Deck 6: International Trade and Economic Development

Question 1

The average person lived a short life barely above subsistence for nearly all of human history:

A) a trend that has continued nearly everywhere in the world up to today.
B) but over the past 200 years standards of living around the world have improved immensely for most people.
C) but a small number of countries have in the past 2,000 years been able to steadily increase their citizens' standards of living.
D) because any large changes in standards of living soon led to ecological disasters that drove income sharply back down.

Answer 1

but over the past 200 years standards of living around the world have improved immensely for most people.

Question 2

Which of the following statements about international trade is correct?

A) In 1820 only 1 percent of the total value of world output was exported.
B) In 1870 international trade was equal to about 5 percent of the world's output.
C) In 1929 exports were equal to 9 percent of world GDP.
D) All of the above.
E) None of the above.

Answer 2

All of the above.

Question 3

As a percentage of total world GDP, exports:

A) did not grow much over the past 200 years.
B) grew steadily during each decade of the twentieth century.
C) declined during the 1930s.
D) declined during the nineteenth century but grew rapidly during the twentieth century.

Answer 3

declined during the 1930s.

Question 4

After the sharp increase in protectionist trade policies during the Great Depression of the 1930s and the devastation of World War II, in 1950:

A) world exports were just 0.5 percent of world GDP.
B) international trade as a percentage of world output was about as large as it was in 1929.
C) world exports were about 5.5 percent of world GDP.
D) world exports were nearly 20 percent of world GDP.

Question 5

Statistical studies that have looked at the sources of economic growth have found:

A) evidence of a positive relationship between international trade and economic growth.
B) evidence of a negative relationship between international trade and economic growth.
C) no evidence of a significant relationship between international trade and economic growth.
D) conflicting evidence on the relationship between international trade and economic growth.

Question 6

While the empirical studies clearly tell us that economic growth tends to be higher when a country opens its economy to international trade and international investment, these same studies:

A) have been able to help us determine exactly why this relationship occurs so persistently.
B) have not been able to help us determine why this relationship holds so persistently.
C) have also been able to prove, once and for all, that trade causes economic growth.
D) have clearly contradicted everything that trade theory and growth theory predict.

Question 7

In the case of countries that have a comparative advantage in exporting raw materials, statistical studies show that:

A) the effect of international trade on economic growth is much greater than in countries that export manufactured goods.
B) the effect of international trade on economic growth is not significant.
C) international trade quickly causes these countries to shift to exporting manufactures.
D) international trade benefits poor workers much more than it benefits wealthy owners of land and capital.

Question 8

In the case of raw material exporters, statistical results consistently show that expanding trade reduces economic growth. This finding is referred to as:

A) the natural resource curse.
B) comparative advantage.
C) economic justice.
D) economic development.

Question 9

The so-called natural resource curse is attributed to:

A) the transnational firms who dominate trade have the power to suppress prices of natural resources.
B) the low elasticity of demand for natural resources.
C) the concentration of ownership of resources that keeps export earnings in the hands of local elite business and resource groups that use their earnings to control political institutions that restrict economic and social change.
D) All of the above.
E) None of the above; there is no such thing as a resource curse.

Question 10

Technological progress is defined as:

A) an improvement in the efficiency with which an economy uses its resources and factors of production to produce welfare-enhancing output.
B) exclusively an improvement in the efficiency of factory machines and equipment.
C) the increase in output that the economy produces.
D) equivalent to economic growth.

Question 11

The term "factor accumulation" refers to:

A) the increase in output that an economy generates as a result of economic growth.
B) the growth in national output.
C) an increase in productive resources such as labor, capital, and land.
D) All of the above.
E) None of the above.

Question 12

Diminishing returns refers to:

A) the decrease in total output as equal amounts of a variable input are added to the production process while certain inputs remain unchanged.
B) the decrease in marginal output as equal amounts of a variable input are added to the production process while certain inputs remain unchanged.
C) the increase in marginal output as equal amounts of a variable input are added to the production process while certain inputs remain unchanged.
D) All of the above.
E) None of the above.

Question 13

Robert Solow used his growth model to show that:

A) permanent economic growth by means of factor accumulation is possible.
B) permanent economic growth is not possible under any circumstances.
C) economic growth depends on either factor accumulation or technological progress, but never both.
D) in the absence of technological progress, growth not only slows, but it ceases altogether.

Question 14

Included in Robert Solow's growth model is:

A) capital depreciation.
B) investment in capital.
C) an aggregate production function.
D) All of the above.
E) None of the above.

Question 15

Letting Y stand for total output, K for capital, I for investment, and ? for the rate of depreciation, the change "?" in the stock of capital in the economy is represented in the Solow growth model by:

A) ?K = I
B) ?K = I - ?K
C) ?K = Y - ?K
D) ?K = I ? ?Y

Question 16

According to the definitions in the textbook, the steady state in the simple Solow growth model occurs where:

A) ?f(K) = ?K
B) ?K = I ? ?K
C) ?f(K) > ?K
D) Y = C + I + G

Question 17

The Solow model shows that:

A) in the absence of technological progress, diminishing returns to investment prevent permanent economic growth.
B) even if continuous technological progress occurs, permanent economic growth cannot occur.
C) the static gains from international trade can have no effect on economic growth in the short-run or long-run.
D) All of the above.
E) None of the above.

Question 18

Joseph Schumpeter's model was characterized by:

A) investment externalities.
B) diminishing returns to investment.
C) creative destruction.
D) learning by importing.

Question 19

Schumpeterian models of technological progress incorporate the following principle(s):

A) innovations are the result of intentional application of costly resources to R&D activities to create new products, ideas, processes, techniques, etc.
B) competition among firms becomes a process of creative destruction.
C) eventually monopoly producers dominate the economy and technological progress stops.
D) a and c only.
E) a and b only.

Question 20

In the Schumpeterian R&D model of technological progress, the rate of technological progress depends on:

A) the costs of acquiring the resources to carry out R&D.
B) the benefits that entrepreneurs reap from their innovations.
C) the amount of resources required to create new technology.
D) All of the above.
E) None of the above.

Question 21

According to the Schumpeterian R&D model of technological progress, the rate of technological progress is faster, all other things equal:

A) the lower is the interest rate.
B) the smaller is the excess profit of corporations.
C) the higher is the cost of factors of production and resources.
D) the lower is the efficiency of resources applied to R&D activities.

Question 22

The dynamic case for free trade rests on:

A) the strong empirical evidence that points to a clear positive relationship between international trade and economic growth.
B) the standard growth models that also point to a positive effect of international trade as a positive influence on investment, output, and the creation of technology.
C) the restrictive conditions that must be met for protection to be growth-superior to free trade.
D) All of the above.
E) None of the above.

Question 23

Studies of the spread of technology among countries have shown that:

A) technological transfers are positively related to the volume of international trade.
B) small economies are less dependent on technology transfers for economic growth than large countries.
C) geographic proximity is more important for transfer of technology than international trade.
D) foreign R&D activity has no effect on a country's rate of technological progress.

Question 24

The Schumpeterian R&D model of technological progress suggests that, all other things equal:

A) large countries grow faster than small countries only if they are open to free trade.
B) small countries grow faster than large countries regardless of their trade policies.
C) large countries grow faster than small countries.
D) large countries will always grow slower than small countries.

Question 25

International trade and economic growth:

A) can have similar welfare effects.
B) both cause the production-possibilities frontier to shift out.
C) both cause the relative prices of goods to change in an identical fashion.
D) All of the above.
E) None of the above.