Question 1

What are the roles of the Bretton Woods institutions?

Accepted Answer

The Bretton Woods institutions refer to the World Bank and the International Monetary Fund (IMF), which were both created in 1944 during the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire, USA. These institutions were established to help rebuild the international economic system after World War II and to promote international economic cooperation. Their roles have evolved over time, but they continue to play significant parts in the global economy.

**International Monetary Fund (IMF):**

1. **Promoting Monetary Cooperation:** The IMF aims to facilitate international monetary cooperation and provide a forum for consultation and collaboration on international monetary issues.

2. **Facilitating Balanced Growth of International Trade:** The IMF works to encourage the expansion and balanced growth of international trade, which contributes to the promotion and maintenance of high levels of employment and real income.

3. **Promoting Exchange Stability:** The IMF seeks to promote exchange rate stability, maintain orderly exchange arrangements among members, and avoid competitive exchange rate devaluation.

4. **Providing Financial Assistance:** The IMF provides temporary financial assistance to countries to help them address balance of payments problems. This assistance often comes with conditions that require the implementation of economic reforms.

5. **Offering Technical Assistance and Training:** The IMF provides technical assistance and training to help countries strengthen their capacity to design and implement effective policies.

**World Bank Group:**

The World Bank Group consists of five institutions: the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID).

1. **Reducing Poverty:** The overarching goal of the World Bank is to reduce poverty by providing loans, grants, and technical assistance to developing countries for development programs (e.g., infrastructure, health, education) that are expected to improve economic prospects and quality of life.

2. **Promoting Economic Development:** The World Bank provides financial and technical support to help countries implement development projects, such as building roads, schools, and hospitals, which are crucial for economic development.

3. **Encouraging Investment:** Through the IFC and MIGA, the World Bank Group encourages private sector investment in developing countries by providing financing and risk mitigation products.

4. **Capacity Building:** The World Bank offers support to build the capacity of governments to manage economic policy effectively and to create an environment conducive to investment and growth.

5. **Addressing Global Challenges:** The World Bank also works on global issues such as climate change, public health, and education, providing expertise and funding to address these challenges in a coordinated way.

Both the IMF and the World Bank are pivotal in providing financial stability, economic development, and poverty reduction. They work closely with member countries, other international organizations, and the private sector to achieve their goals.

Question 2

According to Dunning's OLI Framework a firm's foreign investment decisions are driven by:

Accepted Answer

Dunning's OLI Framework proposes that firms' foreign investment decisions are driven by three factors: Ownership advantages (O), Location advantages (L), and Internalization advantages (I). Therefore, the correct choice is C as it includes Ownership, Location, and Internalization factors. Choice A includes Internationalization instead of Location, and choice B includes Overseas instead of Ownership. Choice D includes Language, which is not among the three factors proposed by the OLI Framework.

Question 3

What is meant by the employment argument which is used by some national governments to justify protecting certain domestic industries? Provide a real world example to illustrate your answer.

Accepted Answer

The employment argument is used by some national governments to justify protecting certain domestic industries in order to preserve jobs for their citizens. This argument suggests that if the government allows foreign competition to enter the market, it could lead to job losses in the domestic industry, which would have negative effects on the economy and the livelihoods of the workers.

A real-world example of this can be seen in the United States' steel industry. The U.S. government has implemented tariffs on imported steel in an effort to protect domestic steel producers and preserve jobs in the industry. The argument is that allowing cheaper foreign steel to flood the market would lead to layoffs and closures of domestic steel plants, resulting in a loss of jobs for American workers.

However, critics of this approach argue that protectionist measures like tariffs can also lead to higher prices for consumers and retaliation from other countries, ultimately harming the overall economy. They argue that it may be more beneficial to focus on retraining and supporting workers in declining industries, rather than trying to artificially prop up uncompetitive domestic industries.

Question 4

Based on the Heckscher-Ohlin model why would you expect a country such as India to export hand-made carpets while a country such as Germany would be expected to import these products?

Accepted Answer

The answer of Based on the Heckscher-Ohlin model why would...

Question 5

According to the International Product Cycle Theory comparative advantage shifts to developing countries such as Mexico, India and China in the _________ stage of the cycle.

Accepted Answer

According to the International Product Cycle Theory, comparative advantage shifts to developing countries such as Mexico, India, and China in the third stage of the cycle, which is known as the "maturing product" stage. This occurs when the innovation and development of the product have reached their peak in the home country, and production is moved to countries with lower labor costs and other favorable conditions.

Question 6

Unlike the International Product Cycle Theory, Porter's Diamond of National Advantage suggests that countries can maintain their competitive advantage in specific industries over long periods of time irrespective of the impact of labor costs.

Accepted Answer

The Porter's Diamond model takes into account various factors such as factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry, which can contribute to a country's competitive advantage in a particular industry. This model suggests that countries can maintain their competitiveness over long periods of time, by continuously upgrading their inputs, leveraging the demand conditions, and supporting infrastructure and institutions. Labor costs are not the only deciding factor for a country's competitive advantage as per this model.

Question 7

Tariffs and quotas are both measures used by national governments to protect domestic industries. What is the difference between a tariff and a quota?

Accepted Answer

The answer of Tariffs and quotas are both measures used...

Question 8

Which is NOT a form of government export promotion?

Accepted Answer

Establishing voluntary export restrictions on local firms is a form of government import promotion, not export promotion. The other options (provision of market intelligence, export subsidies, and export financing) are all forms of government export promotion.

Question 9

Voluntary export restraints have been used mainly in areas such as textiles, automobiles, and steel and are intended to:

Accepted Answer

Voluntary export restraints are measures by exporting countries to limit the amount of their exports to a particular country. They are often used to help companies in the importing nation survive by reducing foreign competition, allowing these companies time to adjust to the competition.

Question 10

The Mexican ambassador to Canada knew exactly why he was being asked to attend a meeting in Ottawa. Mexican vegetable farmers were rumored to be subsidized by their government. Canadian farmers in British Columbia and Ontario (two Canadian provinces) had complained to the Canadian government calling for the imposition of ________________ on Mexican imports. The Mexican ambassador knew that if he was not careful in discussions with trade officials in Ottawa the matter could soon be before the World Trade Organization.

Accepted Answer

The Canadian farmers had called for the imposition of countervailing duties on Mexican imports, which are tariffs imposed to counteract subsidies given by a foreign government to its producers. The Mexican ambassador knew that this issue could escalate and end up in front of the World Trade Organization, so countervailing duties are the most relevant term.

Question 11

____________________ establish a low tariff level on an initial quantity of the product being imported into the country but beyond an initial volume the tariff rate imposed on additional quantities imported escalates markedly.

Accepted Answer

This type of policy is known as a tariff rate quota, where the initial quantity of imports is subject to a lower tariff rate but any additional amounts beyond that threshold face a higher tariff rate.

Question 12

According to transaction cost analysis, firms seek to minimize transaction costs in their efforts to expand and market their products globally. These may be classified as Contracting costs, Search costs, Monitoring Costs and Enforcement costs.

Accepted Answer

This statement is true as transaction cost analysis states that firms strive to reduce transaction costs, including contracting, search, monitoring, and enforcement costs, when expanding and marketing their goods and services globally.

Question 13

What is meant by the infant industry argument which is used by some national governments to justify protecting certain domestic industries?

Accepted Answer

The answer of What is meant by the infant industry...

Question 14

The ___________ theory attempts to explain international trade by examining the pattern of consumer demand for products.

Accepted Answer

The Linder theory, proposed by economist Staffan Linder, suggests that the pattern of consumer demand for products is what drives international trade. The theory suggests that countries with similar income levels and thus similar consumer demands for goods are more likely to trade with each other, while countries with different income levels are less likely to engage in trade with each other.

Quiz 5: Trade Protectionism