Deck 9: The History of Trade Policy

Question 1

The median voter model predicts that:

A) the candidate who promises protection from imports for the most industries will win the election.
B) government policy makers are more likely to enact protectionist trade policies the larger is the group directly affected by the policy.
C) the candidate who proposes policies that are favored by slightly more than half of the voters, regardless of the size of the gains or losses involved, will win the election.
D) small special interest groups will have a disproportionately large influence on government policies because most voters have little information on most issues that do not directly affect them.

Answer 1

the candidate who proposes policies that are favored by slightly more than half of the voters, regardless of the size of the gains or losses involved, will win the election.

Question 2

The uninformed voter model predicts that:

A) small special interest groups will have a disproportionately large influence on government policies because most voters have little information on most issues that do not directly affect them.
B) a policy is less likely to be enacted the more people are noticeably affected by it.
C) people will vote to have the government look out for their interests.
D) policy makers favor the policies preferred by free riders.

Answer 2

small special interest groups will have a disproportionately large influence on government policies because most voters have little information on most issues that do not directly affect them.

Question 3

The United States government has protected domestic sugar producers from foreign competition:

A) only in the last few years.
B) throughout the country's history.
C) only on rare occasions when national security was at stake.
D) when foreign governments threatened to raise sugar prices.

Answer 3

throughout the country's history.

Question 4

The U.S. sugar quota:

A) decreases the welfare of U.S. consumers.
B) will be phased out by 2013.
C) was intended as a trade sanction to punish Cuba's Fidel Castro.
D) actually benefits all foreign sugar producers because it raises world sugar prices.

Question 5

The endogenous tariff model suggests that trade policies are the result of:

A) a trade-off between politicians' need to raise campaign funds to influence uninformed voters and the need to minimize the politically-unpopular welfare losses from trade restrictions.
B) nothing more than the absolute amount of money spent by lobbyists.
C) well-meaning policy makers who have the best interest of the public in mind.
D) corrupt politicians who care only about collecting as much money as possible.

Question 6

The adding machine model predicts that a policy is:

A) less likely to be enacted the more people are noticeably affected by it.
B) more likely to be enacted the greater the amount of money involved.
C) more likely to be enacted the more people are directly affected by it.
D) more likely to be enacted the less people know about the issue.

Question 7

According to some Public Choice economists, such as James Buchanan and Gordon Tullock (1962), the median voter model is unrealistic because:

A) it assumes people are vote for political candidates on the basis of their preferences concerning a single issue.
B) policy makers deal with many issues that affect different groups in distinct ways.
C) it assumes people vote for a candidate solely on the basis of the candidate's decisions with regard to trade policy.
D) All of the above.
E) None of the above.

Question 8

Mercantilism can be described as:

A) the policy of protecting domestic industries from import competition.
B) a complex and encompassing social, economic, and political philosophy related to the building of nations.
C) a wide array of government regulations and other interference in economic activity intended to protect and favor certain economic groups.
D) All of the above.
E) None of the above.

Question 9

Mercantilist trade policies from the seventeenth and eighteenth centuries:

A) encouraged the importation of finished products and banned the export of raw materials.
B) were designed to benefit artisans and merchants in the colonies in order to help colonies develop and grow.
C) required their colonies to purchase all imports from the mother country, to the benefit of domestic manufacturers, artisans, and merchants.
D) All of the above.
E) None of the above.

Question 10

Adam Smith argued that:

A) the inflow of gold with a trade surplus would sooner or later create inflation and reverse the trade surplus.
B) infant industries should be protected from foreign competition.
C) an economy should be judged by how much welfare it provides for the country's citizens, not whether it has a positive trade balance.
D) All of the above.
E) None of the above.

Question 11

Britain came closest to completely eliminating all trade barriers in the:

A) 1500s
B) 1600s
C) 1700s
D) 1800s
E) 1900s

Question 12

The Most Favored Nation (MFN) principle states that:

A) a country should grant its favorite trade partners easier access to its national market than it grants to less favored trade partners.
B) a country should grant every country the same trade privileges that it grants its most favored trade partner.
C) a country should grant another country precisely the same trade privileges that the other country grants it.
D) a country may not grant other countries the same privileges that it grants a country designated as its most favored trading partner.

Question 13

International trade grew rapidly during the period:

A) 1870-1913.
B) 1929-1950.
C) 1950-1973.
D) All of the above.
E) a and c only.

Question 14

In the nineteenth century, the governments of China and Japan:

A) reversed their ages-long free trade policies and isolated their economies despite pressure from other countries to continue trading.
B) decided on their own to reverse their isolationist policies and open their economies to trade.
C) gave in to pressure from a number of other large countries and opened their economies to trade.
D) both decided to remain isolated from the rest of the world despite the globalization that was sweeping the world economy.

Question 15

In terms of trade policy, the nineteenth century is best described as a century:

A) of free trade and rapid globalization.
B) of increasing protectionism.
C) of slow trade growth but rapid economic growth.
D) when free trade was replaced by mercantilism.

Question 16

After World War I, how were tax payments by German citizens to their government in German marks to be converted to dollar payments to United States lenders so that the German government could meet its obligation for reparations payments as required by the Treaty of Versailles?

A) Germany would have to increase taxes or borrow from its citizens in order to cover its foreign reparations payments.
B) Germany would have to run a large current account surplus with the Allied countries in order to earn the British pounds, French francs, and Italian lira needed to pay war reparations.
C) The Allied countries would have to run current account surpluses with the United States in order to retire their debts with U.S. lenders.
D) All of the above.
E) None of the above.

Question 17

Trade barriers by the United States and other Allied countries made Germany's task of paying reparations after World War I difficult because:

A) Germany was unable to run a surplus on its financial account.
B) Germany was not able to run a current account deficit large enough to cover the cost of the payments.
C) Germany was not able to run a current account surplus large enough to cover the financial account deficit caused by the reparations payments.
D) Germany was not able to import enough goods to cover the cost of the reparations payments.

Question 18

The Smoot-Hawley Tariff of 1930:

A) was enacted by Britain's Parliament in order to punish Germany for its failure to make reparations payments.
B) is widely held as the cause of a costly trade war that soon engulfed much of the world.
C) lowered U.S. tariffs sharply so that the large U.S. economy could serve as an engine of growth for the rest of the world.
D) caused the U.S. stock market to crash.

Question 19

The Smoot-Hawley Tariff of 1930:

A) was the result of political log-rolling in the U.S. Congress.
B) is widely held as the cause of a costly trade war that soon engulfed much of the world.
C) helped to turn the 1930 recession into a worldwide depression.
D) All of the above.
E) None of the above.

Question 20

In 1930 the United States:

A) abolished all tariffs.
B) enacted sharply higher tariffs.
C) proposed negotiations to create free trade, but other countries disagreed.
D) forced trading partners to agree to VERs.

Question 21

The Reciprocal Trade Agreements Act was passed by the U.S. Congress:

A) in 1930.
B) four years after the Smoot-Hawley Tariff.
C) in 1947.
D) at the same time as the Bretton Woods Conference.

Question 22

The 1934 Reciprocal Trade Agreements Act passed by the U.S. Congress was a milestone in that:

A) it raised tariffs sharply.
B) it gave the executive branch of the U.S. government the authority to negotiate trade agreements.
C) it gave all trade policy responsibility back to Congress.
D) it prevented any movement toward free trade for several decades.

Question 23

When the U.S. Congress votes to give the U.S. President fast-track authority, this legislation normally includes the commitment by the:

A) Congress to quickly vote "yes" or "no" on the ratification of a treaty brought to it by the country's negotiators.
B) legislative branch of government to vote "yes" on a trade agreement, although it is given a limited time to make amendments.
C) trade negotiators to move quickly and avoid lengthy negotiations with other government officials.
D) legislature to quickly debate the individual provisions of the negotiated agreement and vote on those changes within a short period of time.

Question 24

The GATT negotiations for trade liberalization during the 1950s:

A) accomplished a substantial reversal in the high tariffs dating from the 1930s trade war.
B) accomplished little in the way of tariff reductions.
C) accomplished much more than subsequent negotiating rounds in the 1960s, 1970s, and 1980s.
D) helped to bring about the multi-nation multi-fiber agreement.

Question 25

One of the reasons why the GATT rounds of trade negotiations during the 1950s accomplished little in the way of tariff reductions was the:

A) lack of participation on the part of the European countries.
B) withdrawal of the United States from the GATT.
C) Cold War, which demanded policy makers' full attention to the detriment of issues such as trade policy.
D) "no-injury" clause included in the U.S. Congress' legislation giving the executive branch the authority to negotiate trade agreements.

Question 26

The International Trade Organization (ITO) agreed to during the Bretton Woods Conference was:

A) established in 1944.
B) established after World War II in 1947.
C) never established because of some countries' concerns about national sovereignty.
D) established by some European countries but the U.S. never joined.

Question 27

The fundamental principles of the GATT specify that, among other things:

A) countries commit to keeping their tariffs below explicit limits.
B) if trade is to be restricted, countries should use quotas rather than tariffs or other less visible trade barriers.
C) signatories of the agreement agree to give all nations, whether signatories to the GATT or not, most favored nation (MFN) treatment.
D) countries may discriminate in favor of neighboring countries.

Question 28

The General Agreement on Trade and Tariffs (GATT):

A) permitted countries to impose trade restrictions under certain conditions.
B) did not permit countries to impose trade restrictions under any circumstance.
C) mandated the immediate end to any and all trade restrictions, which is why it was widely ignored.
D) permitted countries to raise tariffs on some goods provided they lowered them on other goods.

Question 29

The U.S. Congress introduced several measures dealing with international trade which served to limit the U.S.'s ability to negotiate reductions in trade barriers, including:

A) fast-track procedures.
B) the National Security Amendment to the Trade Agreements Act in 1955, which mandated that the president establish free trade with key suppliers of strategic materials.
C) the peril-point provision in the Trade Agreements Act in 1955.
D) ratification of the General Agreement on Trade and Tariffs.

Question 30

If no industry is allowed to be "injured" by trade liberalization:

A) the full gains from free trade can never be achieved.
B) there will be less opposition to free trade.
C) trade negotiators would have greater freedom to negotiate mutually-beneficial tariff reductions.
D) b and c only.

Question 31

Trade liberalization without "injury" to any industry:

A) is welfare-maximizing for the economy as a whole.
B) cannot be welfare-maximizing for the economy as a whole.
C) proved to be a successful formula for reducing tariffs in the 1950s.
D) was the objective of European governments, which made it difficult for the U.S. to push its agenda of tariff reductions during the 1950s.

Question 32

The Long-Term Arrangement on Cotton Textiles (LTA) of 1962 was superseded by Multi-Fiber Arrangement (MFA) in 1973 because the:

A) latter included all countries while the former just limited imports from Japan.
B) latter arrangement was less restrictive and, therefore, more acceptable to developing countries.
C) former only limited imports of cotton textiles and clothing, which predictably led to increased imports of other fabrics.
D) former proved to be too restrictive of international trade and, in the interest of free trade, was replaced by the less restrictive MFA.

Question 33

The Kennedy Round was much more successful in reducing tariffs than previous rounds because:

A) countries agreed to replace tariffs with VERs.
B) fewer countries participated, thus reducing the potential conflicts.
C) the WTO established a permanent organization to manage the negotiations.
D) the United States finally abandoned the "no injury" clause, thus freeing its negotiators to make more substantial "concessions."

Question 34

The agendas of the successful Kennedy and Tokyo Rounds were, by the 1980s, considered to be inappropriate for achieving further trade liberalization because:

A) they ignored tariffs on most manufactured products.
B) they had dealt mostly with issues of concern to developing countries, which did not account for most of the world's trade.
C) barriers to agricultural trade had been ignored.
D) the "no injury" clause had shaped the agendas and prevented large reductions in tariffs.

Question 35

Participation in the GATT rounds:

A) diminished after the easy issues were dealt with in the early rounds.
B) increased from 23 countries in the first GATT round in 1947 to over 140 in the Doha Round.
C) peaked at 62 countries in the Kennedy Round, but developing countries have refused to participate in subsequent rounds.
D) grew to nearly 100 countries at the start of the Doha Round in 2001.

Question 36

In general, the many GATT negotiating rounds have greatly reduced barriers to international trade of:

A) all products.
B) most manufactured products.
C) agricultural products.
D) textiles.

Question 37

Of the various GATT rounds, the largest tariff reductions were achieved during the:

A) First and Second Rounds.
B) Dillon Round.
C) Kennedy and Tokyo Rounds.
D) First Round.

Question 38

During the Uruguay Round:

A) much progress was made in liberalizing trade in services.
B) there was no agreement reached on the difficult issue of intellectual property rights.
C) tariffs were not reduced any further because they were already very low.
D) All of the above.
E) None of the above.

Question 39

During the Uruguay Round:

A) trade in agricultural products was greatly liberalized.
B) an agreement on the difficult issue of intellectual property rights was reached.
C) the Multi-Fiber Arrangement was extended for another 20 years, despite strong opposition from developing economies.
D) countries agreed to eliminate all restrictions on trade in transportation services by 2005.

Question 40

The World Trade Organization was:

A) established in 1944.
B) established at the end of the Uruguay Round.
C) rejected by most large countries as an imposition on their national sovereignty.
D) agreed to in 1994 but has now been rejected by the United States.

Question 41

The round of trade talks initiated in 2001 is called the:

A) Reagan Round.
B) Tokyo Round.
C) Third Round.
D) Doha Round.

Question 42

Developing countries often complain that developed countries:

A) set higher tariffs on manufactured products imported from developing countries than they do on products which come mainly from other industrialized countries.
B) restrict imports from developed countries and promote cheap imports from developing countries.
C) trade too much with developing countries.
D) generally set lower tariffs on manufactured products imported from developing countries than they do on products which come mainly from other industrialized countries.

Question 43

Tariff escalation:

A) is often alleged but there is little proof of it actually occurring.
B) was formally banned when countries signed on to the GATT back in 1947.
C) is said to occur when countries levy higher ad valorem tariffs for manufactured products than for raw materials, and they levy increasingly higher tariffs the higher the value added.
D) is just another word for a tariff war.

Question 44

The Most Favored Nation (MFN) principle says that:

A) a country should grant its favorite trade partners easier access to its national market than it grants to less favored trade partners.
B) a country should grant any country the same trade privileges that it grants its most favored trade partner.
C) a country should grant another country precisely the same trade privileges that the other country grants it.
D) a country may not grant other countries the same privileges that it grants a country designated as its designated most favored trading partner.

Question 45

The Most Favored Nation (MFN) principle essentially says that:

A) countries should use their trade policies to discriminate in favor of some countries.
B) countries should not discriminate against other countries when they apply their trade policies.
C) countries should open their markets more for poorer countries.
D) regional free trade areas are preferable to multilateral free trade.

Question 46

When it comes to the Most Favored Nation (MFN) principle, the GATT:

A) is completely consistent across its many policy guidelines.
B) does not touch on the issue at all.
C) is contradictory.
D) relegates it to an appendix.

Question 47

In the GATT:

A) there are several separate provisions that have permitted countries, under certain circumstances, to violate the MFN principle in Article I.
B) there is only one clause dealing with the MFN, and it has permitted countries, under certain circumstances, to violate the MFN principle.
C) there is no mention of the MFN principle.
D) there is just one clause that violates the MFN principle, and it deals with free trade areas.

Question 48

In the case of a common market, member countries agree to:

A) completely eliminate all restrictions on the flow of goods between their economies, while each country maintains its existing restrictions on trade against all outside countries.
B) completely eliminate all restrictions on the flow of goods and factors of production, including labor, between their economies.
C) partially eliminate trade restrictions between their economies, while each country maintains its existing restrictions on trade against all outside countries.
D) None of the above.

Question 49

The member countries of a customs union not only agree to allow the free trade of goods between their economies, but they also agree to:

A) permit labor to migrate freely between the member countries.
B) harmonize all economic policies.
C) set common tariffs and other trade restrictions against nonmember countries.
D) let each member country set its own tariffs and other trade restrictions against outside countries.

Question 50

Which of the following is not a characteristic of a Free Trade Area (FTA)?

A) All members of the trade bloc apply the exact same tariff rates against outside countries.
B) All members of the trade bloc eliminate tariffs against other members.
C) There are no quotas on imports from other trade bloc members.
D) All trade bloc members decide on their own tariff rates on imports from outside the trade bloc.

Question 51

Which of the following is not a characteristic of a Customs Union (CU)?

A) All members of the trade bloc apply the exact same tariff rates against outside countries.
B) The members do not necessarily permit the free movement of labor between them.
C) There are no quotas on imports from other trade bloc members.
D) All trade bloc members set their own tariff rates on imports from outside the trade bloc.

Question 52

A common market:

A) allows for the free trade of goods among member countries.
B) sets common tariffs and other trade restrictions against outside countries.
C) permits the free movement of factors of production.
D) All of the above.
E) None of the above.

Question 53

The different stages of economic integration among groups of countries include (1) a common market, (2) a free-trade area, (3) an economic union, (4) a preferential trade area, and (5) a customs union. The proper order of the above stages in terms of least integrated to most integrated is:

A) (1), (2), (3), (4), (5)
B) (2), (4), (5), (1), (3)
C) (4), (2), (5), (3), (1)
D) (4), (2), (5), (1), (3)

Question 54

An economic union has all the characteristics of a customs union plus:

A) the coordination of economic policy.
B) the free movement of factors of production.
C) close coordination of monetary and fiscal policies.
D) all of the above.
E) None of the above.

Question 55

An important point to remember from the theoretical analysis of economic integration is that the formation of a regional free trade area:

A) has a theoretically ambiguous welfare effect.
B) definitely decreases the net overall welfare of the member countries.
C) definitely increases the overall welfare of the member countries.
D) definitely decreases the overall welfare of the non-member countries.

Question 56

Trade diversion is possible if a country:

A) rejects the "most-favored-nation" principle and discriminates among countries in terms of the tariffs it levies.
B) joins a free-trade area.
C) forms an economic union with a neighboring country.
D) All of the preceding statements are true.
E) None of the preceding statements is true.