Question 1

Almost half of Asia's exports today are sent to:
A) North America.
B) Europe.
C) other Asian countries.
D) the Middle East.

Accepted Answer

The most accurate choice is C, as the vast majority of Asia's exports are within the region itself. According to recent data from the Asian Development Bank, around 60% of Asia's trade is intra-regional. Therefore, C is the best choice. A and B are both significant destinations for Asian exports, but combined they account for less than half of Asia's total exports. D is not a significant destination for Asian exports.

Question 2

Tariff escalation makes it harder for developing nations to move up the value-added ladder by imposing higher tariffs on imports of ________ than on ________.
A) raw materials; processed goods
B) processed goods; raw materials
C) primary goods; secondary goods
D) natural resources; finished products

Accepted Answer

Tariff escalation imposes higher tariffs on processed goods than on raw materials, making it harder for developing nations to move up the value-added ladder. This is because they are forced to export raw materials at low prices and import processed goods at high prices, creating a structural barrier to their economic development.

Question 3

Which of the following refers to the accumulation of foreign assets,usually financed by primary product export earnings?
A) offshore bank account
B) foreign investment
C) sovereign wealth fund
D) international hedge fund

Accepted Answer

The accumulation of foreign assets, financed by primary product export earnings, refers to a sovereign wealth fund, which is a state-owned investment fund. A sovereign wealth fund invests in various types of assets such as stocks, bonds, real estate, and commodities in foreign countries. Offshore bank accounts are bank accounts held outside of one's country of residence, often used for tax evasion. Foreign investment refers to the investment made by individuals or companies in a foreign country. An international hedge fund is a type of investment fund that invests in global markets to generate high returns.

Question 4

According to British economist Paul Collier,which of the following significantly increases the probability that a nation will experience a civil war?
A) low income
B) slow growth
C) dependence on primary commodity exports
D) all of the above

Accepted Answer

According to economist Paul Collier, all of the above factors (low income, slow growth, and dependence on primary commodity exports) significantly increase the likelihood that a nation will experience a civil war.

Question 5

Which country is the largest trading partner of the United States?
A) Mexico
B) Canada
C) China
D) Japan

Accepted Answer

The largest trading partner of the United States is Canada, which has significant trade relations with the US due to geographical proximity and the North American Free Trade Agreement (NAFTA). In 2019, the total US-Canada bilateral trade amounted to $718 billion. Mexico is the second-largest trading partner of the US, with a bilateral trade of $614 billion in 2019. China and Japan are among the top trading partners of the US, but their total bilateral trade volumes with the US are smaller than that of Canada and Mexico.

Question 6

________ is the ratio of the prices a nation receives for the goods it exports relative to the prices it receives for the goods it imports.
A) Exchange equilibrium
B) International terms of trade
C) Balance of trade
D) Net exports

Accepted Answer

The ratio described in the question is known as international terms of trade. It is not exchange equilibrium, which refers to the point where the supply of a currency equals the demand for it. It is also not balance of trade, which refers to the difference between a country's exports and imports. Net exports, on the other hand, refers to the value of a country's exports minus the value of its imports.

Question 7

Which of the following is the price at which anyone holding foreign exchange can convert it into local currency?
A) real exchange rate
B) nominal exchange rate
C) foreign exchange rate
D) national exchange rate

Accepted Answer

The nominal exchange rate is the price at which one currency can be exchanged for another, meaning it is the rate at which anyone holding foreign exchange can convert it into local currency.

Question 8

Expanded production of primary products can stimulate ________ by making lower-cost primary goods available as inputs to other industries.
A) backward linkages
B) forward linkages
C) horizontal linkages
D) vertical linkages

Accepted Answer

Forward linkages occur when the production of primary goods provides inputs to other industries, thus stimulating further economic activity and development in those sectors.

Question 9

In 2009,which nation replaced Germany as the world's largest exporter of goods?
A) United States
B) Japan
C) Russia
D) China

Accepted Answer

In 2009, China replaced Germany as the world's largest exporter of goods.

Question 10

Which term labels the problem that emerging economies could face when experiencing export booms of primary commodities?
A) Holland sickness
B) Dutch disease
C) Netherlands syndrome
D) Dutch illness

Accepted Answer

Dutch disease refers to the problem of an emerging economy experiencing an export boom of primary commodities leading to an appreciation of the currency, making other sectors less competitive and causing a decline in their output and employment. The term originated from the experience of the Netherlands in the 1960s when gas exports caused a surge in the value of the Dutch guilder, negatively impacting other sectors of the economy.

Question 11

An increase in nontradables prices causes the real exchange rate (RER)to:
A) appreciate.
B) depreciate.
C) remain unchanged.
D) equal the nominal exchange rate.

Accepted Answer

An increase in nontradables prices domestically makes domestic goods relatively more expensive compared to foreign goods. This increases the real value of the domestic currency relative to foreign currencies, leading to an appreciation of the real exchange rate (RER).

Question 12

________ prices are domestic prices without trade.
A) Autarky
B) Commodity
C) Absolute
D) National

Accepted Answer

Autarky refers to a situation where there is no international trade, and therefore the prices that prevail in the domestic market are known as autarky prices. These prices are determined solely by the forces of supply and demand within the borders of a country, and are not influenced by trade with other nations. Options B, C, and D do not accurately describe prices without trade.

Question 13

The best prevention for Dutch disease effects is to avoid or reverse the initial real ________ of the currency.
A) appreciation
B) depreciation
C) devaluation
D) purchasing power

Accepted Answer

Dutch disease occurs when a country experiences a significant increase in revenue from natural resource exports, leading to an appreciation of the currency. This appreciation makes other sectors of the economy less competitive, leading to a contraction in industries such as agriculture and manufacturing. Thus, an appreciation in the currency is the initial cause of Dutch disease, and preventing or reversing it through monetary policy or other measures is the best prevention.

Question 14

Raul Prebisch,Hans Singer,and other economists argued that,over the long run,prices for primary commodity exports on the world markets tend to fall relative to prices of manufactured goods.This concept is known as:
A) export pessimism.
B) import optimism.
C) export cynicism.
D) trade confidence.

Accepted Answer

The concept described in the question is commonly known as the Prebisch-Singer hypothesis, which argues that primary commodity prices tend to decline relative to manufactured goods prices, leading to a deterioration of the terms of trade for developing countries that rely heavily on primary commodity exports. This idea is based on the observation that the demand for primary commodities is relatively inelastic, while supply is more elastic, leading to downward pressure on prices over time. The term "export pessimism" is often used to refer to this view that countries relying heavily on primary commodity exports face structural challenges that may hinder their economic development prospects.

Question 15

The bulk of world trade originates and is exchanged between ________ economies.
A) high-income
B) low-income
C) developing
D) closed

Accepted Answer

High-income economies, or developed countries, such as the United States, Japan, and Germany, are responsible for the majority of world trade. These countries have established infrastructure and established businesses that are able to participate in global trade.

Question 16

Adam Smith's term for the situation in which a country has the capacity to produce more than it can sell in the domestic market is known as:
A) safety stock.
B) leftover goods.
C) capacity maximization.
D) vent for surplus.

Accepted Answer

Adam Smith used the term "vent for surplus" to describe the situation in which a country can produce more goods than it can sell in the domestic market and needs to find a way to export them to other markets to avoid overproduction and waste.

Question 17

A nation will have a(n)________ of a good when its production of that good is relatively more productive than that of another nation.
A) absolute advantage
B) comparative advantage
C) relative advantage
D) trade advantage

Accepted Answer

The concept described in the statement is that of comparative advantage, which refers to a country's ability to produce a good at a lower opportunity cost than another country. It is not related to absolute advantage, relative advantage or trade advantage.

Question 18

Most world trade involves manufactured goods,but ________ still represent about one-third of the value of all traded goods.
A) primary products
B) secondary products
C) intermediate materials
D) processed materials

Accepted Answer

The question states that "manufactured goods" are the majority of world trade, implying that they make up more than half of the value of all traded goods. Therefore, options B-D (secondary products, intermediate materials, and processed materials) are less likely to represent such a large proportion of traded goods. Option A, primary products, refers to raw materials such as agricultural goods, minerals, and fuels, which are still traded in significant amounts despite the dominance of manufactured goods in world trade. Therefore, option A is the best choice to complete the sentence.

Question 19

Gains from trade are made up of the gains from ________ plus the gains from ________.
A) population size; diversification
B) exchange; diversification
C) technology; education
D) exchange; specialization

Accepted Answer

Gains from trade refer to the benefits that two parties receive when they specialize in producing goods or services that they are most efficient at and trade with each other. The gains from trade are made up of the gains from exchange (getting goods and services that they could not have otherwise) and the gains from specialization (producing the goods or services that they are most efficient at and therefore using resources more efficiently). Therefore, option D is the correct choice as it refers to the gains from exchange and specialization.

Question 20

________ acts like a tax on economic activity and encourages rent-seeking behavior rather than productive investment.
A) Fraud
B) Bribery
C) Lobbying
D) Corruption

Accepted Answer

Corruption acts like a tax on economic activity because it increases the costs of doing business and reduces the efficiency of economic transactions. It also encourages rent-seeking behavior, where individuals or businesses seek to gain financial benefits through manipulation or exploitation of the political environment, rather than through productive investment and innovation.

Quiz 18: Trade and Development

Almost half of Asia's exports today are sent to:

Tariff escalation makes it harder for developing nations to move up the value-added ladder by imposing higher tariffs on imports of than on .

Which of the following refers to the accumulation of foreign assets,usually financed by primary product export earnings?

According to British economist Paul Collier,which of the following significantly increases the probability that a nation will experience a civil war?

Which country is the largest trading partner of the United States?

________ is the ratio of the prices a nation receives for the goods it exports relative to the prices it receives for the goods it imports.

Which of the following is the price at which anyone holding foreign exchange can convert it into local currency?

Expanded production of primary products can stimulate ________ by making lower-cost primary goods available as inputs to other industries.

In 2009,which nation replaced Germany as the world's largest exporter of goods?

Which term labels the problem that emerging economies could face when experiencing export booms of primary commodities?

An increase in nontradables prices causes the real exchange rate (RER) to:

________ prices are domestic prices without trade.

The best prevention for Dutch disease effects is to avoid or reverse the initial real ________ of the currency.

Raul Prebisch,Hans Singer,and other economists argued that,over the long run,prices for primary commodity exports on the world markets tend to fall relative to prices of manufactured goods.This concept is known as:

The bulk of world trade originates and is exchanged between ________ economies.

Adam Smith's term for the situation in which a country has the capacity to produce more than it can sell in the domestic market is known as:

A nation will have a(n) ________ of a good when its production of that good is relatively more productive than that of another nation.

Most world trade involves manufactured goods,but ________ still represent about one-third of the value of all traded goods.

Gains from trade are made up of the gains from plus the gains from .

________ acts like a tax on economic activity and encourages rent-seeking behavior rather than productive investment.