Deck 7: Government Policy and International Trade

Question 1

Dumping is variously defined as selling goods in a foreign market at below their costs of production, or as selling goods in a foreign market at below their "fair" market value.

Answer 1

True
Explanation: Dumping is defined as selling goods in a foreign market at below their costs of production or "fair" market value. Dumping is viewed as a method by which firms unload excess production in foreign markets.

Question 2

By lowering production costs, subsidies help foreign competitors gain export markets.

Answer 2

False
Explanation: By lowering production costs, subsidies help domestic producers in two ways: (1) competing against foreign imports and (2) gaining export markets.

Question 3

Governments can protect consumers from unsafe products by issuing a limit or a ban on such products.

Answer 3

True
Explanation: Many governments have long had regulations to protect consumers from unsafe products. The indirect effect of such regulations often is to limit or ban the importation of such products.

Question 4

The strategic trade policy arguments of the new trade theorists suggest an economic justification for government intervention in international trade and this justification challenges the rationale for unrestricted free trade.

Question 5

Political arguments for government intervention are usually concerned with protecting consumer interests within the country.

Question 6

The main gains from subsidies accrue to importers, whose international competitiveness is increased as a result of these subsidies.

Question 7

The Buy America Act specifies that government agencies must give preference to American products when putting contracts for equipment out for bid unless the foreign products have a significant advantage.

Question 8

Some countries argue that government intervention to protect certain domestic industries can compromise national security.

Question 9

In recent decades, a fall in subsidies, quotas, and voluntary export restraints has been accompanied by a rise in tariff barriers.

Question 10

According to Alexander Hamilton, governments must temporarily support new industries until they have grown strong enough to meet international competition.

Question 11

Paul Krugman asserts that a strategic trade policy is almost certain to be captured by special-interest groups within the economy, who will distort it to their own needs.

Question 12

Paul Krugman argues that although strategic trade policy looks unappealing in theory, in practice it is most likely to be workable.

Question 13

Subsidies are a trade policy instrument.

Question 14

The Common Agricultural Policy (CAP) established by the European Union was designed to reduce prices of domestic produce and protect consumers from unfair premiums.

Question 15

According to Paul Krugman, a country that adopts a strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry will probably provoke retaliation.

Question 16

Import tariffs protect domestic producers against foreign competitors.

Question 17

Government intervention in international trade can take the form of reducing restrictions on imports and encouraging foreign direct investment.

Question 18

Specific tariffs are levied as a proportion of the value of the imported good.

Question 19

Both import quotas and voluntary export restraints (VERs) benefit domestic producers by limiting import competition.

Question 20

Free trade as a government policy was first officially embraced by Germany in 1846, when the Bundestag repealed the Corn Laws.

Question 21

A charge of 15-20% was levied by the government of Cadmia on the value of automobile accessories imported from a neighboring country. This increased the price of those imported car accessories for the consumers in Cadmia. Which of the following instruments of trade policy is being used by the government of Cadmia?

A)Local content tariff
B)Ad valorem tariff
C)Subsidies
D)Import quotas
E)Antidumping duties

Question 22

Which of the following is the term for when a lower tariff rate is applied to imports within the quota than those over the quota?

A)Tariff rate quota
B)Voluntary import restraint
C)Import duty
D)Quota rent
E)Import quota

Question 23

Trade barriers encourage firms to disperse their productive activities-design, production, and assembly-to foreign nations.

Question 24

In the Uruguay Round of the WTO, member countries sought to exempt trade in services from GATT rules.

Question 25

A firm may set up production activities in a foreign country, where trade barriers do not currently exist, to reduce the threat of trade barriers being imposed later.

Question 26

Antidumping actions seem to be concentrated in certain sectors of the economy such as basic metal industries (e.g., aluminum and steel), chemicals, plastics, and machinery and electrical equipment.

Question 27

Which of the following groups benefits the most from the imposition of tariffs?

A)Domestic producers
B)Consumers
C)Exporters and importers
D)Foreign producers
E)International bodies such as WTO

Question 28

Which of the following identifies an attribute of tariffs?

A)Tariffs reduce the price of foreign goods for domestic consumers.
B)Tariffs reduce the overall efficiency of the world economy.
C)Tariffs increase exports from a sector.
D)Tariffs increase foreign competition for domestic producers.
E)Tariffs increase efficient utilization of resources.

Question 29

The Smoot-Hawley Act aimed to liberalize trade by eliminating tariffs, subsidies, and import quotas.

Question 30

Pressures for greater protectionism increased around the world during the 1980s and early 1990s due to the strain caused by the persistent trade deficit in the world's largest economy, Japan.

Question 31

Which of the following statements is true about import quotas?

A)Import quotas benefit domestic producers by limiting import competition.
B)Import quotas always lower the prices for domestically produced goods.
C)Higher tariff rates are usually applied to imports within the quota than those over the quota.
D)Import quotas benefit consumers by decreasing the domestic price of an imported good.
E)Import quotas help foreign producers gain a competitive advantage.

Question 32

The country of Argonia imposes an ad valorem tariff of 10 percent on 1 million tons of rice imports, after which an out-of-quota tariff of 80 percent is applied. Which of the following trade policy instruments is Argonia using?

A)Subsidy
B)Tariff rate quota
C)Voluntary export restraint
D)Tariff ceiling
E)Local content requirement

Question 33

Which of the following is a trade policy instrument that the GATT and WTO have been most successful in limiting?

A)Local content requirements
B)Tariffs
C)Subsidies
D)Voluntary export restraints
E)Import quotas

Question 34

One of the reasons for the trend toward greater protectionism was that many countries found ways to get around GATT regulations.

Question 35

Government intervention can be self-defeating because it tends to protect the inefficient rather than help firms become efficient global competitors.

Question 36

Which of the following groups would benefit the most from receiving subsidies?

A)Governments
B)International organizations such as the WTO
C)Domestic producers
D)Importers
E)Foreign competitors

Question 37

Which of the following is most likely to be an objective of export tariffs?

A)Abiding by the rules enforced by the WTO
B)Curbing the competition offered by foreign firms to domestic firms
C)Reducing exports from a sector, often for political reasons
D)Maintaining a positive trade deficit
E)Increasing the flow of capital in the international market

Question 38

The threat of antidumping action enhances the ability of a firm to use aggressive pricing to gain market share in a country.

Question 39

By lowering production costs, subsidies help domestic producers to:

A)gain export markets.
B)meet import quotas.
C)meet voluntary export restraints.
D)meet the local content requirement.
E)compete in the domestic market against local producers.

Question 40

Governments of developed nations are setting an example by unilaterally lowering their trade barriers.

Question 41

Cadmia banned imports of Mattel toys with high levels of toxic lead, manufactured in Argonia. The underlying motive for such a move could be:

A)protecting domestic businesses from unfair pricing.
B)protesting the pricing of toys below their costs of production.
C)protecting consumers from unsafe products.
D)increasing the trade surplus of the United States.
E)reducing dumping of cheap toys.

Question 42

Which of the following statements is true about voluntary export restraints (VERs)?

A)VERs benefit consumers by limiting import competition.
B)VERs reduce the domestic price of an imported good.
C)When imports are limited to a low percentage of the market by a VER, the price is bid up for that limited foreign supply.
D)Foreign producers agree to VERs because they fear economic instability in the world economy.
E)VERs negatively affect domestic producers by increasing import competition.

Question 43

Animax Limited got an order to sell 50,000 central processing units (CPUs) to Palladia, but the Palladian government stipulated that 15 percent of the component parts of those CPUs must be produced in Palladia. This stipulation by the Palladian government would be example of a(n):

A)voluntary export restraint.
B)quota rent.
C)import quota.
D)local content requirement.
E)antidumping policy.

Question 44

If Argonia exports vast quantities of cheap toys to Cadmia, selling them at below their costs of production, it would constitute:

A)monopolism.
B)dumping.
C)offshoring.
D)nearshoring.
E)subsidizing.

Question 45

One of the main reasons why many economists remain critical of the infant industry argument is its reliance on the assumption that:

A)protection of manufacturing from foreign competition is harmful.
B)absolute advantage cannot sustain productivity of an industry.
C)foreign firms too come under the definition of infant industry when they newly enter a foreign market.
D)firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets.
E)foreign competition will eventually cause domestic firms to improve the quality of their products.

Question 46

The extra profit that producers make when supply is artificially limited by an import quota is referred to as a:

A)net profit.
B)quota rent.
C)trade surplus.
D)profit margin.
E)quota share.

Question 47

Many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with well-established industries in developed countries, according to:

A)economic development argument.
B)comparative advantage theory.
C)national security argument.
D)infant industry argument.
E)mixed economy theory.

Question 48

The act that allows Americans to sue foreign firms that use property in Cuba confiscated from them after the 1959 revolution is known as the:

A)Frederick-Peterson Act.
B)D'Amato-Perkins Act.
C)Perkins-Dole Act.
D)Helms-Burton Act.
E)Godfrey-Milliken Act.

Question 49

Why is retaliation by government intervention a risky strategy?

A)It encourages dumping by foreign companies.
B)It could result in increased tariff barriers by the country that is being pressured.
C)It may expose certain industries that are important for national security to foreign competition.
D)It allows firms to sell goods in the foreign market at below their fair market value.
E)It makes it difficult for domestic firms to make any investments by borrowing money from the domestic capital market.

Question 50

Which of the following requires that some specific fraction of a good must be produced domestically?

A)International allocation requirement
B)Local content requirement
C)Specific quota requirement
D)Ad valorem portion requirement
E)Domestic sales requirement

Question 51

Which of the following refers to a quota on trade imposed by the exporting country, typically at the request of the importing country's government?

A)Tariff rate quota
B)Quota rent
C)Voluntary export restraint (VER)
D)Quota share
E)Export embargo

Question 52

Which of the following are bureaucratic rules designed to make it difficult for imports to enter a country?

A)Voluntary export restraints
B)Consumer regulations
C)Subsidies
D)Administrative trade policies
E)Public sector regulations

Question 53

The Palladian government required that all imported products that came from Lovaskiya be checked by Palladian customs inspectors. The inspection was done at a container freight station that was both remote and poorly staffed. This delayed the Lovaskiyan consignment from reaching the consumers in Palladia. The inspection strategy adopted by the customs officers in Palladia is an example of a(n):

A)antidumping policy.
B)voluntary export restraint policy.
C)administrative trade policy.
D)monopolistic competition policy.
E)tariff rent policy.

Question 54

Which of the following specifies that U.S. government agencies must give preference to U.S. products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage?

A)Export Administration Act
B)Helms-Burton Act
C)Hawley-Burton Act
D)Buy America Act
E)Volcker Rule

Question 55

The country of Cadmia, which is a leading producer of bauxite, had to impose trade sanctions on Cerian soda cans in order to get the government of Ceria to enforce export restraints. This imposition by Cadmian government was undertaken to protect domestic producers of soda cans. Which of the following government intervention is being used by Cadmia?

A)Diversification
B)Deregulation
C)Retaliation
D)Liberalization
E)Monopolization

Question 56

Which of the following is considered to be the ultimate objective of antidumping policies?

A)Protecting consumers from high prices
B)Preventing domestic firms from unloading their excess production in domestic markets
C)Protecting domestic producers from unfair foreign competition
D)Protecting consumers from substandard and hazardous products
E)Preventing foreign products from entering domestic market

Question 57

Which of the following is a major reason why many economists remain critical of the infant industry argument?

A)It makes the domestic industry inefficient.
B)It does not provide guaranteed employment for the citizens.
C)It affects the standards of living and per capita income of the people.
D)It promotes foreign direct investment.
E)It leads to reduced prices in domestic markets.

Question 58

Which of the following best indicates the motive for foreign firms to engage in dumping?

A)Unloading excess production in foreign markets
B)Cutting labor costs to reduce the costs of production
C)Providing a wider range of products for consumers in foreign markets
D)Meeting the voluntary export requirements imposed on it
E)Obtaining subsidies from the importing country

Question 59

Dumping involves foreign producers:

A)attempting hostile takeovers of domestic firms and usurping the available resources for production.
B)indiscriminately exploiting the natural resources of a foreign country to create a later demand that can be met only by imports.
C)eliminating competition by subsidizing prices in a foreign market with home market profits and eventually raising prices to earn substantial profits.
D)capturing the niche market rather than the masses.
E)exporting only a small quantity of their products into an importing country.

Question 60

Which of the following is the most common political argument for government intervention in international trade?

A)Decreasing the prices of products in the domestic market
B)Promoting strategic trade policy
C)Protecting jobs and industries from unfair foreign competition
D)Improving efficiency of domestic labor
E)Protecting human rights

Question 61

The economically damaging effects of the Great Depression were worsened in 1929 by the:

A)First World War.
B)U.S. stock market collapse.
C)spread of communism through Europe.
D)Cold War between the world's superpowers.
E)harvest failure in Great Britain and famine in Ireland.

Question 62

Which of the following is true regarding the difference between GATT and WTO?

A)The WTO was encouraged to extend its reach to encompass regulations governing foreign direct investment unlike GATT.
B)WTO operates on the basis of consensus unlike GATT.
C)GATT gives trading partners the right to compensation or, in the last resort, to impose (commensurate) trade sanctions unlike WTO.
D)GATT's verdict is binding unlike that of WTO's.
E)WTO allows member-countries to block adoption of arbitration reports unlike GATT.

Question 63

Which of the following is NOT a constraint on a firm's ability to disperse its productive activities to foreign countries?

A)Tariff barriers raising the costs of exporting products to a country
B)Quotas restricting the quantity of a good that can be imported into a country
C)Local content requirements demanding a specific fraction of domestic production
D)The increasing integration of the world economy
E)Antidumping policies limiting the ability of a firm to use aggressive pricing

Question 64

Which of the following statements is true regarding GATT?

A)GATT attempted to liberalize trade restrictions in one go.
B)In its early years, GATT was unsuccessful and hence was superseded by the World Bank.
C)GATT regulations were mostly enforced by the EU nations rather than by a mutual monitoring mechanism.
D)Tariff reductions through negotiations were completed in three rounds.
E)The last round for tariff reduction, the Uruguay Round, was launched in 1986 and completed in December 1993.

Question 65

Which of the following is a provision of the Uruguay Round Agreement?

A)A wide range of services were to be excluded from GATT fair trade and market access rules.
B)Tariffs on industrial goods were to be raised by more than one-third, and tariffs were to be scrapped on more than 50 percent on a wide range of services.
C)The International Monetary Fund (IMF) was to be created to implement the GATT agreement.
D)Barriers on trade in textiles were to be significantly reduced over 10 years.
E)Average tariff rates imposed by developed nations on manufactured goods were to be raised by 20 percent of the value, the highest level in modern history.

Question 66

The WTO's Agreement on which of the following is an attempt to narrow the gaps in the way intellectual property rights are protected around the world and to bring them under common international rules?

A)Intellectual Property Rights Enforcement Directive (IPRED)
B)Court of Arbitration of Intellectual Property (CAIP)
C)Trade-Related Aspects of Intellectual Property Rights (TRIPS)
D)Intellectual Property Rights Enforcement and Resolution (IPER)
E)International Body on Intellectual Property (IBIP)

Question 67

One of the reasons why protectionist pressures arose around the world during the 1980s was:

A)the different ways many countries found to get around GATT regulations.
B)the opening up of national markets to cheap products from China.
C)the fall of the Soviet Union.
D)the persistent trade lead taken by the United States.
E)the Japanese failure in industries such as automobiles and semiconductors that strained the world trading system.

Question 68

Which of the following is an argument against embracing strategic trade policy?

A)It hampers the chances of a country's firms to effectively exploit the first-mover advantages.
B)It is certain to be captured by special-interest groups within the economy, which will distort it to their own ends.
C)It increases the prices of the products for the domestic consumers.
D)It hampers the abilities of the domestic firms to achieve a dominant position in the global industry.
E)It leads to a compromise in national sovereignty.

Question 69

Which of the following best explains the reason for the rise in protectionist pressures around the world during the 1980s?

A)The strict GATT bureaucracy in Geneva controlling trade regulations
B)The opening up of international markets to cheap products from China
C)The fall of the Soviet Union
D)The persistent trade deficit in the world's largest economy, the United States
E)The economic failure of Japan which hampered the global economy

Question 70

The Smoot-Hawley Act had a damaging effect on:

A)the balance-of-payment of the United States.
B)cash flow in the domestic economy of the United States.
C)prices of natural resources in the United States.
D)employment abroad.
E)accrued liabilities of the United States.

Question 71

Why did telecommunications companies welcome the telecommunication deal brokered by WTO in 1997?

A)It enhanced protection of patents, copyrights, and trademarks (intellectual property).
B)It helped resolve deadlock situations arising out of the unwillingness to lower trade barriers between neighboring countries.
C)It offered a greater ability for companies to offer a global, seamless service for all their corporate needs.
D)It liberalized trade policies by eliminating tariffs, subsidies, import quotas, antidumping duties, and local content requirements.
E)It reduced the export of pirated imitations of patented innovations pioneered in a different country.

Question 72

The WTO was encouraged to extend its reach to encompass regulations governing foreign direct investment, something the GATT had never done. Two of the first industries targeted for this reform were:

A)global telecommunication and financial services industries.
B)scientific research and defense sector.
C)pharmaceuticals and heavy metal industry.
D)pharmaceuticals and biotechnology.
E)scientific research and global telecommunication.

Question 73

Which of the following indicates the difference between GATT and WTO?

A)WTO has strict time limits unlike GATT.
B)WTO operates on the basis of consensus unlike GATT.
C)GATT gives trading partners the right to compensation or, in the last resort, to impose (commensurate) trade sanctions unlike WTO.
D)GATT's verdict is binding unlike that of WTO's.
E)WTO allows member-countries to block adoption of arbitration reports unlike GATT.

Question 74

According to Paul Krugman, a country that attempts to use strategic trade policy to establish a domestic firm in a dominant position in a global industry, is most likely to:

A)dominate the industry.
B)move away from protectionism.
C)provoke retaliation.
D)incur huge financial debts.
E)upset the special-interest groups within the economy.

Question 75

Which of the following multilateral agreements was established under U.S. leadership in 1947, with the objective to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like?

A)General Agreement of Tariffs and Trade (GATT)
B)North American Free Trade Agreement (NAFTA)
C)Central American Free Trade Agreement (CAFTA)
D)Free Trade Areas of the Americas (FTAA)
E)North Atlantic Treaty Organization (NATO)

Question 76

Bilateral voluntary export restraints, or VERs, circumvented GATT agreements, because:

A)these nations withdrew their membership to the GATT.
B)the member nations had ceased to recognize GATT as a regulatory body for international trade.
C)VERs were not a recognized trade barrier under the GATT constitution.
D)neither the importing country nor the exporting country complained to the GATT bureaucracy for it to take action.
E)member nations erected a wall of tariff barriers.

Question 77

The United States accused Libya and Iran of supporting terrorist action and building weapons of mass destruction. The U.S. government, therefore, imposed trade sanctions against the two countries. Which of the following political arguments does this exemplify?

A)Retaliation and trade war
B)Furthering foreign policy objectives
C)Strategic trade policy
D)Corporate security
E)Protecting infant industries

Question 78

According to Krugman, which of the following best indicates the dangers of a strategic trade policy?

A)Decrease in subsidies
B)Decrease in protectionism
C)Occurrence of a trade war
D)Huge financial debts for the countries involved
E)Occurrence of a global recession

Question 79

According to Krugman, the ideal way for a country to respond, when the foreign competitors of its companies are already being supported by government subsidies, is probably not to engage in retaliatory action, but to:

A)help establish rules that minimize the use of trade-distorting subsidies.
B)adopt the strategic trade policy as a way to establish domestic firms in a dominant position in the global industry.
C)provide a subsidy to a new industry where the foreign competitors have not had the benefit of such strategic trade policies.
D)use a combination of home-market protection and export-promoting subsidies.
E)provide high levels of subsidies to the oldest industry in the country.

Question 80

A government should use subsidies to support promising firms that are active in newly emerging industries, according to:

A)strategic trade policy.
B)public policy.
C)absolute advantage.
D)product life-cycle.
E)industrialization.