Deck 14: International Trade

Question 1

If the U.S.dollar depreciates against the euro,it will be more expensive for European countries to purchase U.S.-made products.

Answer 1

False
Explanation: If the dollar depreciates against the euro, U.S.-made goods will become cheaper for Europeans.

Question 2

Over the last two decades,trade worldwide has fallen (as a share of global output)because many countries have discovered that trade produces too many job losses.

Answer 2

False
Explanation: Global trade has increased as a share of global output, and it does not create net job losses worldwide.

Question 3

A tariff is a tax levied on imports by a country.

Answer 3

True
Explanation: Tariffs are extra charges or taxes levied on imports by a country.

Question 4

Because the gains from trade are so large,no one really loses from the expansion of global trade in the short run or the long run.

Question 5

Which of the following statements about quotas is true?

A) Quotas make consumers better off by ensuring that domestically manufactured products are of as high quality as possible.
B) Quotas increase the quantity supplied by encouraging more domestic production.
C) Quotas increase the price above the market equilibrium.
D) Quotas provide some revenue to the government imposing them, while tariffs merely increase the well-being of foreign consumers.

Question 6

If the United States were to grow all of its own flowers rather than importing them from other nations,the effect of this would be to

A) improve consumer well-being.
B) lower flower prices because they would not have to be transported as far.
C) improve the well-being of foreign flower producers because they would not have to ship flowers all the way to the United States.
D) draw resources necessary to grow flowers away from the rest of the economy.

Question 7

The last American niobium mine closed in 1959,and all U.S.niobium is now imported from other countries.This is

A) bad for the United States because the United States must give money to other countries in order to obtain niobium.
B) bad for the United States because the niobium miners were put out of work.
C) good for the United States because the resources used to mine niobium are freed to do something for which the United States has a comparative advantage.
D) good for the United States because it is always better to import raw materials from other countries and export finished goods.

Question 8

Which of the following statements about the World Trade Organization (WTO)is FALSE?

A) The WTO is a development of the General Agreement on Tariffs and Trade (GATT).
B) The WTO is the main world organization governing rules of international trade.
C) The WTO has worked to increase tariff rates in an effort to protect infant industries in developing countries.
D) The WTO makes an effort to ensure that trade flows smoothly and predictably.

Question 9

When a tariff is removed from an imported product,which of the following will occur?

A) The demand curve for the imported product will shift to the right.
B) The supply curve for the imported product will shift to the left.
C) The price paid by consumers will fall.
D) The level of imports will fall.

Question 10

The expansion of global trade has especially benefited individuals whose skills are relatively common in the worldwide economy.

Question 11

If imports are greater than exports,we say that the country is running a trade deficit.

Question 12

The General Agreement on Tariffs and Trade (GATT),which later became the World Trade Organization (WTO),has increased tariffs in industrialized countries that can afford tariffs,while decreasing tariffs in less developed countries that cannot afford them.

Question 13

Which of the following is NOT among the natural barriers to trade?

A) Distance.
B) Tariffs and quotas.
C) Differences in cultures and values.
D) The difficulty of delivering services remotely.

Question 14

Suppose the United States puts a numerical limit on the number of imported cars from Japan and South Korea.This would be known as a(n)

A) tariff.
B) quota.
C) exchange rate.
D) natural barrier to trade.

Question 15

Which of the following will NOT occur when a tariff is imposed on an imported product?

A) The price paid by consumers will rise.
B) The level of imports will fall.
C) The price received by importers will fall.
D) The demand curve for imports will shift to the left.

Question 16

The "infant industry" argument for protectionism says that new or small industries in a country are vulnerable and therefore should be protected with trade barriers until they have had an opportunity to grow large enough to compete effectively with their foreign rivals.

Question 17

In 1981,Japanese auto manufacturers signed a "voluntary restraint agreement" that limited the number of cars they could export to the United States.The effect of this was to

A) increase the price dealers obtained for Japanese cars in the United States.
B) lower the quantity of domestic cars available to American buyers.
C) drive down the price of Japanese cars compared to U.S.-made cars.
D) benefit Japanese auto manufacturers by reducing the number of cars they had to ship to the United States, allowing them to sell more in their domestic market.

Question 18

Contributors to an expanded global trade in recent years have included all of the following EXCEPT

A) greater ease of communication with the Internet and other technology.
B) lower costs of shipping with the use of shipping containers and larger ships.
C) a reduction in tariffs, quotas, and other legal barriers to trade.
D) a decline in the differences in comparative advantages across nations.

Question 19

Several million people working in the manufacturing sector in the United States have lost their jobs in the last 10-12 years,but at least as many people have been hired in other sectors of the economy,making up for the losses.

Question 20

If American consumers begin buying less expensive golf clubs from China rather than buying American-made golf clubs,the U.S.economy is worse off as a whole.

Question 21

From 1996 to 2006,3 million U.S.manufacturing workers lost their jobs.As a result,

A) the U.S. economy is worse off because those people have lost their incomes and the government has lost the tax revenue from their incomes.
B) other sectors of the economy expanded and absorbed many of those individuals who had lost their jobs.
C) the overall unemployment rate in the United States increased.
D) the U.S. economy shrank, and the well-being of the average American declined.

Question 22

When an exchange rate changes so that one currency can buy more of another,we say the first currency is ___________ and the second currency is ___________.

A) depreciating; appreciating
B) appreciating; depreciating
C) pegged; floating
D) floating; pegged

Question 23

A nation has a comparative advantage in producing a good,if

A) it has a higher standard of living than its trading partners.
B) more people in the country are employed in the production of the good than its trading partners.
C) it also has an absolute advantage in producing the good.
D) it has either a greater productivity advantage or a smaller productivity disadvantage.

Question 24

Which of the following statements is TRUE?

A) Imports from Britain become more expensive for U.S. customers when the dollar appreciates.
B) American exports become cheaper for the British when the dollar appreciates.
C) Imports from Britain become less expensive for U.S. customers when the dollar depreciates.
D) American exports become more expensive for the British when the dollar appreciates.

Question 25

Protectionism is best defined as

A) using tariffs, quotas, or other barriers to trade to protect domestic jobs.
B) reducing barriers to trade in order to protect firms that export to other nations.
C) using low-cost loans from the government to encourage industries to offshore their operations to other nations.
D) protecting workers from layoffs by subsidizing industries in danger of reducing their workforces.

Question 26

If a country's currency is "pegged" to another currency,this means

A) the currency's value is determined by the supply and demand for that currency in a free currency market.
B) the World Trade Organization sets the exchange rate and enforces it with trade sanctions.
C) workers in that country use the other nation's currency in daily transactions.
D) the government of that country is managing the exchange rate so that it stays the same.

Question 27

Software companies have high fixed costs and low marginal costs.This means that if a software company sells its product in the global market,

A) it will gain a large benefit from its fixed investment and generate higher profits.
B) it will lose money because the additional expense of selling in the global market will add a large amount to fixed costs and add very little to revenues.
C) the company will earn more money in the short run, but lose money in the long run as entry into other markets encourages more competition.
D) the country in which the software company is located will suffer losses because the price of the software will rise with the additional worldwide demand.

Question 28

Which of the following statements about exchange rates is correct?

A) The exchange rate, in most cases, is floating: it is determined by the supply and demand for currency, and it can change dramatically.
B) In some cases the exchange rate is pegged, meaning that it is linked to the amount of gold or silver that the country's central bank has in its vaults.
C) When a country experiences inflation, its currency tends to appreciate.
D) When a country experiences a trade deficit, its currency tends to appreciate to compensate.

Question 29

Which of the following events would NOT cause India to shift away from exporting call center services to the United States?

A) An increase in the other employment opportunities available to English-speaking college graduates in India.
B) An increase in the value of the dollar against the rupee.
C) An increase in the number of Chinese who speak English well.
D) The development of automated software that handles a large fraction of customer questions and sales orders.

Question 30

Which of the following could make Chinese-made goods more expensive for American consumers?

A) A rise in the value of the dollar.
B) A rise in the value of the yuan.
C) An increase in the inflation rate in the United States.
D) A reduction in the size of the U.S. trade deficit.

Question 31

All other things being equal,globalization

A) benefits manufacturing firms and hurts service firms.
B) benefits countries that have relatively low wages, and harms countries that have relatively high wages.
C) benefits countries that have wealthy, highly educated workforces, and hurts countries that have poor, badly educated workforces.
D) benefits people whose skills are relatively scarce on world markets, and hurts those whose skills are relatively common.

Question 32

Using tariffs,quotas,or other barriers to trade to protect domestic jobs is called

A) offshoring.
B) globalization.
C) protectionism.
D) dumping.

Question 33

Over the last several years,the Chinese government has allowed the yuan to rise in value relative to the dollar.This means that Chinese-made goods

A) are now more expensive compared to U.S.-made goods.
B) will be harder for American firms to compete with, when they try to sell to U.S. consumers.
C) will be less affordable for Chinese consumers.
D) are now less expensive for U.S. consumers.

Question 34

Suppose it takes workers in Baldistan 20 hours to produce a metal folding table,and it takes workers in Plochia 18 hours to produce an identical table.Workers in Baldistan take 40 hours to produce a set of ceramic plates,and it takes workers in Plochia 22 hours to make identical plates.Which of the following is true?

A) Plochia is better off making tables and plates alone and not trading with Baldistan because Plochian workers are faster at producing both types of goods.
B) Baldistan and Plochia can gain from trading with one another.
C) Baldistan has a comparative advantage in making plates.
D) Plochia has a comparative advantage in making both tables and plates.

Question 35

The theory of comparative advantage implies which of the following?

A) A country with an absolute advantage in a good will necessarily have a comparative advantage in that good.
B) The gains to trade are exactly offset by the losses from trade.
C) Workers in an industry in which the United States does not have a comparative advantage will be hurt if the United States reduces barriers to trade.
D) There are gains to trade for a country as long as that country has a comparative advantage in producing the goods that it imports and exports.

Question 36

Some small,new industries are not as efficient as their more mature foreign competitors.The argument for protecting these industries from foreign competition is known as the

A) national security argument.
B) infant industry argument.
C) unfair competition argument.
D) antidumping argument.

Question 37

Suppose Australia subsidizes its wine exports.Which one of the following groups will benefit from this policy?

A) American wine consumers.
B) Australian wine consumers.
C) American wine producers.
D) Australian taxpayers.

Question 38

Protecting a country's "infant industries"

A) leads to long-run growth in most cases because the industries are given a chance to be competitive.
B) encourages short-run competition with the protected industry so that the industry will be forced to become efficient more rapidly.
C) seems to hurt the economy in practice because consumers of that industry's products are denied access to low-cost or higher-quality imports.
D) will hurt the protected industry in the short run but generate growth for that industry in the long run.

Question 39

Which of the following is NOT among the common arguments for protection?

A) Major war could cut off imports from other countries and leave a country dependent on its own industries, so a nation should protect industries important to conducting a war.
B) A new or small industry in a country could be crushed by more mature foreign competitors, so the industry should be protected until it is on an equal footing with the foreign competition.
C) Trade can be disruptive to sectors of society facing foreign competition for the first time, as with small towns built around a single industry.
D) More international trade will tend to reduce the value of the domestic currency, hurting savers.

Question 40

Which of the following best defines the exchange rate?

A) The difference between the inflation rate in one country and the inflation rate in another country.
B) The rate at which the goods of one country can be exchanged for the goods of another.
C) The rate at which one currency can be exchanged for another.
D) The ratio of the number of units of one currency in circulation to the number of units of another currency in circulation.

Question 41

Which of the following is NOT one of the common explanations given for the U.S.trade deficit?

A) Other countries subsidize their exports.
B) The United States is a wealthy, stable country, making it attractive for loans from other countries.
C) The U.S. government has a large budget deficit.
D) U.S. income tax rates are high compared to those in other countries.

Question 42

Which of the following is an example of direct foreign investment?

A) A foreign citizen buys a share of stock in Ford.
B) The German-owned BMW company builds an assembly plant near Greenville, SC.
C) A foreign citizen lends money to General Motors by buying a GM bond.
D) A foreign citizen travels to the United States as a tourist, spending money in the United States on various goods and services.

Question 43

If the United States borrows a large amount of money from other countries to pay for a trade deficit,

A) this will hurt the U.S. economy unless the United States is able to pay off the debt by increasing manufacturing exports.
B) this will necessarily slow the U.S. growth rate, compared to a situation in which the United States has a trade surplus.
C) this is not necessarily a problem if the economy is growing fast enough to have future income to pay back the accumulated debt.
D) American firms will have to repay the debt with shares of stock or real estate, which will put American firms at a disadvantage compared to foreign firms.

Question 44

Which of the following might you believe if you say that "it's their fault" that the United States runs a trade deficit?

A) Other countries have used nontariff barriers to keep out U.S. exports.
B) U.S. manufacturers are incompetent and unable to compete with foreign producers.
C) American consumers borrow too much to buy imported goods like cars and electronics.
D) The United States is a successful rich economy that can afford a lot of imports.

Question 45

An infant industry is one that

A) is vulnerable to being crushed by better-funded and more mature foreign competitors.
B) is less than two years old.
C) relies on growing human populations for new customers.
D) does not need so-called protection by government.

Question 46

Suppose workers in Freecia can produce two bushels of rice with the same amount of effort it takes them to produce one memory chip.Workers in Warmia can produce five bushels of rice with the same effort it takes them to produce two memory chips.Which of the following must be true?

A) Warmia has a comparative advantage in producing memory chips.
B) Warmia has an absolute advantage in producing memory chips.
C) Freecia has a comparative advantage in producing memory chips.
D) Freecia has an absolute advantage in producing memory chips.

Question 47

Which of the following would increase the trade deficit?

A) Foreign countries subsidizing their exports.
B) The U.S. government reducing the budget deficit.
C) An increasing preference of American consumers for domestically made products.
D) A tax on imports.

Question 48

How does expanding worldwide trade produce gains for all the nations that participate?

Question 49

Which of the following statements about comparative advantage is FALSE?

A) There is always a trade between two countries that can make both better off.
B) A country's comparative advantage cannot be determined by looking only at its own economy.
C) International trade will benefit an entire economy, but some particular groups of people may be hurt by expanding trade.
D) Expanding international trade hurts a nation's economy if it causes the nation's currency to depreciate.

Question 50

If the value of one U.S.dollar goes from 0.75 euros to 0.80 euros in the course of a week,the euro has

A) depreciated from $1.33 to $1.25.
B) appreciated from $1.25 to $1.33.
C) depreciated from $0.80 to $0.75.
D) appreciated from $0.75 to $0.80.

Question 51

Which of the following countries had the highest hourly manufacturing compensation costs in 2009?

A) The United States.
B) China.
C) Japan.
D) Germany.

Question 52

If the United States were to produce all of its own steel rather than importing large quantities of steel from other nations,the effect would be

A) To make steel consumers, such as auto manufacturers, better off.
B) To lower steel prices because steel would not have to be transported as far.
C) To draw resources necessary to make steel away from the rest of the economy, slowing the economy as a whole.
D) To improve the well-being of foreign steel producers because they would not have to ship steel all the way to the United States.

Question 53

Which country received the most U.S.exports in 2010?

A) Japan.
B) China.
C) Mexico.
D) Canada.

Question 54

Which of the following policies would benefit American consumers?

A) South Korea begins to subsidize its auto exports.
B) The U.S. currency experiences depreciation against the euro.
C) The U.S. government strengthens trade barriers against foreign imports.
D) The Chinese economy begins to grow more slowly than the U.S. economy.

Question 55

Protectionist policies include all of the following EXCEPT

A) tariffs.
B) the central bank's efforts to raise the value of the domestic currency.
C) quotas.
D) regulations applied to imported goods.

Question 56

Selling exports to foreign purchasers,borrowing money from foreign investors,selling assets to foreign investors,and allowing foreign companies to build factories in the United States are all ways to

A) pay for imports.
B) shift the aggregate demand curve to the right.
C) shift the short-run aggregate supply curve to the right.
D) increase a trade deficit.

Question 57

From which country did the United States import the most in 2010?

A) Japan.
B) China.
C) Mexico.
D) Canada.

Question 58

Which of the following might you believe if you say that "it's no one's fault" that the United States runs a trade deficit?

A) Other countries have used nontariff barriers to keep out U.S. exports.
B) U.S. manufacturers are incompetent and unable to compete with foreign producers.
C) American consumers borrow too much to buy imported goods like cars and electronics.
D) The United States is a successful rich economy that can afford a lot of imports.

Question 59

The United States imports all of its niobium because

A) niobium production in the United States is expensive compared to production in other countries.
B) niobium mining is so unsafe that it was outlawed in the United States in 1959.
C) the United States does not have any natural niobium deposits.
D) niobium is no longer a very useful metal.

Question 60

Which of the following statements about trade deficits is FALSE?

A) The trade deficit in the United States has grown since the early 1990s.
B) Budget deficits tend to produce trade deficits.
C) The U.S. has run a trade deficit for over 30 years.
D) A U.S. trade deficit makes it less likely that foreigners will make investments in the United States.

Question 61

Briefly describe at least three of the arguments for protectionism mentioned by the author of your textbook.

Question 62

What is the difference between absolute advantage and comparative advantage? Which one is most important for determining what a country will specialize in producing?

Question 63

Who loses from expanding international trade? Does this mean that globalization is a bad idea overall?

Question 64

What has produced the rapid expansion in international trade in the last several decades?