Deck 18: International Trade and the Developing Countries

Question 1

In international commodity agreements that specify a target range for the price of a product, if the world price of the good is above the "ceiling" price, then a buffer stock agreement would require that the international agency __________ the product and an export quota agreement would require that countries __________ their exports of the Good.

A) sell; increase
B) sell; decrease
C) buy; increase
D) buy; decrease

Answer 1

sell; increase

Question 2

Two characteristics of low-income countries as classified by the World Bank are that, in Comparison with high-income countries, the low-income countries have a __________ Rate of population growth and a __________ percentage of GDP accounted for by Agriculture.

A) slower; smaller
B) slower; larger
C) faster; smaller
D) faster; larger

Answer 2

faster; larger

Question 3

Developing countries often claim that their "commodity terms of trade" have fallen over the long run. This means that (with P_x = export price index, P_m = import price index, Q_x = export quantity index, and Q_m = import quantity index) the developing countries think that there has been a decline in their __________.

A) (P_m/P_x).Q_m
B) P_m/P_x
C) P_x/P_m
D) (P_x/P_m).Q_x

Answer 3

P_x/P_m

Question 4

Despite the general agreement among economists on the benefits of moving to free trade,observers have noted that some developing countries may have "special" problems with regard to trade - the problems of export instability and a potential long-run deterioration of the terms of trade. Indicate the alleged nature of the problems and discuss potential causes for the problems.
Then summarize and assess possible policies that could be utilized to deal with the problems. Finally, do you think that these countries should "turn inward" (i.e., become less open to trade)because of these problems? Briefly explain.

Question 5

Using the debt-relief Laffer curve, make the case that debt relief can be in the best interest of both the developing and developed countries.

Question 6

Would you prefer to receive a stable income of $20,000 per year for three years or an income of $15,000 in the first year, $40,000 in the second year, and $15,000 in the third year? Explain. What about $20,000 per year versus a $15,000-$50,000-$15,000 sequence? Why or why not? What about $20,000 per year versus a $15,000-$35,000-$15,000 sequence? Why or why not?

Question 7

Developing countries (or LDCs) tend to have a ratio of manufactured goods exports to total exports that is __________ than the corresponding ratio for high-income countries, and the LDCs also tend to have a __________ degree of commodity concentration in their exports than do the high-income countries.

A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower

Question 8

Utilizing material in this chapter as well as the trade theory developed in Chapters 6-8 (traditional neoclassical trade theory), develop a case that the developing countries should pursue an "outward-looking" rather than an "inward-looking" trade strategy.

Question 9

If the supply curve of a good shifts increases and decreases cyclically along a relatively Inelastic (or steep) demand curve, then, in this market, the size of price fluctuations will Be __________ than the size of the quantity fluctuations.

A) relatively less
B) the same
C) relatively greater
D) relatively less or the same but not relatively greater

Question 10

In the classification terminology of the World Bank, a "strongly-inward-oriented Economy" is one that has __________ trade controls and consequently __________.

A) extensive; discriminates against production for the home market rather than for export
B) extensive; discriminates in favor of production for the home market rather than forbExport
C) extensive; does not discriminate between production for the home market andbProduction for export
D) few or no; discriminates in favor of production for the home market rather than for Export

Question 11

Utilizing material in this chapter as well as arguments for protection in Chapter 15, develop a case that the developing countries should pursue an "inward-looking" rather than an "outward-looking" strategy. Are you really convinced by the case that you have built? Why or why not?

Question 12

If the demand curve for a good increases and decreases cyclically along a relatively Inelastic (or steep) supply curve, then, in this market, the size of price fluctuations will be __________ than the size of quantity fluctuations.

A) relatively less
B) the same
C) relatively greater
D) relatively less or the same but not relatively greater

Question 13

In the diagram in Question #13 above, where curve 0ABC relates the market value of LDC external debt to the face value of the external debt, the range __________ indicates a situation where debt relief or forgiveness for LDCs would reduce amount of debt owed by developing countries but would also increase the market value of the debt. In this range, any one bank __________.

A) AB; would lose by forgiving debt unless all other banks also forgave debt
B) AB; could gain by forgiving debt even though other banks did not forgive debt
C) BC; would lose by forgiving debt unless all other banks also forgave debt
D) BC; could gain by forgiving debt even though other banks did not forgive debt

Question 14

Remembering the optimum tariff analysis of Chapter 15, explain why it might be possible that the imposition of a tariff by an LDC to improve its terms of trade (and thus hopefully to be in a better position at the start of any future deterioration) could reduce the LDC's welfare. Build the reverse case that reduction of an LDC tariff might improve the LDC's welfare at the present time, even though the terms of trade deteriorate because of the tariff reduction.

Question 15

In attempting to determine whether a developing country's export price instability is caused by shifts in world demand for the country's exports or by shifts in the supply curve of the country's exports (along with corresponding shifts in the supply curves of competing exporters), a general rule is that, other things equal, if the demand curve is doing the shifting, then price and quantity will move __________; in addition, if the supply curve is shifting along a given demand curve, then, other things equal, price and quantity __________.

A) directly with each other (i.e., when price rises, quantity rises, and when price falls, quantity falls); will move inversely with each other (i.e., when price rises, quantity falls, and when price falls, quantity rises)
B) directly with each other (i.e., when price rises, quantity rises, and when price falls, quantity falls); also will move directly with each other
C) inversely with each other (i.e., when price rises, quantity falls, and when price falls, quantity rises); will move directly with each other (i.e., when price rises, quantity rises, and when price falls, quantity falls)
D) inversely with each other (i.e., when price rises, quantity falls, and when price falls, quantity rises); also will move inversely with each other

Question 16

In the diagram in Question #13 above, where curve 0ABC relates the market value of LDC external debt to the face value of the external debt, the range __________ indicates a situation where debt relief or forgiveness for LDCs would reduce the market value of Commercial banks' holdings of LDC debt but by less than the amount of debt forgiven. In this range, any one bank__________.

A) AB; would not want to forgive debt unless all other banks did also
B) AB; would be willing to forgive debt even though other banks did not forgive debt
C) BC; would not want to forgive debt unless all other banks did also
D) BC; would be willing to forgive debt even though other banks did not forgive debt

Question 17

In the following diagram, the curve 0ABC that relates the market value of LDC external Debt to the face value of the external debt is known as

A) the Laffer curve.
B) the debt-relief Laffer curve.
C) the Brady curve.
D) the Prebisch-Singer curve.

Question 18

Which one of the following has NOT been offered as a possible reason for instability in exports of less developed countries?

A) high degree of commodity concentration of exports
B) low export demand elasticity coupled with shifting export supply curve
C) low export supply elasticity coupled with shifting export demand curve
D) high export supply elasticity coupled with shifting export supply curve

Question 19

In the context of developing countries' external debt, the "debt service ratio" of a country Is the ratio of annual interest payments on the debt plus scheduled repayment of the debt (amortization) to the country's __________.

A) exports of goods and services
B) exports of services
C) gross domestic product
D) total external debt

Question 20

In the situation of transfer pricing by a multinational firm in its trade between plants located in less developed countries (LDCs) and industrialized countries (ICs), the firm, other things equal, will, if it wants to shift recorded profits from its LDC plants to its IC plants, record a price on goods sent from LDCs to ICs that is __________ than a comparable free-market price. For goods sent from ICs to the LDCs, the firm will __________ than a comparable free-market price.

A) lower; also want to record a price that is lower
B) lower; want to record a price that is higher
C) higher; want to record a price that is lower
D) higher; also want to record a price that is higher

Question 21

The income elasticity of demand for manufactured goods is generally thought to be __________ than the income elasticity of demand for primary products, and the price elasticity of demand for manufactured goods (when the negative sign is ignored) is __________ than the price elasticity of demand for primary products.

A) lower; also generally thought to be lower
B) lower; generally thought to be higher
C) higher; generally thought to be lower
D) higher; also generally thought to be higher

Question 22

Other things equal, an export quota agreement to stabilize the price of a good on the World market will be more effective, the __________ the percentage of producer Countries that take part in the agreement and the __________ it is for countries to store (or stockpile) the good.

A) larger; easier
B) larger; more difficult
C) smaller; easier
D) smaller; more difficult

Question 23

For the World Bank's category of low-income countries, gross domestic product has been growing __________ rapidly in recent years than in developed countries. With regard to Another characteristic of low-income countries, the ratio of their exports of goods and Services to their GDPs has __________ in the last 15-20 years.

A) less; been increasing
B) less; been decreasing
C) more; been increasing
D) more; remained about the same

Question 24

In the analysis of the "debt-relief Laffer curve" pertaining to the external debt of a developing country,

A) the market value of the debt always equals the face value of the debt.
B) the market value of the debt is sometimes greater than the face value of the debt.
C) in one portion of the curve, forgiveness of debt can benefit both the debtor country and The lenders to the country.
D) in no portion of the curve can forgiveness of debt benefit both the debtor country and the lenders to the country.