Deck 2: International Trade and Foreign Direct Investment

Question 1

The magnitude of international trade and how it has grown are reflected in the fact that one-fourth of everything grown or made in the world is now exported.

Answer 1

True

Question 2

The first formulation of international trade theory, by Adam Smith, was motivated by political considerations.

Answer 2

True

Question 3

Importing and foreign direct investment are two approaches to meeting overseas demand.

Answer 3

False

Question 4

International firms must export their products or services in order to establish and expand their overseas operations.

Question 5

The dollar value of total world exports in 2010 was greater than the gross national product of every nation in the world except China.

Question 6

International trade includes exports, imports, and foreign direct investment.

Question 7

The proportion of merchandise exports coming from Latin America and the Middle East decreased between 1980 and 2010.

Question 8

The development of expanded regional trade agreements, such as the Association of Southeast Asian Nations, Mercosur, and the EU, can substantially alter the level and proportion of trade flows within and across regions.

Question 9

Both developed nations and developing nations tend to trade more with developed nations.

Question 10

In 2009, the top 10 exporting and importing nations collectively accounted for over half of all exports and imports of merchandise and services worldwide.

Question 11

Arguments in support of mercantilism largely disappeared after the end of the mercantilist era in the late 1700s.

Question 12

Small and medium-sized enterprises accounted for nearly one-third of all U.S. exporters.

Question 13

Approximately 70 percent of the exports from developed countries go to developed countries.

Question 14

The proportion of merchandise exports coming from Asia increased by over 90 percent between 1980 and 2010, with China accounting for nearly two-thirds of that increase.

Question 15

China, Mexico, and Japan are the three largest trading partners of the United States, in terms of the total volume of imports and exports.

Question 16

The central idea of mercantilism is that there should be an export surplus so a nation can accumulate precious metals.

Question 17

There are a number of advantages in focusing attention on a nation that is already a sizable purchaser of goods coming from the would-be exporter's country.

Question 18

Record levels of American outward foreign direct investment from 2000 to 2009, totaling more than $2 trillion, caused U.S. exports to decline during this time period.

Question 19

Globally, the overall level and rate of growth of merchandise exports exceed those of commercial services.

Question 20

The level of merchandise exports coming from Africa decreased between 1980 and 2010.

Question 21

International trade theory shows that nations will attain a higher level of living by specializing in goods for which they possess a comparative advantage and importing those for which they have a comparative disadvantage.

Question 22

Reflecting their continued economic development, developing countries have dramatically increased their share of FDI stock, from 1 percent in 1980 to 14 percent in 2010.

Question 23

The primary reason for international trade is a lack of natural resources in the developed nations.

Question 24

The theory of absolute advantage suggests that under free, unregulated trade, each nation should specialize in producing those goods it can produce most efficiently.

Question 25

According to the theory of comparative advantage, a nation can gain from trade if it is not equally less efficient in producing two goods.

Question 26

An important development in the level of worldwide FDI is the emergence of what has been called the "bamboo network" of ethnic Chinese family businesses based outside China.

Question 27

The book value, or the value of the total outstanding stock, of all foreign direct investment worldwide was $19 trillion at the beginning of 2010.

Question 28

An arrangement in which one or more activities that could be provided in-house are instead provided by another company is offshoring.

Question 29

According to the text, differences in taste, a demand variable, can reverse the direction of trade predicted by the theory.

Question 30

Linder's theory of overlapping demand explains the direction of trade for minerals and agricultural products.

Question 31

A nation's relative ability to design, produce, distribute, or service products within an international trading context, while earning increasing returns on its resources, is known as national competitiveness.

Question 32

Currency devaluation helps a nation avoid losing markets and regain competitiveness in world markets.

Question 33

Direct investment refers to overseas purchases of stocks and bonds to gain a return on the funds invested.

Question 34

If a Chinese worker earns $1 a day, then goods produced by this worker will cost less than the same goods produced by an American earning $18 an hour.

Question 35

The price of one currency stated in terms of another currency is the exchange rate.

Question 36

Portfolio investment is the purchase of sufficient stock in a firm to obtain significant management control.

Question 37

Adam Smith explained how countries can benefit from international trade even if they lack any absolute advantage over their trade partners.

Question 38

Some observers have argued that American industry and the American economy as a whole will be strengthened by offshoring activities to workers in India or other nations that have comparative advantages in areas such as labor costs.

Question 39

Michael Porter claims that demand conditions, factor conditions, related and supporting industries, and firm strategy, structure, and rivalry, rather than government and chance, are factors that affect national competitiveness.

Question 40

The proportion of the outstanding stock of foreign direct investment accounted for by the United States declined by two-thirds between 1980 and 2010.

Question 41

One measure of the magnitude of international trade and how it has grown is that _____________ of everything grown or made in the world is now exported.

A) 10 percent
B) 25 percent
C) 32 percent
D) 45 percent
E) over two-thirds

Question 42

The proportion of world commercial services exports accounted for by ___________ has evidenced an overall decline since 1980.

A) the European Union
B) Africa
C) the United States
D) all of the above
E) two of A, B, and C

Question 43

Dunning's eclectic theory of international production provides an explanation for the choice by the international firm of its overseas production facilities.

Question 44

The rapid expansion of world exports since 1980 demonstrates that:

A) businesspeople must be prepared to meet increased competition.
B) domestic business cannot compete with cheap imports.
C) the opportunity to increase sales by exporting is a viable growth strategy.
D) all of the above.
E) two of A, B and C

Question 45

Regarding the volume of international trade, exports of goods and services ___________ in 2010.

A) were nearly $4.0 trillion
B) reached $5.8 trillion
C) were $10.4 trillion
D) were nearly $19.0 trillion
E) exceeded $24.5 trillion

Question 46

Historically, approximately two-thirds of the value of corporate investments made in the United States from abroad has been spent to acquire going companies rather than to establish new ones.

Question 47

Historically, foreign direct investment has followed foreign trade, and one reason is that foreign trade is typically less costly and less risky than making a direct investment into foreign markets.

Question 48

According to the Exporter Data Base, small and medium-sized enterprises accounted for ___________ of all U.S. exporters.

A) under 10 percent
B) 25 percent
C) nearly half
D) 86 percent
E) nearly 98 percent

Question 49

In examining the volume of international trade:

A) exports of merchandise grew nearly fivefold between 1990 and 2010.
B) exports of services grew more than 10-fold between 1980 and 2010.
C) the proportion of world exports of commercial services accounted for by the United States fell by nearly 20 percent between 1980 and 2010.
D) all of the above.
E) two of A, B, and C.

Question 50

Industrialized nations invest primarily in one another just as they trade more with one another.

Question 51

The level of services exports in 2010, worldwide, was:

A) $3.7 trillion.
B) $8.5 trillion.
C) $15.2 trillion.
D) $18.9 trillion.
E) $23.4 trillion.

Question 52

The major part of foreign direct investment is made by large, research-intensive firms in oligopolistic industries.

Question 53

The level of merchandise exports in 2010, worldwide, was:

A) $3.7 trillion.
B) $8.5 trillion.
C) $15.2 trillion.
D) $18.9 trillion.
E) $23.4 trillion.

Question 54

The dynamic capability theory states that for a firm to invest overseas, it must have three kinds of advantages: ownership specific, internalization, and location specific.

Question 55

Foreign direct investment may be an attempt by foreign companies to establish competitive advantage over potential competitors in other markets, due to possession of advantages not available to local firms. Such advantages possessed by foreign companies over their local competitors include knowledge about local market conditions and cost efficiencies from operating at a distance.

Question 56

Between 1980 and 2010, the level of merchandise exports from Africa:

A) doubled as a proportion of overall world merchandise exports.
B) increased by 250 percent.
C) declined by half.
D) grew more rapidly as a proportion of world merchandise exports than did the European Union.
E) two of the above.

Question 57

Developed by the United Nations Conference on Trade and Development, the Trade and Development Index is a tool whose goal is to assist efforts "to systematically monitor the trade and development performance of developing countries with a view to facilitating national and international policies and strategies that would ensure that trade serves as a key instrument of development."

Question 58

If a nation is continuing to receive appreciable amounts of foreign investment, its investment climate must be favorable.

Question 59

Internalization theory suggests that what an organization is good at should not be outsourced without very careful consideration.

Question 60

The proportion of world commercial services exports accounted for by ____________ has evidenced an overall decline since 1980.

A) Asia
B) the Middle East
C) Latin America
D) all of the above
E) two of A, B, and C

Question 61

The theory of resource endowment:

A) explains why France exports cosmetics, wine, commercial aircraft, and clothing.
B) states that a nation will trade goods that can be produced with the production factor that is most abundant.
C) explains why an automobile can be made either by hand or by a capital-intensive process.
D) explains why transportation costs may be ignored when calculating the costs of imports.
E) none of the above.

Question 62

More than one-half of the exports from developing countries go to __________ countries, and this proportion has been _____________ over the past 35 years.

A) developed; increasing
B) developing; increasing
C) developed; decreasing
D) developing; decreasing
E) none of the above

Question 63

A nation having absolute disadvantages in the production of two goods with respect to another nation has ___________ in the production of the good in which its absolute disadvantage is less.

A) a comparative advantage
B) an absolute advantage
C) a mercantilist advantage
D) none of the above
E) two of A, B, and C

Question 64

Supporters of mercantilism:

A) viewed accumulation of precious metals as an activity essential to a nation's welfare.
B) viewed industrial development as the primary source of a nation's wealth.
C) promoted trade policies that generally benefited consumers and emerging industrialists.
D) all of the above.
E) two of A, B, and C.

Question 65

Many of the Asian countries that are major exporters to the United States are also significant importers of American goods because:

A) their rising standards of living enable their people to afford more imported products.
B) they are purchasing large amounts of capital goods to further their industrial expansion.
C) they are importing raw materials and components that will be assembled and subsequently be exported, often to the United States.
D) all of the above.
E) two of A, B, and C.

Question 66

If Ecuador has an absolute advantage in coffee and Argentina in wheat, then, according to trade theory:

A) Ecuador should focus production on coffee and trade for wheat.
B) Ecuador would do well to produce its own coffee rather than import it from Bolivia.
C) As stated directly in the text.
D) all of the above.
E) two of A, B, and C.

Question 67

The three nations that exported the largest amount of goods to the United States in 2010 were:

A) Japan, Canada, and China.
B) China, Mexico, and the UK.
C) Japan, China, and Saudi Arabia.
D) Canada, Japan, and Mexico.
E) Canada, Mexico, and China.

Question 68

Offshoring is an application of:

A) comparative advantage.
B) differences in taste.
C) money market rates.
D) exchange rate theory.
E) none of the above.

Question 69

Theory based on ____________________ states that international and interregional differences in production costs occur because of differences in the supply of production factors.

A) comparative advantage
B) absolute advantage
C) mercantilist advantage
D) resource endowments
E) none of the above

Question 70

Adam Smith claimed that:

A) governments, not market forces, should determine the directions, volume, and composition of international trade.
B) a nation could trade advantageously if it had a comparative advantage.
C) market forces, not government controls, should determine direction, volume, and the composition of international trade.
D) customers' tastes are affected by income levels.
E) two of the above.

Question 71

More than half of the exports from developing nations go to developed nations, and:

A) this proportion has been declining over the past 35 years.
B) approximately 70 percent of exports from developed economies also go to other industrialized nations.
C) the proportion of world trade accounted for by members of regional trade agreements has grown to nearly 50 percent.
D) all of the above.
E) two of A, B, and C.

Question 72

Locating activities in another nation is:

A) outsourcing.
B) offshoring.
C) foreign direct investment.
D) all of the above.
E) two of A, B, and C.

Question 73

According to trade theory:

A) traders need to know the exchange rate between their own currency and that of the nation they are considering trading with before they can decide whether it is advantageous to import, export, or buy locally.
B) if a currency's exchange rate strengthens, then its exporters will no longer be able to profitably export their products.
C) devaluation of a currency will automatically cause a nation's products to be price-competitive in international markets.
D) all of the above.
E) two of A, B, and C.

Question 74

The three largest markets for American exports of goods in 2010 were:

A) Japan, the UK, and China.
B) Japan, Mexico, and the UK.
C) Canada, Mexico, and China.
D) Canada, Japan, and the UK.
E) Japan, Mexico, and China.

Question 75

In examining the volume of international trade:

A) the proportion of manufacturing value added generated by South and East Asia has quadrupled since 1980.
B) the proportion of manufacturing value added generated by Latin America has doubled since 1980.
C) the proportion of world exports and imports accounted for by the 10 largest exporting and importing nations exceeded 70 percent in 2010.
D) all of the above.
E) two of A, B, and C.

Question 76

When considering where to export, advantages to managers of focusing on a nation that is already a sizable purchaser of goods coming from the home country include:

A) the cultures of the two countries should be relatively similar and compatible.
B) the climate for foreign direct investment in the importing nation is relatively favorable.
C) export and import regulations are not insurmountable.
D) all of the above.
E)two of A, B, and C.

Question 77

According to the theory of comparative advantage:

A) a nation should produce those goods which it is more efficient at producing than are other nations.
B) a nation can gain from trade if it is equally inefficient in producing two goods.
C) a nation must have an absolute advantage in at least one good to gain from trade.
D) all of the above.
E) none of A, B, or C.

Question 78

The capability of one nation to produce more of a good with the same amount of input than another country is:

A) a comparative advantage
B) an absolute advantage
C) a mercantilist advantage
D) none of the above
E) two of A, B, and C

Question 79

Mercantilists believed that:

A) merchants should import goods to raise the level of living.
B) governments should lower import duties.
C) a nation should have an export surplus in order to accumulate precious metals.
D) a nation should produce goods for which there is a comparative advantage.
E) two of the above.

Question 80

When considering where to export, advantages to managers of focusing on a nation that is already a sizable purchaser of goods coming from the home country include:

A) the political climate in the importing nation is relatively stable.
B) there are abundant natural resources in the importing nation.
C) satisfactory transportation facilities have already been established.
D) all of the above.
E) two of A, B, and C.