Deck 2: The Global Economy

Question 1

Portfolio investments are long-term ownership interests,such as business capital outlays in foreign subsidiaries,in which the purchaser holds complete management control.

Answer 1

False

Question 2

Exporters often are happy when their home currency appreciates against the currency of the market they sell to because buyers in that market can afford to buy more of their exports.

Answer 2

False

Question 3

Finance ministers and central bank governors from the United States,Japan,Germany,France,Britain,Italy,and Canada are members of the Group of Seven (G7).

Answer 3

True

Question 4

Increased tariffs are a way to ensure that imports will increase in price.

Question 5

The World Bank acts as an intermediary between private equity funds and developed countries.

Question 6

Supply and demand determines the exchange rates for "free floating currencies."

Question 7

The volume of international trade has been steadily decreasing over the last few decades.

Question 8

Today the exchange rate for all currencies is determined by supply and demand.

Question 9

A change in the value of the U.S.dollar exchange rate from 1.1 euros to 1.2 euros is an appreciation of the U.S.dollar against the euro.

Question 10

The International Monetary Fund was originally established by the U.S.government to assist U.S.multinational corporations to expand to Europe after World War II.

Question 11

An accounting record of the transactions between the residents of one country and the residents of the rest of the world over a given period of time is called balance of transactions.

Question 12

High inflation rates can cause a currency to appreciate.

Question 13

Comparative advantage illustrates that relative rather than absolute differences in productivity can form a determining basis for international trade.

Question 14

The main purpose of central banks is to trade currency and make large profits for the country.

Question 15

Tariffs are a means to encourage imports.

Question 16

Comparative advantage measures a product's cost of production in monetary terms.

Question 17

An average Italian worker produces 500 shirts per year or 1,000 bottles of perfume per year and an average Spanish worker produces 300 shirts per year or 1,500 bottles of perfume per year.The Italian worker has an absolute advantage over the Spanish worker in the production of perfume.

Question 18

Tariffs are imposed to protect local industries and to generate revenue for the government.

Question 19

Outflows of funds involves both goods and services.

Question 20

Adam Smith's theory of specializing in what you are best at producing is known as absolute advantage.

Question 21

Most favored nation (MFN)status occurs when two countries agree bilaterally to give each other preferred trading rights.

Question 22

Nearly all WTO members belong to at least one regional trading pact.

Question 23

As a member of NAFTA,Mexico must coordinate its domestic tax rate with Canada and United States.

Question 24

Quotas are taxes on imported goods.

Question 25

In customs unions,a supranational policymaking committee decides common tariffs for member countries.

Question 26

If Spanish workers can produce 100 cars or 50 elevators and a Russian worker can produce 60 cars or 20 elevators,the theory of comparative advantage would suggest that

A)Russia and Spain will not trade in cars or elevators.
B)Russia should trade elevators for cars made in Spain.
C)Spain should trade elevators for cars made in Russia.
D)None of the above.

Question 27

The absolute advantage of a nation refers to

A)being strategically located near large markets.
B)producing and selling what it is best at.
C)producing and selling profitably even if competitors are better.
D)All of the above.

Question 28

Quotas on imported goods help consumers by increasing their choices and lowering prices.

Question 29

Custom unions possess the characteristics of free trade areas but with the added feature of a common external/tariff barrier for member countries.

Question 30

Replacing tariffs with nontariff barriers was one of the objectives of GATT.

Question 31

Voluntary export restrictions are explicit agreements between countries to limit foreign export sales.

Question 32

NAFTA is an example of a customs union.

Question 33

The European Union is an example of a monetary union.

Question 34

Quotas are a means to encourage exports.

Question 35

China never joined the WTO because it wanted to remain a communist country.

Question 36

Free-trade areas possess the characteristics of custom unions but with the added feature of a common currency.

Question 37

Mercosur is a free trade agreement between Central American countries and Mexico.

Question 38

High environmental standards for emissions from cars set by the European authorities are an example of a possible nontariff barrier.

Question 39

Currency fluctuations can cause marketers to leave a foreign market.The European Union is an example of a monetary union.

Question 40

Most favored nation status was outlawed under GATT.

Question 41

Which is constitutionally prohibited in the United States?

A)Orderly marketing arrangements
B)Export tariffs
C)Import tariffs
D)Nontariff barriers

Question 42

The theory of ____ focuses on the importance of country factors such as domestic demand and domestic rivalry in explaining a nation's dominance in the production and export of particular products.

A)new trade
B)absolute advantage
C)comparative advantage
D)competitive advantage

Question 43

An accounting record of the transactions between the residents of one country and the residents of the rest of the world is called the

A)international transactions record.
B)balance of payments.
C)global trade account.
D)foreign accounts record.

Question 44

The focus of IMF activities has shifted from exchange rate relations among industrialized countries to ____.

A)the prevention of economic instability in developing countries.
B)reducing quota and tariff barriers in developed countries.
C)promoting exports from former Soviet Union states.
D)promoting investment into sub-Saharan Africa.

Question 45

Quotas are

A)taxes on imported goods.
B)taxes on exported goods.
C)subsidies for exported goods.
D)physical limits on the amount of goods that can be imported into a country.

Question 46

The World Bank acts as an intermediary between

A)developed and developing countries.
B)private capital markets and developing nations.
C)the WTO and developing nations.
D)private capital markets and developed nations.

Question 47

Another name for the World Bank is ____.

A)World Trade Organization.
B)International Bank for Reconstruction and Development.
C)International Monetary Fund.
D)Group of Seven.

Question 48

Which of the following is not a principal part of the balance of payments statement?

A)Current account
B)Official transactions account
C)Savings account
D)Capital account

Question 49

Transactions in which domestic residents purchase assets from abroad are considered

A)inflows of funds.
B)outflows of funds.
C)asset depreciation.
D)asset appreciation.

Question 50

The strengthening of the U.S.dollar against the Japanese yen has a negative effect on

A)U.S.exporters.
B)U.S.importers.
C)Japanese exporters.
D)German exporters.

Question 51

A tax levied on imports is known as a ____.

A)Quota.
B)Voluntary export restriction.
C)Nontarrif barrier.
D)Tariff.

Question 52

The main objective behind imposing tariffs on imported goods is to

A)improve trade relations with other nations.
B)generate foreign exchange.
C)protect local industries.
D)control inflation rates.

Question 53

A good example of a country that enjoys a competitive advantage in digital products is

A)Spain.
B)South Korea.
C)Russia.
D)Poland.

Question 54

The ratio that measures the value of one currency in terms of another is called the

A)currency ratio.
B)exchange ratio.
C)exchange rate.
D)balance of payments.

Question 55

Which country is most likely to have a soft currency?

A)United States
B)France
C)Japan
D)Chad

Question 56

For a free floating currency,the exchange rate is affected by

A)the forces of supply and demand.
B)WTO regulations.
C)the IMF that determines exchange rates.
D)None of the above.

Question 57

A stock purchase in a foreign company that entailed substantial control over that foreign company would be designated a

A)portfolio investment.
B)direct investment.
C)remittance.
D)unilateral transfer.

Question 58

A country will have significant impact on the competitive advantage of an industry depending on the

A)elements of production in the country.
B)nature of domestic demand.
C)presence of appropriate supplier or related industries.
D)All of the above.

Question 59

GATT was a

A)custom union.
B)free-trade association.
C)monetary union.
D)None of the above.

Question 60

Unilateral transfers may include which of the following?

A)Royalties
B)Payments for services
C)Payments for imports
D)Remittances

Question 61

Russia's Treasury bills,certificates of deposit,and foreign exchange reserves would be included in the ____ account.

A)capital
B)current
C)portfolio
D)longevity

Question 62

A group of nations that agrees to drop trade barriers but permits members to maintain independent trade relations with non-group nations,is called

A)a customs union.
B)a common market.
C)a free-trade area.
D)monetary unions.

Question 63

Country X specializes in producing the goods it produces most efficiently,and Country Y buys the products it produces less efficiently from other countries,even if it could produce the good more efficiently itself.The behavior of these countries can be explained by ____ advantage theory.

A)complete
B)probable
C)comparative
D)absolute

Question 64

The average Vietnamese worker can produce either 200 machines or 800 tons of tomatoes each year,whereas the average German worker can produce either 500 machines or 1,000 tons of tomatoes.Germany has a(n)____ advantage in both machines and tomatoes.

A)absolute
B)complete
C)pseudo
D)comparative

Question 65

In the Japanese skincare industry,there are several strong local competitors,like Shiseido.When it comes to skincare products,Japanese consumers are some of the most sophisticated,knowledgeable,and demanding.There are cutting-edge research and development facilities and supplier companies geared toward the skincare industry in Japan.Japan has a(n)____ advantage in skincare products.

A)absolute
B)comparative
C)competitive
D)leontif

Question 66

The General Agreement on Tariffs and Trade was the precursor to

A)the IMF.
B)the European Union.
C)the WTO.
D)NAFTA.

Question 67

One of the challenges faced by the WTO is

A)movement towards a global currency.
B)the spread of regional trade agreements.
C)controlling inflation in developing countries.
D)None of the above.

Question 68

India's exports of telecommunications services and imports of management consulting services would be included in the ____ part of India's current account.

A)merchandise account
B)payment flow
C)service account
D)unilateral transfers

Question 69

The Battle of Seattle involved

A)the U.S.-E.U dispute over ''Frankenstein food."
B)the U.S.-Canada dispute over pharmaceutical prices.
C)protests against NAFTA.
D)protests against the WTO.

Question 70

Which was not a founding principal of GATT?

A)Reciprocity
B)Transparency
C)Orderly marketing arrangements
D)Nondiscrimination

Question 71

An American mutual fund purchases German government bonds.This is an example of ____ and it would be included in Germany's ____.

A)foreign direct investment;capital account
B)foreign direct investment;current account
C)portfolio investment;capital account
D)portfolio investment;current account

Question 72

The average worker in Ghana can produce either 500 tons of rice or 4,000 tons of cocoa in one year.Over the same time period,the average South Korean worker can produce either 3,000 tons of rice or 150 tons of cocoa.In terms of cocoa production,Ghana has a(n)____ advantage relative to South Korea

A)complete
B)probable
C)absolute
D)comparative

Question 73

Transparency refers to

A)the free trade of goods and services.
B)reciprocity in trade agreements.
C)when trade restrictions are overt.
D)when trade restrictions are limited to nontariff barriers.

Question 74

Common markets

A)have all the characteristics of customs unions plus free flow of resources between members.
B)have all the characteristics of free-trade regions and free flow of resources between members.
C)export and import from the same countries.
D)have the same currency.

Question 75

The final act of GATT was to

A)replace itself with the World Trade Organization.
B)establish the IMF and the World Bank.
C)replace itself with NAFTA.
D)establish the European Monetary Union.

Question 76

Remittances from Mexicans working abroad,philanthropic donations to Mexican charities,and aid money donated by foreign countries would be included in the ____ part of Mexico's current account.

A)merchandise account
B)payment flow
C)service account
D)unilateral transfers

Question 77

A substantial proportion of India's ____ consists of information technology consulting,customer service,financial,and telecommunication services and remittances from Indians living abroad.

A)invisible exports
B)portfolio exports
C)foreign direct imports
D)unilateral imports

Question 78

Egypt's exports of cotton and imports of computers would be included in the ____ part of Egypt's current account.

A)merchandise account
B)payment flow
C)services category
D)unilateral transfers

Question 79

Transparency was a founding principle of

A)OPIC.
B)GATT.
C)EuroDisney.
D)the United States.

Question 80

A Canadian company acquires 100 percent ownership of a Mexican company through a stock purchase.This is an example of ____ and it would be included in Mexico's ____.

A)foreign direct investment;capital account
B)foreign direct investment;current account
C)portfolio investment;capital account
D)portfolio investment;current account