ECON 461 Final Exam
ECON 461 Final Exam
ECON 461 Final Exam
International Trade
Final Exam
Spring Quarter 2014
Prof. Giorgio Canarella
Essays (100 points)
1.The exchange rate value of the U.S. dollar increased recently. Is it good news or bad news?
Why? Should we worry about it?
2.The U.S. has a whopping trade deficit. Why? Should we worry about it? Are we shipping all our
jobs to China and Mexico? Could we save precious U.S. jobs by restricting imports from
countries with cheap labor? Could we reduce our trade deficit by restricting imports?
3.The U.S. owes the rest of the world $2.9 trillion more than the rest of the world owes to the
U.S., making the U.S. "the world biggest debtor nation". Why is this? Should we worry about it?
Multiple choice questions (100 points)
1) _______
2) _______
3) 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 impose the same limits on cartels and monopolies
C) An agreement to reduce exports
D) An agreement to unify customs forms in order to speed up cross-border traffic
E) An agreement to limit imports
3) _______
4) _______
B) A country that exported $20 billion, imported $30 billion, and had GDP of $100 billion
would have an index of openness of 0.5 or 50 percent.
C) It is possible for an openness index to be greater than 100 percent.
D) Smaller countries tend to have lower openness measures than large countries.
5) According to the text, which of the following would NOT be a reason to convince economists that
the benefits of trade outweigh the costs?
A) Trade makes possible increased innovation, access to new technology, and economies of
scale.
B) The associated costs are minor and negligible.
C) The evidence of statistical comparisons of countries
D) The casual empirical evidence of historical experience
E) Trade benefits consumers in terms of lower prices and increased variety of goods.
5) _______
6) _______
7) Which of the following is a problem that arises when trying to classify regional trade agreements?
A) Some agreements include cultural issues while others do not.
B) The definition of free trade area includes that of a customs union.
C) The most favored nation clause includes all of them.
D) Many agreements combine elements from different categories.
E) None of the above.
7) _______
8) _______
9) A free trade agreement plus a common set of tariffs toward non-members is called
A) a customs union.
B) a free trade area.
C) a common market.
D) an economic union.
E) a partial trade agreement.
9) _______
10) Which of the following was NOT a creation of the Bretton Woods conference?
A) WTO
B) World Bank
C) IMF
D) IBRD
E) None of the above.
10) ______
11) ______
12) ______
13) When the United States gives MFN status to China, it means that
A) China is treated better than other U.S. trading partners.
B) China is treated worse than other U.S. trading partners.
C) China is legally bound to reciprocate.
D) China is treated the same as other U.S. trading partners.
E) China is better than all the nations in the WTO.
13) ______
14) The international organization that serves as a forum for trade discussions and the development
of trade rules is called
A) Bretton Woods.
B) the United Nations.
C) the WTO.
D) the World Bank.
E) the IMF.
14) ______
15) ______
16) One reason markets may fail to provide the optimal quantity of public goods is the problem of
A) nontariff barriers.
B) nondiscrimination.
C) economic integration.
D) free riders.
E) determining what the public wants.
16) ______
17) Most favored nation (MFN) status means that a country treats another country
A) worse than its other trading partners.
B) any way it chooses since it is the "most favored nation."
C) the same as its other trading partners.
D) better than its other trading partners.
E) None of the above.
17) ______
18) The economic philosophy that favors strict limits on imports and strong support for exports is
called
A) absolute advantage.
B) autarky.
C) zero sum.
D) mercantilism.
18) ______
E) comparative advantage.
19) If a nation has no absolute advantage, then it
A) still gains from trade.
B) can only gain from trade if it raises its productivity levels.
C) can only gain from trade if it produces outside its production possibilities curve.
D) can only gain from trade if it reduces wages paid.
E) cannot gain from trade.
19) ______
20) ______
21) 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 has a comparative advantage, but is not competitive.
B) The United States has a comparative advantage and is competitive.
C) The United States is competitive, but does not have a comparative advantage.
D) The United States now has a comparative advantage in bananas.
E) None of the above.
21) ______
22) When economists talk about the gains from trade they mean that
A) no one ever gets hurt by trade.
B) business firms benefit from trade but not necessarily individuals.
C) economic restructuring is usually quick and painless.
D) the benefits of trade outweigh the losses.
E) trade increases government revenue through taxes on imports.
22) ______
23) If two countries agree to specialize and trade based on comparative advantage, which of the
following is most likely to be TRUE?
A) One of the countries will both consume and produce on its production possibilities curve.
B) Both of the countries will consume outside their respective production possibilities curves.
C) Only one of the countries will produce on and consume outside its production possibilities
curve.
D) One of the countries will end up receiving all of the gains from trade.
23) ______
Use the data in the table below to answer the following question(s):
Table 3.1
Output per Hour Worked
24) Based on Table 3.1, trade between the United States and Mexico will occur as long as the relative
price of shoes is between
A) three computers and one computer.
B) three computers and two computers.
24) ______
25) ______
26) ______
27) Using the HO model, assume that the United States is capital abundant and Mexico is labor
abundant. If soybeans are capital intensive and avocados are labor intensive, it would be
reasonable to expect the United States to
A) increase soybean production, but still produce some avocados.
B) specialize completely in soybean production.
C) specialize completely in avocado production.
D) increase avocado production, but still produce some soybeans.
27) ______
28) ______
29) Which of the following statements is NOT true about international trade theory?
A) The Heckscher-Ohlin theory says that if the price of a good rises, then the income of factors
used intensively in its production rises as well.
B) As the wage-rent ratio falls, the labor-intensive commodity becomes cheaper relative to the
land-intensive commodity.
C) The equalization of the wage-rent ratio between trading nations does not imply the
equalization of the real wage rate and the real rental rate for land.
D) The Heckscher-Ohlin theorem states that a country has a comparative advantage in the
production of that good which uses the country's abundant factor more intensively.
E) The factor-price theorem is the result of factor endowment theory.
29) ______
30) If the price of a good rises, then the effect on the income of the factors that are used intensively in
its production will be
A) to raise income by an absolute amount that is more than the rise in prices.
B) to raise income by a greater percentage than the rise in prices.
C) to raise income by an absolute amount that is less than the rise in prices.
D) to raise income by a smaller percentage than the rise in prices.
E) to cause income to fall.
30) ______
31) Based on Table 4.1, according to the Stolper-Samuelson Theorem, the income distribution effects
of free trade in the United States are likely to favor
A) capital.
B) labor.
C) either capital or labor, depending on U.S. productivity.
D) neither capital nor labor.
E) Not enough information to tell.
31) ______
32) ______
33) After trade opens, the short run impact on the income of the variable factor will be
A) an increase.
B) zero.
C) a decrease.
D) indeterminate, depending on the consumption pattern of the owners of the variable factor.
E) indeterminate, depending on the productivity of the variable factor.
33) ______
34) ______
35) ______
36) ______
Use the graph below and the following information to answer the next question(s). The world price of soybeans is $2.00 per
bushel, and the importing country is small enough not to affect the world price.
Figure 6.1
37) Based on Figure 6.1, how much revenue will the government raise from a $0.25 per bushel tariff
on soybean imports?
A) The government will raise $15 million.
B) The government will raise $5 million.
C) The government will raise $2.5 million.
D) The government will raise $32.5 million.
E) The government will see no increase in income; because the country is small, foreign firms
will simply not serve it after the tariff is imposed.
37) ______
38) ______
D) refer to the tariffs placed on intermediate goods used to make the final good or service.
39) Which of the following would be a deadweight loss from a tariff?
A) The decrease in consumer surplus due to a drop in consumption
B) The decrease in consumer surplus
C) The increase in producer surplus
D) The shift of consumer surplus to government
E) All of the above.
39) ______
40) ______
41) Which of the following is NOT correct about the effects of a tariff on an imported product?
A) Tariffs increase government revenue.
B) Tariffs mean higher prices and less consumption for consumers of the product.
C) Tariffs benefit domestic producers by raising price and domestic output.
D) Tariffs increase the efficiency of how resources are allocated.
41) ______
Use the graph below and the following information to answer the next question(s). The world price of soybeans is $2.00 per
bushel, and the importing country is small enough not to affect the world price.
Figure 6.1
42) Based on Figure 6.1, suppose the government puts a tariff of $0.25 per bushel on soybean imports.
How much will the tariff reduce imports?
A) Imports will decrease by 60 million bushels.
B) Imports will not change after the tariff.
C) Imports will decrease by 20 million bushels.
D) Imports will decrease by 10 million bushels.
42) ______
43) In order for large countries to successfully use tariffs to increase well being,
A) the deadweight loss created by the tariff must be greater than the government revenue the
tariff generates.
B) domestic production must increase more significantly than for the small country case.
C) domestic consumption and imports must decrease more significantly than in the small
country case.
D) they must have significant market power so that foreign firms will cut prices to preserve
their sales.
43) ______
44) Your text identifies all of the following as reasons why unsustainable debt may occur except
A) when government officials try to buy votes with unsustainable spending.
B) when countries are dependent on one or two key export commodities, and there is a sudden
drop in the price of those commodities.
C) when there are corrupt politicians and practices.
D) when natural disasters occur.
E) when civil conflicts are resolved and a peace dividend occurs.
44) ______
45) Which of the following is FALSE about the Highly Indebted Poor Countries initiative?
A) Countries qualify for debt relief partly based on their level of poverty.
B) Most of the countries included are in sub-Saharan Africa.
C) External debt levels must be high relative to exports in order to qualify.
D) Countries do not have to have established a past track record of economic reform in order to
qualify as long as they make future commitments.
45) ______
46) ______
47) All of the following are true about foreign direct investment (FDI) and portfolio investment
except
A) both portfolio investments and FDI are the same in that they both give their holders a claim
on the future output of the foreign economy.
B) increases in the flow of portfolio investments increase the likelihood of financial crisis.
C) FDI is relatively illiquid compared to portfolio investment.
D) portfolio investments have been on the decline in recent years (or decades).
E) FDI investors must be willing to go through many ups and downs in order to benefit from
their long-term investments.
47) ______
48) If a country runs a current account surplus and national private savings equals domestic
investment, then the combined governmental accounts
A) must be positive.
B) must be balanced.
C) could be either negative or positive, depending on the net international investment position.
D) could be either negative or positive, depending on the capital account.
E) must be negative.
48) ______
49) All else equal and given the current system of exchange rates, if the United States enters a period
of exceptionally strong growth,
A) the pressure on the dollar is to revalue.
B) the pressure on the dollar is to depreciate.
C) the pressure on the dollar is to devalue.
D) the pressure on the dollar is to appreciate.
E) Both A and D.
49) ______
50) Suppose that the nominal exchange rate between the U.S. dollar and the Mexican peso is 0.10
dollars per peso. If Mexico's inflation is 10 percent and the United States' inflation is 0 percent,
from the U.S. point of view, the real exchange rate
A) appreciates to 0.11 dollars per peso.
B) depreciates to 0.09 dollars per peso.
C) depreciates to 0.11 dollars per peso.
D) appreciates to 0.2 dollars per peso.
E) appreciates to 0.09 dollars per peso.
50) ______
51) ______
52) The Smithsonian Agreement of 1971 was hailed by President Nixon as a fundamental
reorganization of the international monetary system. In fact, what it accomplished was
A) the elimination of gold backing for the dollar.
B) the devaluation of the dollar.
C) the reduction of the gold content of the dollar.
D) the revaluation of the dollar.
E) Both B and C.
52) ______
53) According to purchasing power parity, which of the following is FALSE about an overvalued
dollar compared to the Japanese yen?
A) Prices in the United States would tend fall.
B) U.S. merchants would be motivated to import more Japanese goods.
C) Japanese merchants would tend to export more to the United States.
D) Over the long term, the exchange rate would fall.
E) Prices in Japan would tend to rise.
53) ______
54) Suppose that the nominal exchange rate between the U.S. dollar and the Canadian dollar is 0.75
U.S. dollars per Canadian dollar. If Canada's rate of inflation is 0 percent and the U.S. rate is 10
percent, then the real exchange rate for the U.S. dollar will
A) appreciate by 10 percent.
B) depreciate by about 9 percent.
C) depreciate by 10 percent.
D) appreciate by about 9 percent.
E) None of the above.
54) ______
55) U.S. opponents of NAFTA argue that the agreement will hurt the United States. In their view,
NAFTA's greatest harm will be its
A) harmonization of product safety standards.
B) harmonization of labor policies.
C) job destruction and downward pressure on U.S. wages.
D) harmonization of the use of pesticides and herbicides.
E) harmonization of environmental policies.
55) ______
56) The United States functions as a "safety valve" for the Mexican economy
A) when U.S. firms engage in direct foreign investment in Mexico.
B) when Mexican workers who can't find jobs in Mexico migrate to the United States and send
part of their income back to Mexico.
C) when the U.S. government bails Mexico out of financial crisis.
D) when the U.S. market buys products from the maquiladora industry.
56) ______
57) One reason why most economists forecast that the effects of NAFTA on the U.S. economy would
be small is because
A) the Mexican economy is small relative to the U.S. economy.
B) NAFTA does not bring down tariffs far enough.
C) Mexico was not expected to live up to its obligations under the agreement.
D) NAFTA trade opening provisions only cover a handful of sectors.
E) the United States was not expected to live up to its obligations under the agreement.
57) ______
58) The single most important reason for Canada's seeking a free trade agreement with the United
States was to
A) avoid international outsourcing in low wage countries.
B) ensure its ability to join NAFTA.
C) ensure its access to the U.S. market.
D) harmonize its environmental laws with the United States.
E) ensure the continuation of its social programs.
58) ______
59) The World Bank's view of the effectiveness of industrial policies in East Asia is that, in general,
they
A) worked in Japan and Korea, but not in the other countries.
B) hindered growth.
C) are the main factor in the success of the East Asian economies.
D) had little or no effect on growth.
E) encouraged growth.
59) ______
60) Which of the following is a false statement about education in the HPAE?
A) Spending was focused on the primary and secondary level, where it has the greatest social
impact.
B) An emphasis on state funding of advanced degree programs, such as engineering and
computer science, increased manufacturing production significantly
C) As the average educational level rose, workers could take on more technological,
sophisticated production, pushing new investment into product lines
D) Literacy rates rose dramatically in the HPAE and laid a foundation for a skilled labor force.
60) ______
61) One economic advantage of a large share of exports in GDP is that countries
A) will have greater equality in their incomes.
B) can maintain lower rates of unemployment.
C) can reduce their budget deficits.
61) ______
62) ______
63) One of the most important ways in which local instabilities are quickly spread to the international
economy is through
A) firms.
B) labor.
C) goods.
D) capital.
E) services.
63) ______
64) From the late 1940s until the creation of the WTO, the organization that was primarily responsible
for conducting rounds of trade negotiations was the
A) World Bank.
B) GATT.
C) ITO.
D) United Nations.
E) IMF.
64) ______
65) ______
66) ______
67) The Tokyo Round of the GATT negotiations was notable because it was the first round
A) to begin establishing rules on subsidies.
B) that included textiles and apparel.
C) to begin discussions of exchange rates.
D) that included Japan.
E) to limit the tariffs of the United States.
67) ______
68) ______
Wealth of
Nations.
69) In our simple trade model, having a comparative advantage in a product implies that a country
will specialize completely in the product
A) where total output is lower per worker-hour.
B) with the lowest opportunity cost.
C) where total output is greater per worker-hour.
D) with the highest opportunity cost.
69) ______
Use the data in the table below to answer the following question(s):
Table 3.1
Output per Hour Worked
70) Based on Table 3.1, the opportunity cost of a pair of shoes in the United States is
A) one-half computer.
B) three computers.
C) one computer.
D) two computers.
E) None of the above.
70) ______
71) Suppose that Brazil is capital abundant and Chile is natural resource abundant. If timber is
natural resource intensive and computers are capital intensive, then
A) Chile will produce more timber after trade begins with Brazil.
B) Brazil will produce more timber after trade begins with Chile.
C) Chile will produce more computers after trade begins with Brazil.
D) Brazil will completely specialize in computers once trade begins with Chile.
71) ______
72) ______
Scenario 6.1
Suppose that United States furniture makers import $100 of wood and parts in order to make a dining room table selling
for $500. The imports have no tariff of quota restrictions.
73) Based on Scenario 6.1 above, if a tariff of 20 percent is placed on imports of dining room tables,
and another tariff of 50 percent is placed on imports of wood and parts, then the effective rate of
protection on tables made in the United States is
A) 0 percent.
B) 70 percent.
C) 50 percent.
D) 12.5 percent.
E) 20 percent.
73) ______
74) ______
75) Which of the following describes the asymmetry Moncur Olson observed in the incentives to
support and oppose trade policy?
A) The benefits of protection are spread out over a large number of firms and industries, but
the costs are concentrated on consumers.
B) The costs of protection are concentrated on a few firms, and the benefits of protection are
spread out over a large number of consumers.
C) The benefits of policy are concentrated, and the costs are spread out over a large number of
participants.
D) The benefits of those seeking protection outweigh the costs imposed by the protection.
75) ______
76) U.S. tariffs and quotas reduce national welfare the most in
A) machinery.
B) textiles.
C) agriculture.
D) chemical products.
E) clothing.
76) ______
Use the information in the following table to answer the following question(s).
Table 9.1
77) ______
D) +100.
E) -100.
78) ______
79) ______
80) A firm that buys foreign exchange in order to take advantage of higher foreign interest rates is
A) responding to fluctuations in the business cycle.
B) demonstrating purchasing power parity.
C) ignoring the nominal rate of exchange.
D) engaging in interest rate arbitrage.
E) speculating.
80) ______
81) Purchasing power parity (PPP) measurements of income are a way to make international
comparisons by correcting for national differences in
A) government subsidies.
B) inflation.
C) unemployment.
D) prices of goods and services.
E) economic growth.
81) ______
82) Which of the following is FALSE about increased U.S. enforcement efforts on the U.S/Mexican
border?
A) Illegal migration has moved toward more inhospitable areas on the border.
B) The increase of enforcement personnel stationed at the border has been very effective in
averting migration.
C) Migrants are staying in the United States longer on average than they were before the
enforcement efforts.
D) Thousand of migrants are estimated to have died since the increased enforcement efforts
began.
82) ______
83) Which of the following economic conditions cause export growth to be a basis for faster overall
economic growth?
A) Economies of scale in production for the world market
B) High and constant levels of productivity in export production
C) A larger-than-average manufacturing sector
D) Diseconomies of scale in production for the domestic market
E) A larger-than- average service sector
83) ______
84) Recent technological changes have had profound effects on the movement of capital across
international boundaries. One of the main effects has been
A) a long-run decline in real interest rates.
B) a long-run increase in real interest rates.
C) a decrease in the transaction costs of moving capital.
D) an increase in the transaction costs of moving capital.
E) None of the above.
84) ______
85) ______
B)
C)
D)
E)
foreign capital flows are better managed and rarely cause financial problems.
nations are no longer dependent on their own national savings for their investment funds.
the bulk of foreign capital flows are tied to labor flows.
None of the above.
86) Based on the theory of comparative advantage, nations maximize their well being when they
A) increase trade surpluses.
B) create more jobs.
C) allocate resources more efficiently
D) increase exports.
86) ______
87) Which of the following is TRUE according to the case studies on NAFTA and China presented in
the chapter?
A) The United States has relative scarcity in unskilled labor.
B) The United States has relative scarcity in capital.
C) Mexico has relative abundance in skilled labor.
D) China has relative abundance in capital.
87) ______
88) ______
89) "Cheap foreign wages" is a poor argument for protection because it fails to recognize the
importance of productivity. Which of the following does NOT contribute to increasing
productivity?
A) Capital
B) Education and training
C) Government subsidies
D) Infrastructure
89) ______
90) The current account balance of the United States began to deteriorate in
A) the early 1990s.
B) the early 1980s.
C) the late 1980s.
D) the early 1970s.
E) the late 1960s.
90) ______
91) Which of the following would NOT be a cause for an increased American demand for the
Mexican peso?
A) The United States having lower interest rates than Mexico
B) More economic expansion in the United States
C) Increased American demand for Mexican goods
D) The expectation by speculators that the value of the peso is edging up
E) None of the above.
91) ______
92) ______
93) ______
94) ______
95) Suppose that Canada can produce 15 timber or 3 film and Mexico can produce 9 timber or 3 film.
Suppose that opportunity costs are constant. Which of the following is FALSE?
A) Canada and Mexico would find trade mutually advantageous at a ratio of one unit of film to
six units of timber.
B) The opportunity costs for producing timber are lower in Canada than in Mexico.
C) Canada has an absolute advantage in timber production.
D) Mexico has a comparative advantage in film production.
95) ______
96) Using the specific factors model, assume that strawberry production requires the specific factor of
land, tractor production requires the specific factor of capital, and labor is variable. If the United
States is capital abundant compared to Mexico, and Mexico is land abundant compared to the
United States, then in the short run with trade we would expect
A) the income of U.S. workers to increase.
B) the income of Mexican land owners to increase.
C) the income of Mexican workers to increase.
D) the income of U.S. land owners to increase.
96) ______
97) Japanese tariffs and quotas reduce national welfare the most in
A) chemical products.
B) agriculture.
C) clothing.
D) machinery.
E) textiles.
97) ______
Use the following table to answer the next question(s). All values are net.
Table 9.3
98) Based on Table 9.3, if values in the table are amended to reflect a net increase in U.S. foreign direct
investment of 100, then the new balance for the capital account balance becomes
A) -25.
B) +25.
C) +75.
D) -75.
E) +225.
98) ______
99) ______
100) _____