Exammmm

Question 1

1. Foreign Direct Investment (FDI) is defined as :

Answer 1

Any investment by a foreign firm taking a controlling interest in local firm

Question 2

In general Globalization has resulted in

Answer 2

Increased wage inequality in poorer nations

Question 3

The gravity model offers a logical explanation for the fact that

Answer 3

Intra-European Union trade exceeds international trade by the European Union.

Question 4

An increase in a country’s terms of trade means that

Answer 4

the benefits from trade are increasing

Question 5

Suppose the world consists of two countries: Germany and Spain. Further, suppose there are only two goods–food and clothing. Which of the following statements is true?

Answer 5

If Germany has a comparative advantage in the production of food, then Spain must have a comparative advantage in the production of clothing.

Question 6

If country A is well-endowed with natural resources but a small population while B is endowed with much labor but little land and few natural resources, then trade theory predicts that

Answer 6

Trade will occur, but wages will fall in country A

Question 7

Product differentiation and internal economies of scale yield gains from trade in the form of

Answer 7

lower production costs and a greater variety of goods.

Question 8

International trade based on external scale economies in both countries is likely to be carried out by

Answer 8

a relatively large number of price competing firms.

Question 9

Two countries engaged in trade in products with no scale economies, produced under conditions of perfect competition, are likely to be engaged in

Answer 9

inter-industry trade.

Question 10

Applied to trade in two goods between two countries, the principle of comparative advantage does not suggest that

Answer 10

both nations will equally benefit from trade

Question 11

11. A problem encountered when implementing an “infant industry” tariff is that:

Answer 11

the industry may never “mature.”

Question 12

Which of the following is a fixed percentage of the value of an imported product?

Answer 12

ad valorem tariff

Question 13

The effective rate of protection measures

Answer 13

the protection given by the tariff to domestic value added.

Question 14

The fact that industrialized countries levy very low or no tariff on raw materials and semi processed goods

Answer 14

hurts developing country efforts to export manufactured goods.

Question 15

Which of the following statements about a tariff is true?

Answer 15

A tariff decreases consumer surplus, increases producer surplus, increases revenue to the government, and reduces total surplus.

Question 16

Suppose Canada can produce either 120 units of goods, 80 units of services, or any linear combination thereof. Mexico can produce 90 units of goods, 50 units of services, or any linear combination thereof.

Then in terms of production,

Answer 16

the opportunity cost of producing goods is higher in Canada than in Mexico

Question 17

Suppose Canada can produce either 120 units of goods, 80 units of services, or any linear combination thereof. Mexico can produce 90 units of goods, 50 units of services, or any linear combination thereof.

International trade under these conditions

Answer 17

can benefit both countries if Canada exports services and imports goods

Question 18

Suppose Canada can produce either 120 units of goods, 80 units of services, or any linear combination thereof. Mexico can produce 90 units of goods, 50 units of services, or any linear combination thereof.

Under these conditions, the ratio of the international price of services relative to the price of goods should fall into what range?

Answer 18

1.5 to 1.8

Question 19

Suppose Canada can produce either 120 units of goods, 80 units of services, or any linear combination thereof. Mexico can produce 90 units of goods, 50 units of services, or any linear combination thereof

If by international treaty the ratio of the price of services to the price of goods was held at 1.5, then

Answer 19

Mexico would benefit from trade; Canada would neither gain nor lose

Question 20

The price of a country’s exports relative to the price of its imports is called

Answer 20

the terms of trade