Download Chapter 16—Gaining from International Trade

Chapter 19 and 20—Gaining from International Trade
149. A tariff or quota that limits the entry of foreign goods to the U.S. market will
a. benefit domestic producers in the protected industries and harm domestic consumers.
b. increase the nation's real income by protecting domestic jobs from foreign competition.
c. reduce the demand for U.S. export goods, lowering employment in export industries.
d. do both a and c.
ANS: D
150. According to the law of comparative advantage, a nation will benefit from international trade when it
a. imports more than it exports.
b. exports more than it imports.
c. imports goods for which it is a high opportunity-cost producer, while exporting goods for which it
is a low opportunity-cost producer.
d. exports goods for which it is a high opportunity-cost producer, while importing those goods for
which it is a low opportunity-cost producer.
ANS: C
The table below outlines the production possibilities of Italia and Slavia for food and clothing.
151. Italia is currently producing 4 units of food
and 8 units of clothing. If it increases its
production of food by 2 units (up to a total
of 6 units of food), its clothing production
will
a. fall by 2 units.
b. fall by 4 units.
c. increase by 2 units.
d. increase by 4 units.
ANS: B
152. What is the opportunity cost of producing 1 unit of food in Italia?
a. one-half of a unit of clothing
b. 1 unit of clothing
c. 2 units of clothing
d. 5 units of clothing
ANS: C
153. Which of the following is true?
a. Italia has the comparative advantage in producing food.
b. Italia has the comparative advantage in producing clothing.
c. Slavia has the comparative advantage in producing clothing.
d. Slavia is the low opportunity cost producer of clothing.
ANS: B
154. The law of comparative advantage suggests that
a. neither country would gain from trade.
b. only Slavia would gain from trade, Italia would be harmed.
c. both countries could gain if Italia traded food for Slavia's clothing.
d. both countries could gain if Slavia traded food for Italia's clothing.
ANS: D
155. If the United States were to adopt a policy of free trade with European countries and Japan, this policy would
a. help the United States and hurt the other countries because the United States has a larger population.
b. help all of the countries involved because all would have a comparative advantage in the production of some good.
c. hurt the United States and help the other countries involved because job opportunities in the United States would fall
while they rose in other countries.
d. help the United States and hurt the others because the United States has more natural resources than the other countries.
ANS: B
156. The theory of comparative advantage suggests that nations should produce a good if they
a. have the lowest opportunity cost.
b. have the lowest wages.
c. have the most resources.
d. can produce more of the good than any other nation.
ANS: A
157. A tariff differs from a quota in that a tariff is
a. levied on imports, whereas a quota is imposed on exports.
b. levied on exports, whereas a quota is imposed on imports.
c. a tax levied on exports, whereas a quota is a limit on the number of units of a good that can be exported.
d. a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.
ANS: D
158. An import quota on a product protects domestic industries by
a. reducing the foreign supply to the domestic market and thereby raising the domestic price.
b. increasing the foreign supply to the domestic market and thereby lowering the domestic price.
c. increasing the domestic demand for the product and thereby increasing its price.
d. providing the incentive for domestic producers to improve the efficiency of their operation and
thereby reduce their per-unit costs of production.
ANS: A
159. Which of the following would be the most likely long-run effect if the United States increased its tariff rates and adopted
stricter import quotas?
a. a decrease in both U.S. imports and exports
b. an increase in both U.S. imports and exports
c. a decrease in U.S. imports and an increase in U.S. exports
d. an increase in U.S. imports and a decrease in U.S. exports
ANS: A
160. Trade restrictions that limit the sale of low-price foreign goods in the U.S. market
a. increase the real income of Americans.
b. benefit domestic producers in the protected industries at the expense of consumers and domestic
producers in export industries.
c. help channel more of our resources into producing goods for which we are a low-cost producer.
d. reduce unemployment and increase the productivity of American workers.
ANS: B
161. A basic flaw in the infant-industry argument is that
a. most industries need protection when they are mature, not when they are first established.
b. the amount of the tariff is unlikely to have much impact on the success of an infant industry.
c. once a tariff is granted, political pressure will likely prevent the withdrawal of the tariff even when
the industry matures.
d. domestic consumers will continue to buy the foreign products anyway, regardless of the tariff.
ANS: C
162. Countries that impose high tariffs, exchange rate controls, and other barriers that restrict international trade may have
a. high rates of economic growth.
b. low rates of economic growth.
c. a large export sector.
d. a large import sector.
ANS: B
163. If the United States imports low-cost goods produced in low-wage countries instead of producing the goods domestically,
a. the United States will lose jobs.
b. the United States will gain and domestic resources will be employed more productively.
c. dollars that leave the United States will not return to buy goods produced by high-wage American workers.
d. the availability consumption of goods in the United States will be reduced.
ANS: B
164. Suppose that the United States eliminated its tariff on automobiles, granting foreign-produced automobiles free entry into
the U.S. market. Which of the following would be most likely to occur?
a. The price of automobiles to U.S. consumers would decline, and the demand for U.S. export products would increase.
b. The price of automobiles to U.S. consumers would increase, and the demand for U.S. export products would decline.
c. The price of automobiles to U.S. consumers would decline, and the demand for U.S. export products would decline.
d. The price of automobiles to U.S. consumers would increase, and the demand for U.S. export products would increase.
ANS: A
165. If Japan offered every U.S. citizen a new automobile for a price of only $1,
a. the action would be considered "dumping."
b. domestic automobile manufacturers and workers would likely favor imposing tariffs or quotas to restrict this action.
c. domestic citizens would benefit from this action by Japan.
d. all of the above are true.
ANS: D
166. Relative to a no-trade situation, what effect will importing a good from foreign nations have on the domestic market for the
good?
a. Equilibrium price will rise and total domestically produced output will fall.
b. Equilibrium price will rise and total domestically produced output will rise.
c. Equilibrium price will fall and total domestically produced output will fall.
d. Equilibrium price will fall and total domestically produced output will rise.
ANS: C
167. Relative to a no-trade situation, what effect will exporting a good to foreign nations have on the domestic market for the
good?
a. Equilibrium price will rise, domestic production will fall, and domestic consumption will fall.
b. Equilibrium price will rise, domestic production will rise, and domestic consumption will fall.
c. Equilibrium price will fall, domestic production will fall, and domestic consumption will increase.
d. Equilibrium price will fall, domestic production will rise, and domestic consumption will increase.
ANS: B
168. If all tariffs (and quotas) between countries on the North American continent were eliminated,
a. small Central American countries would be hurt since they would be unable to compete with larger
nations.
b. the United States would gain at the expense of the less-developed North American countries.
c. the combined wealth of the countries would increase since elimination of trade restrictions would
permit greater gains from specialization.
d. wage rates in the United States would decline to the average for the North American continent.
ANS: C
169. Which of the following is not an argument for adopting trade restrictions on imported goods?
a. antidumping argument
b. national-defense argument
c. consumer-protection argument
d. infant-industry argument
ANS: C
The following 4 questions refer the graph, which shows the effect of a country imposing a tariff on an imported product.
170. If the world price of this good is PW and there are no
restrictions on imports, domestic suppliers will produce ____
units, domestic demanders will consume ____ units, and total
imports will be ____ units.
a. 30; 100; 70
b. 50; 100; 50
c. 30; 80; 80
d. 100; 70; 30
ANS: A
171. Suppose that a tariff of t is imposed upon this good, raising the
price to PW + t. As a result,
a. imports will fall to 30.
b. domestic production will increase to 50.
c. domestic consumption will fall to 80.
d. all of the above are true.
ANS: D
172. Given the tariff described in the question above,
a. the combined areas A + B + C + D represent the losses to domestic consumers from the tariff.
b. area C represents the government's revenue from the tariff.
c. area A represents the gain to domestic suppliers from the tariff.
d. all of the above are true.
ANS: D
173. The same price and quantity outcomes under the tariff above could have also been produced by the imposition of a quota of
a. 30 units.
b. 50 units.
c. 80 units.
d. No quota can produce the same price and quantity outcomes.
ANS: A
Figure 9
151. Refer to Figure 9. Without trade, the equilibrium price of carnations is
a. $8 and the equilibrium quantity is 300.
b. $6 and the equilibrium quantity is 200.
c. $6 and the equilibrium quantity is 400.
d. $4 and the equilibrium quantity is 500.
ANS: A
PTS: 1
OBJ: Graphics Questions
152. Refer to Figure 9. With trade and without a tariff,
a. the domestic price is equal to the world price.
b. carnations are sold at $8 in this market.
c. there is a shortage of 400 carnations in this market.
d. this country imports 200 carnations.
ANS: A
PTS: 1
OBJ: Graphics Questions
153. Refer to Figure 9. Before the tariff is imposed, this country
a. imports 200 carnations.
b. imports 400 carnations.
c. exports 200 carnations.
d. exports 400 carnations.
ANS: B
PTS: 1
OBJ: Graphics Questions
154. Refer to Figure 9. The size of the tariff on carnations is
a. $8 per dozen.
b. $6 per dozen.
c. $4 per dozen.
d. $2 per dozen.
ANS: D
PTS: 1
OBJ: Graphics Questions
155. Refer to Figure 9. The imposition of a tariff on carnations
a.
b.
c.
d.
increases the number of carnations imported by 100.
increases the number of carnations imported by 200.
decreases the number of carnations imported by 200.
decreases the number of carnations imported by 400.
ANS: C
PTS: 1
OBJ: Graphics Questions
156. Refer to Figure 9. The amount of revenue collected by the government from the tariff is
a. $200.
b. $400.
c. $500.
d. $600.
ANS: B
PTS: 1
OBJ: Graphics Questions
Chapter 15—International Finance and the Foreign Exchange Market
143. If the exchange rate value of one U.S. dollar changes from 120 Japanese yen to 140 yen,
a. the U.S. dollar has appreciated relative to the yen.
b. the Japanese yen has depreciated relative to the dollar.
c. the U.S. dollar has depreciated relative to the yen.
d. both a and b have occurred.
ANS: D
144. Under a flexible exchange rate system, which of the following will be most likely to cause a depreciation in the exchange
rate value of the dollar (relative to the English pound)?
a. An economic boom occurs in England, inducing English consumers to buy more American-made
automobiles, trucks, and computer products.
b. Real interest rates in the United States fall lower than real interest rates in England.
c. Restrictive monetary policy in the United States causes inflation to be lower than in England.
d. Attractive investment opportunities in the United States induce English investors to buy stock in
U.S. firms.
ANS: B
145. If the exchange rate between the U.S. dollar and the Japanese yen were such that one U.S. dollar equals 100 yen, what
would be the price in dollars of a Japanese automobile that cost 2,000,000 yen?
a. $100
b. $20,000
c. $120,000
d. $2,000,000
ANS: B
146. Other things constant, which of the following will most likely cause the dollar to appreciate on the exchange rate market?
a. higher interest rates in the U.S.
b. the U.S. Fed pursuing restrictive monetary policy
c. high rates of income growth in Europe
d. all of the above
ANS: D
147. If the U.S. dollar depreciates, then U.S. exports become ______ expensive to foreigners and foreign goods become ______
expensive to U.S. citizens. (Fill in the blanks.)
a. less; less
b. less; more
c. more; less
d. more; more
ANS: B
148. An unanticipated shift to a more expansionary monetary policy will most likely cause the nation's currency to _______ and
its current account to move toward a _____. (Fill in the blanks.)
a. depreciate; deficit
b. depreciate; surplus
c. appreciate; deficit
d. appreciate; surplus
ANS: B
151. Which one of the following would supply dollars to the foreign exchange market?
a. the spending of U.S. tourists in Europe
b. the purchase of U.S. automobiles by Japanese consumers
c. the sale of U.S. automobiles to European consumers
d. the purchase of an American electronics factory by a Japanese investor
ANS: A
154. For a country to successfully maintain a fixed exchange rate value of its currency relative to another currency (for example,
as is done when currencies are unified or pegged), it must
a. maintain a relatively high rate of inflation.
b. balance the government budget each year.
c. give up the independence of its monetary policy.
d. run a trade deficit.
ANS: C
155. An appreciation in the value of the U.S. dollar would
a. encourage foreigners to make more investments in the United States.
b. encourage U.S. consumers to purchase more foreign-produced goods.
c. increase the number of dollars that could be purchased with the euro.
d. discourage U.S. consumers from traveling abroad.
ANS: B
156. Which of the following would be likely to cause a nation's currency to depreciate?
a. an increase in foreign demand for the nation's products
b. a lower domestic rate of inflation than that of the nation's trading partners
c. higher domestic interest rates
d. higher foreign interest rates
ANS: D
157. Under a system of flexible exchange rates, transactions that increase the supply of the nation's currency to the foreign
exchange market will cause the nation's
a. currency to depreciate in value.
b. currency to appreciate in value.
c. trade deficit to increase.
d. products to become more expensive to foreigners.
ANS: A
158. With time, a depreciation in the value of a nation's currency in the foreign market will cause the nation's
a. imports to increase and exports to decline.
b. exports to increase and imports to decline.
c. imports and exports to decline.
d. imports and exports to rise.
ANS: B
159. "Wine experts are discovering that California wines of several varieties and vintages are comparable to many of the best
French wines. The result is an increased demand, here and abroad, for California wines." With regard to the U.S. balance on
current account, this trend will
a. increase the U.S. deficit because of the rise in the price of California wine.
b. decrease the U.S. deficit because of increased shipments of California wines abroad.
c. decrease the demand for U.S. dollars.
d. increase the U.S. demand for euros.
ANS: B
160. The major impact of a restrictive monetary policy on the domestic exchange rate would be
a. an increase in the foreign exchange value of the domestic currency.
b. a decrease in the foreign exchange value of the domestic currency.
c. no change in the foreign exchange value of the domestic currency.
d. It is impossible to predict the impact on the foreign exchange value of the domestic currency.
ANS: A
161. Under a system of flexible exchange rates, which of the following will cause the nation's currency to depreciate in the
exchange market?
a. an increase in foreign incomes
b. a domestic inflation rate of 10 percent while the nation's trading partners are experiencing stable prices
c. an increase in domestic interest rates
d. a reduction in interest rates abroad
ANS: B
162. Expansionary fiscal policy exerts upward pressure on prices, output, and interest rates. As a result, expansionary fiscal
policy tends to cause
a. an appreciation of the exchange rate and a deficit in the current account.
b. a depreciation of the exchange rate and a surplus in the current account.
c. an uncertain effect on the exchange rate and a deficit in the current account.
d. uncertain effects on both the exchange rate and the current account.
ANS: C