Deck 3: The Political Economy of Trade and Investment

Question 1

The reasons global food prices are declining are increased demand and the effects of tariffs and subsidies on biofuels.

Answer 1

False

Question 2

Financial assistance in the form of a grant from the federal government to an eligible recipient usually comes with the expectation that the funds will be repaid.

Answer 2

False

Question 3

Subsidies take many forms, including cash grants, low-interest loans and tax breaks.

Answer 3

True

Question 4

The decision by the federal government to financially assist Australian vehicle manufacturer General Motors Holden was made because of national sovereignty.

Question 5

At the end of the day, Australia's richest woman, Gina Rinehart of Hancock Prospecting, is able to exert a strong influence on Australian government policy with regard to foreign workers entering and working in Australia on her mine sites.

Question 6

The infant industry argument calls for the protection of an emerging industry until it becomes efficient enough to compete in the global market.

Question 7

A strategic trade policy aimed at establishing domestic firms in a dominant position within a global industry is a beggar-thy-neighbour policy.

Question 8

The costs of producing solar electricity and of manufacturing solar panels have fallen, but government subsidies to the solar energy industry remain unchanged. This is an example of:

A) growth leading to a mature industry.
B) an infant industry 'growing up'.
C) government inertia.
D) problems with protectionist trade policies.

Question 9

When the German supermarket chain Aldi came to Australia in the mid-2000s, its aim was to establish a new enterprise which in turn would increase the level of competition in the national market. This form of FDI is known as:

A) liberalisation.
B) licensing.
C) contract manufacturing.
D) greenfield.

Question 10

A group of countries committed to eliminating trade barriers, adopting a common external trade policy and allowing factors of production to move freely between members is known as:

A) a customs union.
B) a common market.
C) an economic union.
D) a political union.

Question 11

Regional economic integration presents a number of threats to international business. A significant threat is:

A) an increasingly competitive business environment.
B) increasing operating costs.
C) greater opportunity to exploit differences in regulations.
D) uniformity in operating structures.

Question 12

The economic case for integration is essentially the economic arguments for:

A) bilateral and multilateral country agreements.
B) linking neighbouring economies and dependency on each other.
C) free trade and investment.
D) promoting entrepreneurship.

Question 13

Progress in the current Doha Round of negotiations has stalled. Two issues that are restricting progress are:

A) lack of global growth, and global recession.
B) countries' cuts to agricultural protection, and emerging market economies opening up markets to industrial goods and services.
C) surges in the number of technology-intensive industries, and lack of legal regulations.
D) climate change, driving inequalities among market economies.

Question 14

Host governments use a wide range of controls to restrict FDI in all except one of the following:

A) establishment and entry.
B) foreign investment.
C) performance and procedural restrictions.
D) profiteering and dumping.

Question 15

Host governments worry that FDI is accompanied by some loss of economic independence. Their fear is attributed to:

A) protectionism, tariffs and subsidies.
B) quotas, dumping and government capture.
C) export processing zones, rules of origin and quota rent.
D) transfer pricing, repatriation of funds and national sovereignty.

Question 16

Free-trade economists remain critical of the infant industry argument for the following two main reasons.

A) Mature firms are inadvertently disadvantaged against younger firms, and the impetus for research and development is removed.
B) It contradicts many of the arguments for free trade, and it builds reliance on government subsidies.
C) Protection from foreign competition is only effective if it makes an industry efficient, and the argument relies on the assumption that firms are unable to borrow money from domestic or international capital markets, which is no longer valid in today's global financial markets.
D) There is no long-term planning in young organisations, and entrepreneurship is stifled as a result of organisations no longer being required to justify investment to private capital market investors.

Question 17

The General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) were successful in _________ tariff barriers on manufactured goods and commodities, but there has been _________ progress on agricultural trade and FDI liberalisation.

A) raising; no
B) stopping; significant
C) enabling; disappointing
D) maintaining, surprising

Question 18

There are seven instruments in trade policy. Which of the following is one one of the seven instruments?

A) Licensing
B) Voluntary export restraints
C) Subsidies
D) Import quotas

Question 19

'Dumping' is when:

A) goods are sold that do not meet local content requirements, or goods are sold that do not meet local quality standards.
B) goods are sold at predatory prices, or goods are sold that do not meet local product-safety standards.
C) goods are sold without the consent of the host government, or goods are sold that do not meet local quality standards.
D) goods are sold at below their cost of production, or goods are sold at below their 'fair' market value.

Question 20

In general, what are two paths of arguments for government intervention into the free flow of trade?

A) Demographic and political
B) Sociocultural and legal
C) Political and economic
D) Legal and patriotic

Question 21

Australia has a strict quarantine regime designed to protect human, animal and plant life. Provided that it does not discriminate or act as disguised protectionism, this is an important mechanism for ______________.

A) national security
B) proprietary industry
C) declining industry
D) unfair foreign competition

Question 22

Trade sanctions are:

A) the cutting of exports to another country in response to strained diplomatic relations.
B) the blocking of market access on the grounds of unfair pricing by exporters.
C) government restrictions to ensure a level playing field.
D) government actions that restrict or prohibit trade with a country in order to bring about a political change in that country.

Question 23

The ___________________ argument is one of the oldest economic arguments for government intervention into the free flow of trade.

A) mature industry
B) infant industry
C) emerging industry
D) institutional industry

Question 24

The resource-transfer effects of FDI can make a positive contribution to the economic growth of an economy by:

A) raising productivity and competiveness of industries through the exchange of knowledge and technology.
B) supplying subsidies in industries where capital markets have traditionally been reluctant to lend capital.
C) supplying skills and expertise that may not be currently available.
D) supplying capital, technology and management resources that would otherwise not be available.

Question 25

Which of the following records foreign expenditures and receipts relating to the export and import of goods and services and income payment?

A) Current account
B) Foreign account
C) Internal account
D) Tariff account

Question 26

When a nation is purchasing from abroad a lower value of goods and services than it sells abroad, this is known as running a:

A) current account surplus.
B) current account deficit.
C) payment surplus.
D) payment deficit.

Question 27

Which of the following groups of industries would be most affected by the impact of FDI on competition in domestic markets?

A) Electricity, gas and water supply
B) Agriculture, forestry and mining
C) Telecommunications, retailing and financial services
D) Transport, storage and logistics

Question 28

Two possible adverse effects of FDI on a host country's balance of payments are:

A) effects on the competition and adverse effects on the balance of payments.
B) transfer pricing and loss of sovereignty and autonomy.
C) repatriation of profits and inputs from abroad.
D) global marketing networks and control of supply chain logistics.

Question 29

There are many forms of government intervention in international trade. Some are aimed at restricting or promoting trade, and these include:

A) import quotas and export subsidies.
B) food labelling laws and product standards.
C) R&D grants and start-up incentives.
D) investment in new ventures and financial aid.

Question 30

Which of the following reflects the highest level of integration?

A) Regional integration
B) Customs union
C) Common market
D) Political union

Question 31

The possibility that free trade will allow countries to specialise in the production of goods and services and produce them most efficiently is the basis of the argument for:

A) strategic trade policy.
B) protectionism.
C) regional economic integration.
D) infant industry agreement.

Question 32

In the context of regional trade integration, concerns about national sovereignty arise because:

A) of increasing concerns about domestic security as a result of the growing incidence of terrorism.
B) governments are required to give up some degree of their control over such key policy issues as monetary policy, fiscal and trade policy.
C) of the ongoing global uncertainty caused by market failure and climate change.
D) residents fear cultural uniformity and the loss of cultural identity.

Question 33

Trade diversion is the phenomenon that occurs when:

A) governments alter policies in order to provide non-financial assistance to struggling industries.
B) emerging industries are provided with subsidies to allow them to compete with established industries.
C) trade is created that would not otherwise have existed.
D) low-cost external suppliers are replaced by high-cost suppliers inside the free trade area.

Question 34

Formed in 1967, ASEAN was an attempt to establish a free-trade area between:

A) Indonesia, Hong Kong, Singapore, Taiwan, Thailand and Japan.
B) Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand.
C) Japan, Taiwan, Hong Kong, Singapore, China and Malaysia.
D) Brunei, Indonesia, Hong Kong, Thailand, Cambodia and Japan.

Question 35

COMESA is an agreement among 20 countries of Eastern and Southern Africa to work towards establishing a:

A) trade union.
B) customs union.
C) bipartisan union.
D) market union.

Question 36

Closer Economic Relations (CER) is a free-trade agreement between:

A) New Zealand and Japan.
B) Indonesia and Malaysia.
C) Australia and New Zealand.
D) China and Vietnam.