Deck 6: The Firm in the World Economy

Question 1

The literature on firms in international trade is referred to as:

A) industrial organization.
B) autonomous trade.
C) value added trade.
D) industry specific trade.
E) firm heterogeneity.

Answer 1

firm heterogeneity.

Question 2

Research on the firm in international trade began in the:

A) 1970s.
B) 1980s.
C) 1990s.
D) 2000s.
E) 2007.

Answer 2

1990s.

Question 3

The highest percentage of firms that export in any industry in the U.S. is:

A) 5.
B) 10.
C) 15
D) 17
E) None of the above

Answer 3

None of the above

Question 4

On average, the percentage of exporting firms in a U.S. industry is:

A) 9.
B) 14.
C) 18.
D) 22.
E) 27.

Question 5

Exporting firms are:

A) large.
B) more productive.
C) primarily engaged in servicing the domestic market.
D) all of the above
E) none of the above

Question 6

The ability to mix capital and labor to produce output is known as:

A) unit labor cost.
B) marginal productivity.
C) TFP.
D) K/L.
E) None of the above

Question 7

Firms with low TFP:

A) tend to export.
B) tend to not produce for the domestic market.
C) tend to export
D) tend to have high profits.
E) None of the above

Question 8

A classic example of exporting SMEs is the:

A) German mittelstand.
B) the German automobile industry.
C) the German beer industry.
D) All of the above
E) None of the above

Question 9

Value added trade is related to:

A) TFP.
B) K/L
C) global value chains.
D) trade barriers.
E) culture.

Question 10

.The shipment of a commodity to another country for further processing can be linked to the idea of a value chain as a _____.

A) spider.
B) value line.
C) transportation link.
D) spider
E) None of the above

Question 11

Car manufacturing is an example of a _____ type of value chain.

A) snake
B) commodity
C) short
D) spider
E) processing.

Question 12

Sales by foreign affiliates in the world economy are approximately:

A) $1.3 trillion.
B) $7.0 trillion.
C) $10 trillion.
D) $22 trillion.
E) $32.5 trillion.

Question 13

Which of the following are reasons for multinational corporations to pursue foreign direct investment?

A) tariffs and foreign government laws
B) high returns and foreign government laws
C) product differentiation and exchange rates
D) high returns and tariffs
E) advanced transportation and communications.

Question 14

Which of the following is not part of the OLI framework for analyzing why MNCs exist?

A) Ownership of Intangible Assets
B) Wholly Owned Subsidiaries
C) Internalization
D) Locational Advantages
E) None of the above

Question 15

Which of the following is not a reason for a firm to be a MNC?

A) Ownership of intangible assets
B) Locational advantages
C) Vertical integration
D) Operational integration
E) None of the above

Question 16

If a firm owns an extremely valuable intangible asset then the most sensible form in which it would become a multinational would be:

A) a joint venture where it owns 49 percent of the joint venture.
B) a licensing agreement.
C) a wholly owned subsidiary.
D) to sell its products through the World Bank.
E) None of the above.

Question 17

If a MNC owns a valuable intangible asset, then the preferred form of FDI would likely be:

A) a wholly owned subsidiary.
B) a licensing agreement.
C) a joint venture where the foreign firm owns 51 percent.
D) a joint venture where the foreign firm owns 50 percent.
E) a binding agreement.

Question 18

Which statement concerning the OLI approach is not true?

A) O denotes ownership of an important asset.
B) L denotes a locational advantage.
C) I denotes international economies of scale.
D) I denotes internalization.
E) I denotes industrialization.

Question 19

Coca-Cola has chosen to be a multinational firm because:

A) there is not enough sugar available in the U.S.
B) it is a vertically integrated firm.
C) it wanted to take advantage of cheaper foreign labor.
D) it owns a valuable intangible asset.
E) taxes in the U.S. are too high.

Question 20

O in the OLI approach refers to:

A) overseas.
B) organization.
C) ownership.
D) officers.
E) optimization.

Question 21

L in the OLI approach refers to:

A) labor.
B) location.
C) leverage.
D) liability.
E) learning curve.

Question 22

I in the OLI approach refers to:

A) intraindustry trade.
B) interindustry trade.
C) internalization.
D) internationalization.
E) industrialization.

Question 23

The movement of some of the production process to other countries is known as:

A) FDI.
B) labor transfers.
C) capital transfers.
D) ownership transfers.
E) offshoring.

Question 24

The movement of part of the production process to obtain lower wages would be an example of:

A) internalization.
B) location.
C) ownership.
D) vertical FDI.
E) horizontal FDI.

Question 25

Most of the FDI in the world occurs among:

A) low-income countries.
B) middle-income countries.
C) high-income countries.
D) Asian countries.
E) Latin American countries.

Question 26

National treatment:

A) means that domestic firms are taxed at a lower rate than foreign firms.
B) means that foreign firms are taxed at a lower rate than domestic firms.
C) is more prevalent in developing countries than in OECD countries.
D) means that foreign firms and domestic firms are both treated the same way.
E) means that local taxes are lower than taxes on MNCs.

Question 27

Which of the following statements would best capture the essence of the term national treatment?

A) We will treat your firms the way that you treat our firms.
B) We will treat your firms the way we treat our domestic firms.
C) We will extend most favored nation status to all countries.
D) We will use reciprocity in the treatment of each other's firms.
E) We will not allow foreign firms to operate locally.

Question 28

The treatment of foreign investors as if they were domestic investors is known as:

A) intraindustry regulation.
B) Linder regulation.
C) national treatment.
D) offhand treatment.
E) consistent treatment.

Question 29

The regulation of MNCs that is the preferred form of regulation is known as:

A) transfer pricing.
B) internalization.
C) nonpreferential tax subsidization liability.
D) national treatment.
E) preferential treatment.

Question 30

Which of the following is not a common restriction on the activities of MNCs?

A) ownership restrictions
B) export requirements
C) local-content requirements
D) national treatment
E) None of the above.

Question 31

The phenomenon of changing internal prices in a firm in order to minimize the firm's global tax liability is known as:

A) internalization.
B) national treatment.
C) transfer pricing.
D) export of tax requirements.
E) global tax treatment.

Question 32

Transfer pricing refers to:

A) risk diversification.
B) the pricing of the technology transferred to the host country.
C) the artificial overpricing of inputs shipped to a foreign subsidiary in a higher tax country.
D) the pricing of a multinational stock on the NYSE.
E) international price discrimination.

Question 33

Suppose that the corporate income tax rate is 60 percent in Germany and 35 percent in the U.S. If a German firm had a wholly owned subsidiary in the U.S., then which of the following statements would be true?

A) The firm would charge the American subsidiary high prices on anything purchased from the parent firm in Germany.
B) The firm would charge the American subsidiary as low a price as it could justify to the German tax authorities.
C) The firm would never sell anything to the American subsidiary because of tax complications involved in these types of transactions.
D) The firm would allocate as much as possible of the firm's activities such as research and development to the American subsidiary.
E) None of the above

Question 34

Suppose that the corporate tax rate is 10 percent in the U.S. and 40 percent in Canada. Which of the following statements would be true?

A) Canadian firms with U.S. subsidiaries would tend to try to increase corporate profits in Canada.
B) A firm headquartered in Canada would tend to charge a U.S. subsidiary low prices for any goods and services sold to it.
C) A U.S. subsidiary of a Canadian firm would try not to show a profit.
D) Canadian firms would try to charge their U.S. subsidiaries as high a price as possible for any goods or services they sell to them.
E) None of the above.

Question 35

At the firm level, a proxy for the quality of management is:

A) the ability to pay low wages.
B) a low K/L ratio.
C) high TFP.
D) all of the above.
E) none of the above.

Question 36

XYZ is a multinational firm operating in the U.S. and Mexico. The tax on firm profits in Mexico is 76% and the U.S. taxes profits at 39%. Rather than declare all of the firm's profits in Mexico, XYZ's accountants suggest that they raise the price of the inputs and effectively lower the profits of the Mexican subsidiary. The accountants are promoting what practice?

A) national treatment
B) fuzzy accounting
C) transfer pricing
D) localization
E) tax transfers

Question 37

Among manufacturing firms, approximately_____ percent are exporters.

A) 5
B) 12
C) 20
D) 33
E) 42

Question 38

The process of shifting profits among countries using intrafirm prices is known as:

A) tax evasion.
B) money laundering.
C) transfer pricing.
D) ad valorem pricing.
E) none of the above.

Question 39

Until recently, economists had very little information on the characteristics of firms engaging in international trade.

Question 40

Research on the firm in international trade began in the 1980s.

Question 41

Exporters constitute a majority of firms in most countries.

Question 42

The highest percentage of firms exporting in any U.S. industry is 38.

Question 43

Firms in industries vary widely in productivity levels.

Question 44

Exporting firms are substantially larger than firms that do not export.

Question 45

Firms with high TFP tend not to enter new markets.

Question 46

As TFP rises, profits tend to fall.

Question 47

Economies of scales means that average costs decline as output expands.

Question 48

SMEs do not export.

Question 49

The production of cars is an example of a global value chain.

Question 50

Many electronic products are produced in a global value chain.

Question 51

Global value chains negate the concept of comparative advantage.

Question 52

The existence of global value chains may enhance the traditional gains from trade.

Question 53

Multinational corporations are defined as firms that export to ten or more foreign countries.

Question 54

A licensing agreement between a multinational corporation and a foreign firm may give the foreign firm access to new technology.

Question 55

A vertically integrated firm would almost never be a MNC because the organizational costs of going overseas are simply too high.

Question 56

The acronym for John Dunning's explanation of the existence of MNCs is OLI.

Question 57

The ownership of a valuable intangible asset has nothing to do with FDI.

Question 58

MNCs never internalize any operation that could theoretically be delegated to an outside firm.

Question 59

Offshoring is the movement of some of the production process to other countries.

Question 60

Low hourly wages guarantee low production costs.

Question 61

The movement of production to low-wage countries is the major reason for job losses in manufacturing in the U.S.

Question 62

Multinational corporations engaged in selling a differentiated product may find it more efficient to set up production facilities abroad to serve foreign markets.

Question 63

A multinational corporation that has separated production into several distinct stages is horizontally integrated.

Question 64

Transfer pricing is the practice by MNCs of changing internal prices in order to minimize the firm's global tax liabilities.

Question 65

Describe the term firm heterogeneity.

Question 66

How does a firm decide to enter an industry?

Question 67

Draw a graph and explain the relationship between TFP and the profits of the firm.

Question 68

Describe the difference between a snake and a spider type of global value chain.

Question 69

Why do MNCs exist?

Question 70

Describe the OLI approach to FDI.

Question 71

What is the difference between vertical and horizontal FDI?

Question 72

Describe the costs and benefits of offshoring.

Question 73

What are some of the restrictions on the activities of MNCs in foreign countries?

Question 74

Describe transfer pricing.

Question 75

Describe the OLI approach to the existence of MNCs.