Deck 7: Government Policy and International Trade

Question 1

Trade wars benefit countries with interventionist governments.

Answer 1

False

Question 2

Tariffs on industrial goods remain higher than tariffs on services.

Answer 2

False

Question 3

During the 1980s and early 1990s, the world trading system erected by the GATT gained momentum as protectionist demands generally decreased across the world.

Answer 3

False

Question 4

Protecting industries deemed important for national security and retaliating against unfair foreign competition are economic arguments for government intervention.

Question 5

Tariff barriers lower the costs of exporting products to a country.

Question 6

Antidumping actions are concentrated in certain sectors of the economy such as basic metal industries, chemicals, plastics, and machinery and electrical equipment.

Question 7

Unlike other trade policies, local content regulations tend to benefit consumers and not producers.

Question 8

Under a tariff rate quota, a higher tariff rate is applied to imports within the quota than those over the quota.

Question 9

Antidumping policies vary drastically from country to country.

Question 10

The infant industry argument is the latest argument for government intervention in trade.

Question 11

The TRIPS regulations oblige WTO members to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years.

Question 12

Antidumping policies are designed to punish foreign firms that are engaged in dumping.

Question 13

The WTO does not have the power to impose trade sanctions.

Question 14

GATT has not recognized the infant industry argument as a legitimate reason for protectionism.

Question 15

The World Trade Organization was created as part of the Uruguay Round.

Question 16

Export tariffs are far less common than import tariffs.

Question 17

Local content regulations provide protection for a domestic producer of parts by limiting foreign competition.

Question 18

Tariffs are generally pro-consumer and anti-producer.

Question 19

One of the successful outcomes of the Doha Round negotiations has been that many nations have proceeded with bilateral free trade agreements.

Question 20

Governments do not always act in the national interest when they intervene in the economy; politically important interest groups often influence them.

Question 21

To conform to local content regulations, a firm may have to locate more production activities in a given market than it would otherwise.

Question 22

A ________ helps domestic producers to compete against foreign imports.

A) An ad valorem tariff
B) A specific tariff
C) An import quota
D) A subsidy

Question 23

Tariffs do not benefit

A) consumers.
B) domestic producers.
C) governments.
D) domestic firms.

Question 24

Which of the following is one of the main instruments of trade policy?

A) tariffs
B) credit portfolios
C) opportunity costs
D) countervailing duties

Question 25

What term refers to a situation in which a government does not attempt to restrict what its citizens can buy or sell to another country?

A) tariffs
B) import quotas
C) free trade
D) subsidies

Question 26

In the United States, the only firms allowed to import cheese are certain trading companies, each of which is allocated the right to import a maximum number of pounds of cheese each year. This is an example of

A) a subsidy.
B) an import quota.
C) a local content requirement.
D) an ad valorem tariff.

Question 27

________ a requirement that some specific fraction of a good be produced domestically.

A) Administrative trade policies are
B) The Buy American Act is
C) A local content requirement is
D) Bureaucratic rules are

Question 28

Antidumping duties are often called

A) special circumstance duties.
B) positive duties.
C) retroactive duties.
D) countervailing duties.

Question 29

Import tariffs

A) reduce the price of foreign goods.
B) create efficient utilization of resources.
C) reduce the overall efficiency of the world economy.
D) are generally pro-consumer and anti-producer.

Question 30

If a domestic industry lacks the capacity to meet demand, an ________ can raise prices for both the domestically produced and the imported good.

A) import tariff
B) import quota
C) import subsidy
D) ad valorem tariff

Question 31

The extra profit that producers make when supply is artificially limited by an import quota is referred to as a

A) quota rent.
B) specific tariff.
C) tariff rate quota.
D) subsidy.

Question 32

By lowering production costs, ________ help domestic producers compete against foreign imports.

A) subsidies
B) duties
C) quotas
D) tariffs

Question 33

Which of the following observations about tariffs is true?

A) Tariffs are generally anti-producer and pro-consumer.
B) Export tariffs are used to raise revenue for the government.
C) Export tariffs are far more common than import tariffs.
D) Import tariffs increase the overall efficiency of the world economy.

Question 34

Which of the following observations about subsidies is true?

A) Government subsidies must be paid for, typically by taxing individuals and corporations.
B) Subsidies are used to reduce exports from a sector, often for political reasons.
C) Whether subsidies generate national benefits that exceed their national costs is debatable.
D) Subsidies help foreign producers gain a competitive advantage over domestic producers.

Question 35

A company that sells its product in a foreign market below the cost of production may be accused of

A) pandering.
B) profiteering.
C) carnivorous behavior.
D) dumping.

Question 36

Specific tariffs are

A) levied as a proportion of the value of the imported good.
B) government payment to domestic producers.
C) in the form of manufacturing or production requirements of goods.
D) levied as a fixed charge for each unit of a good imported.

Question 37

________ are levied as a proportion of the value of the imported good.

A) Specific tariffs
B) Import quotas
C) Ad valorem tariffs
D) Tariff rate quotas

Question 38

The ________ specifies that government agencies must give preference to American products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage.

A) General Agreement on Tariffs and Trade
B) Buy America Act
C) American Reinvestment Act
D) Smoot-Hawley Act

Question 39

Which of the following is a consequence of subsidies?

A) Subsidies make domestic producers vulnerable to foreign competition.
B) Subsidies lead to lowered production.
C) Subsidies protect inefficient domestic producers.
D) Subsidies produce revenue for the government.

Question 40

Governments use ________ to boost exports and restrict imports.

A) subsidies
B) local content requirements
C) administrative trade policies
D) formal instruments of trade policy

Question 41

According to ________, some specific fraction of a good must be produced domestically.

A) import quotas
B) voluntary export restraints
C) local content requirements
D) antidumping duties

Question 42

Who benefits from an import tariff?

A) the government
B) consumers
C) foreign producers
D) everyone

Question 43

Which of the following statements concerning a voluntary export restraint is true?

A) It benefits domestic producers by limiting import competition.
B) In most cases, it benefits consumers.
C) It lowers the domestic price of an imported good.
D) It is a variant of the ad valorem tariff.

Question 44

A common hybrid of a quota and a tariff is known as

A) an import tariff quota.
B) a voluntary export restraint.
C) an ad valorem tariff.
D) a tariff rate quota.

Question 45

According to the Buy America Act, if a company wishes to win a contract from a U.S. government agency to provide some equipment, it must ensure that at least 51 percent of the product by value is manufactured in the United States. This is an example of

A) antidumping duties.
B) voluntary export restraints.
C) import quotas.
D) local content requirements.

Question 46

Administrative trade policies are

A) requirements that some specific fraction of a good be produced domestically.
B) quotas on trade imposed by the exporting country.
C) bureaucratic rules designed to make it difficult for imports to enter a country.
D) designed to punish foreign firms that engage in dumping.

Question 47

According to the infant industry argument, many developing countries have a potential ________ in manufacturing, but new manufacturing industries cannot initially compete with established industries in developed countries.

A) absolute advantage
B) comparative advantage
C) opportunity cost
D) competitive advantage

Question 48

Local content regulations

A) protect domestic producers by limiting foreign competition.
B) lower the prices of imported components.
C) tend to benefit consumers and not producers.
D) encourage outsourcing of production units.

Question 49

What was the purpose of the establishment of the Common Agricultural Policy (CAP) by the European Union?

A) to increase imports and raise prices
B) to protect the jobs of Europe's farmers
C) to increase the import of grapes for the wine industry
D) to make farmers in Europe more productive

Question 50

________ is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value.

A) Export restraint
B) Dumping
C) Local content requirement
D) Ad valorem

Question 51

The Japanese government was pressured by the U.S. government to place limits on the number of vehicles exported to the United States by Japanese automobile producers in 1981. This is an example of

A) tariff rate quota.
B) specific tariffs.
C) voluntary export restraint.
D) ad valorem tariff.

Question 52

A quota rent is

A) a quota on trade imposed by the exporting country.
B) levied as a fixed charge for each unit of a good imported.
C) levied as a proportion of the value of the imported good.
D) the extra profit producers make when supply is artificially limited by an import quota.

Question 53

The Netherlands exports tulip bulbs to almost every country in the world except Japan. This was because in Japan, customs inspectors insisted on checking every tulip bulb by cutting it vertically down the middle. This is an example of which of the following trade barriers?

A) export restraint
B) administrative trade policies
C) local content requirement
D) ad valorem

Question 54

Foreign producers typically agree to voluntary export restrictions because

A) their manufacturing capacity is limited.
B) they can divert their exports to other countries and charge more for their products.
C) they fear far more damaging punitive tariffs or import quotas might follow if they do not.
D) they are required to by the World Trade Organization.

Question 55

According to the ________ policy, subsidies can help a firm achieve a first-mover advantage in an emerging industry.

A) strategic trade
B) antidumping
C) tariff quota
D) free trade

Question 56

In 1997, two South Korean manufacturers of semiconductors, LG Semicon and Hyundai Electronics, were accused of selling dynamic random access memory chips (DRAMs) in the U.S. market at below their costs of production. It was alleged that the firms were trying to unload their excess production in the United States. This is an example of

A) an ad valorem tariff.
B) a subsidy.
C) dumping.
D) an import quota.

Question 57

Tariff rate quotas are common in agriculture, where their goal is to

A) reduce the use of synthetic fertilizers.
B) limit imports over quota.
C) increase agricultural imports.
D) increase foreign competition.

Question 58

Strategic trade policy suggests that a government should use ________ to support promising firms that are active in newly emerging industries.

A) tariff rate quotas
B) quota rents
C) subsidies
D) ad valorem tariffs

Question 59

An ____ is a direct restriction on the quantity of some good that may be imported into a country.

A) import tariff
B) import quota
C) import subsidy
D) ad valorem tariff

Question 60

________ is a quota on trade imposed by the exporting country, typically at the request of the importing country's government.

A) Voluntary export restraint
B) Specific tariff quota
C) Trade reconciliation
D) Ad valorem tariff

Question 61

The Smoot-Hawley Act was aimed at

A) diverting consumer demand toward foreign products.
B) promoting unrestricted free trade.
C) limiting global warming.
D) avoiding rising unemployment.

Question 62

Economist Paul Krugman has suggested that trade policy designed to retaliate against another country's trade policy would

A) benefit the multinational firms of both countries.
B) benefit the citizens of both countries.
C) hurt the multinational firms of both countries.
D) hurt the citizens of both countries.

Question 63

Until 1995, GATT rules applied only to

A) services.
B) industrial goods.
C) textiles.
D) agricultural products.

Question 64

The TRIPS regulations established at the 1995 Uruguay Round

A) established regulations on patents and copyrights.
B) set a new level of agriculture subsidies.
C) organized OECD countries to eliminate tariffs on textiles.
D) established new tariff levels on technology.

Question 65

According to the 1986 Uruguay Round, the ________ was to be created to implement the GATT agreement.

A) World Trade Organization
B) International Monetary Fund
C) United Nations
D) World Bank

Question 66

According to the strategic trade policy argument,

A) government intervention is not required because firms can borrow money from the capital markets to finance the required investments.
B) selling goods in a foreign market at below their "fair" market value is legally and ethically justified.
C) government support can help domestic firms overcome the first-mover advantages enjoyed by foreign competitors.
D) a government should use subsidies to support promising firms that are active in old, established industries.

Question 67

Strategic trade policy suggests that in industries where the existence of substantial scale economies implies that the world will profitably support only a few firms, countries may predominate in the export of certain products simply because they had firms that were able to

A) influence the assignment of tariffs.
B) receive government subsidies.
C) capture first-mover advantages.
D) capitalize on late-mover advantages.

Question 68

Economic problems during the Great Depression were compounded in 1930 when the U.S. Congress passed the ________, aimed at avoiding rising unemployment by protecting domestic industries and diverting consumer demand away from foreign products.

A) Smoot-Hawley Act
B) Antidumping Act
C) Helms-Burton Act
D) D'Amato Act

Question 69

According to the ________ argument, governments should temporarily support new industries until they have grown strong enough to meet international competition.

A) retaliatory action
B) human rights
C) infant industry
D) antidumping

Question 70

Which of the following is a reason for the pressure for greater protectionism that occurred during the 1980s and early 1990s?

A) The U.S. Congress erected an enormous wall of tariff barriers.
B) Japanese economic failure strained the world trading system.
C) The persistent trade surplus in the United States strained the world trading system.
D) Many countries found ways to get around GATT regulations.

Question 71

________ are the highest rate that can be charged, which is often, but not always, the rate that is charged.

A) Ad valorem tariff rates
B) Tariff rents
C) Specific tariff rates
D) Bound tariff rates

Question 72

Which of the following is a political reason for governments to intervene in markets?

A) to help citizens obtain jobs in foreign markets
B) to aid their country's businesses in foreign markets
C) to subsidize multinational companies
D) to protect jobs and industries

Question 73

After the Uruguay Round of GATT negotiations extended global trading rules to cover trade in services, the first two industries targeted for reform by the WTO were

A) textiles and technology.
B) telecommunications and financial services.
C) automotive and aerospace.
D) agriculture and consulting services.

Question 74

Free trade as a government policy was first officially embraced by Great Britain in 1846, when the British Parliament repealed a law that placed a high tariff on

A) all agricultural products.
B) wheat.
C) textiles.
D) corn.

Question 75

TRIPS regulations oblige WTO members to

A) grant and enforce patents lasting at least 100 years.
B) grant and enforce copyrights lasting 100 years.
C) comply with the rules within five years in the case of the rich countries.
D) comply with the rules within 10 years in the case of the poorest countries.

Question 76

The infant industry argument is criticized because it relies on an assumption that

A) new manufacturing industries in developing nations can initially compete with established industries in developed countries.
B) selling goods in a foreign market at below their "fair" market value is legally and ethically justified.
C) the domestic industry in a developing nation lacks the capacity to meet demand.
D) firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital market.

Question 77

The WTO argues that removing tariff barriers and subsidies in the agricultural sector could

A) protect domestic agriculture in developed nations.
B) lower the overall level of agricultural trade.
C) restrict global economic growth.
D) lower prices to consumers.

Question 78

Economist Paul Krugman suggests that strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry is a beggar-thy-neighbor policy that

A) provides enhanced protection for intellectual property of those firms.
B) boosts national income at the expense of other countries.
C) reduces domestic agricultural profits.
D) depletes national income to the benefit of other countries.

Question 79

What was the result of the Smoot-Hawley Act?

A) Other countries reacted by raising their own tariff barriers.
B) Other countries reacted by lowering their trade barriers.
C) U.S. exports increased.
D) The United States began to get out of the Great Depression.

Question 80

The U.S. government has used the threat of punitive trade sanctions to try to get the Chinese government to enforce intellectual property laws. This is an example of government intervention based on

A) human rights protection.
B) national security.
C) consumer protection.
D) retaliation.