Deck 31: Monetary Policy

Question 1

The basis for international trade is _________.

Answer 1

International trade:
The international trade refers to the activity of economic transaction like buying and selling of goods and services between two or more nation at the period of time.
A basis for international trade is that a nation can import goods and services at a lower cost compared to the cost it was produced domestically.
Specialization is the basis for international trade.
Therefore, the correct answer is

Question 2

Our balance of trade _________.

A) has always been positive
B) turned negative in the mid-1970s
C) turned negative in the mid-1980s
D) has always been negative

Answer 2

Balance of Trade:
A country can be said to have balance of trade when the country's value of exports are equal to the value of imports.
The balance of trade of a country shows various current and capital nature receipts and payments made during a year.
Balance of trade was positive until 1970s in the 20 th century. It has turned negative in the mid-1970s.
Hence, the options (a), (c) and (d) are not correct.
Therefore, the correct option is

Question 3

Bolivia has a comparative advantage in the production of which metal?

Figure 2

Answer 3

The opportunity cost is the cost of next best alternative or the cost of missed opportunity.
Comparative advantage tells the ability of one country to produce goods at a lower opportunity cost as compared to other countries. For a beneficial trade, countries should produce those products in which they have a comparative advantage for their national welfare. The benefit that one country accrues from trade is called gains from trade.
Country B
Country B can produce either 10 tons of tin or 12 tons of copper.
Hence, the opportunity cost of 1 ton of tin is
Similarly, opportunity cost of 1 ton of copper is
Country C
Country C can produce either 8 tons of tin or 15 tons of copper.
Hence, the opportunity cost of 1 ton of tin is
Similarly, opportunity cost of 1 ton of copper is
Since, the opportunity cost of 1 ton of tin is lower in Country B.
Hence, Country B has comparative advantage in production of
.

Question 4

Explain what comparative advantage is. Make up an example to illustrate this concept.

Question 5

Brazil is better at producing __________ than at producing __________.Argentina is better at producing __________ than at producing __________.

Question 6

Which makes the most sense economically?

A) Individual self-sufficiency
B) National self-sufficiency
C) National specialization
D) None of these

Question 7

Chile has a comparative advantage in the production of which metal?

Figure 2

Question 8

What is wrong with having tariffs and quotas? Which is the lesser of the two evils, and why?

Question 9

If 1 ton of steel could be traded for 1 ton of wheat, Brazil would trade its __________ for Argentina's __________.

Figure 1

Question 10

Which statement do you agree with?

A) There are several problems causing our huge trade deficit; there are no easy solutions to these problems.
B) We could quickly eliminate our trade deficit by raising tariffs.
C) The main reason we have a large trade deficit is that foreigners refuse to buy American goods and services.
D) The main reason for our large trade deficit is our relatively low rate of economic growth.

Question 11

Bolivia will trade _________ for __________

Figure 2

Question 12

Explain why globalization is good for the United States. What are the drawbacks of globalization for our economy?

Question 13

__________ is the country with which we have the largest trade imbalance.

Question 14

The Chinese economic expansion since the early 1980s and the Japanese economic expansion from the late 1940s through the 1980s were _________.

A) virtually identical
B) both dependent on the American market
C) based in the economic principles of Karl Marx
D) based on closing their domestic markets to American goods and services

Question 15

Chile will trade _________ for ___________

Figure 2

Question 16

What would you suggest we do to reduce our trade deficit?

Question 17

It would greatly reduce our trade deficit the most if we could curb our import of ___________.

Question 18

Which statement is false?

A) No nation will engage in trade with another nation unless it will gain by that trade.
B) The terms of trade will fall somewhere between the domestic exchange equations of the two trading nations.
C) Most economists advocate free trade.
D) None of these statements is false.

Question 19

Paraguay exports $21 billion of goods and imports $25 billion of goods. It exports $15 billion of services and imports $13 billion of services. Find the nation's
(a) balance of goods,
(b) balance of services, and
(c) balance of trade.

Question 20

We run huge trade imbalances with two countries. Explain the cause of the imbalances.

Question 21

Our trade deficit in 2012 was $ _______

Question 22

Our largest trade deficit is with _________.

A) Japan
B) Canada
C) China
D) Mexico
E) Germany

Question 23

Nigeria has a positive trade balance of $10 billion. If it has a negative balance of services of $8 billion, how much is its balance of goods?

Question 24

Should we be worried about our trade deficit? Explain why or why not.

Question 25

If our trade deficit with China and Japan were 0, our total trade deficit would be reduced by almost $ ___________ billion.

Question 26

Which of the following does not contribute to our huge trade deficit?

A) our dependence on automobile travel
B) our addiction to consumer goods
C) our shrinking manufacturing base
D) our huge oil imports
E) none of the above

Question 27

Algeria has a negative trade balance of $7 billion. If it has a positive balance of goods of $10 billion, how much is its balance of services?

Question 28

What is the economist's case for free trade?

Question 29

The law of comparative advantage states that total output is greatest when each product is made by the ___________ country that has the

Question 30

The least applicable argument for protecting American industry from foreign competition wouldbe the ________ argument.

A) national security
B) infant industry
C) low-wage
D) employment

Question 31

Practical Application: Can you think of any valid reason for tariff protection? Try to make a case for it.

Question 32

A tariff is a tax on _________; a quota is a limit on ___________.

Question 33

Imports would be lowered by __________.

A) tariffs only
B) import quotas only
C) both tariffs and import quotas
D) neither tariffs nor import quotas

Question 34

Web Activity: How much were our imports, exports, and trade deficit during the last year? Go to www.bea.gov, click on "Survey of Current Business" at the left, then go to "National Data," "National Income and Product Accounts," NIPA tables, and finally, "Gross Domestic Product."

Question 35

___________ was the last year in which we ran a trade surplus.

Question 36

Of these three choices-tariffs, quotas, and free trade-economists like ________ the most and the _________ least.

A) tariffs, quotas
B) tariffs, free trade
C) free trade, tariffs
D) free trade, quotas
E) quotas, free trade
F) quotas, tariffs

Question 37

Our biggest annual trade deficit in our history was more than __________ billion.

A) $300
B) $400
C) $500
D) $600
E) $700

Question 38

Which country regularly counterfeits American goods and services, a practice which costs American industry over $200 billion a year?

A) Mexico
B) Canada
C) China
D) Japan

Question 39

Which is the most accurate statement with respect to our chemical industry?

A) It is on the decline and now contributes to our balance of trade deficit.
B) It is large and growing.
C) It generally provides a trade surplus of about $20 billion a year.
D) It will almost completely disappear before 2020.

Question 40

Which one of these statements is the most accurate?

A) Globalization, on balance, has been very bad for the U.S. economy.
B) All the effects of globalization have been very good for the U.S. economy.
C) The best way to reduce our trade deficit is for Congress to pass a law requiring that we buy only American products.
D) Each of our recent presidents has basically supported the concept of free trade.

Question 41

Our trade deficit with China in 2012 was ________

A) under $100 billion
B) between $100 billion and $200 billion
C) between $200 billion and $300 billion
D) over $300 billion

Question 42

Statement 1: Our trade deficit with China is larger than our trade deficit with Japan.
Statement 2: Americans pay lower taxes on gasoline than do the citizens of most of the nations in Western Europe.

A) Statement 1 is true, and statement 2 is false.
B) Statement 2 is true, and statement 1 is false.
C) Both statements are true.
D) Both statements are false.

Question 43

Of the following, our imports of _________ contribute most to our trade deficit.

A) oil
B) clothing
C) textiles
D) consumer electronics

Question 44

Which of the following would best describe our trading relationship with China five years from now?

A) Our trade deficit will be higher and we will be importing a higher proportion of "low-skill" products.
B) Our trade deficit will be higher and we will be importing a higher proportion of "high-skill" products.
C) Our trade deficit will be lower and we will be importing a higher proportion of "low-skill" products.
D) Our trade deficit will be lower and we will be importing a higher proportion of "high-skill" products.

Question 45

Which statement is the most accurate?

A) Globalization has made some people winners and others losers.
B) Globalization has been good for everyone involved.
C) Globalization has been bad for everyone involved.
D) Virtually all economists believe that globalization has almost no downside.

Question 46

Which statement is true about how globalization has affected American workers?

A) The only jobs that have been lost or will be lost are blue-collar factory jobs.
B) Most workers who have lost their jobs because of globalization have ended up in better paying jobs.
C) Until now a relatively high proportion of Americans perform high-skill, well paying jobs, while a relatively high proportion of Chinese perform low-skill, poorly paying jobs.
D) Globalization cannot be considered a threat to the livelihoods of highly-skilled, well paid American workers.

Question 47

Which is the most accurate statement?

A) The United States can be described as a purely free trading nation.
B) The United States is one of the most protectionist nations in the world.
C) The rich nations provide hundreds of billions of dollars in agricultural subsidies to the poorer nations.
D) The United States provides smaller agricultural subsidies than does Japan and the European Union.

Question 48

Which statement is true?

A) Comparative advantage is not necessary for trade to take place, but absolute advantage is.
B) Absolute advantage is not necessary for trade to take place, but comparative advantage is.
C) Both absolute and comparative advantage are necessary for trade to take place.
D) Neither absolute nor comparative advantage are necessary for trade to take place.

Question 49

Which statement is true?

A) There are basically no arguments that can be made on behalf of trade protection.
B) The arguments for trade protection are more valid than the arguments for free trade.
C) The United States has had a record of fully supporting free trade since the early 20th century.
D) Much of what we import has been produced by "sweatshop labor."

Question 50

In order for trade between two countries to take place, _________.

A) absolute advantage is necessary
B) comparative advantage is necessary
C) both absolute and comparative advantage are necessary
D) neither absolute nor comparative advantage is necessary

Question 51

Which statement is the most accurate?

A) Americans are very willing to buy domestically produced goods, even if they are more expensive than imported goods.
B) We import more foreign goods than we did 40 years ago, but merchandise imports are still about the same percentage of our GDP.
C) In the decades following World War II, the Japanese consumer has strongly favored domestically manufactured goods over imports.
D) America has maintained its technological lead.

Question 52

Which one of the following statements is the most accurate?

A) Our economy would be much better off if the entire globalization process were reversed.
B) The globalization process creates billions of winners and no losers.
C) The process of globalization could easily be reversed if Congress and the president were willing to act.
D) Globalization ensures a more efficient allocation of resources throughout the world.

Question 53

What accounts for the sharp fall in our trade deficit in 2009?

A) Our imports fell more than our exports.
B) Our exports fell more than our imports.
C) The recession was much worse in the rest of the world than in the U.S.
D) The American consumer made a much greater effort to buy American products to keep jobs in the United. States.