Download c10

International Economics, 7e (Husted/Melvin)
Chapter 10 International Trade and Economic Growth
Multiple-Choice Questions
1) ________ policies refer to government programs designed to exploit natural comparative
advantage by increasing production of a few export goods most closely related to a country's
resource base.
A) Comparative advantage
B) Primary-export-led development
C) Import-substitution development
D) Inward-looking development
Answer: B
2) ________ policies seek to promote rapid industrialization by erecting high barriers to foreign
goods to encourage local production,
A) Comparative advantage
B) Primary-export-led development
C) Import-substitution development
D) Outward-looking development
Answer: C
3) ________ policies involve government support for manufacturing sectors in which a country
has potential comparative advantage.
A) Comprehensive development
B) Primary-export-led development
C) Import-substitution development
D) Outward-looking development
Answer: D
4) Developing countries that concentrate production in agricultural products or raw materials
may face a secular decline in their international terms of trade due to
A) sluggish demand for these products in developed countries.
B) large increases in the supplies of these products on world markets due to export
expansion policies.
C) inelastic demand for these products in developed countries.
D) All of the above.
Answer: D
5) Recently, many developing countries throughout the world have begun to institute policies
that seek to
A) liberalize international trade by lowering trade barriers.
B) reduce dependence on international trade by raising trade barriers.
C) reduce dependence on international trade by instituting laws that call for buying only
domestically made goods.
D) Two of the above.
Answer: A
1
6) If the expansion of an export industry leads to the provision of infrastructure such as roads
or airports, this is called a(n)
A) secondary effect.
B) linkage effect.
C) elementary effect.
D) None of the above.
Answer: B
7) Economic growth occurs because
A) labor forces grow.
B) capital stocks grow.
C) new inventions raise productivity.
D) All of the above.
Answer: D
8) If an economy experiences an increase in its labor force, everything else constant, then its
production possibilities frontier (PPF) will
A) expand outward but keep its original shape.
B) expand outward largely in the direction of the labor intensive good.
C) expand outward largely in the direction of the capital intensive good.
D) not expand until capital grows.
Answer: B
9) If an economy experiences an increase in its labor force, everything else constant, then at
constant world prices, it will
A) produce more of the labor intensive good and less of the capital intensive good.
B) produce more of both goods.
C) produce the same amount of both goods.
D) produce less of the labor intensive good and more of the capital intensive good.
Answer: A
10) If an economy experiences an increase in its labor force, everything else constant, then at
constant world prices, it will
A) export more, if the country was initially labor abundant.
B) import more, if the country was initially labor abundant.
C) export more, if the country was initially capital abundant.
D) Both A and B above.
Answer: D
11) ________ economic growth occurs when, after growth, exports and imports rise by the same
proportion.
A) Rising
B) Neutral
C) Biased
D) Technological
Answer: B
2
12) Economic growth at constant world prices will ________ cause the output of one good to fall
absolutely.
A) never
B) sometimes
C) always
Answer: B
13) ________ growth is said to occur when a country's welfare falls as the country grows.
A) Protrade biased
B) Antitrade biased
C) Immizerizing
D) Anti-neutral
Answer: C
14) Recent guest worker programs have involved temporary migration from
A) poor countries to richer countries.
B) poor countries to other poor countries.
C) rich countries to poor countries.
D) rich countries to other rich countries.
Answer: A
15) The rarest migration pattern is for people to move permanently from
A) poor countries to richer countries.
B) poor countries to other poor countries.
C) rich countries to poor countries.
D) rich countries to other rich countries.
Answer: C
16) An example of direct foreign investment is given by
A) the sale of U.S. government bonds to foreigners.
B) the sale of General Motors bonds to foreigners.
C) multinational corporations such as Ford.
D) all of the above.
Answer: C
17) If Lo is the initial labor force in the economy and Wo is the initial wage, then payments to
capital initially are given by area
A) A.
B) B.
C) A + B.
D) not shown in the diagram.
Answer: A
3
18) If immigration were to lead to an inflow of workers so that the overall labor force were to
rise to L1, then
A) wages would rise and payments to capital would fall.
B) wages would rise and payments to capital would rise.
C) wages would fall and payments to capital would fall.
D) wages would fall and payments to capital would rise.
Answer: D
19) ________ would gain from expanded immigration.
A) Domestic labor
B) Domestic capital
C) Both domestic labor and capital
D) Neither domestic labor nor capital
Answer: B
20) ________ would likely oppose policies that allowed foreign workers to immigrate more
freely.
A) Domestic labor
B) Domestic capital
C) Both domestic labor and capital
D) Neither domestic labor nor capital
Answer: A
True or False Questions
1) Import-substitution development policies have been especially effective in promoting
employment in newly industrializing sectors because these policies discourage the import of
foreign capital goods.
Answer:
False
Explanation: None Given
2) Over time, countries grow in a fashion so that their production possibility frontiers always
retain the same shape.
Answer:
False
Explanation: This would only be true if overall capital/labor ratios in the country remained
constant over time.
3) Economic growth at constant prices will never lead to a fall in the output of one good.
Answer:
False
Explanation: The Rybczynski theorem proves otherwise.
4) Legal immigration to the United States peaked just before World War I, but today is almost
zero.
Answer:
False
Explanation: Immigration numbers are currently around 800,000 per year.
5) Rich country to poor country migration is relatively uncommon.
Answer:
True
Explanation: None Given
4
6) International factor flows tend to lower incomes of those factors in host countries that most
directly substitute for that factor, and to raise the incomes of other factors.
Answer:
True
Explanation: None Given
7) Sale of U.S. government bonds to foreigners is an example of direct foreign investment in the
United States.
Answer:
False
Explanation: None Given
8) The way in which growth occurs affects the pattern of trade of a country.
Answer:
True
Explanation: None Given
9) A key element in outward-looking development policies is to maintain open markets so that
internal prices reflect world prices.
Answer:
True
Explanation: None Given
10) Economic growth could make a country worse off.
Answer:
True
Explanation: None Given
Essay Questions
1) Write an essay that compares and contrasts primary-export-led development policies with
import-substitution policies.
Answer: Primary-export-led development policies are aimed at encouraging the exports of
natural comparative advantage primary products. The hope is that these exports will
generate substantial linkage effects that will bring about general economic
development. Potential problems in this approach include the possibility of a secular
deterioration in the country's terms of trade as well as volatility in world prices.
Import-substitution policies seek to promote development by encouraging local
industrialization behind initially high trade barriers. This is an example of the infant
industry argument for protection. In practice, these policies have had dismal records,
as trade barriers have imposed incredible distortions on domestic economies.
2) The way in which a country grows affects the pattern of trade of a country. True or false.
Discuss.
Answer: Growth causes a country's PPF to shift out. This has implications for both production
and consumption. Since trade is the difference between production and consumption,
it will tend to be affected as well. Growth can be neutral, in which case trade volumes
increase, but proportionate to initial levels. Growth can be protrade biased, in which
case the country tends to trade more relative to its GNP after growth, or trade can be
antitrade biased, in which case it tends to trade less. All of these situations depend
upon what happens to the country's overall capital/labor ratio as growth occurs as
well as income elasticities of demand.
5
3) Immigration tends to lower the income of all factors of production. True or false. Illustrate
graphically.
Answer: False. Immigration tends to lower the wages of workers who substitute directly for the
immigrants. Non-competing factors would tend to gain.
6