Deck 2: International Trade and Investment

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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 5

The theory of absolute advantage suggests that under free,unregulated trade,each nation should specialize in producing those goods it can produce most efficiently,based on naturally occurring endowments such as minerals.

Question 6

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

Question 7

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 8

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

Question 9

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

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

If a Chinese worker earns $1.00 a day,then goods produced by this worker will cost less than the same goods produced by an American earning $18.00 an hour.

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

The proportion of manufacturing value added that is located in developed countries has been roughly stable since 1995.

Question 18

The dollar value of total world exports in 2007 was greater than the gross national product of every nation in the world except Japan.

Question 19

South and East Asia's share of the world's manufacturing value added has nearly tripled since 1980.

Question 20

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 21

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

Question 22

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 23

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 24

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

Question 25

The proportion of the outstanding stock of foreign direct investment accounted for by the United States declined by two-thirds between 1980 and 2008.

Question 26

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

Question 27

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

Question 28

The book value,or the value of the total outstanding stock,of all foreign direct investment worldwide was $16.2 trillion at the end of 2008.

Question 29

Reflecting their continued economic development,developing countries have dramatically increased their share of FDI stock,from 1 percent in 1980 to nearly 15 percent in 2008.

Question 30

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

Question 31

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

Question 32

Some observers have argued 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 33

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

Question 34

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 35

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 36

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 of China.

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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 of world exports and imports accounted for by the 10 largest exporting and importing nations exceeded 70 percent in 2009.
D)The proportion of worldwide manufacturing value added generated by South and East Asia has fallen since 1980.E.The proportion of manufacturing value added generated by Latin America has quadrupled since 1980.

Question 42

The three nations that exported the largest amount of goods to the United States in 2009 were:

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

Question 43

Adam Smith claimed:

A)that 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)that market forces,not government controls,should determine direction,volume,and the composition of international trade.
D)that customers' tastes are affected by income levels.
E)that a nation should always specialize in producing what the government espouses without considering any absolute advantage it may have.

Question 44

Dunning's Eclectic Theory of International Production provides an explanation for the choice by the international firm of its overseas production facilities.

Question 45

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)a nation should have distributed precious metals for a comparative advantage.

Question 46

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 47

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)The cultures of the two countries are relatively distinct and compatible..
E)Import channel members (merchants,banks,and custombrokers)who are new at handling import shipments.

Question 48

Many of the same 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 U.S.
D)of their rising standards of living,their purchasing of large amounts of capital goods and their importing raw materials and components.
E)they are purchasing lesser amounts of capital goods to hinder the industrial expansion. Many of the same Asian countries that are major exporters to the United States are also significant importers of American goods because of their rising standards of living,their purchasing of large amounts of capital goods and their importing raw materials and components.

Question 49

In examining the volume of international trade:

A)exports of merchandise grew nearly fivefold between 1990 and 2008.
B)exports of services grew more than tenfold between 1980 and 2008.
C)The proportion of world exports of commercial services accounted for by the U.S.fell by nearly 20 percent between 1980 and 2008.
D)exports of merchandise fell nearly fivefold between 1990 and 2008..
E)exports of merchandise and exports of services grew nearly fivefold from 1990-2008 and tenfold from 1980-2008 respectively..

Question 50

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)The cultures of the two countries should be relatively distinct and compatible.
E)The climate for foreign direct investment in the importing nation is unfavorable. 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 the business climate,export and import regulations,transportation facilities,import channel members,Foreign exchange and the government of a trading partner.

Question 51

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 benefitted consumers and emerging industrialists.
D)viewed strong agrarian policies to be the primary source of a nation's wealth.
E)viewed unique cultural notions to be the primary source of a nation's wealth.

Question 52

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)the proportion of worldwide manufacturing value added generated by South and East Asia has fallen since 1980
E)the opportunity to increase sales by exporting is a viable growth strategy and businesspeople must be prepared to meet increased competition

Question 53

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 goes 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)approximately 90 percent of exports from developed economies goes to other industrialized nations.
E)The proportion of exports from developing nations that go to developed nations is on decline over the past 35 yrs and apporx 70% of exports from developed nations go to other industrialized nations.

Question 54

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)third world countries,constant

Question 55

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

Question 56

The three largest markets for American exports of goods in 2009 were:

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

Question 57

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 58

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

Question 59

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 60

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

A)10%
B)25%
C)32%
D)45%

Question 61

_______________ occurs primarily because of relative price differentials among nations.

A)Foreign direct investment
B)International trade
C)Portfolio investment
D)Firm Rivalry
E)Direct Investment x

Question 62

Regarding the annual outflows of foreign direct investment,

A)the proportion that came from developing nations in 2008 was nearly double the average from those nations from 1985 to 1995.
B)the proportion that came from the United States and Europe was nearly 50 percent.
C)much of the recent increase has been associated with mergers,acquisitions,and other international investments made by companies in industries facing increased competition and global consolidation.
D)nearly half went to China and its territories from 2006 to 2008.
E)much of the recent increase has been associated with mergers,acquisitions,and other international investments made by companies in industries facing decreased competition and global consolidation.

Question 63

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)capitalist advantage

Question 64

A nation having absolute disadvantages in the production of two goods with respect to another nation has a/an ______ _____ in the production of the good in which its absolute disadvantage is less.

A)comparative advantage
B)absolute advantage
C)mercantilist advantage
D)bilateral advantage

Question 65

Porter's Diamond Model of national advantage:

A)claims that the ability of local firms in a country to utilize the country's resources to gain a competitive advantage is based on demand conditions,factor conditions,substitute products,and firm strategy,structure,and rivalry.
B)links intraindustry trade to relative levels of per capita income.
C)is based on anecdotal evidence.
D)claims that the ability of local firms in a country to utilize the country's resources to gain a competitive advantage is based on entirely on supply conditions and export conditions.
E)is not affected by chance.

Question 66

Locating activities in another nation is __________.

A)outsourcing
B)offshoring
C)foreign direct investment
D)portfolio investment
E)national competitiveness

Question 67

According to the theory of comparative advantage,

A)a nation should produce the goods at which it is most efficient.
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)a nation must have an absolute advantage in at least three goods to gain from trade.
E)a nation should trade with countries with similar levels of per capita income.

Question 68

At the end of 2008,the value of the outstanding stock of foreign direct investment of all nations totaled more than:

A)500 billion dollars
B)3 trillion dollars
C)12 trillion dollars
D)16 trillion dollars
E)21 trillion dollars

Question 69

Which of the following elements are included in Porter's Diamond Model of national advantage?

A)competitive conditions
B)export conditions
C)social conditions
D)supply conditions
E)demand conditions

Question 70

Regarding annual inflows of FDI:

A)Industrialized nations primarily invest in one another.
B)An average of nearly 70 percent of annual FDI investments have been going into developed countries in recent years.
C)Developed countries obtained a 70 percent increase in the level of FDI between 2000 and 2008.
D)Industrialized nations primarily invest only in only underdeveloped countries.
E)Industrialized nations primarily invest in one another and on an average of nearly 70 percent of the annual FDI investments have been going into developed countries in recent years.

Question 71

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 other goods.
B)Ecuador would do well to produce its own coffee rather than import it from Bolivia.
C)Argentina should focus on producing wheat and trade for coffee.
D)Ecuador should focus on production of coffee and trade for other goods,it should not import coffee and should increase trading its coffee and also produce other goods.
E)Argentina should start accumulating coffee from trading with Ecuador to gain an absolute advantage. Ecuador should focus on production of coffee and trade for other goods,it should not import coffee and should increase trading its coffee and also produce other goods.

Question 72

The theory of resource endowment:

A)explains why France sends us cosmetics,wine,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)states that a nation will trade goods that can be produced with the production factor that is most scarce.

Question 73

Offshoring is an application of:

A)comparative advantage.
B)differences in taste.
C)money market rates.
D)exchange rate theory.
E)annual outflows of FDI.

Question 74

The capability of one nation to produce more of a good with the same amount of input than another country is a/an __________ __________.

A)comparative advantage
B)absolute advantage
C)mercantilist advantage
D)capitalist advantage

Question 75

To sum up international trade theory,we can say that the primary reason for trade is:

A)the increase in OPEC oil prices.
B)governments want to accumulate money.
C)the existence of price differentials among nations.
D)the creation of new nations from former colonies.
E)the existence of price similarity among nations.

Question 76

Regarding foreign investment:

A)it can be divided into three components: international trade,portfolio investment,and direct investment.
B)portfolio investment involves investors who participate in the management of the firm in addition to receiving a return on their money.
C)deals that result in the foreign investor's obtaining at least 10 percent of the shareholdings are classified as portfolio investments.
D)it is noticed that international trade in manufactured goods will be greater between nations with similar levels of per capita income.
E)it can be divided into two components: portfolio investment,and direct investment.

Question 77

The theory of overlapping demand:

A)explains how international trade in manufactured goods will be linked to gross national income.
B)states that a nation will trade goods that can be produced with the production factor that is most abundant.
C)explains why companies will add excess capacity to their production systems.
D)explains why exchange rate is the price of one currency stated in terms of another..
E)deduces that international trade in manufactured goods will be greater between nations with similar levels of per capita income..

Question 78

Which of the following elements are included in Porter's Diamond Model of national advantage?

A)competitive conditions
B)export conditions
C)factor conditions
D)supply conditions
E)social conditions

Question 79

Which of the following is explained by international trade theory?

A)Differences in production costs.
B)Differences in levels of technology.
C)Foreign exchange rates.
D)Differences in efficiency of factor use.
E)It explains differences in production costs,levels of technology,in efficiency of factor use and foreign exchange rates.

Question 80

Firms from __________ had the largest total outstanding stock of direct overseas investment at the end of 2008.

A)Germany
B)the United States
C)the United Kingdom
D)Japan
E)China