Deck 12: The Political Economy of International Trade,finance, and Regional Integration

Question 1

According to classical trade theory, a country will export an item

A) in which it has a comparative advantage in producing.
B) even if there is no demand for it in other countries.
C) at levels exceeding its productive capacity, if the price is right.
D) assuming there is no demand for it domestically.

Answer 1

in which it has a comparative advantage in producing.

Question 2

Who of the following did not argue that the value of what is produced is a function of the labor put into its production?

A) Karl Marx
B) Adam Smith
C) John Maynard Keynes
D) David Ricardo

Answer 2

John Maynard Keynes

Question 3

That countries tend to export products in which their combination of production factors gives them a comparative advantage is

A) the Heckscher-Ohlin theorem that relates to the amount and quality of land, labor, and capital a country has to production choices.
B) the basis for transfer payments within multinational corporations.
C) the reason we use money in trade rather than barter.
D) why countries avoid specialization in the production of goods and services.

Answer 3

the Heckscher-Ohlin theorem that relates to the amount and quality of land, labor, and capital a country has to production choices.

Question 4

The average Third World country is most likely to have an economy dominated by

A) agriculture.
B) manufacturing.
C) banking and finance.
D) service industries.

Question 5

The balance of trade

A) is unrelated to the balance of payments.
B) is equal to the value of exports minus the value of imports.
C) always has been positive for the United States since the end of World War II.
D) is a concept that became relevant only in the latter half of the twentieth century.

Question 6

The idea of a tradeoff is best captured by the term

A) opportunity cost.
B) barter.
C) marginality.
D) factors of production.

Question 7

Examples of commodities are

A) manufactured goods.
B) factor endowments.
C) free trade.
D) minerals or agricultural products.

Question 8

This country or region has granted the most extensive set of trade preferences to African, Caribbean, and Pacific (ACP) countries-many of them former colonies

A) the United States.
B) Japan.
C) China.
D) European Union countries.

Question 9

For neoclassical economists, this is the LEAST important factor in determining the value of a good

A) its supply.
B) the demand for it.
C) its marginal utility.
D) the amount of labor required to produce it.

Question 10

Macroeconomics deals with understanding

A) how purchasers and suppliers interact in the marketplace.
B) the functioning of the economy as a whole.
C) price theory.
D) elasticity of supply and demand.

Question 11

Who of the following was an intellectual light in what was to become neoclassical economic theory?

A) Adam Smith
B) David Ricardo
C) Joseph Schumpeter
D) Alfred Marshall

Question 12

John Maynard Keynes

A) focused on microeconomics.
B) did his most important work in the late nineteenth century.
C) discounted macroeconomic theory as largely irrelevant to national concerns.
D) thought that government taxing and spending could significantly affect the economy.

Question 13

Regarding exchange rates, it is true that

A) the United States and Japan have established a fixed rate of exchange for their two currencies.
B) increased demand for a currency, coupled with decreased demand for another currency, will cause the first currency to appreciate in value relative to the second currency.
C) there have been no significant regional attempts to coordinate exchange rates.
D) all currencies are convertible to gold.

Question 14

High price-elasticity of demand

A) can lead to a loss in total revenue when prices are increased.
B) is most pronounced for oil.
C) does not have an appreciable effect on demand.
D) was first addressed by Adam Smith.

Question 15

In the mid-1980s, U.S. monetary authorities

A) thought the value of the dollar was too low.
B) refused to work with their counterparts in other countries.
C) sought to reduce the value of the dollar in order to promote exports.
D) decided on using fast food as the indicator of purchasing -power parity.

Question 16

In 1900 this country had the most important worldwide currency

A) United States.
B) United Kingdom.
C) France.
D) Germany.

Question 17

Currency-exchange controls were implemented in the 1930s for all of the following reasons EXCEPT

A) countries wanted to encourage imports and reduce exports.
B) Britain was no longer able to serve as the world?s central bank.
C) the United States was unwilling to serve as the world?s central bank.
D) countries sought to bolster their domestic economies.

Question 18

In order to promote domestic industries in the 1930s, countries

A) formed the World Trade Organization.
B) agreed to have the League of Nations create a World Bank.
C) reduced or eliminated tariffs.
D) devalued their currencies.

Question 19

Exchange rates began floating in the early 1970s because

A) the United States resumed pegging the value of the dollar to gold.
B) the United States had a trade imbalance and then unpegged the dollar from gold.
C) the European Community decided such a move was in its interests.
D) the Third World was gaining too large a share of First World markets.

Question 20

The International Monetary Fund (IMF)

A) is also known as the Bank for International Settlements.
B) was formed in the mid-1950s.
C) is primarily involved with financing trade.
D) is a part of the U.S. government.

Question 21

Which of the following is NOT a hard currency?

A) Euro
B) British pound
C) U.S. dollar
D) Japanese yen
E) Indian rupee

Question 22

This is the most powerful member with the largest number of votes to cast in the International Monetary Fund (IMF)-an effective veto

A) United States.
B) China.
C) United Kingdom.
D) Japan.

Question 23

Other things being equal, if interest rates go up in a country, all of the following will tend to happen in its domestic economy EXCEPT

A) decreased exchange value of the country?s currency.
B) dampening of economy.
C) increased fiscal cost of servicing national debt.
D) stimulation of imports.

Question 24

Other things being equal, if interest rates go down in a country, all of the following will tend to happen in its domestic economy EXCEPT

A) possible inflation.
B) decrease the cost of servicing the national debt.
C) decrease of exports.
D) stimulation of the domestic economy.

Question 25

Most International Monetary Fund (IMF) loans to less -developed countries

A) are used for social welfare programs for the lower socioeconomic classes.
B) have generally lower interest rates than those in global markets.
C) don?t have any conditions put upon them.
D) are financed primarily by other less-developed countries.

Question 26

The General Agreement on Tariffs and Trade (GATT)

A) was not formed until the early 1960s.
B) achieved its results through international conferences known as rounds.
C) was initially known as the International Trade Organization.
D) was dominated by less-developed countries.

Question 27

The World Trade Organization (WTO)

A) has fewer than 50 members.
B) was reorganized in the mid-1990s to become the General Arrangement on Tariffs and Trade (GATT).
C) is permanently headquartered in Seattle.
D) deals with conflicts among its members on tariffs, quotas, unfair subsidies, and other trade matters.

Question 28

China

A) likely will disintegrate into several new countries within the next decade.
B) likely will import substantially more goods than it exports in the next five years, thus reversing its trade surplus-its positive trade balance.
C) has been quite willing to use force and repression against internal opponents.
D) will soon fade as a military threat, according to most realists.

Question 29

Of the following, which has NOT been achieved by the European Union?

A) full political union
B) customs union
C) common market
D) economic and monetary union

Question 30

Interdependence

A) increases the possibility of integration, but by no means assures this outcome.
B) has decreased since the end of the Cold War and likely will continue to do so.
C) tends to be viewed positively by realists as a contribution to national security.
D) tends to be viewed negatively by pluralists or liberals who see little if any value in it.

Question 31

Trade would almost certainly diminish if all countries could produce the same goods with the same efficiency.

Question 32

Capital-intensive agriculture in the First World can rarely compete internationally with the agriculture of Third World countries since the latter have very low labor costs.

Question 33

So far the countries of the First World have been generally unwilling to grant trade preferences to Third World countries.

Question 34

The law of supply and demand affects currency exchange rates.

Question 35

Other things being equal, when the American dollar is overvalued, it benefits the domestic American economic production of goods and services.

Question 36

The 1950s were a better time for international trade than were the 1930s.

Question 37

A country needs the approval of the International Monetary Fund (IMF) before it can borrow using its Special Drawing Rights (SDRs).

Question 38

Over time, the lending resources of the International Monetary Fund (IMF) have expanded.

Question 39

Since the end of the 1990s the United States took many measures to curtail its trade with China.

Question 40

The addition of new members to the European Union greatly accelerated the deepening of integration among all its members.

Question 41

What conditions are necessary for nations to trade with each other? What are the various factors that affect what products are produced in what amounts, and by whom? Assume classical Ricardian thinking and use examples where appropriate.

Question 42

Write the equation for balance of payments, and then discuss the various factors that affect each of the terms on the right side of the equation.

Question 43

Trace the important developments in economic thought from the early nineteenth century to the present to include theories of value and comparative advantage found in classical and neoclassical economic understandings. Discuss the economic and political implications of these differing perspectives.

Question 44

How do exchange rates affect international trade? Why would a country want to manipulate the value of its currency either up or down, i.e., let its currency appreciate or depreciate in relation to other currencies? Assess the political implications of these alternative courses of action.

Question 45

Write a story involving an advanced industrial country and a lesser developed country that illustrates your understanding of trade and comparative advantage and the politics of international commerce between rich and poor countries.

Question 46

Write an essay on the International Monetary Fund (IMF) in which you examine the conditions that led to its creation, its major purposes, how it functions, and political controversies that surround its practices.

Question 47

What is purchasing-power parity and how does it relate to exchange rates-when currencies are either overvalued or undervalued in relation to other currencies? How do national policies affect exchange rates or are such matters always left to the market?

Question 48

Assume the value of U.S. currency fell dramatically. What would be the economic ramifications for consumers, producers of goods in the United States meant for export, and exporters of goods from foreign countries to the United States? What are the political implications of such outcomes?

Question 49

Describe the likely domestic and external effects and political implications of an increase in interest rates in a country. By contrast, what are the likely domestic and external effects and political implications of a decrease in interest rates? Why are the effects you predict likely to occur?

Question 50

Describe and analyze the process, problems and achievements of European integration as embodied in the European Union (EU). What does the future hold for the EU? Can it be both wider and deeper? If so, how? If not, why not?