Unit III Exam Practice Questions Flashcards
Suppose two nations, Water and Fire, form a free trade agreement. After joining the agreement, Water increases its imports of lumber from Fire and decreases its imports of lumber from the Earth Kingdom, a country that is not in the free trade agreement, even though lumber from the Earth Kingdom cost less than lumber from the Fire nation. Which of the following has been an impact of the free trade agreement?
a) trade creation.
b) trade diversion.
c) a trade embargo.
d) trade lifting.
b) trade diversion.
Goods that are produced within the free trade agreement between Water and Fire can be traded freely (without facing tariffs or other trade barriers) between the nations. How can the participants in the agreement determine which goods are produced within the free trade area?
a) Establish national product standards.
b) Establish trade bloc standards.
c) Establish rules of origin.
d) Establish rules of composition.
c) Establish rules of origin.
Fast Track Authority (aka Trade Promotion Authority) allows the U.S. president to:
a) impose tariffs without Congressional approval.
b) exempt specific trading partners or products from tariffs with Congressional approval.
c) negotiate trade agreements without Congressional approval.
d) negotiate trade agreements that will only be subject to a yes/no vote in Congress.
d) negotiate trade agreements that will only be subject to a yes/no vote in Congress.
Why are international institutions (such as the World Bank, the IMF, and the WTO) a public good?
a) They support international economic stability, which is a nonrival and nonexcluable good.
b) They support international economic stability, which would otherwise be a rival and excluable good.
c) They improve the transparency of international public policies.
d) They are funded with public resources through the member nation
a) They support international economic stability, which is a nonrival and nonexcluable good.
Which of the following is a controversy associated with the major international institutions (IMF, WTO, and World Bank)?
a) Their decisions sometimes conflict with the national decisions of their members, raising questions about sovereignty.
b) The cost of implementing their decisions and policies are too low and should be raised.
c) Their decision-making process is too public and transparent and should protect classified information better.
d) They do not allow the ideology of an member or group of members to impact their decisions.
a) Their decisions sometimes conflict with the national decisions of their members, raising questions about sovereignty.
Although regional trading agreements violate the most favored nation principle of the World Trade Organization, exceptions are made if the proposed agreement:
a) has the same tariff rate for participants as for non-participants.
b) has an internal tariff rate of zero, and does not raise tariffs for non-participants.
c) leads to trade creation rather than trade diversion.
d) includes Rules of Origin.
b) has an internal tariff rate of zero, and does not raise tariffs for non-participants.
Suppose the price of a chair falls to $16 in 1932, and the specific tariff is $2. The ad valorem equivalent of the tariff is now ___% (Note: round answer to one decimal place.
(2/16) * 100 = 12.5
According to the Council on Foreign relations, economic analyses of the impact of NAFTA on the U.S. economy generally show that NAFTA increased ________ but there is some disagreement about the net impact on ________________.
a) employment; GDP
b) GDP; employment
c) consumer prices; trade
d) trade; consumer prices
b) GDP; employment
According to the Council on Foreign Relations, economic analyses of the impact of NAFTA on Mexico generally show that NAFTA increased ____________ but did not decrease ______________ as much as expected.
a) economic growth; poverty
b) economic growth; trade barriers
c) trade barriers; poverty
d) trade barriers; unemployment
a) economic growth; poverty
________ policies refer to government programs designed to exploit natural comparative advantage by increasing production of a few export goods most closely related to a country’s resource base.
a) Inward-looking development
b) Comparative advantage
c) Primary-export-led development
d) Import-substitution development
c) Primary-export-led development
If the expansion of an export industry leads to the provision of infrastructure such as roads or airports, this is called a(n)
a) elementary effect.
b) linkage effect.
c) secondary effect.
d) None of the above.
b) linkage effect.
What was the main statement of the Singer-Prebish (1949) study?
a) The price of primary products will decline over time relative to the price of manufactured goods
b) currency appreciates as export of natural gas increases
c) cheating by oil cartel members is inevitable
d) low income countries are in the poverty trap
a) The price of primary products will decline over time relative to the price of manufactured goods
If an economy experiences an increase in its labor force, everything else constant, then at constant world prices, it will
a) produce the same amount of both goods.
b) produce less of the labor intensive good and more of the capital intensive good.
c) produce more of the labor intensive good and less of the capital intensive good.
d) produce more of both goods.
c) produce more of the labor intensive good and less of the capital intensive good.
________ economic growth occurs when, after growth, exports and imports rise by the same proportion.
a) Technological
b) Neutral
c) Biased
d) Rising
b) Neutral
FIGURE 11.3
Suppose production of T is labor-intensive. The pro-trade growth takes place. Where will be the new production point if the ratio of new capital to new labor is less than the original capital-labor ratio in the T industry?
a) In region 1.
b) In region 2.
c) On the AE line
d) on the PR line
b) In region 2.
Which of the following examples is best described by the economic phenomenon referred to as The Dutch Disease ?
a) The discovery of a diamond mine in Myanmar increases the level of corruption and slows economic growth.
b) The discovery of a diamond mind in Myanmar results in a worsening of the terms of trade for the country when the world price of diamonds falls.
c) Exports from a newly discovered diamond mine in Myanmar result in the depreciation of its currency, the kyat, and an expansion of its other export industries.
d) Exports from a newly discovered diamond mine in Myanmar result in the appreciation of its currency, the kyat, and a contraction of its other export industries.
e) Myanmar faces a huge rise in COVID19 cases and its economy enters the prolonged recession
d) Exports from a newly discovered diamond mine in Myanmar result in the appreciation of its currency, the kyat, and a contraction of its other export industries.
Real-world evidence suggests that ________________ strategy (-ies) is (are) accompanied by rent-seeking and corruption.
a) import substitution
b) export oriented
c) both import substitution and export oriented
d) no industrial
c) both import substitution and export oriented
Which of the following are direct foreign investments?
- A Saudi businessman buys $10 million of IBM stock.
- A Saudi businesswoman buys a New York apartment building
- A French company merges with an American company; stockholders in the U.S. company exchange their stock for shares in the French firm
- An Italian firm builds a plant in Russia and manages the plant as a contractor to the Russian government.
2 & 3
An example of foreign direct foreign investment is
a) multinational corporation such as Ford building a plant in Canada
b) the sale of General Motors bonds to foreign investors.
c) the sale of U.S. government bonds to Chinese investors
d) all of the above.
a) multinational corporation such as Ford building a plant in Canada
If FDI were to lead to an inflow of capital to the country, so that the level of overall capital rises, then in the short run
a) wages would rise and payments to capital would fall.
b) wages would rise and payments to capital would rise.
c) wages would fall and payments to capital would rise.
d) wages would fall and payments to capital would fall.
a) wages would rise and payments to capital would fall.
Most firms in the apparel and footwear industries choose to outsource production to countries where labor is abundant (primarily, Southeast Asia and the Caribbean) but those firms do not integrate with their suppliers there.
On the other hand, firms in many capital-intensive industries choose to integrate with their suppliers.
What could be some differences between the labor-intensive (such as apparel and footwear) industries and capital-intensive industries that would explain these choices?
A multinational may prefer to
a) outsource to an independent foreign firm if it is concerned about weak property rights, which is more likely in labor-intensive industries
b) use a foreign affiliate if it has a proprietary technology that it is concerned about losing, which is more likely in capital-intensive industries
c) use a foreign affiliate if it wants to benefit from the economies of scale, as the result of affiliate performing a narrow type of production for multiple parent firms, which is more likely in capital-intensive industries
d) outsource to the independent foreign firm if it doubts to produce efficiently, which is true in labor-intensive industries
b) use a foreign affiliate if it has a proprietary technology that it is concerned about losing, which is more likely in capital-intensive industries
According Antras and Yeaple study, which is not true about multinationals?
a) Multinational activity is primarily concentrated in developed countries where it is mostly two-way.
b) The relative importance of multinationals in economic activity is higher in capital-intensive and R&D intensive goods
c) The production of the foreign affiliates of multinationals falls off in distance
d) Both the parents and the affiliates of multinational firms tend to be larger, more productive, more R&D intensive, and more export oriented than nonmultinational firms
e) Within multinational enterprises, parents are relatively specialized in R&D while affiliates are primarily engaged in selling goods in foreign markets, particularly in their host market
f) Cross-border mergers and acquisitions make up a small fraction of FDI and are a not particularly important mode of entry into developed countries
f) Cross-border mergers and acquisitions make up a small fraction of FDI and are a not particularly important mode of entry into developed countries
Based on your knowledge about multinational corporations, intra-firm trade will be
a) higher in industries where there is a large level of imports but virtually no exports
b) higher in industries with vertical FDIs
c) lower in capital-intensive industries
d) higher in industries that rely primarily on outsourcing.
b) higher in industries with vertical FDIs
Intra-firm trade arises naturally from this fragmented production process. When subsidiaries specialize in different stages, they need to exchange intermediate goods and services with each other to assemble the final product. This exchange of goods and services within the same multinational corporation constitutes intra-firm trade.
A firm will tend to become a multinational corporation if
a) the per-unit cost of exporting exceeds the average variable cost of setting up an additional production facility.
b) The per-unit cost of exporting is less than the average variable cost of setting up an additional production facility
c) the per-unit cost of exporting is less than the average fixed cost of setting up an additional production facility
d) the per-unit cost of exporting exceeds the average fixed cost of setting up an additional production facility
d) the per-unit cost of exporting exceeds the average fixed cost of setting up an additional production facility
When reviewing activities of multinationals in the US, what statements are true? Select all that apply.
- US multinationals employ the most in EU
- most of the affiliates active in the United States are owned by parents located in developed countries
- most of the trade between affiliates and their parents into and out of the United States occurs between developing countries
- most of the trade between affiliates and their parents into and out of the United States occurs between developed countries
- wholesale trade is the sector where the most employment in US multinationals takes place
1, 2, & 4
In what decade of the twentieth century was the foreign-born share of the United States population at its peak?
a) 1910
b) 1950
c) 1970
d) 1990
a) 1910
The debate over the economic impact of immigration includes discussion of whether immigrants are ___________ who compete for jobs with native-born workers or are ________________ who create new job opportunities.
a) substitutes; complements
b) complements; substitutes
c) documented; undocumented
d) undocumented; documented
a) substitutes; complements
What is the average time that a person spends in the status of a refugee?
a) 3 months
b) 6 months
c) 4 years
d) 10 years
d) 10 years
Shyamala Gopalan Harris was a biomedical scientist from India who moved to the United States to conduct cancer research. Dr. Harris ___________ from India for work, which is a ___________ factor for migrants.
a) immigrated; push
b) immigrated; pull
c) emigrated; push
d) emigrated; pull
d) emigrated; pull
Which development strategy focuses on promoting exports to drive economic growth?
A) Primary Export-Led Development Strategy
B) Import-Substitution Development Strategy
C) Outward-Looking Development Strategy
D) Anti-trade Biased Growth
A) Primary Export-Led Development Strategy
Which development strategy aims to reduce reliance on imports by developing domestic industries?
A) Primary Export-Led Development Strategy
B) Import-Substitution Development Strategy
C) Outward-Looking Development Strategy
D) Anti-trade Biased Growth
B) Import-Substitution Development Strategy
Which development strategy emphasizes free trade and integration into the global economy?
A) Primary Export-Led Development Strategy
B) Import-Substitution Development Strategy
C) Outward-Looking Development Strategy
D) Anti-trade Biased Growth
C) Outward-Looking Development Strategy
