International Economics, 6¢ (Gerber) Chapter 1 The United States in a Global Economy 1. Countries such as the United States that have large populations tend to have A) higher trade-to-GDP ratios. B) lower trade-to-GDP ratios. C) relatively greater capital outflows. D) relatively smaller capital outflows. E) None of the above. 2. An important factor that increased international capital flows in the latter part of the 1800s was ‘A) the creation of the International Monetary Fund. B) the creation of numerous regional trade agreements. C) the rapid rate of East Asian economic growth. D) technological innovations. E) the creation of the World Bank. 3. One of the reasons we know that international labor mobility has been higher at other times is because ‘A) the percent of our population that was foreign born was higher. B) the percent of our population that was foreign born was lower. C) wages were lower. D) labor was important in agriculture. E) the population was younger. 4, Financial capital flows could include A) real estate purchases. B) construction of factories. C) sales of a business. ) the purchase of the physical assets and operations of a multinational corporation by another. E) currency market transactions. 5. An example of a foreign direct investment (FDI) would include ‘A) a U.S. couple buying land for their dream retirement home in Costa Rica. B) a U.S. mutual fund manager buying shares of stock in a Brazilian oil company. C) aU'S. firm expanding its U.S. operations. D) a Chinese consumer buying an imported Japanese car. E) a wealthy Mexican buying U.S. Treasury bills. 6. Economists A) describe reducing tariffs and quotas as shallow integration. B) describe reducing tariffs and quotas as deep integration. C) believe that changing domestic policies affecting trade is a relatively simple process. D) believe that the work of reducing trade barriers is done since most tariffs are low and most quotas climinated. E) believe the original motivation for nations forming domestic policies and regulations was to create trade barriers to foreign companies.7. Which of the following kinds of agreements between two or more countries would be an example of a deep integration measure? ‘A) An agreement to reduce tariffs and quotas B) An agreement to unify customs forms in order to speed up cross-border traffic C) An agreement to impose the same limits on cartels and monopolies D) An agreement to reduce exports E) An agreement to limit imports Chapter 2 International Economic Institutions Since World War II 8, Institutions are A) the same thing as organizations. B) associations of individuals or groups. C) always embodied in a written set of rules. D) asset of rules governing behavior, whether written or not. E) only relevant on international issues. 9. The international organization that serves as a forum for trade discussions and the development of trade rules is called A) the WTO. B) the World Bank. ) the IMF. D) Bretton Woods. E) the United Nations. 10, One of the most important and most visible roles of the IMF is to A) hold regular negotiations over tariff reductions. B) investigate countries that are charged with being unfair traders C) provide loans to countries that need capital to develop their economies. ) intercede by invitation when countries cannot pay their international debts. E) serve as a forum for negotiating free trade agreements between groups of nations. 1. The original mission of the World Bank was to A) provide capital to underdeveloped countries. B) provide capital to firms around the world, C) provide financial assistance for the reconstruction of war-damaged nations. D) provide a safe place for people around the world to put their money. E) help countries manage their exchange rates. 12. Most favored nation (MFN) status means that a country treats another country A) better than its other trading partners. B) the same as its other trading partners. C) worse than its other trading partners. D) any way it chooses since it is the "most favored nation." E) None of the above,13. When the United States gives MEN status to China, it means that A) China is treated better than other U.S. trading pariners. B) China is treated the same as other U.S. trading partners. C) China is treated worse than other U.S. trading partners. D) China is better than all the nations in the WTO. E) China is legally bound to reciprocate. 14, IMF conditionality refers to the A) technical assistance the IMF gives. B) minimum size of a national debt problem that a country must have before the IMF gets involved. C) minimum-sized loan the IMF will make. D) maximum-sized loan the IMF will make. E) changes a country must make in order to receive IMF financial assistance. Chapter 3. Comparative Advantage and the Gains from Trade 15, Which of the following is TRUE? ‘A) Adam Smith proposed the theory of comparative advantage as the basis for trade in The Wealth of Nations. B) David Ricardo proposed the theory of absolute advantage as the basis for trade. C) Absolute advantage is based on comparing the opportunity costs of trading partners. D) The Ricardian model assumes labor is perfectly mobile. 16. The economic philosophy that favors strict limits on imports and strong support for exports is called A) zero sum. B) autarky, C) mercantilism. D) comparative advantage. E) absolute advantage. 17. Suppose Mexico can produce 5 autos or 10 corn. Suppose the United States can produce 4 autos or 20 com. If opportunity costs are constant for both countries, then ‘A) the United States has a comparative advantage in com production. B) Mexico has a comparative advantage in com production. C) the United States cannot gain from trade with Mexico. D) the United States has a comparative advantage in auto production. 18. Suppose that Canada can produce 15 units of timber or 3 units of grain. Suppose that Mexico can produce 6 units of timber or 2 units of grain. Which of the following is CORRECT? ‘A) Mexico has a comparative advantage in grain production. B) Mexico has an absolute advantage in timber production. C) Canada has a comparative advantage in grain production. D) The countries would find trade mutually beneficial at a trading ratio of 1 grain for 2 timber. 19, A country possesses a comparative advantage in the production of a product if A) the opportunity cost, in terms of the amount of other products that it gives up to produce this product, is lower than it is for its trading partners. B) it possesses an absolute advantage in the production of this good compared to its trading partners.C) itis able to produce less of this good per worker than its trading partners. D) it can produce more of this good per hour than its trading partners. 20. Certain kinds of tropical fruits are impossible to grow outdoors in the United States. Suppose, however, that in order to create jobs in Wyoming, the U.S. government offered extensive subsidies to firms to produce bananas. With the subsidies, firms could build greenhouses and offer the fruit at world prices. A) The United States now has a comparative advantage in bananas. B) The United States has a comparative advantage, but is not competitive. C) The United States is competitive, but does not have a comparative advantage. D) The United States has a comparative advantage and is competitive. E) None of the above. 21. Economic restructuring that takes place as a result of opening to trade with other countries A) contradicts the idea of gains from trade. B) causes some trading activity to be zero sum. C) worsens the nation's allocation of resources. D) improves the nation's allocation of resources. E) is a highly unlikely event. Chapter5 Beyond Comparative Advantage 22. Comparative advantage has mixed results when it comes to predicting a country's trade patterns. Which of the following is FALSE? A) There are many potential products an economy might export that use the same comparative advantage. B) A large share of international trade is not based on comparative advantage. C) Comparative advantage has proven completely incapable of predicting trade D) Comparative advantage is a dynamic concept, which means that the spread of technology, improvement in skills, and learning-by-doing may alter a country's comparative advantage over time. 23, Intraindustry trade refers to: ‘A) international trade of products made within the same industry. B) international trade of products made across different industries. C) trade that occurs as a result of comparative advantage. D) the exchange of non-similar items. E) trade that occurs mostly within developing countries. 24, One reason that a large share of the trade between high-income industrial economies is intraindustry trade is because A) it is more advantageous than interindustry trade. B) high-income industrial economies produce in the first stage of the product cycle. C) high-income industrial economies are wealthier than developing countries. D) high-income industrial economies have dissimilar resource endowments in absolute terms. E) it allows firms to take advantage of internal economies of scale. 25. An internal economies of scale is defined as ‘A) one whose size or scale effects are not located in the firm, but in the industry. B) one with falling costs over a specific level of output.C) one with falling costs over a relatively large range of output. ) one with falling costs over a relatively large range of output, but definite declining profits 26. Which of the following is TRUE about monopolistic competition? ‘A) One firm serves as the entire industry. B) A small number of firms serve the entire market. C) Itis competition among many firms producing similar but differentiated products. D) The pattern of production and trade is difficult to predict. E) Itenjoys no economies of scale. 27. Which of the following does NOT indicate intraindustry trade? A) Trading Jeeps for Toyotas B) Trading Boeing airplanes for Airbus airplanes C) Trading Bush beer for Heineken beer D) Trading Japanese-made films for Hollywood-made films E) Trading oil for trucks 28. Under some circumstances, trade could stifle the development of new industries and reduce global efficiency. All of the following describe conditions that could lead to that situation EXCEPT ‘A) an initial head start gives a scale advantage to already existing firms in one country. B) diseconomies of scale make it impossible for new firms to enter the market. C) a location has a better-developed linkage between suppliers and producers, giving it a cost advantage. D) ahistorical accident, such as the shifting of airplane production to the United States to avoid World War II bombings, causes firms in one location to have a competitive advantage. Chapter 6 The Theory of Tariffs and Quotas 29, In a small country, the net national cost of tariff protection is equal to the reduction in consumer surplus minus A) the gain to foreigners. B) the increase in government revenue and the increase in producer surplus. C) the increase in government revenue. D) the increase in producer surplus. E) the efficiency loss and the consumption side loss. 30. Consumer surplus is equal to the area ‘A) under the demand curve and above the supply curve. B) above the supply curve and below the price line. C) under the demand curve. D) under the supply curve. E) under the demand curve and above the price line. 31. Producer surplus is equal to the area ‘A) under the demand curve and above the supply curve. B) above the supply curve and below the price line. C) under the demand curve. D) under the supply curve. E) under the demand curve and above the price line.32. Tariffs reallocate income from ‘A) consumers to producers. B) producers to consumers. C) government to producers. D) consumers to foreigners. E) Both A and D. 33. Large countries can improve their welfare by levying a tariff only if it does not ‘A) encourage rent seeking elsewhere in the economy. B) discourage innovation, C) lead to retaliation by the nation's trading partners. D)Alll of the above. E) None of the above. 34. Which of the following is FALSE? ‘A) Tariffs ate a relatively easy tax to administer and often form an important part of revenue for low- income countries. B) Taxes on income, sales, and property require more complex accounting systems than do tariffs. C) Low-income countries often have large informal markets with the sales of many goods and services not being recorded, which makes it difficult to apply many kinds of taxes. D) Taxes on income and property run into powerful interest groups in low-income countries, which work to prevent the creation or payment of these taxes. E) Tariffs are not an attractive tax option for most low-income countries, so they mostly rely on quota licenses for revenue. 35. In which way are tariffs different from quotas? ‘A) They reduce the volume of imported products. B) They raise the price of the imported products to consumers. ) They increase the domestic quantity supplied of the product. D) They raise government revenue. Chapter 7 Commercial Policy 36, The pattern of protection in industrial countries is particularly harmful to the interests of A) low-income developing countries. B) high-income industrial countries. C) Asian nations. D) European nations. E) None of the above. 37. High-income industrial nations such as the United States and Japan tend to have their highest tariffs in ‘A) newer, high-technology manufacturing industries. B) capital-intensive, diversified manufacturing. ©) agriculture, clothing, and textiles D) Both A and B. E) None of the above.38. Tariffs are highest in which sector internationally? A) Agriculture B) Energy C) Technology D) Automobiles 39. One reason why consumers are unlikely to be too upset about tariffs is because ‘A) most consumers benefit from protection. B) tariffS are an inexpensive way to create jobs. C) consumer losses are not real losses. ) the costs are so spread out that no one pays a big share of the total. E) the gains of producers are larger. 40. Which of the following is NOT a reason people tolerate tariffs and quotas? A) Ignorance B) Their personal jobs depend on tariffs and quotas. C) Costs may be hidden and hard to quantify. D) Costs of the policy are spread over a large number of people. E) The marginal expenses to fight the protection outweigh the personal marginal costs of the protection. 41. Infant industry protection requires ‘A) a positive technological externality. B) a national security externality. C) time limited protection. D) Both A and B. E) Both Aand C. 42. Historically, one of the most common reasons for countries to impose tariffs was A) to protect their national security. B) to raise revenue for the government. C) to eliminate unemployment. D) to counter inflation. E) None of the above. 43. If a large percentage of economic activity in developing countries is unrecorded, then the countries are likely to rely on which of the following taxes to provide government revenue? A) Sales taxes B) Property taxes C) Income taxes D) Tarifts Chapter 8 International Trade and Labor and Environmental Standards 4. All of the following are responsible for the removal of the formal trade barriers EXCEPT A) the sustained efforts of the trading partners themselves. B) the General Agreement on Tariffs and Trade (GATT). C) the World Trade Organization (WTO). D) regional trade agreements such as NAFTA. ) the World Bank and the IMF.45. Monopoly powers given to domestic utility companies to create economies-of-scale might unintentionally A) be an obstacle to increased international trade. B) be useful for the creation of a comparative advantage for the domestic country. C) not be used for rent-seeking behaviors. D) be a positive externality for the world as a whole. E) None of the above. 46. Which of the following is NOT an obstacle to increased international economic integration? ‘A) Monopoly powers given to domestic companies of individual nations B) High tariff rates imposed by industrialized nations ) Health and safety standard requirements D) Labor and environmental standard requirements E) Income disparities among and within trading partners 47. Harmonization of standards refers to A) the elimination of tariffs and quotas by trading partners. B) common product safety, environment, labor, and fair competition standards agreed upon by trading partners. C) the acceptance or keeping of a trading partner's standards as valid and sufficient by another trading partner. ) separate standards held by different trading partners which other partners refuse to recognize. E) All of the above. 48, Mutual recognition of standards refers to A) the elimination of tariffs and quotas by trading partners. B) common product safety, environment, labor, and fair competition standards agreed upon by trading partners. C) the acceptance or keeping of a trading partner's standards as valid and sufficient by another trading partner. D) separate standards held by different trading partners which other partners refuse to recognize. 49, Domestic firms operating abroad may find it economically beneficial to adopt environment-friendly standards because A) foreign nations may be upset if firms do not use the environment-friendly technology. B) the least-cost strategy usually involves the adoption of one set of environment-friendly technology rather than multiple standards. C) they may be forced to replace the old technology whenever the foreign country experiences positive economic development. D) their environment-unfriendly technology may be replaced by foreign-based technology. E) Only C and D are correct. 50. The race-to-the-bottom concept described in the text refers to AA) the situation in which countries with high standards are forced to lower their standards or face the loss of jobs and industry. B) the situation in which human rights are not respected by trading countries. ©) adopting the standards of a few selected middle-income and high-income countries. D) the use of low per-capita income as a means of comparing the well-being of individuals. E) None of the above.