Chapter 18

Question 1

If Japan gives up ten bushels of rice to produce one bicycle, while the United States gives up five bushels of rice to produce one bicycle, then:

Answer 1

total output will be highest if Japan specializes in rice and the United States specializes in bicycles.

Question 2

According to the infant industry argument, a new domestic industry needs protection because it has higher costs than established foreign competitors.

Answer 2

true

Question 3

If the Japanese price level falls relative to the price level in the United States, then: Japanese buy less U.S. exports. the demand for dollars decreases. the supply of dollars increases. the value of the dollar falls

Answer 3

all of these are true

Question 4

The account which records a nation’s foreign economic transactions is called the:

Answer 4

Balance of Payments.

Question 5

When the value of our goods exports is less than the value of our goods imports,

Answer 5

there will be an unfavorable balance of trade.

Question 6

give an example of a credit in a US current account

Answer 6

the Japanese buying an Apple computer

Question 7

who do the rules of the WTO apply to

Answer 7

trade nations

Question 8

what provides the base for free trade

Answer 8

the theory of comparative advantage

Question 9

what would be expected to happen if the tariff on foreign produced automobiles were increased

Answer 9

the supply of foreign cars to the domestic market would decrease causing the prices to rise

Question 10

what happens to trade when the value of imports is greater than exports

Answer 10

there will be an unfavorable balance of trade

Question 11

The argument that import restrictions save jobs and promote prosperity fails to recognize that:

Answer 11

U.S. imports provide people in other countries with the dollars power required for the purchase of U.S. exports.

Question 12

An increase in the real rate of interest that can be earned on U.S. investments above the rate that can be earned on investments in India would:

Answer 12

increase the price of the dollar in Indian rupees

Question 13

what happens when countries specialize

Answer 13

total world output increases and therefore the potential for greater total world consumption also increases

Question 14

what does global trade allow

Answer 14

it allows a country to consume a combination of goods that exceeds its production possibilities curve

Question 15

what is comparative advantage

Answer 15

the ability of a country to produce a good at a lower opportunity cost than another country

Question 16

world output and consumption are maximized when…

Answer 16

each country specializes in producing and trading goods fro which it has a comparative advantage . comparative advantage refers to the relative opportunity costs between countries of producing the same goods

Question 17

what is absolute advantage

Answer 17

the ability of a country to produce a good using fewer resources than another country

Question 18

define free trade

Answer 18

the flow of goods between countries without restrictions or special taxes

Question 19

what is protectionism

Answer 19

the governments use of embargoes tariffs, quotas, and other restrictions to protect domestic producers from foreign competition

Question 20

what is an embargo

Answer 20

a law that bars trade with another country

Question 21

what is a tax on an import

Answer 21

tariff

Question 22

an international organization of member countries tat oversees international trade agreements and rules on trade disputes

Answer 22

WTO

Question 23

a limit on the quantity of a good that may be imported in a given time period

Answer 23

define quota

Question 24

what is the balance of trade

Answer 24

the value of a nations imports subtracted from its exports balance of trade can be given in terms of goods, services, or goods and services

Question 25

what finances a current account deficit

Answer 25

a capital account surplus

Question 26

what is an exchange rate

Answer 26

the number of units of one nations currency that equals one unit of another nations currency

Question 27

how can an exchange rate be expressed

Answer 27

as a reciprocal

Question 28

what is the depreciation of currency

Answer 28

a fall in the price of one currency relative to another

Question 29

what is an appreciation of currency

Answer 29

a rise in the price of one currency relative to another

Question 30

a depreciation of the dollar is caused by

Answer 30

an expansion in relative U.S. income

Question 31

what causes the dollar to appreciate

Answer 31

a rise in a trading partners relative price level

Question 32

what happens when the dollar is weak or depreciates

Answer 32

U.S. goods and services cost foreign consumers less, so they buy more U.S. exports at the same time, a weak dollar means foreign goods and services cost U.S. consumers more so they buy few imports

Question 33

what happens when the dollar is strong

Answer 33

when the dollar is strong or appreciates, U.S. goods and services cost foreign consumers more, so they buy fewer U.S. exports. At the same time, a strong dollar means foreign goods and services cost U.S. consumers less, so they buy more foreign imports