d.
30.
a.
b.
c.
d.
High economic growth and rising incomes is associated with which of these?
more imports
more exports
improving trade balance
lower inflation
Which of the following refers to the U.S. dollar increasing in value?
appreciation
depreciation
devaluation
flexible exchange rate
Suppose a Swiss watch costs 600 francs in Switzerland and $100 in the United
States. The exchange rate between the franc and the dollar is:
2 francs per dollar
6 franc per dollar
$6 per franc
$1 per franc
When the dollar gets stronger
U.S. goods become cheaper to other countries
Foreign tourists travel in the U.S. at a lower cost
foreign goods become cheaper to Americans; more imports; and trade deficit worsens
U.S. consumers face higher prices on foreign goods
61
Review Questions for Final Exam
29.
a.
b.
c.
d.
31.
a.
b.
c.
d.
In a supply-and-demand diagram for Japanese yen, the demand curve for yen is:
Upward sloping
Vertical sloping
Downward sloping
Horizontal sloping
The supply curve in the exchange rate diagram indicates
the willingness to sell the domestic currency in order to buy a foreign currency
the willingness to buy the domestic currency so as to buy domestic goods
the willingness to sell stocks to purchase bonds
the level of the fixed exchange rate
32.
a.
b.
c.
d.
The relation between an exchange rate and prices of goods across nations relates to:
Purchasing-power-parity (PPP)
interest rate parity
comparative efficiency theory
Balance-of-payments theory
33.
a.
b.
c.
d.
Higher real interest rates in the United States tend to:
lower the demand for dollars, causing the dollar to depreciate
increase the demand for dollars, causing the dollar to appreciate
decrease the demand for dollars, causing the dollar to appreciate
not impact the demand for dollars
34.
In the case of purchasing-power parity, if one dollar exchanges for 2 British pounds
and if a DVD recorder costs $200 in the U.S., then in the U.K. the good should cost:
200 pounds
400 pounds
600 pounds
800 pounds
a.
b.
c.
d.
35.
a.
b.
c.
d.
Weaker U.S. preferences for imports would trigger:
Increase in the demand for imports and an increase in the demand for foreign currency
An increase in the demand for imports and a decrease and no effect on the demand for
foreign currency
A decrease in the demand for imports and an increase in the demand for foreign currency
A decrease in the demand for imports and a decrease in the demand for foreign currency
62
36.
a.
b.
c.
d.
37.
a.
b.
c.
d.
38.
a.
b.
c.
d.
39.
a.
b.
c.
d.
40.
a.
b.
c.
d.
41.
a.
b.
c.
d.
With comparative advantage, specialization refers to:
Producing and exporting the good that is most expensive to manufacture
The specializing nation should behave as a monopoly
Exporting the good that is least expensive to produce
High wages should be paid to domestic workers
A closed economy refers to which of the following?
Allows private ownership of capital
Has fixed exchange rates
no government sector of the economy
no international trade
An open economy relates to which of these situations?
the country engages in international trade
no exchange rates
comparative advantage does not apply
democratic political system
The movement to free trade is likely to reduce employment in which industries?
Industries in which there are neither imports nor exports
Import-competing industries
Industries that sell to foreign buyers
No change in the distribution of jobs across the economy
International trade tends to:
benefit consumers in terms of lower prices
Keep all costs and prices at a higher level
Lessen the amount of international competition
reduce the stress facing workers in import-competing industries
A shift from free trade to import tariffs may increase jobs in:
Import-competing industries
exporting industries
No change in employment
Industries that neither import nor export
Table 2.1. Output Possibilities of the U.S. and the U.K.
Output per Worker per day
Country
Tons of Steel
Televisions
United States
15
12
United Kingdom
10
20
42.
Referring to Table 2.1, the United Kingdom has a comparative advantage in:
a.
Steel
b.
Televisions
c.
Both steel and televisions
d.
workers
43.
Referring to Table 2.1, the U.S. should export which good:
a.
Steel
b.
Televisions
c.
autos
d.
Neither steel nor televisions
63
44.
a.
b.
c.
d.
45.
a.
b.
c.
d.
46.
a.
b.
c.
d.
47.
a.
b.
c.
d.
48.
a.
b.
c.
d.
49.
a.
b.
c.
d.
Comparative advantage is usually associated with:
David Ricardo
Thomas Jefferson
Karl Marx
John Keynes
Which of the following is an example of a protectionist policy?
free trade
comparative advantage
tariffs
law of one price
Removing a tariff on imported cars would most likely benefit:
government revenues
Domestic manufacturers of automobiles
Domestic consumers of automobiles
domestic workers in the auto industry
Which of the following refers to a quantity restriction on goods that are imported?
quota
tariff
dumping
Industrial policy
Laws on manufacturers to install pollution equipment tend to cause:
decreased production costs and a higher level of output
Higher costs and lower production and lesser competitiveness
Higher costs and lower prices
An increase in output
An argument in support of trade restrictions includes which of the following:
protection of employment
Freer trade
comparative advantage
Improving incomes for lesser developed countries
64
Figure 4.1. Import Tariff Levied by a "Small" Country
50.
a.
b.
c.
d.
51.
a.
b.
c.
d.
52.
a.
b.
c.
d.
53.
a.
b.
c.
d.
Consider Figure 4.1. In the absence of trade, the equilibrium quantity is:
10
40
60
80
Consider Figure 4.1. Assume the world price is $3. In free trade, Mexico produces:
10 calculators
60 calculators
80 calculators
110 calculators
Consider Figure 4.1. With a per-unit tariff of $3, the quantity produced rises to:
20 calculators
40 calculators
80 calculators
70 calculators
Consider Figure 4.1. With a per-unit tariff of $3, the amount of imports equals:
20 calculators
40 calculators
80 calculators
70 calculators
65
54.
a.
b.
c.
d.
55.
a.
b.
c.
d.
56.
a.
b.
c.
d.
57.
a.
b.
c.
d.
58.
a.
b.
c.
d.
A quota on imported aluminum causes:
a decrease in aluminum prices
Increased consumption of aluminum
higher aluminum prices
more aluminum imports
The practice of Canadian firms dumping their products in Sweden
beneficially affects Swedish consumers
benefits Swedish producers
Causes higher prices in Sweden
has no effect upon Sweden
Export subsidies by overseas governments upon goods sold to the United States:
has a beneficial effect upon American producers
has a detrimental impact upon U.S. producers
causes higher prices to American consumers
causes lower imports into the U.S.
To claim that China is dumping furniture in the U.S. is to maintain that:
China is selling furniture in the U.S. above their production cost
China is selling furniture in the United States at high prices
The cost of manufacturing furniture in China is high
China is selling furniture in America at prices below production costs
The WTO focuses on which of the following responsibilities?
foreign aid
military spending
trade treaties
international debt creation
66
Figure 5.1. Alternative Nontariff Trade Barriers
500
5
59.
a.
b.
c.
d.
60.
a.
b.
c.
d.
61.
a.
b.
c.
d.
62.
a.
b.
c.
d.
Consider Figure 5.1. In the absence of trade, the equilibrium price of steel is:
200
400
500
800
Consider Figure 5.1. With free trade at a price of $200, the quantity of imports is:
2 tons
4 tons
6 tons
8 tons
Consider Figure 5.1. Suppose the government provides a subsidy of $200 as
indicated by supply schedule SM (with subsidy). The quantity of steel imports is:
1 ton
2 tons
4 tons
8 tons
Consider Figure 5.1. Suppose the world agrees to reduce steel shipments to Mexico
through an export quota of 2 tons. What is the after-quota quantity of steel
produced?
4 ton
2 tons
6 tons
8 tons
67
63.
a.
b.
64.
a.
b.
c.
d.
65.
a.
b.
c.
d.
66.
a.
b.
c.
d.
67.
a.
b.
c.
d.
68.
a.
b.
c.
d.
69.
a.
b.
70.
a.
b.
Consider Figure 5.1. The price is greater in which scenario?
Free trade
c.
tariff
No trade
d.
quota
A trade war refers to which of the following?
Military war caused by fighting over natural resources
The effects of trade dumping upon prices
Increasing trade protectionism among nations
Increasing exports among different countries
The Smoot-Hawley Tariff Act of 1930:
caused the Great Depression to get worse because of protectionism
reduced trade barriers among trade partners
brought about free trade after WWII
reduced all tariffs on U.S. imports
Countervailing duties:
get rid of quotas on imported goods
Are a form of protectionism
are an example of free trade
Refer to the responsibility of consumers to buy foreign goods
Throughout the post-World War II era:
U.S. tariffs have decreased in size
U.S. trade has remained constant
U.S. trade has decreased in scale
Trade barriers have increased through NAFTA
The strongest political pressure for less protectionism comes from:
Free traders
Domestic workers lobbying for export restrictions
Import-competing industries
businesses that lobby in favor of protectionism
Which of the following is an example of a non-tariff barrier?
taxes on imports
c.
fair trade
dumping
d.
comparative advantage
Which round of multilateral trade negotiations set up the WTO?
Kennedy Round
c.
Uruguay Round
Tokyo Round
d.
Geneva Round
68
Further Review Questions for Final Exam
1. Export-led Growth is best described as
a. subsidies and other government help to promote trade exportation
b. A government policy designed to reduce inflation and interest rates
c. an unsuccessful example of free markets in international finance
d. trade protectionist barriers through tariffs and exchange rate appreciation
9. The Uruguay Round achieved which accomplishment?
a. Reduced international investment across countries
b. Enforcement of intellectual property rights such as patents
c. the creation of the United Nations and the NAFTA treaty
d. the resolution of the Vietnam War
10. Trade Embargoes
e. are capital control barriers used to help trade partners
f. create lose-lose results for DCs, NICs, and LDCs
g. have become increasingly severe among EU countries
h. are a form of trade sanction
11. Which of the following was an element of the Bretton Woods System?
e. Flexible exchange rates functioned well under this system
f. World Trade Organization was a key element of Bretton Woods
g. The American dollar serves as an international reserve currency
h. Truman Doctrine
12. Which of the following led to the collapse of the Bretton Woods system?
a. Success of the Smithsonian Agreement
b. A shrinking world economy in the post-WWII era
c. The spread of WMD to rouge states
d. Problems with the international gold standard
13.
The post-Bretton Woods system
a. occurred during the Iraq War
c. initiated the international gold standard
b. emphasizes flexible exchange rates d. eliminated all trade quotas and subsidies
14.
Flexible Exchange Rates
a. occur through normal market forces
b. caused the Great Depression
c. are determined by government actions
d. are an example of malevolent neomercantilism
15.
The Bretton Woods system
a. occurred prior to the industrial revolution
b. Initially worked well in promoting the flow of international finance
c. directly caused the Arms Race of the 1990s
d. Was permanently saved by the Smithsonian Agreement
16.
The current account includes which of the following?
a. technology transfer from LDCs to DCs
b. portfolio investment
c. exports
d. unemployment
69
18.
The balance of payments includes which of the following?
a. Foreign Direct Investment
b. Truman Doctrine
c. weak national defense
d. countervailing duties
19.
An international financial crisis
a. is associated with a large outflow of hard currencies from a country
b. is related to a small balance of payments surplus for a nation
c. occurs if exports equal imports
d. may be cured by hyperinflation and currency appreciation
31. Which of the following was an element of the Bretton Woods System?
a. World Bank
b. weak role of the US dollar
c. exchange rates determined by the market
d. US dollar recognized as hard currency
34. The World Bank
a. mainly provides help to deal with current account surpluses
b. mainly provides loans for LDC economic improvement
c. provides military assistance to end terrorism
d. determines flexible exchange rates among nations
35. Which of the following relates to the Kennedy Round?
a. Creation of NAFTA
b. creation of the gold standard
c. reduction in tariff barriers on manufactured goods
d. flexible exchange rates
36. Fixed exchange rates
a. are determined by supply and demand
b. are determined by the EU
c. are determined by the government
d. are a type of austerity measure in international trade
37. A trade boycott refers to which of the following?
a. Refusal to export (embargo)
b. Refusal to import
c. Unrestricted exports
d. A special category of exports
38. The IMF
e. provides loans to DCs to promote less market share
f. was established through the Nixon Round
g. offers foreign aid to the World Bank
h. provides loans to LDCS that experience that experience international financial crises
39. Which is a factor that caused increased trade after WWII?
a. spread of communism
b. technology transfer among LDCs
c. increased war
d. reduced trade barriers
70
40. The Tokyo Round achieved which major accomplishment?
e. Least favored national approach
f. NATO
g. Reduce NTBs
h. Increased quotas and tariffs
41. Which of the following is a major regional trading block?
a. DCs
b. LDCs
c. Southern Union
d. Pacific Basin
42. Which Country is a member of the NAFTA treaty?
a. Canada
b. China
c. Argentina
d. Japan
43. Trade sanctions
a. Emphasize reduced trade restrictions between countries
b. were included as key part of the Mexico Round in the 1950s
c. Include trade boycotts
d. was an integral element of the Smythsonian agreement
44. The capital account relates to which of the following?
a. Income flows
b. imports
c. Wealth flows
d. Deficits for the US
45. The current account includes which of the following?
a. FDI
b. international trade income
c. Government spending
d. portfolio investment
46. An international financial crisis is caused by
a. a balance of payments surplus for a nation
b. economic progress
c. tariff barriers across multiple countries
d. a large international debt in a country
48. Which of the following is an example of an external policy?
a. reduction of money supply growth by the central bank (internal policy)
b. Capital controls to keep investment in a country
c. spend existing international reserves (hard currencies) held among banks (liquidity)
d. more portfolio investments
49. Restrictive fiscal policy
a. is favored by neomercantilists
b. consists of currency appreciation to the trade balance
c. consists of higher taxes to pay international debt
d. is a liquidity measure
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50. Exchange rate appreciation
a. makes imports more expensive
b. has no effect on trade
c. reduces the value of the currency in the foreign exchange market
d. makes imports cheaper
51. The Uruguay round focused on
a. increasing trade sanctions against terrorist states
b. reducing immigration
c. increasing agricultural trade relations
d. increasing non-tariff barriers
52. The US trade balance is characterized by which of the following?
b. Low international debt
c. FDI is less than portfolio investment
d. Imports are larger than the amount of exports
e. An increase in capital controls
53. Which of the following is an external measure?
a. foreign aid
b. currency devaluation
c. restrictive fiscal policy
d. capital flight
57. Economic Liberalism is based on which of the following?
a. win-lose results are most realistic
b. win-win outcomes are often possible in international relations
c. agricultural based societies are the most wealthy
d. LDCs are dependent upon DCs for politico-economic progress
58. Which issue directly relates to the finance structure?
a. international trade
b. scientific achievements and applications in society
c. fixed exchange rate mechanisms
d. economic inequities of socialism
59. Laissez faire refers to which of the following ideas?
a. market forces operate better than government involvement of the economy
b. Foreign policy creates produces a win-lose game.
c. Governments have the obligation to provide health care in a society
d. DCs should donate one-percent of GDP to foreign aid
64.
Brain drain relates to which of the following statements?
a. Scientists moving from DCs to developing countries
b. Emphasis upon hard work as the key to economic success
c. High skilled workers tend to immigrate to richer countries
d. Patent protection should be increased
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65.
The Boomerang effect corresponds to which of these points?
a. The spread of new technologies reduces the likelihood of war
b. Science and education leads to a weaker military
c. international agreements benefit rich countries
d. globalism and technology transfer may cause poor countries to become future
competitors in international business
66.
What is technology transfer?
a. The discovery of new scientific knowledge
b. The idea that technology will solve the world’s problems
c. The tough enforcement of intellectual property rights
d. the spread of technology around the world
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Additional Practice Questions from the textbook test bank
Chapter 1 Review test questions
2.A main advantage of specialization results from:
a. Economies of large-scale production
b. The specializing country behaving as a monopoly
c. Smaller production runs resulting in lower unit costs
d. High wages paid to foreign workers
ANS: A
PTS: 1
4. If a nation has an open economy, it means that the nation:
a. Allows private ownership of capital
b. Has flexible exchange rates
c. Has fixed exchange rates
d. Conducts trade with other countries
ANS: D
PTS: 1
5. International trade forces domestic firms to become more competitive in terms of:
a. The introduction of new products
b. Product design and quality
c. Product price
d. All of the above
ANS: D
PTS: 1
6.The movement to free international trade is most likely to generate short-term unemployment in which
industries?
a. Industries in which there are neither imports nor exports
b. Import-competing industries
c. Industries that sell to domestic and foreign buyers
d. Industries that sell to only foreign buyers
ANS: B
PTS: 1
10.The largest amount of trade with the United States in recent years has been conducted by:
a. Canada
b. Germany
c. Chile
d. United Kingdom
ANS: A
PTS: 1
12. ____ is the ability of a firm/industry, under free and fair market conditions, to design, produce, and
market goods and services that are better and/or cheaper than those of other firms/industries.
a. Competitiveness
b. Protectionism
c. Comparative advantage
d. Absolute advantage
74
ANS: A
PTS: 1
13.A firm's ____, relative to that of other firms, is generally regarded as the most important determinant of
competitiveness.
a. Income level
b. Tastes and preferences
c. Governmental regulation
d. Productivity
ANS: D
PTS: 1
19.International trade in goods and services tends to:
a. Increase all domestic costs and prices
b. Keep all domestic costs and prices at the same level
c. Lessen the amount of competition facing home manufacturers
d. Increase the amount of competition facing home manufacturers
ANS: D
PTS: 1
21. In the United States, automobiles are
a. Imported, but not exported
b. Exported, but not imported
c. Imported and exported
d. Neither exported nor imported
ANS: C
PTS: 1
23.A sudden shift from import tariffs to free trade may induce short-term unemployment in:
a. Import-competing industries
b. Industries that are only exporters
c. Industries that sell domestically as well as export
d. Industries that neither import nor export
ANS: A
PTS: 1
26.Increased globalization is fostered by:
a. Increased tariffs and quotas
b. Restrictions on the migration of labor
c. Reduced transportation costs
d. Restrictions on investment flows
ANS: C
PTS: 1
29.A closed economy is one in which:
a. Imports exactly equal exports, so that trade is balanced
b. Domestic firms invest in industries overseas
c. The home economy is isolated from foreign trade
d. Saving exactly equals investment at full employment
ANS: C
PTS: 1
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Chapter 2 Review Test Questions
4.Unlike Adam Smith, David Ricardo's trading principle emphasizes the:
a. Demand side of the market
b. Supply side of the market
c. Role of comparative costs
d. Role of absolute costs
ANS: C
PTS:
1
6.According to the principle of comparative advantage, specialization and trade increase a nation's total output since:
a. Resources are directed to their highest productivity
b. The output of the nation's trading partner declines
c. The nation can produce outside of its production possibilities curve
d. The problem of unemployment is eliminated
ANS: A
PTS:
1
9.A nation that gains from trade will find its consumption point being located:
a. Inside its production possibilities curve
b. Along its production possibilities curve
c. Outside its production possibilities curve
d. None of the above
ANS: C
PTS:
1
Table 2.1. Output Possibilities of the U.S. and the U.K.
Output per Worker per day
Tons of Steel
Televisions
15
45
10
20
Country
United States
United Kingdom
10. Referring to Table 2.1, the United States has the absolute advantage in the production of:
a. Steel
b. Televisions
c. Both steel and televisions
d. Neither steel nor televisions
ANS: C
PTS:
1
11. Referring to Table 2.1, the United Kingdom has a comparative advantage in the production of:
a. Steel
b. Televisions
c. Both steel and televisions
d. Neither steel nor televisions
ANS: A
PTS:
1
12. Refer to Table 2.1. If trade opens up between the United States and the United Kingdom, American firms should
specialize in producing:
a. Steel
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b.
c.
d.
Televisions
Both steel and televisions
Neither steel nor televisions
ANS: B
PTS:
1
27. The earliest statement of the principle of comparative advantage is associated with:
a. Adam Smith
b. David Ricardo
c. Eli Heckscher
d. Bertil Ohlin
ANS: B
PTS:
1
35.When a nation achieves autarky equilibrium:
a. Input price equals final product price
b. Labor productivity equals the wage rate
c. Imports equal exports
d. Production equals consumption
ANS: D
PTS:
1
43. According to Ricardo, a country will have a comparative advantage in the product in which its:
a. Labor productivity is relatively low
b. Labor productivity is relatively high
c. Labor mobility is relatively low
d. Labor mobility is relatively high
ANS: B
PTS:
1
60. The terms of trade is given by the prices:
a. Paid for all goods imported by the home country
b. Received for all goods exported by the home country
c. Received for exports and paid for imports
d. Of primary products as opposed to manufactured products
ANS: C
PTS: 1
68.The terms of trade is given by:
a. (Price of exports/price of imports)  100
b. (Price of exports/price of imports) + 100
c. (Price of exports/price of imports)  100
d. (Price of exports/price of imports)  100
ANS: D
PTS:
1
70. A rise in the price of imports or a fall in the price of exports will:
a. Improve the terms of trade
b. Worsen the terms of trade
c. Expand the production possibilities curve
d. Contract the production possibilities curve
ANS: B
PTS:
1
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Chapter 3 Review Test Questions
1. Which of the following suggests that a nation will export the commodity in the production of which a
great deal of its relatively abundant and cheap factor is used?
a. The Linder theory
b. The product life cycle theory
c. The MacDougall theory
d. The Heckscher-Ohlin theory
ANS: D
PTS: 1
3. Which of the following is a long-run theory, emphasizing changes in the trading position of the
competitiveness of a product over a number of years?
a. Theory of factor endowments
b. Comparative advantage theory
c. Theory of the product cycle
d. Closed economy theory
ANS: C
PTS: 1
5. Which of the following would least likely apply to the product life cycle theory?
a. Calculators and computers
b. Coal and crude oil
c. Home movie cameras
d. Office machinery
ANS: B
PTS: 1
8. Assume that Country A, in the absence of trade, finds itself relatively abundant in labor and relatively
scarce in land. The factor endowment theory reasons that with free trade, the internal distribution of
national income in Country A will change in favor of:
a. Labor
b. Land
c. Both labor and land
d. Neither labor nor land
ANS: A
PTS: 1
9.When considering the effects of transportation costs, the conclusions of our trade model must be modified.
This is because transportation costs result in:
a. Lower trade volume, higher import prices, smaller gains from trade
b. Lower trade volume, lower import prices, smaller gains from trade
c. Higher trade volume, higher import prices, smaller gains from trade
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d. Higher trade volume, lower import prices, greater gains from trade
ANS: A
PTS: 1
12.Eli Heckscher and Bertil Ohlin are associated with the theory of comparative advantage that stresses
differences in:
a. Income levels among countries
b. Tastes and preferences among countries
c. Resource endowments among countries
d. Labor productivities among countries
ANS: C
PTS: 1
13. Hong Kong is relatively abundant in labor, while Canada is relatively abundant in capital. In both
countries the production of shirts is relatively more labor intensive than the production of computers.
According to the factor endowment theory, Hong Kong will have a(n):
a. Absolute advantage in the production of shirts and computers
b. Absolute advantage in the production of computers
c. Comparative advantage in the production of shirts
d. Comparative advantage in the production of computers
ANS: C
PTS: 1
15.Which trade theory suggests that a newly produced good, once exported, could ultimately end up being
imported as the technology is transferred to lower- cost nations?
a. Factor endowment theory
b. Product life cycle theory
c. Overlapping demand theory
d. Comparative advantage theory
ANS: B
PTS: 1
16. A firm is said to enjoy economies of scale over the range of output for which the long-run average cost is:
a. Increasing
b. Constant
c. Decreasing
d. None of the above
ANS: C
PTS: 1
18.Which of the following suggests that by widening the market's size, international trade can permit longer
production runs for manufacturers, which leads to increasing efficiency?
a. Economies of scale
b. Diseconomies of scale
c. Comparative cost theory
d. Absolute cost theory
ANS: A
PTS: 1
21. The Heckscher-Ohlin theory explains comparative advantage as the result of differences in countries':
a. Economies of large-scale production
b. Relative abundance of various resources
79
c. Relative costs of labor
d. Research and development
ANS: B
PTS: 1
22.Boeing aircraft company was able to cover its production costs of the first "jumbo jet" in the 1970s because
Boeing could market it to several foreign airlines in addition to domestic airlines. This illustrates:
a. How economies of scale make possible a larger variety of products in international trade
b. A transfer of wealth from domestic consumers to domestic producers as the result of trade
c. How a natural monopoly is forced to behave more competitively with international trade
d. How a natural monopoly is forced to behave less competitively with international trade
ANS: A
PTS: 1
23.Which trade theory contends that a country that initially develops and exports a new product may eventually
become an importer of it and may no longer manufacture the product?
a. Theory of factor endowments
b. Theory of overlapping demands
c. Economies of scale theory
d. Product life cycle theory
ANS: D
PTS: 1
26.According to the factor endowment model, countries heavily endowed with land will:
a. Devote excessive amounts of resources to agricultural production
b. Devote insufficient amounts of resources to agricultural production
c. Export products that are land-intensive
d. Import products that are land-intensive
ANS: C
PTS: 1
27. For the United States, empirical studies indicate that over the past two decades the cost of international
transportation relative to the value of U.S. imports has:
a. Increased
b. Decreased
c. Not changed
d. None of the above
ANS: B
PTS: 1
28. Should international transportation costs decrease, the effect on international trade would include:
a. An increase in the volume of trade
b. A smaller gain from trade
c. A decline in the income of home producers
d. A decrease in the level of specialization in production.
ANS: A
PTS: 1
32.Proponents of ____ maintain that government should enact policies that encourage the development of
emerging, "sunrise" industries.
a. Product life cycle policy
b. Static comparative advantage policy
c. Intraindustry trade policy
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d. Industrial policy
ANS: D
PTS: 1
33. Legislation requiring domestic manufacturers to install pollution abatement equipment tends to promote:
a. Higher production costs and an increase in output
b. Higher production costs and a decrease in output
c. Lower production costs and an increase in output
d. Lower production costs and a decrease in output
ANS: B
PTS: 1
34. Stringent governmental regulations (e.g., air quality standards) imposed on domestic steel manufacturers
tend to:
a. Enhance their competitiveness in the international market
b. Detract from their competitiveness in the international market
c. Increase the profitability and productivity of domestic manufacturers
d. Reduce the market share of foreign firms selling steel in the domestic market
ANS: B
PTS: 1
36.The simultaneous import and export of computers by Germany is an example of:
a. Intraindustry trade
b. Interindustry trade
c. Perfect competition
d. Imperfect competition
ANS: A
PTS: 1
37. Linder's theory of overlapping demand provides an explanation of:
a. Product life cycle theory
b. Factor endowment model
c. Economies of large-scale production
d. Intraindustry trade
ANS: D
PTS: 1
40.Which trade theory suggests that comparative advantage tends to shift from one nation to another as a product
matures?
a. Interindustry trade theory
b. Intraindustry trade theory
c. Product life cycle theory
d. Overlapping demand theory
ANS: C
PTS: 1
41.Which trade theory is tantamount to a short-run version of the factor price equalization theory?
a. Specific factors theory
b. Product life cycle theory
c. Economies of scale theory
d. Overlapping demand theory
81
ANS: A
PTS: 1
42. According to the specific factors trade theory:
a. Owners of factors specific to export industries suffer from trade, while owners of factors
specific to import-competing industries gain
b. Owners of factors specific to export industries gain from trade, while owners of factors
specific to import-competing industries suffer
c. Both owners of factors specific to export industries and owners of factors specific to
import-competing industries gain from trade
d. Both owners of factors specific to export industries and owners of factors specific to
import-competing industries suffer from trade
ANS: B
PTS: 1
43. Which nation has sometimes been characterized as being a "pollution haven" due to its lenient
environmental standards that encourage the production of pollution-intensive goods?
a. Japan
b. Canada
c. Germany
d. Mexico
ANS: D
PTS: 1
Chapter 4 Review Test Questions
2.Suppose that the United States eliminates its tariff on steel imports, permitting foreign-produced steel to enter
the U.S. market. Steel prices to U.S. consumers would be expected to:
a. Increase, and the foreign demand for U.S. exports would increase
b. Decrease, and the foreign demand for U.S. exports would increase
c. Increase, and the foreign demand for U.S. exports would decrease
d. Decrease, and the foreign demand for U.S. exports would decrease
ANS: B
PTS: 1
4.A lower tariff on imported aluminum would most likely benefit:
a. Foreign producers at the expense of domestic consumers
b. Domestic manufacturers of aluminum
c. Domestic consumers of aluminum
d. Workers in the domestic aluminum industry
ANS: C
PTS: 1
7.The redistribution effect of an import tariff is the transfer of income from the domestic:
a. Producers to domestic buyers of the good
b. Buyers to domestic producers of the good
c. Buyers to the domestic government
d. Government to the domestic buyers
ANS: B
PTS: 1
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9. The principal benefit of tariff protection goes to:
a. Domestic consumers of the good produced
b. Domestic producers of the good produced
c. Foreign producers of the good produced
d. Foreign consumers of the good produced
ANS: B
PTS: 1
10. Which of the following policies permits a specified quantity of goods to be imported at one tariff rate and
applies a higher tariff rate to imports above this quantity?
a. Tariff quota
b. Import tariff
c. Specific tariff
d. Ad valorem tariff
ANS: A
PTS: 1
11.Assume the United States adopts a tariff quota on steel in which the quota is set at 2 million tons, the withinquota tariff rate equals 5 percent, and the over-quota tariff rate equals 10 percent. Suppose the U.S.
imports 1 million tons of steel. The resulting revenue effect of the tariff quota would accrue to:
a. The U.S. government only
b. U.S. importing companies only
c. Foreign exporting companies only
d. The U.S. government and either U.S. importers or foreign exporters
ANS: A
PTS: 1
16.A beggar-thy-neighbor policy is the imposition of:
a. Free trade to increase domestic productivity
b. Trade barriers to increase domestic demand and employment
c. Import tariffs to curb domestic inflation
d. Revenue tariffs to make products cheaper for domestic consumers
ANS: B
PTS: 1
17. A problem encountered when implementing an "infant industry" tariff is that:
a. Domestic consumers will purchase the foreign good regardless of the tariff
b. Political pressure may prevent the tariff's removal when the industry matures
c. Most industries require tariff protection when they are mature
d. Labor unions will capture the protective effect in higher wages
ANS: B
PTS: 1
20.Which of the following is a fixed percentage of the value of an imported product as it enters the country?
a. Specific tariff
b. Ad valorem tariff
c. Nominal tariff
d. Effective tariff
ANS: B
PTS: 1
83
21. A tax of 20 cents per unit of imported cheese would be an example of:
a. Compound tariff
b. Effective tariff
c. Ad valorem tariff
d. Specific tariff
ANS: D
PTS: 1
27. The most vocal political pressure for tariffs is generally made by:
a. Consumers lobbying for export tariffs
b. Consumers lobbying for import tariffs
c. Producers lobbying for export tariffs
d. Producers lobbying for import tariffs
ANS: D
PTS: 1
30.A decrease in the import tariff will result in:
a. An increase in imports but a decrease in domestic production
b. A decrease in imports but an increase in domestic production
c. An increase in price but a decrease in quantity purchased
d. A decrease in price and a decrease in quantity purchased
ANS: A
PTS: 1
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Figure 4.1. Import Tariff Levied by a "Small" Country
31. Consider Figure 4.1. In the absence of trade, Mexico produces and consumes:
a. 10 calculators
b. 40 calculators
c. 60 calculators
d. 80 calculators
ANS: C
PTS: 1
33. Consider Figure 4.1. With free trade, Mexico imports:
a. 40 calculators
b. 60 calculators
c. 80 calculators
d. 100 calculators
ANS: D
PTS: 1
34. Consider Figure 4.1. With free trade, the total value of Mexico's imports equal:
a. $220
b. $260
c. $290
d. $300
ANS: D
PTS: 1
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36.Consider Figure 4.1. With a per-unit tariff of $3, the quantity of imports decreases to:
a. 20 calculators
b. 40 calculators
c. 50 calculators
d. 70 calculators
ANS: B
PTS: 1
38.According to Figure 4.1, the tariff results in the Mexican government collecting:
a. $100
b. $120
c. $140
d. $160
ANS: B
PTS: 1
63.Arguments for U.S. trade restrictions include all of the following except
a. Job protection
b. Infant industry support
c. Maintenance of domestic living standard
d. Improving incomes for developing countries
ANS: D
PTS: 1
Chapter 5 Review test questions
1. The imposition of a tariff on imported steel for the home country results in:
a. Improving terms of trade and rising volume of trade
b. Higher steel prices and falling steel consumption
c. Lower profits for domestic steel companies
d. Higher unemployment for domestic steel workers
ANS: B
PTS: 1
2. Suppose the United States and Japan enter into a voluntary export agreement in which Japan imposes an
export quota on its automakers. The largest share of the export quota's "revenue effect" would tend to
be captured by:
a. The U.S. government
b. Japanese automakers
c. American auto consumers
d. American autoworkers
ANS: B
PTS: 1
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3. Which trade restriction stipulates the percentage of a product's total value that must be produced
domestically in order for that product to be sold domestically?
a. Import quota
b. Orderly marketing agreement
c. Local content requirement
d. Government procurement policy
ANS: C
PTS: 1
4. Domestic content legislation applied to autos would tend to:
a. Support wage levels of American autoworkers
b. Lower auto prices for American autoworkers
c. Encourage American automakers to locate production overseas
d. Increase profits of American auto companies
ANS: A
PTS: 1
5. The practice of Canadian firms dumping their products in Sweden poses a problem for economic
policymakers since dumping tends to:
a. Favor Swedish consumers over Canadian consumers
b. Favor Swedish producers over Canadian producers
c. Become widespread as firms operate at full productive capacity
d. Result in firms charging prices above the total costs of production
ANS: A
PTS: 1
6. From the perspective of the American public as a whole, export subsidies levied by overseas governments on
goods sold to the United States:
a. Help more than they hurt
b. Hurt more than they help
c. Are equivalent to an import quota
d. Are equivalent to an export quota
ANS: A
PTS:
1
7. Import quotas tend to lead to all of the following except:
a. Domestic producers of the imported good being harmed
b. Domestic consumers of the imported good being harmed
c. Prices increasing in the importing country
d. Prices falling in the exporting country
ANS: A
PTS:
1
8. To maintain that South Koreans are dumping their VCRs in the United States is to maintain that:
a. Koreans are selling VCRs in the United States below their production cost
b. Koreans are selling VCRs in the United States above their production cost
c. The cost of manufacturing VCRs in Korea is lower in Korea than in the United States since
wages are lower in Korea
d. The cost of manufacturing VCRs in Korea is higher in Korea than in the United States since
wages are higher in Korea
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ANS: A
PTS:
1
9. If the home country's government grants a subsidy on a domestically produced good, domestic producers
tend to:
a. Capture the entire subsidy in the form of higher profits
b. Increase their level of production
c. Reduce wages paid to domestic workers
d. Consider the subsidy as an increase in production cost
ANS: B
PTS:
1
Figure 5.1. Alternative Nontariff Trade Barriers Levied by a "Small" Country
(No quota or subsidy)
(With quota or subsidy)
10. Consider Figure 5.1. With free trade, the quantity of steel imported by Mexico equals:
a. 2 tons
b. 4 tons
c. 6 tons
d. 8 tons
ANS: C
PTS:
1
88
11. Consider Figure 5.1. Suppose the Mexican government provides a subsidy of $200 per ton to its steel
producers, as indicated by the supply schedule SM (with subsidy).
The quantity of imports equals:
a. 1 ton
b. 2 tons
c. 3 tons
d. 4 tons
ANS: D
PTS:
1
12. Consider Figure 5.1. Suppose the Mexican government provides a subsidy of $200 per ton to its steel
producers, as indicated by the supply schedule SM (with subsidy).
The total cost of the subsidy to the Mexican government equals:
a. $200
b. $400
c. $600
d. $800
ANS: D
PTS:
1
13. Consider Figure 5.1. Suppose the rest of the world voluntarily agrees to reduce steel shipments to Mexico
vis-a-vis an export quota equal to 2 tons. What is the after-quota price of steel?
a. $200
b. $400
c. $600
d. $800
ANS: B
PTS:
1
89
Figure 5.3 illustrates the apple market for Sweden, assumed to be a "small" country that is unable to
affect the world price. SSweden is the domestic supply and DSweden is the domestic demand. SSweden+Quota is
Sweden's supply schedule with an import quota.
Figure 5.3. Sweden's Apple Market
14. Consider Figure 5.3. In the absence of trade, Sweden's equilibrium price and quantity of apples would
be:
a. $0.60 and 22 pounds
b. $0.60 and 14 pounds
c. $1.00 and 18 pounds
d. $1.40 and 14 pounds
ANS: D
PTS: 1
15. Consider Figure 5.3. Suppose the rest of the world can supply apples to Sweden at a price of $0.60 per
pound. With free trade, Sweden produces ____ pounds of apples and imports ____ pounds of apples.
a. 10, 8
b. 10, 18
c. 6, 22
d. 6, 16
ANS: D
PTS: 1
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16. Consider Figure 5.3. If SSweden+Quota represents the supply schedule after a quota is levied, Sweden's imports
will equal:
a. 6 apples
b. 8 apples
c. 10 apples
d. 12 apples
ANS: B
PTS:
1
17. Consider Figure 5.3. After the quota is levied, the price of apples in Sweden will equal:
a. $0.60 per pound
b. $1.00 per pound
c. $1.40 per pound
d. $1.80 per pound
ANS: B
PTS:
1
18 Subsidies to domestic firms may lead to
a. An increase in prices
b. Higher volume of exports
c. Higher volume of imports
d. Increase in welfare of the trading partner
ANS: B
PTS:
1
Chapter 6 Review Test Questions
1.The World Trade Organization was established by the ____ of multilateral trade negotiations:
a. Kennedy Round
b. Tokyo Round
c. Uruguay Round
d. Clinton Round
ANS: C
PTS:
1
2. Under U.S. commercial policy, the escape clause results in:
a. Temporary quotas granted to firms injured by import competition
b. Tariffs that offset export subsidies granted to foreign producers
c. Tax advantages extended to minority-owned exporting firms
d. Duties which offset commercial dumping on the part of foreign firms
ANS: A
PTS:
1
3. Adjustment assistance is sometimes used to assist:
a. In retraining workers displaced by imports
91
b. In retraining workers displaced by exports
c. Foreign firms injured by our quotas
d. Foreign firms injured by our tariffs
ANS: A
PTS:
1
4. The Export-Import Bank of the United States encourages American firms to sell overseas by providing
direct loans and loan guarantees to foreign purchasers of American goods. To American firms, this
represents a:
a. Specific subsidy
b. Ad valorem subsidy
c. Domestic subsidy
d. Export subsidy
ANS: D
PTS:
1
5. The Smoot-Hawley Tariff Act of 1930 has generally been associated with:
a. Falling tariffs
b. Increases in the volume of trade
c. Intensifying the worldwide depression
d. Efforts to liberalize nontariff trade barriers
ANS: C
PTS: 1
7.Under U.S. commercial policy, which clause permits the modification of a trade liberalization agreement on a
temporary basis if serious injury occurs to domestic producers as a result of the agreement?
a. Adjustment assistance clause
b. Escape clause
c. Most-favored-nation clause
d. Reciprocal-trade clause
ANS: B
PTS: 1
8. Which policy reflects the notion that if society enjoys gains due to increased efficiency stemming from
trade liberalization, some sort of compensation should be provided to those who are temporarily hurt
by import competition?
a. Countervailing duties
b. Trade adjustment assistance
c. Domestic subsidies
d. Most-favored-nation standard
ANS: B
PTS: 1
11.For the United States, which organization makes loans to foreign buyers of U.S. manufactured goods?
a. Export-Import Bank
b. Domestic International Sales Corporation
c. Organization for Economic Cooperation and Development
d. Commodity Credit Corporation
ANS: A
PTS: 1
12. The high point of U.S. protection culminated with the passage of the:
92
a. Smoot-Hawley Act of 1930
b. General Agreements on Tariffs and Trade in 1947
c. Trade Reduction Act of 1962
d. Adjustment Assistance Act of 1970
ANS: A
PTS: 1
13. Countervailing duties are intended to neutralize any unfair advantage that foreign exporters might gain
over domestic producers because of foreign:
a. Tariffs
b. Subsidies
c. Quotas
d. Buy-national policies
ANS: B
PTS: 1
18.Throughout the post-World War II era, the importance of tariffs as a trade barrier has:
a. Increased
b. Decreased
c. Remained the same
d. None of the above
ANS: B
PTS:
1
26.The strongest political pressure for a trade policy that results in higher protectionism comes from:
a. Domestic workers lobbying for import restrictions
b. Domestic workers lobbying for export restrictions
c. Domestic consumers lobbying for export restrictions
d. Domestic consumers lobbying for import restrictions
ANS: A
PTS: 1
32.In U.S. trade law, Section 301 cases involve accusations of:
a. International dumping by U.S. companies
b. Full-cost pricing by U.S. companies
c. Unfair trade practices by foreign nations
d. Trade embargoes by foreign nations
ANS: C
PTS: 1
34.Countervailing duties may be imposed:
a. In response to a foreign export subsidy
b. In response to a foreign antidumping tariff
c. To promote exports of domestic companies
d. To promote imports of domestic consumers
ANS: A
PTS: 1
37.Which international organization stipulates procedures for the settlement of international trade disputes?
a. World Trade Organization
93
b. World Bank
c. International Monetary Fund
d. Organization of Economic Development
ANS: A
PTS: 1
38. The most recent round of multilateral trade negotiations is the:
a. Kennedy Round
b. Tokyo Round
c. Doha Round
d. Geneva Round
ANS: C
PTS: 1
58.Economic sanctions are most effective in causing the target nation to modify its behavior when the:
a. Target nation had negligible economic relationships with the imposing nation prior to the
sanctions
b. People of the target nation have weak cultural ties to the people of the imposing nation
c. Sanctions are levied by a large number of nations
d. Target government is supported by the majority of its people
ANS: C
PTS: 1
60.In 1995 the General Agreement on Tariffs and Trade was replaced by the ____.
a. Agency for International Development
b. Organization for Economic Cooperation and Development
c. United Nations Center for Trade and Development
d. World Trade Organization
ANS: D
PTS:
1
63.Trade adjustment assistance policies
a. Can resolve all workers' challenges to free trade
b. Attempt to share gains from free trade with disadvantaged workers
c. Have never been used to sustain a losing business concern
d. Are financed by state and local tax revenues
ANS: B
PTS:
1
94
Chapter 7 Review Test Questions
5.A primary goal of international commodity agreements has been the:
a. Maximization of members' revenues via export taxes
b. Nationalization of corporations operating in member nations
c. Adoption of tariff protection against industrialized nation sellers
d. Moderation of commodity price fluctuations when markets are unstable
ANS: D
PTS:
1
9.One factor that has prevented the formation of cartels for producers of commodities is that:
a. The demand for commodities tends to be price inelastic
b. Substitute products exist for many commodities
c. Commodity produces have been able to dominate world markets
d. Production of most commodities is capital intensive
ANS: B
PTS:
1
15. Which trade strategy have developing countries used to restrict imports of manufactured goods so that
the domestic market is preserved for home producers, who thus can take over markets already
established in the country?
a. International commodity agreement
b. Export promotion
c. Multilateral contract
d. Import substitution
ANS: D
PTS:
1
17.To help developing countries expand their industrial base, some industrial countries have reduced tariffs on
designated manufactured imports from developing countries below the levels applied to imports from
industrial countries. This scheme is referred to as:
a. Generalized system of preferences
b. Export-led growth
c. International commodity agreement
d. Reciprocal trade agreement
ANS: A
PTS:
1
18. Which nation accounts for the largest amount of OPEC's oil reserves and production?
a. Iran
b. Libya
c. Iraq
d. Saudi Arabia
95
ANS: D
PTS:
1
20.Which of the following situations reduces the likelihood of successful operation of a cartel?
a. Cartel sales experience a rapid expansion
b. The demand for cartel output is price inelastic
c. The number of firms in the cartel is large
d. It is very difficult for new firms to enter the market
ANS: C
PTS:
1
22.A widely used indicator to differentiate developed countries from developing countries is:
a. International trade per capita
b. Real income per capita
c. Unemployment per capita
d. Calories per capita
ANS: B
PTS:
1
25.Hong Kong and South Korea are examples of developing nations that have recently pursued industrialization
policies.
a. Import substitution
b. Export promotion
c. Commercial dumping
d. Multilateral contract
ANS: B
PTS: 1
30.To help developing nations strengthen their international competitiveness, many industrial nations have
granted nonreciprocal tariff reductions to developing nations under the:
a. International commodity agreements program
b. Multilateral contract program
c. Generalized system of preferences program
d. Export-led growth program
ANS: C
PTS: 1
37.A reason why it is difficult for producers to maintain a cartel is that:
a. The elasticity of demand for the cartel's output decreases over time
b. Producers in the cartel have the economic incentive to cheat
c. Economic profits discourage other producers from entering the industry
d. Producers in the cartel have the motivation to lower price but not to raise price
ANS: B
PTS: 1
38. Once a cartel establishes its profit-maximizing price:
a. Entry into the industry of new competitors will not affect the cartel's profits
b. Output changes by cartel members have no effect on the market price
c. Each cartel member is tempted to cheat on the cartel price in order to add to its profit
d. All cartel members have a strong incentive to adhere to the agreed-upon price
96
ANS: C
PTS:
1
45.Import substitution policies make use of:
a. Tariffs that discourage goods from entering a country
b. Quotas applied to goods that are shipped abroad
c. Production subsidies granted to industries with comparative advantages
d. Tax breaks granted to industries with comparative advantages
ANS: A
PTS:
1
47.All of the following nations except ____ have recently utilized export-led (outward oriented) growth policies.
a.
b.
c.
d.
Hong Kong
South Korea
Argentina
Singapore
ANS: C
PTS:
1
50.For most developing countries:
a.
b.
c.
d.
Productivity is high among domestic workers
Population-growth and illiteracy rates are low
Saving and investment levels are high
Agricultural goods and raw materials constitute much of domestic output
ANS: D
PTS:
1
97
Chapter 8 Review Test Questions
1.The European Union is primarily intended to permit:
a. Countries to adopt scientific tariffs on imports
b. An agricultural commodity cartel within the group
c. The adoption of export tariffs for revenue purposes
d. Free movement of resources and products among member nations
ANS: D
PTS: 1
2. Which of the following represents the stage where economic integration is most complete?
a. Economic union
b. Customs union
c. Monetary union
d. Common market
ANS: C
PTS: 1
3. Which of the following represents the stage where economic integration is least complete?
a. Free trade area
b. Monetary union
c. Common market
d. Customs union
ANS: A
PTS: 1
5.Which economic integration scheme is solely intended to abolish trade restrictions among member countries,
while setting up common tariffs against nonmembers?
a. Economic union
b. Common market
c. Free trade area
d. Customs union
ANS: D
PTS: 1
13. Which form of economic integration occurs when participating countries abolish tariffs on trade among
themselves, establish a common tariff on imports from nonmembers, and permit free movement of capital
and labor within the organization?
a. Free trade area
b. Economic union
c. Common market
d. Monetary union
ANS: C
PTS: 1
18. Which nation is not a member of the North American Free Trade Association?
a. Canada
b. Greenland
c. Mexico
d. United States
ANS: B
PTS: 1
98
20.NAFTA is a:
a. Monetary union
b. Free trade area
c. Common market
d. Customs union
ANS: B
PTS: 1
27.The implementation of the European Union has:
a. Made it harder for Americans to compete against the Germans in the British market
b. Made it easier for Americans to compete against the Germans in the British market
c. Made it harder for Americans to compete against the Japanese in the British market
d. Made it easier for Americans to compete against the Japanese in the British market
ANS: A
PTS: 1
29. The implementation of a common market involves all of the following except:
a. Elimination of trade restrictions among member countries
b. A common tax system and monetary union
c. Prohibition of restrictions on factor movements
d. A common tariff levied in imports from nonmembers
ANS: B
PTS: 1
46.Suppose that steel from Japan faces a 20 percent tariff in France and a 25 percent tariff in Italy, while France
and Italy maintain free trade between each other. France and Italy are therefore part of a (an):
a. Free trade area
b. Customs union
c. Common market
d. Economic union
ANS: A
PTS: 1
49.If the United States and Canada abolish all tariffs on each other's goods and implement a common tariff on
goods imported from other countries, there occurs a (an):
a. Free-trade area
b. Customs union
c. Common market
d. Economic union
ANS: B
PTS: 1
50. Suppose that the United Kingdom and Italy abolish all tariffs on each other's goods and all restrictions on
movements of factors of production between them. They also implement a common protectionist policy
toward other countries. This is an example of a (an):
a. Free-trade area
b. Customs union
c. Common market
d. Economic union
ANS: C
PTS: 1
99
55. When Mexico became a part of NAFTA, along with Canada and the United States, it:
a. Eliminated tariffs against Canada and the United States but maintained them against
nonmembers
b. Eliminated tariffs against Canada, the United States, and all nonmember countries
c. Increased tariffs against Canada the United States, and all nonmember countries
d. Increased tariffs against Canada and the United States, but did not change them against
nonmember countries
ANS: A
PTS: 1
64. The economic reforms of the early 1990s that occurred in the former Soviet Union and Eastern Europe
resulted in:
a. The formation of the Council for Mutual Economic Assistance
b. Multinational firms refusing to operate in these nations
c. A movement from centrally-planned economies toward market economies
d. A movement from market economies toward centrally-planned economies
ANS: C
PTS: 1
68. As of 2002, members of the European Monetary Union agreed to replace their currencies with the:
a. mark
b. dollar
c. franc
d. euro
ANS: D
PTS: 1
71. A main disadvantage of the European Monetary Union is that:
a. Each member country loses the use of monetary policy as to tool to combat recession
b. There is a high degree of labor mobility among the member countries
c. Prices are highly flexible in response to changing economic conditions
d. Wages are highly flexible in response to changing economic conditions
ANS: A
PTS: 1
73. A common market
a. Allows the imposition of common external trade barriers against non-members
b. Represents less economic integration than a free trade area
c. Does not permit free movement of goods among member nations
d. Does not allow free movement of factors of production among nations
ANS: A
PTS: 1
100
Chapter 9 Review Test Questions
7.Which of the following best refers to the outright construction or purchase abroad of productive facilities, such
as manufacturing plants, by domestic residents?
a. Direct investment
b. Portfolio investment
c. Short-term capital investment
d. Long-term capital investment
ANS: A
PTS: 1
13. Suppose General Motors charges its Mexican subsidiary $1 million for auto assembly equipment that
could be purchased on the open market for $800,000. This practice is best referred to as:
a. International dumping
b. Cost-plus pricing
c. Transfer pricing
d. Technological transfer
ANS: C
PTS: 1
16. Direct foreign investment has taken all of the following forms except:
a. Investors buying bonds of an existing firm overseas
b. The creation of a wholly owned business enterprise overseas
c. The takeover of an existing company overseas
d. The construction of a manufacturing plant overseas
ANS: A
PTS: 1
22.Multinational enterprises:
a. Increase the transfer of technology between nations
b. Make it harder for nations to foster activities of comparative advantage
c. Always enjoy political harmony in nations where their subsidiaries operate
d. Require governmental subsidies in order to conduct worldwide operations
ANS: A
PTS: 1
23.Firms undertake multinational operations in order to:
a. Hire low-wage workers
b. Manufacture in nations they have difficulty exporting to
c. Obtain necessary factor inputs
d. All of the above
ANS: D
PTS: 1
24. Multinational enterprises face problems since they:
a. Cannot benefit from the advantages of comparative advantage
b. May raise political problems in countries where their subsidiaries operate
c. Can invest only at home, but not overseas
d. Can invest only overseas, but not at home
ANS: B
PTS: 1
101
25. Define joint ventures, mixed ventures, whole ventures
27.Which of the following refers to the price charged for products sold to a subsidiary of a multinational
enterprise by another subsidiary in another nation?
a. Transfer pricing
b. International dumping
c. Price discrimination
d. Full-cost pricing
ANS: A
PTS: 1
28.Which business device involves the creation of a new business by two or more companies, often for a limited
period of time?
a. Multinational enterprise
b. International joint venture
c. Horizontal merger
d. Vertical merger
ANS: B
PTS: 1
43.____ refers to highly educated and skilled people who migrate from poor developing countries to wealthy
industrial countries.
a. Direct investment
b. Portfolio investment
c. Transfer pricing
d. Brain drain
ANS: D
PTS: 1
46. Critics of U.S. trade and immigration policy maintain that
a. It has depressed wages for many Americans
b. It has increased the supply of less educated workers in the United States
c. It has an adverse impact on the employment opportunities of less-skilled, American
workers
d. All of the above
ANS: D
PTS: 1
49.Foreign direct investment typically occurs when
a. The earnings of the parent company are invested in plant expansion overseas
b. The parent company transfers jobs overseas
c. The parent company closes its foreign production plants
d. The parent company purchases bonds of foreign governments
ANS: A
PTS: 1
102
Chapter 10 Review Test Questions
1.On the balance-of-payments statements, merchandise imports are classified in the:
a. Current account
b. Capital account
c. Unilateral transfer account
d. Official settlements account
ANS: A
PTS: 1
4.Which of the following is considered a capital inflow?
a. A sale of U.S. financial assets to a foreign buyer
b. A loan from a U.S. bank to a foreign borrower
c. A purchase of foreign financial assets by a U.S. buyer
d. A U.S. citizen's repayment of a loan from a foreign bank
ANS: A
PTS: 1
15.The U.S. balance of trade is determined by:
a. Exchange rates
b. Growth of economies overseas
c. Relative prices in world markets
d. All of the above
ANS: D
PTS: 1
16. U.S. military aid granted to foreign countries is entered in the:
a. Merchandise trade account
b. Capital account
c. Current account
d. Official settlements account
ANS: C
PTS: 1
18.The current account of the U.S. balance of payments does not include:
a. Investment income
b. Merchandise exports and imports
c. The sale of securities to foreigners
d. Unilateral transfers
ANS: C
PTS: 1
19. The U.S. has a balance of trade deficit when its:
a. Merchandise exports exceed its merchandise imports
b. Merchandise imports exceed its merchandise exports
c. Goods and services exports exceed its goods and services imports
d. Goods and services imports exceed its goods and services exports
ANS: B
PTS: 1
103
20. The value to American residents of income earned from overseas investments shows up in which account
in the U.S. balance of payments?
a. Current account
b. Trade account
c. Unilateral transfers account
d. Capital account
ANS: A
PTS: 1
30.The role of ____ is to direct one nation's savings into another nation's investments:
a.
b.
c.
d.
Merchandise trade flows
Services flows
Current account flows
Capital flows
ANS: D
PTS: 1
35.Concerning a country's business cycle, rapid growth of production and employment is commonly associated
with:
a.
b.
c.
d.
Large or growing trade deficits and current account deficits
Large or growing trade deficits and current account surpluses
Small or shrinking trade deficits and current account deficits
Small or shrinking trade deficits and current account surpluses
ANS: A
PTS: 1
37.Concerning a country's business cycle, ____ is commonly associated with large or growing current account
deficits:
a.
b.
c.
d.
Rapid growth rates of production and employment
Slow growth rates of production and employment
Falling interest rates on government securities
Falling interest rates on corporate securities
ANS: A
PTS: 1
38. Balance of Payments measures the flow of money into and out of a country.
104
Chapter 11 Review Test Questions
2.Which of the following tends to cause the U.S. dollar to appreciate in value?
a.
b.
c.
d.
An increase in U.S. prices above foreign prices
Rapid economic growth in foreign countries
A fall in U.S. interest rates below foreign levels
An increase in the level of U.S. income
ANS: B
PTS: 1
5.An appreciation in the value of the U.S. dollar against the British pound would tend to:
a.
b.
c.
d.
Discourage the British from buying American goods
Discourage Americans from buying British goods
Increase the number of dollars that could be bought with a pound
Discourage U.S. tourists from traveling to Britain
ANS: A
PTS: 1
7.Suppose researchers discover that Swiss beer causes cancer when given in large amounts to British mice. This
finding would likely result in a (an):
a.
b.
c.
d.
Increase in the demand for Swiss francs
Decrease in the demand for Swiss francs
Increase in the supply of Swiss francs
Decrease in the supply of Swiss francs
ANS: B
PTS: 1
8. Suppose that real incomes increase more rapidly in the United States than in Mexico. In the United States,
this situation would likely result in a (an):
a.
b.
c.
d.
Increase in the demand for pesos
Decrease in the demand for pesos
Increase in the supply of pesos
Decrease in the supply of pesos
ANS: A
PTS: 1
9. A depreciation of the dollar refers to:
a.
b.
c.
d.
A fall in the dollar price of foreign currency
An increase in the dollar price of foreign currency
A loss of foreign-exchange reserves for the U.S.
An intervention in the international money market
ANS: B
PTS: 1
11.A major difference between the spot market and the forward market is that the spot market deals with:
a.
b.
c.
d.
The immediate delivery of currencies
The merchandise trade account
Currencies traded for future delivery
Hedging of international currency risks
ANS: A
PTS: 1
105
14. An increase in the dollar price of other currencies tends to cause:
a.
b.
c.
d.
U.S. goods to be cheaper than foreign goods
U.S. goods to be more expensive than foreign goods
Foreign goods to be more expensive to residents of foreign nations
Foreign goods to be cheaper to residents of the United States
ANS: A
PTS: 1
15. The balance on merchandise trade:
a.
b.
c.
d.
Must be negative
Must be positive
Must be zero
May be negative, positive, or zero
ANS: D
PTS: 1
18.Over time, a depreciation in the value of a nation's currency in the foreign exchange market will result in:
a.
b.
c.
d.
Exports rising and imports falling
Imports rising and exports falling
Both imports and exports rising
Both imports and exports falling
ANS: A
PTS: 1
19. Grain shortages in countries that buy large amounts of grain from the United States would increase the
demand for American grain and:
a.
b.
c.
d.
Reduce the demand for dollars
Increase the demand for dollars
Reduce the supply of dollars
Increase the supply of dollars
ANS: B
PTS: 1
20.Suppose the exchange rate between the Japanese yen and the U.S. dollar is 100 yen per dollar. A Japanese
stereo with a price of 60,000 yen will cost:
a.
b.
c.
d.
$60
$600
$6000
None of the above
ANS: B
PTS: 1
22. Suppose that a Swiss watch that costs 400 francs in Switzerland costs $200 in the United States. The
exchange rate between the franc and the dollar is:
a.
b.
c.
d.
2 francs per dollar
1 franc per dollar
$2 per franc
$3 per franc
ANS: A
PTS: 1
106
23. In the early 1980s, the Federal Reserve pursued a tight monetary policy. All else being equal, the impact
of that policy was to ____ interest rates in the United States relative to those in Europe and cause the
dollar to ____ against European currencies.
a.
b.
c.
d.
Decrease, depreciate
Decrease, appreciate
Increase, depreciate
Increase, appreciate
ANS: D
PTS: 1
24. Under a system of floating exchange rates, the Swiss franc would depreciate in value if which of the
following occurs?
a.
b.
c.
d.
ANS: D
Price inflation in France
An increase in U.S. real income
A decrease in the Swiss money supply
Falling interest rates in Switzerland
PTS:
1
27.Which financial instrument provides a buyer the option to purchase or sell a fixed amount of currency at a
prearranged price, within a few days to a couple of years?
a.
b.
c.
d.
Letter of credit
Foreign currency option
Cable transfer
Bill of exchange
ANS: B
PTS: 1
28. Given the foreign currency market for the Swiss franc, the supply of francs slopes upward, because as the
dollar price of the franc rises:
a.
b.
c.
d.
America's demand for Swiss merchandise rises
America's demand for Swiss merchandise falls
Switzerland's demand for American merchandise rises
Switzerland's demand for American merchandise falls
ANS: C
PTS: 1
29. In a supply-and-demand diagram for Japanese yen, with the exchange rate in dollars per yen on the
vertical axis, the demand schedule for yen is drawn sloping:
a.
b.
c.
d.
Upward
Vertical
Downward
Horizontal
ANS: C
PTS: 1
30.Suppose there occurs an increase in the Canadian demand for Japanese computers. This results in:
a.
b.
c.
d.
An increase in the demand for yen
A decrease in the demand for yen
An increase in the supply of yen to Canada
A decrease in the supply of yen to Canada
ANS: A
PTS: 1
107
Figure 11.1 illustrates the supply and demand schedules for the Swiss franc. Assume that exchange rates
are flexible.
Figure 11.1. Supply and Demand Schedules of Francs
47. Refer to Figure 11.1. At the equilibrium exchange rate of ____ per franc, ____ francs will be purchased at
a total dollar cost of ____.
a.
b.
c.
d.
$.50, 5 million, $2.5 million
$.50, 5 million, $1.5 million
$.70, 3 million, $2.1 million
$.70, 7 million, $4.9 million
ANS: A
PTS: 1
48. Refer to Figure 11.1. Suppose the exchange rate is $.70 per franc. At this exchange rate there is an ____
of francs which leads to a ____ in the dollar price of the franc, a (an) ____ in the quantity of francs
supplied, and a (an) ____ in the quantity of francs demanded.
a.
b.
c.
d.
Excess demand, rise, increase, decrease
Excess demand, rise, decrease, increase
Excess supply, fall, decrease, increase
Excess supply, fall, increase, decrease
ANS: C
PTS: 1
65. When the dollar depreciates
a.
b.
c.
d.
U.S. exporters tend to sell more goods in foreign markets
U.S. consumers travel abroad more cheaply
More foreign tourists can afford to visit the United States
both a and c
ANS: D
PTS: 1
108
66. When the dollar gets stronger
a.
b.
c.
d.
U.S. firms become more competitive in international market
Foreign tourists travel in the U.S. at a higher cost
U.S. inflation increases
U.S. consumers face higher prices on foreign goods
ANS: B
PTS: 1
Chapter 12 Review Test Questions
1.The relationship between the exchange rate and the prices of tradable goods is known as the:
a.
b.
c.
d.
Purchasing-power-parity theory
Asset-markets theory
Monetary theory
Balance-of-payments theory
ANS: A
PTS: 1
2. If the exchange rate between Swiss francs and British pounds is 5 francs per pound, then the number of
pounds that can be obtained for 200 francs equals:
a.
b.
c.
d.
20 pounds
40 pounds
60 pounds
80 pounds
ANS: B
PTS: 1
3. Low real interest rates in the United States tend to:
a.
b.
c.
d.
Decrease the demand for dollars, causing the dollar to depreciate
Decrease the demand for dollars, causing the dollar to appreciate
Increase the demand for dollars, causing the dollar to depreciate
Increase the demand for dollars, causing the dollar to appreciate
ANS: A
PTS: 1
4. High real interest rates in the United States tend to:
a.
b.
c.
d.
Decrease the demand for dollars, causing the dollar to depreciate
Decrease the demand for dollars, causing the dollar to appreciate
Increase the demand for dollars, causing the dollar to depreciate
Increase the demand for dollars, causing the dollar to appreciate
ANS: D
PTS: 1
5. Assume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in Japan.
According to the purchasing-power parity theory, the dollar would be expected to:
109
a.
b.
c.
d.
Appreciate by 8 percent against the yen
Depreciate by 8 percent against the yen
Remain at its existing exchange rate
None of the above
ANS: B
PTS: 1
6. In the presence of purchasing-power parity, if one dollar exchanges for 2 British pounds and if a VCR
costs $400 in the United States, then in Great Britain the VCR should cost:
a.
b.
c.
d.
200 pounds
400 pounds
600 pounds
800 pounds
ANS: D
PTS: 1
10.When the price of foreign currency (i.e., the exchange rate) is below the equilibrium level:
a.
b.
c.
d.
An excess demand for that currency exists in the foreign exchange market
An excess supply of that currency exists in the foreign exchange market
The demand for foreign exchange shifts outward to the right
The demand for foreign exchange shifts backward to the left
ANS: A
PTS: 1
11. When the price of foreign currency (i.e., the exchange rate) is above the equilibrium level:
a.
b.
c.
d.
An excess supply of that currency exists in the foreign exchange market
An excess demand for that currency exists in the foreign exchange market
The supply of foreign exchange shifts outward to the right
The supply of foreign exchange shifts backward to the left
ANS: A
PTS: 1
15.If Mexico's labor productivity rises relative to Europe's labor productivity:
a.
b.
c.
d.
The peso tends to depreciate against the euro in the short run
The peso tends to appreciate against the euro in the short run
The peso tends to depreciate against the euro in the long run
The peso tends to appreciate against the euro in the long run
ANS: D
PTS: 1
19.Given a system of floating exchange rates, stronger U.S. preferences for imports would trigger:
a. An increase in the demand for imports and an increase in the demand for foreign
currency
b. An increase in the demand for imports and a decrease in the demand for foreign
currency
c. A decrease in the demand for imports and an increase in the demand for foreign
currency
d. A decrease in the demand for imports and a decrease in the demand for foreign
currency
ANS: A
PTS: 1
20. Given a system of floating exchange rates, weaker U.S. preferences for imports would trigger:
a. An increase in the demand for imports and an increase in the demand for foreign
110
currency
b. An increase in the demand for imports and a decrease in the demand for foreign
currency
c. A decrease in the demand for imports and an increase in the demand for foreign
currency
d. A decrease in the demand for imports and a decrease in the demand for foreign
currency
ANS: D
PTS: 1
22.Under a system of floating exchange rates, relatively high productivity and low inflation rates in the United
States result in:
a. An increase in the demand for foreign currency, a decrease in the supply of foreign
currency, and a depreciation in the dollar
b. An increase in the demand for foreign currency, an increase in the supply of
foreign currency, and an appreciation in the dollar
c. A decrease in the demand for foreign currency, a decrease in the supply of foreign
currency, and a depreciation in the dollar
d. A decrease in the demand for foreign currency, an increase in the supply of foreign
currency, and an appreciation in the dollar
ANS: D
PTS: 1
23. Which example of market expectations causes the dollar to appreciate against the yen--expectations that
the U.S. economy will have:
a.
b.
c.
d.
ANS: B
Faster economic growth than Japan
Higher future interest rates than Japan
More rapid money supply growth than Japan
Higher inflation rates than Japan
PTS:
1
24.Which example of market expectations causes the dollar to depreciate against the yen--expectations that the
U.S. economy will have:
a.
b.
c.
d.
Faster economic growth than Japan
Higher future interest rates than Japan
Less rapid money supply growth than Japan
Lower inflation rates than Japan
ANS: A
PTS: 1
27.Which of the following is likely to result in long-run appreciation of the U.S. dollar relative to the peso?
a.
b.
c.
d.
Relatively high interest rates in Mexico
Relatively high labor productivity in Mexico
Tariffs applied by Mexico on computer imports from the United States
Stronger Mexican preferences for goods produced in the United States
ANS: D
PTS: 1
39.That identical goods should cost the same in all nations, assuming it is costless to ship goods between nations
and there are no barriers to trade, is a reflection of the:
a. Monetary approach to exchange-rate determination
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b. Law of one price
c. Fundamentalist approach to exchange-rate determination
d. Exchange-rate-overshooting principle
ANS: B
PTS: 1
41.The demand in the United States for yen will increase if, other things remaining equal:
a.
b.
c.
d.
Labor costs rise in Japan
Income rises in Japan
Prices rise in Japan
Interest rates rise in Japan
ANS: D
PTS: 1
44. The supply of francs, would shift to the right for all of the following reasons except:
a.
b.
c.
d.
An increase in Swiss real income
An increase in Swiss prices
An increase in the Swiss population
An increase in Swiss interest rates
ANS: D
PTS: 1
The figure below illustrates the supply and demand schedules of Swiss francs in a market of freelyfloating exchange rates.
Figure 12.1 The Market for Francs
48.Refer to Figure 12.1. Should the United States impose tariffs on imports from Switzerland, there would occur
a (an):
a.
b.
c.
d.
Increase in the demand for francs and a depreciation of the dollar
Decrease in the demand for francs and an appreciation of the dollar
Decrease in the supply of francs and an appreciation of the dollar
Increase in the supply of francs and a depreciation of the dollar
ANS: B
PTS: 1
49. Refer to Figure 12.1. Should Swiss labor productivity rise, leading to a decrease in Swiss manufacturing
costs, there would occur a (an):
a. Increase in the supply of francs and a depreciation of the dollar
112
b. Increase in the supply of francs and an appreciation of the dollar
c. Decrease in the demand for francs and an appreciation of the dollar
d. Increase in the demand for francs and a depreciation of the dollar
ANS: D
PTS: 1
50. Refer to Figure 12.1. If Switzerland experienced a disastrous wheat-crop failure, leading to additional
wheat imports from the United States, there would occur an:
a.
b.
c.
d.
Increase in the supply of francs and an appreciation of the dollar
Increase in the supply of francs and a depreciation of the dollar
Increase in the demand for francs and a depreciation of the dollar
Increase in the demand for francs and an appreciation of the dollar
ANS: A
PTS: 1
63.Suppose that the yen-dollar exchange rate changes from 85 yen per dollar to 80 yen per dollar. One can say
that the:
a. Yen has appreciated against the dollar and the dollar has depreciated against the
yen
b. Yen has depreciated against the dollar and the dollar has appreciated against the
yen
c. Yen has appreciated against the dollar and the dollar has appreciated against the
yen
d. Yen has depreciated against the dollar and the dollar has depreciated against the
yen
ANS: A
PTS: 1
113
Quota, Production Subsidy, and Export Subsidy (Example 1)
Quota and Production Subsidy Exercise
11. Determine the no-trade equilibrium price and quantity.
12. Suppose the free-trade price equals $200. Determine the following: amount produced,
amount consumed, amount of imports.
13. Suppose a quota of 4 units is imposed. Determine the following: amount produced,
amount consumed, amount of imports, after-quota price.
14. Suppose a production subsidy of $200 is adopted. What happens to the supply curve?
15. In the case of a production subsidy at a free trade price of $200, determine the following:
amount produced, amount consumed, amount of imports, after-subsidy price.
114
16. Calculate the total cost to the government of the production subsidy. (subsidy x amount
produced after subsidy= 200*4 = 800)
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Export Subsidy Exercise
Exports under free trade at p=450
17. Suppose the free-trade price equals $450. Determine the following: amount produced,
amount consumed, amount of exports.
18. Suppose an export subsidy of $100 is adopted. Determine the following: amount
produced, amount consumed, amount of exports, after-subsidy price.
19. Calculate the total cost to the government of the export subsidy (subsidy x amount of
exports after subsidy = 100*(280-40) =$ 24,000)
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Quota, Production Subsidy, and Export Subsidy (Example 2)
Quota and Production Subsidy Exercise
117
20. Determine the no-trade equilibrium price and quantity. P=350; q=120
21. Suppose the free-trade price equals $250. Determine the following: amount
produced=40, amount consumed=160, amount of imports = 120.
22. Suppose a quota of 60 units is imposed. Determine the following: amount produced=80,
amount consumed=140, amount of imports=60, after-quota price=300.
23. What tariff rate (=50) will give the equivalent result of a quota of 60 units?
24. Suppose a production subsidy of $75 is adopted. What happens to the supply curve?
Increase in supply
25. In the case of a production subsidy, determine the following: amount produced=100,
amount consumed=160, amount of imports=60, after-subsidy price=250.
26. Calculate the total cost to the government of the production subsidy.
Cost of production subsidy=subsidy per unit x amount produced after subsidy
=75*100=7500
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Export Subsidy Exercise
27. Suppose the free-trade price equals $400. Determine the following: amount
produced=160, amount consumed=100, amount of exports=60.
28. Suppose an export subsidy of $50 is adopted. Determine the following: amount
produced=200, amount consumed=80, amount of exports=120, after-subsidy price=450.
29. Calculate the total cost to the government of the export subsidy.
(total cost of export subsidy to govt= export subsidy x amount of exports after the subsidy)
= 50*120=6000
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PBS Video Segments
1. The WTO and Environmentalism:
http://www.pbs.org/newshour/video/module.html?mod=0&pkg=23032007&seg=2
2. NAFTA: (not working)
http://vsx.onstreammedia.com/vsx/newshour/search/NHPlayer?assetId=86457&ccstart=1
990712&pt=0
3. PBS: After NAFTA
http://www.youtube.com/watch?v=mSXmB_my0ls
4. Is China's Fast-Growing Economy Headed for a Crash?
http://www.youtube.com/watch?v=SQui-B1UhKk
5. No Laughing Matter: A Look at the European Debt Crisis Through Cartoons
http://www.pbs.org/newshour/bb/world/july-dec12/debt_11-22.html
6. How Severe Is Europe's Intertwined Debt Crisis?
http://www.pbs.org/newshour/bb/world/jan-june11/eurodebt_01-24.html
7. America's Historical Struggle With Debt and the Role of Federal Government
http://www.pbs.org/newshour/bb/business/july-dec12/makingsense_11-27.html
8. Red Ink' in the Federal Budget: Understanding Why the U.S. Has So Much Debt
http://www.pbs.org/newshour/bb/business/july-dec12/makingsense_10-25.html
9. Is Globalization Wiping Out the American Surfboard Industry?
http://www.pbs.org/newshour/bb/business/jan-june13/surfers_03-21.html
Other links
Foreign ownership of US debt:
http://globalpublicsquare.blogs.cnn.com/2011/07/21/who-owns-america-hint-its-not-china/
http://www.concordcoalition.org/issues/indicators/debt-owned-foreigners
120
Creating a trendline in a scatter graph using Numbers
1) select the chart
2) open the charts inspector
3) select "Series" in the segmented controls
4) Open the advanced section by clicking the expose triangle
5) Select the "Trendline" segment at the bottom, then the type of trendline from the "Type" menu
121
Web-based Questions on Trade and Exchange Rates
1
TRADE BALANCES WITH PARTNER COUNTRIES The U.S. Census Bureau, at
www.census.gov/foreign-trade/statistics/highlights/top/index.html, lists the top trading partners
of the United States (imports and exports added together) as well as the top 15 countries the
United States exports to and imports from. Using the current year-to-date data, compare the top
15 countries to which the United States exports with the top 15 countries from which the United
States imports. Are the countries the same? What percentage of U.S. imports and exports are
accounted for by the top 15 trading partners? The top 5 trading partners represent what percent of
U.S. imports and what percent of U.S. exports?
2
FOREIGN EXCHANGE RATES—THE YEN FOR DOLLARS The Federal Reserve
System Web site, www.federalreserve.gov/releases/H10/hist, provides historical foreignexchange-rate data for a wide variety of currencies. Look at the data for the Japanese yen from
2000 to the present. Assume that you were in Tokyo every New Year's from January 2 or 3,
2000, to this year and bought a bento (box lunch) for 1000 yen each year. Convert this amount to
dollars using the yen-dollar exchange rate for each January since 2000, and plot the dollar price
of the bento over time. Has the dollar appreciated or depreciated against the yen? What was the
least amount in dollars that your box lunch cost? The most?
122
Midterm Student Evaluation
Course: ______________________________
Instructor: ____________________________
Answer each question according to the following scale. Please circle a number, then add
comments. Your comments are essential to helping your instructor understand your
response to the course.
(1 = very poor
2 = poor
3 = sufficient
4 = good
5 = excellent)
1. Please rate the content of the lectures.
Comments:
1
2
3
4
5
2. Please rate the structure and pacing of the lectures. 1
Comments:
2
3
4
5
3. Please rate the course as a whole.
Comments:
2
3
4
5
1
4. Please add any additional comments, concerns, or suggestions.
5. (On the back of this sheet) Do you find the blackboard materials helpful? Yes or No
Comments:
123
Global Studies General Education Assessment Prompt
Taking into consideration what you have learned in this course over the length of the
semester, write a 1 ½ to 2 page essay in which you explain how this class has deepened your
understanding of the global system and the ethical implications of global citizenship. In
formulating your essay, please carefully, and in straightforward, logical prose, answer each
of the following two essay questions:
1. Discuss the ideas, value systems, practices, and social formulations that are inherent in the
global economic system. Discuss the implications of these concepts in the global economic
system. How are these issues important and interconnected? Be insightful in your response.
Comparative advantage, theories, supply and demand
Issues of LDCs versus DCs
Effects of free trade and protectionism on the various actors (consumers, businesses,
government, domestic country, foreign country)
Types of trade barriers
2. Discuss the ethical implications of global citizenship in the international economic system.
Discuss the issues of intercultural understanding and integration in the global economic
system. How are the issues of ethics and intercultural understanding important in the global
economy? Be insightful in your response.
Globalism, good or bad overall. Why? (see p24 of text)
Free trade versus protectionism—good or bad. Explain
124
Rubric for Global Studies Learning Outcomes Assessment
Desired Attribute
5.2: Students will
demonstrate a
critical
understanding of
the ideas, value
systems, practices,
and social
formations of a
culture or society
other than his/her
own, or of a global
system.
Developing
Information about value
systems, practices, and
social formations is
overly general,
inaccurate, or
fragmentary; there is
little to no integration of
information about ideas,
value systems,
practices, and social
formations; implications
of ideas, etc., are
missing, inaccurate,
simplistic, or marred by
clichés and platitudes.
Competent
Though some lapses in
accuracy are present, the
student’s understanding of the
ideas, value systems,
practices, and social
formations of a culture or
global system are generally
accurate, and understanding
of the connections between
ideas is mostly correct.
Implications of ideas for the
culture or global system are
generally accurate, though
occasionally superficial or
simplistic.
Proficient
Understanding is true,
correct, and complete, and
the integration of values,
practices, and social
formations is unified.
Cultural implications are well
understood, insightful, even
creative.
9.2: Students will
demonstrate a
critical
understanding of
the ethical
implications of
global citizenship.
The ethical implications
and dimensions of
global citizenship are
poorly understood,
fragmentary, or missing.
The work shows little
evidence of the
student’s willingness to
engage with other
cultures, or to view
other cultures in noncliched or platitudinous
terms.
The ethical implications of
global citizenship are
understood, though without a
great deal of sophistication
and apprehension of the need
for intercultural integration.
Global citizenship is
endorsed, but without
evidence of deep
commitment.
The ethical implications of
global citizenship are well
understood and
comprehensively integrated.
Considerations of the ethical
implications of global
citizenship are insightful and
creative, and the work shows
a strong commitment to
intercultural understanding.
125
Supply-Demand Table
Q
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
1400
1500
1600
1700
1800
1900
2000
Ps
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
100
Pd
120
115
110
105
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
126
Excel add-on for apple computers to do statistical regression analysis
Solver was added to Office for Mac 2011 in the Service Pack 1 update. You can download and
install Office for Mac 2011’s Service Pack 1 by clicking on the link below:
http://www.microsoft.com/downloads/en/details.aspx?FamilyID=EF1E612F-D8E3-4628-9FE4AD136F0DEBD3&displaylang=en
After you install Service Pack 1, follow these steps to start Solver:
1.
2.
3.
4.
Start Excel.
Click Tools, and then select Add-Ins.
Click to select the check box for Solver.Xlam.
Click OK.
The Data Analysis Toolpak was removed in Office for Mac 2008. However, the following is a
free third-party tool that offers similar functionality:
StatPlus:mac LE: http://www.analystsoft.com/en/products/statplusmacle/
The third-party products that this thread discusses are manufactured by companies that are
independent of Microsoft. Microsoft makes no warranty, implied or otherwise, regarding the
performance or reliability of these products.
Microsoft provides third-party contact information to help you find technical support. This
contact information may change without notice. Microsoft does not guarantee the accuracy of
this third-party contact information.
127