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Date Created: 10/26/15
Multiple Choice Identify the letter of the Choice that best completes the statement or answers the question For each watch Denmark produces it gives up the opportunity to make 50 pounds of Cheese 1 Germany can produce one watch for every 100 pounds of Cheese it produces Which of the following is true with regard to opportunity costs in the two countries A The opportunity cost of producing watches is higher in Denmark B The opportunity cost of producing Cheese is higher in Denmark C The opportunity cost of producing Cheese is identical in both countries D It is impossible to compare opportunity costs because the two countries use different currencies E In both countries combined the opportunity cost of one watch is 150 pounds of Cheese In New Zealand one worker can produce 40 walking sticks or 10 boomerangs each hour 2 What is the opportunity cost of producing one walking stick A 40 boomerangs B 10 boomerangs C 4 boomerangs D 14 of a boomerang E 12 worker It is possible for one country to have a comparative advantage in the production of all 3 products A True B False The basis for international trade is 4 A established trade patterns B the size of gold holdings of two countries C shipping and transportation costs D absolute advantage E comparative advantage Which of the following is not a reason for international specialization 5 A some countries have educated trained workers while other countries have unskilled workers B tastes and preferences tend to be different in different countries C economies of scale can allow larger specialized producers to operate at lower average cost D mineral resources are often concentrated in particular countries E the world price of a good is determined by the world supply and demand for it Exhibit 1231 Domestic Supply and Demand fdrTLllipa in Holland Demand Suppl D P D F39 12DDD D EIDDD D 1DDDD l DDD l ELDDD 2 DDDD 2 I Puf n T H Puf n T 1 An indifference curve a shows that most people really are indifferent about international F trade b shows the demand preferences of consumers P c re ects the relative costs of production within a nation F d indicates how much labor a country has F 2 Indifference curves are a upward sloping F b straight lines F c shaped similarly to production possibilities frontiers P d downward sloping and convex bowed in to the origin P 3 An indifference map a shows the most efficient transportation route between two F trading nations b shows a set of consumer indifference curves some of which P intersect each other c shows a set of nonintersecting consumer indifference curves P d is a map showing how to get from one indifference curve to P another 4 A map of community indifference curves is an effort to depict a how to get from one community to another within a nation F b people who are indifferent about in which community they prefer P to live c the tastes or preferences of an entire nation F d different goods that are produced within the same community F 5 The marginal rate of substitution shows a the rate at which consumers are willing to substitute one good F for another in order to maintain the same level of total satisfaction b the rate at which rms are able to increase the production of one F good by reducing the production of another good c the rate of growth of a nation39s GDP F d the rate of growth of a nation39s labor force F 6 The marginal rate of transformation shows a the rate at which consumers are willing to substitute one good F for another in order to maintain the same level of total satisfaction b the rate at which rms are able to increase the production of one F good by reducing the production of another good c the rate of growth of a nation39s GDP F d the rate of growth of a nation39s labor force F 7 TRUE OR FALSE A nation maximizes satisfaction by reaching the highest possible indifference curve and in the absence of trade will produce where its production possibilities schedule is tangent to an indifference curve a True F b False F 8 A nation39s termsoftrade line a shows the interest terms at which it can nance imports from F other nations b is upwardsloping F c is another name for the nation39s production possibilities schedule F d shows the rate at which the nation can exchange one product F export for another product import in international trade 9 To maximize its satisfaction a nation will ensure that its termsoftrade line a is tangent to its production possibilities frontier at one point P production point and also to the highest attainable indifference curve at another point consumption point b is tangent to its production possibilities frontier and intersects an F indifference curve c intersects its production possibilities frontier and is tangent to an 1 indifference curve d intersects its production possibilities frontier at one point and an 1 indifference curve at another point 10 TRUE OR FALSE The Ricardian theory of comparative advantage focuses only on supply or cost conditions and ignores the role of demand in explaining trade patterns a True 1 b False f1 11 The equilibrium terms of trade for two nations a depends only on relative costs of production in the two nations 1 b will be equal to the domestic terms of trade of the smaller nation 1 c must be between the domestic terms of trade or price ratios of P the two nations d will be equal to the domestic terms of trade of the larger nation 1 12 The theory of reciprocal demand was developed by a Adam Smith 1 b David Ricardo P c David Hume P d John Stuart Mill 1 13 TRUE OR FALSE If two nations of very unequal size trade with each other the theory of reciprocal demand demonstrates that most of the gains from trade a favorable terms of trade ratio will go to the larger nation a True F b False f1 14 mmiserizing growth a refers to people whose lives become more miserable as they F become wealthier b represents a potential extreme case in which a nation39s economic F growth is so exportbiased that it suffers more from declining terms of trade than it gains from increased production c is de ned as population growth exceeding growth in GDP P d is found frequently in modern industrial nations today F 15 A nation39s commodity or barter terms of trade is a the ratio of a nation39s export goods price index to its import F goods price index b the ratio of a nation39s import goods price index to its export F goods price index c valid only for countries that engage in barter trade rather than F using money to nance trade d used only for nations that export raw commodities such as coffee F or oil 1 The factorendowment model of international trade was developed by a Adam Smith P b David Ricardo P c John Stuart Mill F d Eli Heckscher and Bertil Ohlin F 2 In the HeckscherOhlin model a nation39s comparative advantage is based on a consumer preferences F b the nation39s relative endowments of productive resources such as F labor and capital c distance from the nation39s most important trading partners P d trade barriers such as tariffs and quotas F 3 According to the Heckscher Ohlin model a nation with a relative abundance of capital would be expected to a trade less than a laborabundant nation F b trade more than a laborabundant nation F c export capitalintensive products such as autos F d allow labor to immigrate from other nations P 4 TRUE OR FALSE The factor endowments model predicts that international trade will tend to equalize the prices of tradeable goods among nations but to increase the wage gap between capitalabundant and laborabundant nanns a True F b False F 5 In a nation with a relative abundance of skilled labor and a relative scarcity of unskilled labor international trade would tend to a widen or aggravate the income disparity between skilled and F unskilled workers b reduce the income disparity between skilled and unskilled F workers c lower the wages of both groups of workers F d raise the wages of both groups of workers F 6 Empirical studies have found that the largest contribution to growing wage inequality in the United States has come from a international trade F b immigration F c technological change P d a decline in union in uence P 7 Leontief39s 1954 study of US trade patterns resulting in the Leontief paradox found that a US trade volume declined even though US GDP had been P rising b the United States was exporting mostly capitalintensive P products c the United States was trading more with distant than with near P nanns d US exports were laborintensive compared with US imports P even though the United States was widely regarded as a relatively cap aLabundantnann 8 TRUE OR FALSE Studies have found the United States to be a net exporter of technologically intensive manufactured goods and a net importer of more standardized and laborintensive manufactured goods a True P b False F 9 Industries in which economies of largescale production are important a tend to not participate in international trade F b provide additional cost incentives for specialization and trade P c reduce the potential gains from trade F d encourage each nation to produce a full range of products within P such industries 10 Staffan Linder39s theory of overlapping demands a was developed to explain international trade in primary products F b explains why advanced industrial nations export most of their F manufactured products to lowerincome developing nations c explains why nations with overlapping demand patterns do not F trade much with each other d explains why nations will export manufactured goods to other F nations with similar per capita income levels and therefore overlapping demand patterns 11 lntraindustry trade theory a explains why the United States might export autos and import F clothing b explains why countries export and also import differentiated 1 versions of the same product such as different types of autos c assumes that transportation costs do not exist 1 d ignores seasonal considerations 1 12 The product life cycle theory a explains why a technologically advanced nation might export a 1 product during the early stage of its life cycle and eventually lose this comparative advantage and begin to import the same product during the later more massproduction stage of that products life cycle b predicts that a country that develops a new product will retain its 1 comparative advantage through the entire life cycle of that product c explains why developing nations never will be able to export F manufactured products to the industrial nations that initially develop those products d deals with reincarnation not with international trade 1 13 Dynamic comparative advantage theory a may help to explain why some nations use industrial policy to 1 provide government support for potentially competitive new rms b cannot explain the strategic competition between Boeing and 1 Airbus c is another name for Ricardo39s comparative advantage theory 1 d is another way of saying that international economics is dynamic f1 and exciting 14 Differences among nations in environmental standards or regulations a have no impact on patterns of international trade F b have made US steel companies more competitive in internationally c can affect production costs and thus have the potential for P altering comparative advantages and trade patterns d have been eliminated by NAFTA P 15 TRUE OR FALSE Taking into account the existence of transportation costs often ignored in simple trade theories can potentially reverse the predicted directions or patterns of trade between nations a True F b False P 1 An import tariff is a a schedule of approved rates or prices for imports P b a tax levied on an imported product F c a quantitative restriction on imports F d a government prohibition against imports of certain sensitive P products 2 TRUE OR FALSE A tax of 10 percent on imports of shoes would be an example of a speci c tariff a True F b False F 3 The effective rate of protection a distinguishes between tariffs that are effective and those that are P ineffective b is the minimum level at which a tariff becomes effective in F limiting imports c shows the increase in valueadded for domestic production that a F particular tariff structure makes possible in percentage terms d shows how effective a tariff is in raising revenue F 4 If a country places a 10 percent tariff on imports of shoes and a 5 percent tariff on imports of all materials required for making shoes the effective rate of protection provided for the shoemaking industry will be a higher than 10 percent b 10 percent c 5 percent F d between 10 percent and 5 percent depending on the importance P of imported materials 5 A foreigntrade zone FTZ is a a regional area within which trade with foreign nations is F permitted b a free trade agreement among several nations F c designed to limit exports of manufactured products by placing P export taxes on products made within the zone d designed to promote exports by deferring import duties on P intermediate inputs and waiving such duties if the nal product is re exported rather than sold domestically 6 The small nation model for estimating welfare effects of tariffs applies to a nations that populations below ten million people F b nations with per capita income levels below 500 per year F c nations that are smaller than their major trading partners P d nations that are price takers too small to affect through their P own supply or demand the trading price of the particular product in queonn 7 If a nation tting the criteria for the small nation model imposes a 10 percent tariff on imports of autos a the price of autos within the nation will rise by 10 percent F b the price of autos within the nation will rise by more than 10 F percent because of high effective protection c the price of autos within the nation will rise but by less than 10 F percent because it is a small nation d the price of autos will not rise because of internal competition P 8 The redistributive effect of a tariff refers to a the tariff revenue going to the domestic government F b the higher pro ts received by domestic producers at the expense F of consumers c the funds transferred to domestic producers to compensate for F their relative inefficiency compared with foreign producers d redistribution of pro ts from foreign producers to domestic F producers 9 The protective effect of a tariff refers to a the tariff revenue going to the domestic government P b the higher pro ts received by domestic producers at the expense F of consumers c the funds transferred to domestic producers to compensate for F their relative inef ciency compared with foreign producers d redistribution of pro ts from foreign producers to domestic F producers 10 A nation that creates a tariff high enough to preserve the domestic market entirely for domestic producers will also bene t from signi cant tariff revenue a True F b False P 11 If a nation tting the criteria of the small nation model imposes a tariff on imports a the static welfare effect for the nation as a whole will be positive F b the nation will gain welfare only if the redistributive effect plus F the revenue effect exceeds the protective effect plus the deadweight loss c the nation will gain welfare only if its trading partners to not P retaliate d the static welfare effect for the nation as a whole will be P nega ve 12 If a nation tting the criteria for the large nation model imposes an import tariff a the domestic price of the product will increase by more than the F tariff itself b the welfare loss to the nation will be larger than in the small 1 country model c the nation will gain static welfare if the bene t from forcing 1 foreign producers to reduce their export price exceeds the protective effect plus the deadweight loss from the tariff d the effects on the nation39s trading partners probably will be too 1 small for them to notice 13 TRUE OR FALSE Studies have shown that US trade restrictions on steel imports have protected jobs not only in the US steel industry but also in industries that use steel such as auto and transportation equipment manufacturers a True 1 b False f1 14 Those who support the establishment of a scienti c tariff maintain that a tariffs should be imposed on imports of scienti c measuring 1 equipment b tariffs should promote fair trade by equalizing production costs 1 among trading nations which essentially would eliminate the potential gains from trade c tariffs should be designed so as to maximize each nation39s 1 potential gains from specialization according to comparative advantage d tariffs should be imposed so as to enable each nation to retain F the bene ts from its own scienti c discoveries 15 The infantindustry argument for protection a advocates the shielding of new industries from imports until they F have grown strong and ef cient enough to withstand the competition from foreign producers b advocates permanent tariff protection for new industries F c shows that tariffs provide the only effective means of supporting F new industries d advocates that each nation provide tariff protection for the F domestic manufacturing of products used by infants to help each nation preserve its own unique cultural identity 1 An import quota is a nontariff trade barrier that a places a percentage tax on certain imports is b places a speci c dollar amount of tax on certain imports is c rewards rms for meeting or exceeding their sales quotas f d places a limit on the quantity of goods that may be imported P 2 To avoid the uncertainty about which foreign nations will be allowed to export to a nation using quota restrictions that nation is likely to implement a a global quota f b a selective quota f c an export quota P d a tariffrate quota F 3 An import quota has all of the same static welfare effects of a tariff on imports except that there is no a redistributive effect P b protective effect P c revenue effect d deadweight consumer loss 4 TRUE OR FALSE An import quota will not raise the domestic price of the product as would a tariff because it is not a tax on imports a True P b False P 5 During periods of growing domestic demand a quota a has the same effect as a tariff P b will generate increased tariff revenue P c is less restrictive than a tariff F d is more restrictive than a tariff F 6 A tariffrate quota a is a limit on the number of tariffs that a country can place on F imports b uses a single tariff along with quotas for different nations F c is a twotier tariff system with a lower tariff on imports up to a P certain withinquota quantity level and a higher tariff on imports above thatleveL d is designed to avoid the price increases caused by simple tariffs P 7 Orderly marketing agreements a use mechanisms such as voluntary export restraints in order to P protect more of a nation39s market for lessefficient domestic producers b are designed to increase exports by providing guidelines and F suggestions for orderly marketing procedures that will work well in the importing nations c have been encouraged in recent rounds of international trade F neganUons d reduce the welfare losses a nation would suffer from the use of F tariffs 8 Domestic content requirements a are designed to meet health and safety standards in the F importing nation b are alternatives to nontariff trade barriers F c do not raise prices as tariffs and quotas do F d specify the minimum percentage of a product39s total value that must come from domestic contributions 9 TRUE OR FALSE Domestic subsidies have fewer welfare losses than tariffs because they support domestic industries without arti cially raising prices and distorting consumer decisions a True P b False F 10 Export subsidies a have no impact on export prices F b reduce export prices and require higher domestic taxes F c increase export prices and also increase domestic taxes F d increase export prices and reduce domestic taxes P 11 The form of international price discrimination normally associated with economic recession or excess inventories in the exporting nation is known as a sporadic dumping P b predatory dumping P c persistent dumping P d a yearend sale F 12 The form of dumping that represents the greater potential net welfare loss for the importing nation is a sporadic dumping P b predatory dumping F c persistent dumping F d excess capacity dumping 1 13 Buynational policies a represent the use of nontariff barriers to favor domestic over 1 foreign producers often in the form of government purchase policies b are de ned as policies that restrict the number of tourists leaving 1 a nation c are designed by governments to publicize the advantages of their 1 most efficient domestic companies d achieve the protective bene ts of tariffs without any of the 1 welfare losses of tariffs 14 US corporate average fuel efficiency CAFE standards a encourage imports of automobiles to the United States 1 b do not apply to imports and thus have no effect on trade 1 c generate considerable tariff revenue for the US government 1 d operate as nontariff barriers against imports of automobiles 1 thereby favoring domestically produced cars 15 TRUE OR FALSE Health and safety standards established by national governments cannot be considered nontariff trade barriers a True 1 b False 1 1 The SmootHawley Act a created free trade between the United States and Mexico 1 b committed the United States to free trade with developing F nanns c raised US tariffs in 1930 to their highest levels in history in F aprotectionist effort to avert higher domestic unemployment d committed the United States to a 50 per cent reduction in F average tariff levels 2 The institutional framework developed in 1947 to promote trade liberalization is known as a the GATT P b the WTO P c the IMF P d The World Bank F 3 TRUE OR FALSE The mostfavorednation MFN clause allows nations to give special or favored treatment to their most important trading partners a True F b False F 4 The Kennedy Round of international trade negotiations a created the North American Free Trade Area NAFTA F b was the rst to accomplish signi cant acrosstheboard tariff P reductions c focused primarily on reducing nontariff trade barriers P d transformed the GATT into the WTO P 5 The Tokyo Round of international trade negotiations a created the North American Free Trade Area NAFTA P b was the rst to accomplish signi cant acrosstheboard tariff P reductions c focused primarily on reducing nontariff trade barriers P d transformed the GATT into the WTO P 6 The Uruguay Round of international trade negotiations a created the North American Free Trade Area NAFTA P b was the rst to accomplish signi cant acrosstheboard tariff F reductions c focused primarily on reducing nontariff trade barriers P d transformed the GATT into the WTO F 7 A comparison between the GATT and the WTO shows that a the shift from the GATT to the WTO was little more than a name F change b the WTO substantially reduces national sovereignty of member F nanns c the WTO has a more lengthy bureaucratic dispute resolution F process d the WTO has greater authority to resolve trade disputes between F member nations 8 TRUE OR FALSE The WTO includes a provision allowing a member nation to use trade restrictions to encourage other nations to adopt its own environmental standards a True F b False P 9 The escape clause in US trade law a enables the US to withdraw from NAFTA P b permits the government to impose trade remedies if fairly trade P imports are the cause of signi cant injury to a domestic industry and its workers c permits the government to impose trade remedies against P nations that unfairly subsidize their exports to the United States d enables immigrants to return to their home countries P 10 US trade law authorizes the use of countervailing duties when a other nations are found to be unfairly subsidizing their exports to P the United States b imports are increasing rapidly even if other nations are using fair P trade policies c other countries experience recession and reduce their imports is from the United States d countervailing winds make it dif cult for ships to enter US ports F 11 TRUE OR FALSE Trade adjustment assistance is designed to provide support for domestic workers and rms to become more competitive within their existing industries or in new industries rather than protecting them from import competition with tariffs or quotas a True f b False f 12 Industrial policy a is the belief that industry will ourish under freeenterprise P capitalism b is very common in Europe but rarely used in Asia P c is targeted government support intended to help speci c rms or F industries become internationally competitive d does not include the use of government subsidies P 13 Strategic trade policy a is most often used to support rms in highly competitive P industries b is used to support the global competitiveness of large capital P intensive rms in highly concentrated industries eg Boeing and Airbus c is used by governments to pressure other nations to reduce trade f barriers d is used to protect supplies of strategic materials f 14 Economic sanctions a are prohibited by the WTO f b affect international trade but not international nancial ows F c involve restrictions on imports but not on exports is d involve restrictions on imports exports andor nancial ows F designed to pressure a target nation to change certain of its domestic or foreign policies 15 Economic sanctions are most likely to achieve their desired results when a the imposing nation has close economic and political ties with P the target nation b the sanctions are imposed by a single nation rather than many P nanns c there is internal unity rather than signi cant organized opposition P groups within the target nation d people within the target nation are culturally isolated from P people in the imposing nation or nations 1 Developing nations a have very limited involvement in international trade P b trade mostly with each other F c rely heavily on exports of primary products to industrial nations P d rely heavily on exports of manufactured products P 2 World prices for primary product exports from developing nations a have been rising steadily in recent decades P b have been more stable than prices of manufactured exports F c uctuate about as much as prices of manufactured exports F d are very unstable from year to year because supply and demand F conditions for primary products are very priceinelastic 3 TRUE OR FALSE The contention that the commodity terms of trade for developing nations have been deteriorating systematically over the past century has been substantiated by many empirical studies a True F b False F 4 UNCTAD a is a military alliance among developing nations F b is a UN agency that grew out of the developing nations39 call in F the 19605 for a new international economic order c is a specialized agency within the US Department of State F d is an acronym for the United Nations Committee on Tariffs And P Dumping 5 International commodity agreements a are designed to ensure quality control for exports of primary F products b have been very successful in stabilizing primary product export F pdces c are efforts to eliminate illegal drug trading F d are efforts to use devices such as export controls production P controls buffer stocks and multilateral contracts to achieve price stability for primary products 6 The OPEC oil cartel a has shown that it is easy to achieve cooperation among cartel F members b provides an example that developing countries can easily follow F in establishing cartels for other primary product or commodity exports c has had a level of success in raising oil prices that few if any F developing nations are likely to achieve with other primary commodities d was successful in the 1970s but was disbanded as an F organization in the 19805 7 The generalized system of preferences GSP a is designed to provide reduced industrial nation tariffs for imports F from developing nations as a way of fostering exportoriented development b identi es a list of preferred nutritional products that will be P exempt from tariffs and nontariff trade barriers c establishes priorities for immigration eligibility F d is designed to forgive the international debt owed by lowincome P nanns 8 Import substitution a is a program substituting higher quality for lower quality imports F b is an effort to increase the role of trade in the economy F c is a strategy for industrial development popular in Latin America P in the 19505 and 19605 promoting domestic production by erecting high protective tariffs on imports of manufactured goods d is an effort to substitute imported components for domestically P produced components in manufacturing activity 9 TRUE OR FALSE lmport substitution policies implemented in Brazil have led to the development of a highly competitive and technologically advanced domestic computer industry in Brazil a True F b False F 10 Exportled or exportoriented development policies a became popular because of the initial successes of countries in F Africa and Latin America b represent an intensi cation of earlier import substitution F development policies c represent new efforts to expand markets for primary product F exports from developing nations d represent a movement away from import substitution toward F support for exports of laborintensive manufactured exports from developing nations to the larger markets of industrial nations 11 Evidence from the past three or four decades indicates that a developing nations with strongly outwardoriented development 1 strategies have experienced more rapid GDP growth than those with more moderately outwardoriented or those with inwardoriented strategies b developing nations with inwardoriented development strategies 1 generally have experienced more rapid GDP growth than those with outwardoriented strategies c developing nations with strongly outwardoriented development 1 strategies have experienced less rapid GDP growth than those with more moderately outwardoriented strategies d there is no observable correlation between GDP growth and the 1 choices of governments between outwardoriented and inward oriented development strategies 12 TRUE OR FALSE The yinggeese pattern of economic growth is a term used to describe the observable phenomenon of East Asian nations moving up in technological development by following the patterns of countries ahead of them in the development process a True 1 b False f1 13 In the last half of the 19905 the East Asian miracle economies a have continued their impressive rates of economic growth 1 b have experienced economic dislocations associated with sudden P reversals of earlier large capital in ows from industrial nations c have dramatically turned away from outwardoriented trade P strategies d have decided to discontinue their memberships in the WTO P 14 The People39s Republic of China a is one of the four Asian nations initially recognized for a F successful outwardoriented development strategy b has retained to the present time its strategy of inwardoriented F development initiated in 1949 in contrast with many other Asian na ons c has always accounted for a signi cant share of international P trade given its very large population d has signi cantly increased its openness to international trade P and foreign investment in recent decades 15 WTO membership for China a has been a matter of low priority for the Chinese government F b has been opposed by a number of labor and human rights P organizations in the United States and other industrial nations c would not require China to modify any of its own laws P institutions or policies regarding trade and investment d would not affect trade between China and the United States P 1 Regional trading arrangements a refer to institutional agreements between different regions within F a nation b are not permitted by GA39IT and now WTO regulations F c are intended to increase economic growth by expanding the P market size beyond the con nes of a single nation and facilitating more specialization in production d are found in most regions of the world except Western Europe F 2 A common market is unique in that it a has no tariffs on trade among member nations F b has no tariffs on trade among member nations and a common P set of tariffs on imports from nonmembers c has no tariffs on trade among member nations a common set of P tariffs on imports from nonmembers and free mobility of factors of production such as labor and capital among members d allows unrestricted labor immigration from nonmember nations P 3 A customs union is unique in that it a has no tariffs on trade among member nations F b has no tariffs on trade among member nations and a common F set of tariffs on imports from nonmembers c has no tariffs on trade among member nations a common set of F tariffs on imports from nonmembers and free mobility of factors of production such as labor and capital among members d allows unrestricted labor immigration from nonmember nations P 4 A free trade area is unique in that it a has no tariffs on trade among member nations F b has no tariffs on trade among member nations and a common F set of tariffs on imports from nonmembers c has no tariffs on trade among member nations a common set of F tariffs on imports from nonmembers and free mobility of factors of production such as labor and capital among members d allows unrestricted labor immigration from nonmember nations P 5 TRUE OR FALSE NAFTA allows for the free movement of labor between Mexico and the United States a True P b False P 6 The short term or static economic effects of nations forming a customs union a unambiguously improve economic efficiency and welfare for the P member nations b unambiguously reduce economic efficiency and welfare for the P member nations c improve economic efficiency and welfare for the member nations P if the tradecreation effects are more signi cant than the trade diversion effects d unambiguously improve economic ef ciency and welfare for non F member nations 7 Trade diversion results when a trade is diverted from one mode of transportation to another F b trade is diverted from industrial nations to developing nations P c an industry within one member country of a customs union gains F exports to another member for products originally produced by rms in that other member nation d an industry within one member country of a customs union gains F exports to another member for products that member previously imported from a nonmember nation 8 The dynamic or longer term gains for nations forming a customs union a result from more rapid population growth P b result from the economies of scale from a larger market and P greater competition among membernation rms c result from increased competition between rms within the F customs union and rms in outside nations d relate primarily to the tradecreation effects P 9 The European Union a is a common market originally consisting of six nations created P by the Treaty of Rome in 1957 b is a free trade area created in 1995 with the formation of the F WTO c has slowly declined in membership over the years P d has not been able to progress beyond a customs union to a F common market 10 TRUE OR FALSE Since its inception the European Union has been rmly committed to free international trade in agricultural products a True P b False P 11 The formation of the EMU in 1999 a was an international agreement designed to protect the emu as 1 an endangered species b created a single currency the euro for eleven members of the 1 European Union along with the European Central Bank c expanded the European Union to include many transition 1 economies from Eastern Europe d created a free trade area between the EU and NAFTA 1 12 The primary anticipated bene ts of monetary uni cation in Europe are a a reduction in the number of banks needed in each country 1 b economies of scale in the printing of money 1 c lower in ation 1 d greater exchange rate certainty elimination of costs of 1 exchanging one national currency for another and greater ease of price comparisons 13 Most empirical studies of the effects of NAFTA since its 1994 inception show that a the United States has experienced signi cant net job losses 1 b the major increased trade has been between Canada and Mexico 1 c increased trade for all three members with the United States 1 experiencing the greatest impact in percentage terms d increased trade for all three members with Mexico experiencing F the greatest impact in percentage terms 14 TRUE OR FALSE The Free Trade Area of the Americas FTAA has been called for by some as a way of extending regional trading arrangements to include all nations of North and South America a True 1 b False 1 15 Transition economies is a term referring to those nations a that are making a transition from developing to developed P nanns b that are shifting from import substitution to exportled P development strategies c that are making a transition from centrally planned and relatively F closed economies to market economies that also are more open to international trade d that are experiencing declines in population F 1 A multinational enterprise MNE is distinguished from other rms in that it a exports products to several different countries F b has owners or stockholders from several different countries F c produces or conducts operations in several different countries P d imports components from several different countries P 2 For the Ford Motor Company to purchase or establish an automobile production facility in Brazil would be an example of a vertical integration P b horizontal integration F c conglomerate integration P d backward integration F 3 TRUE OR FALSE The majority of foreign assets owned by US MNEs are located in developing nations a True P b False F 4 Foreign direct investment occurs in each of the following situations except a when a MNE sends funds abroad to nance expansion of a P foreign subsidiary b when a MNE reinvests earnings of a foreign subsidiary in the P expansion of that subsidiary c when a MNE constructs a new production facility in a foreign P country d when a MNE acquires ownership of 5 percent of the outstanding P stock of an enterprise in a foreign country 5 The primary reason for Toyota Motor Company to establish automobile production facilities in the United States most likely would be a market competition or access to markets f b access to natural resources P c reduction in production costs to become more globally in competitive d to broaden its stockholder base F 6 The primary reason for NIKE to produce sports shoes in Vietnam most likely would be a market competition or access to markets P b access to natural resources in c reduction in production costs to become more globally in competitive d to broaden its stockholder base F 7 The primary reason for Exxon to engage in direct foreign investment in Ecuador most likely would be a market competition or access to markets in b access to natural resources in c reduction in production costs to become more globally f competitive d to broaden its stockholder base f 8 TRUE OR FALSE Empirical studies have found that US MNEs that have expanded their employment in foreign subsidiaries also have been expanding their employment within the United States a True F b False F 9 International joint ventures between a rm in the host country and a rm in the home country a usually are prevented by restrictions created by the host country F government b almost always promote cultural harmony F c are designed to promote pro t repatriation to the home country F d are likely to occur when the two rms have complementary skills F or expertise that provide the potential for productivity gains 10 The transfer of technology by MNEs from home to host countries a is opposed by most host nation governments F b contributes to the technological lead of the home country F c may bring at least shortterm disruption or dislocation for groups P of workers in both home and host nations d has diminished signi cantly in recent years P 11 US tax codes stipulate that domestic rms operating abroad as MNEs a may defer taxes on foreign income until that income is F repatriated to the parent rm in the United States and may deduct taxes paid to foreign governments as tax credits b may defer taxes on foreign income until that income is F repatriated to the parent rm in the United States but may not deduct taxes paid to foreign governments as tax credits c may not defer taxes on foreign income until that income is F repatriated to the parent rm in the United States but may deduct taxes paid to foreign governments as tax credits d are not required to pay taxes to the US government on income F earned outside the United States 12 A vertically integrated petroleum rm with extractive operations in Ecuador and re neries and retail outlets in the United States faced with income tax rates of 50 percent in the United States and 30 percent in Ecuador would a not be permitted to take a US tax credit for taxes paid in P Ecuadon b have an incentive to reduce the transfer price of crude oil 1 shipped from Ecuador to the United States c have an incentive to increase the transfer price of crude oil 1 shipped from Ecuador to the United States d have no incentive to alter transfer prices 1 13 TRUE OR FALSE Foreign direct investment by a MNE tends to have a negative effect on the home nation39s balance of payments in the short run but more likely a positive impact in the long run a True 1 b False f1 14 The international migration of labor a generally improves world economic efficiency with labor moving 1 from nations where it is abundant to nations where it is more scarce b is free and unrestricted under the rules of the WTO F c into the United States has decreased dramatically in the last 1 several decades d tends to bene t native workers and cause losses for owners of 1 capital in the country into which workers immigrate 15 The brain drain as a potential consequence of open immigration policies refers to a the strain placed on schools in the country receiving immigrant 1 families b the loss of well educated and highly skilled workers who 1 emigrate from developing nations to industrial nations c the assignment of US executives to management positions in 1 foreign subsidiaries of US MNEs d the diminished intellectual capacity experienced by native f1 workers as they seek to compete with immigrant workers for skilled jobs c 2002 SouthWestern All Rights Reserved webmaster
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