Chapter 8

Question 1

Current account

Answer 1

The net border flows of goods and services along with government transfers and net income on capital investment

Question 2

Capital account

Answer 2

The net flows of capital both portfolio and foreign direct investment into and out of a country

Question 3

Portfolio investment

Answer 3

Transfer of money to buy stocks bonds and so on

Question 4

Foreign direct investment

FDI

Answer 4

Capital flows to a foreign country involving the acquisition or construction of manufacturing plants and other facilities

Question 5

Balance of payments

Answer 5

A country’s current and capital account balance plus reserves and statistical errors

Question 6

Exchange rate

Answer 6

The value of a country’s currency in terms of a foreign currency

Question 7

Fixed or manages exchange rates

Answer 7

Exchange rates that are fixed by governments to gold another currency or a basket of currencies

Question 8

Opportunity costs

Answer 8

The costs of alternative uses of resources based on competitive prices

Question 9

Comparative advantage

Answer 9

A relationship in which two countries can produced more goods from the same resources if each specializes in the goods it produces most efficiently at home and the two trade these goods internationally

Question 10

Infant industries

Answer 10

Developing industries that require protection to get started

Question 11

Import substitution policies

Answer 11

Policies developed in Latin America that substitute domestic industries for imports

Question 12

Economies of sale

Answer 12

Cost advantages whereby the larger the amount of a good that is produced the Lower the average cost of production

Question 13

Competitive advantage

Answer 13

A trade created by government intervention to exploit monopoly rents in strategic industries

Question 14

Productivity

Answer 14

Output per unit of input

Question 15

Trade adjustment assistance

Answer 15

Cash benefits or retraining programs for workers displaced by trade

Question 16

Unfair trade

Answer 16

Trade that violates an international trade agreement or is considered unjustified unreasonable and discriminatory

Question 17

Most favored principle (MFP)

Answer 17

A principle under which nations that negotiate tariff reduction offer the same low tariff to all nations that they offer to the most favored nation meaning the nation that pays the lowest tariff

Question 18

Multilateral trade rounds

Answer 18

Trade negotiations in which multiple countries participate and reduce trade barriers simultaneously

Question 19

Doha round

Answer 19

The ninth and most current round of trade talks which offers significant potential benefits to developing countries in agriculture and infrastructure

Question 20

Resource curse

Answer 20

A phenomenon in which an abundance of natural resources inhibits development in other sectors

Question 21

Derivatives markets

Answer 21

The market that exchanges instruments derived from existing loans and financial assets hedging them against future changes in prices earnings or interests

Question 22

Tariffs

Answer 22

Taxes on goods and services crossing borders

Question 23

Nontariff barriers (NTBs)

Answer 23

Policy instruments other than prices such as quotas and qualitative restrictions designed to limit or regulate imports and exports