Deck 19: International Trade

Question 1

As with new technology, trade can be viewed as a way for:

A) an economy to increase its production possibilities and welfare.
B) an economy to specialize to the detriment of everyone.
C) exporters to benefit at the expense of everyone else.
D) an economy to reduce its aggregate production.
E) None of these answers is correct.

Answer 1

an economy to increase its production possibilities and welfare.

Question 2

Which of the following had a trade surplus in 2014?

A) France
B) Germany
C) the United States
D) the United Kingdom
E) None of these answers is correct.

Answer 2

Germany

Question 3

Which of the following explains why trade has increased worldwide, particularly since the early 1970s?

A) the reduction in shipping and production costs
B) an increase in trade barriers
C) falling global incomes
D) All of these answers are correct.
E) None of these answers is correct.

Answer 3

the reduction in shipping and production costs

Question 4

In the 1970s, farmers were able to "transform" ________ into ________.

A) steel; cars
B) corn; ethanol
C) corn; cars
D) beets; sugar
E) soy; sushi

Question 5

The difference between exports and imports is called:

A) the trade balance.
B) net imports.
C) the capital account.
D) the statistical discrepancy.
E) the production possibility.

Question 6

Which of the following countries has export and import shares that exceed 20 percent of its GDP?

A) Brazil
B) Japan
C) India
D) Argentina
E) None of these answers is correct.

Question 7

According to an example in the text about the Robinson Crusoe economy, which player is a phenomenal basketball player?

A) Barack Obama
B) LeBron James
C) Kobe Bryant
D) Magic Johnson
E) Michael Jordan

Question 8

U.S. imports' share of GDP is about ________ percent, while exports' share was about ________ percent in recent years.

A) 10; 15
B) 18; 14
C) 5; 10
D) 15; 18
E) 11; 21

Question 9

In recent years, about ________ percent of the U.S. GDP was exported.

A) 5
B) 12
C) 14
D) 21
E) 40

Question 10

Which of the following countries has trade balance that exceeds 5 percent of its GDP?

A) China
B) Canada
C) France
D) Germany
E) All of these answers are correct.

Question 11

In recent years, imports' share of GDP is about ________ percent.

A) 5
B) 14
C) 18
D) 12
E) 41

Question 12

From 1960, the world average tariff on manufactured goods ________ by 2000.

A) fell to 4 percent
B) rose to 10 percent
C) remained more or less the same
D) fell to 0 percent
E) rose to 13 percent

Question 13

The example demonstrating how corn can be "turned into" cars illustrates how trade can be viewed as:

A) bad for farmers.
B) good for certain industries.
C) an alternative technology for producing goods.
D) undermining America's ability to produce both corn and cars.
E) turning the United States into a low value-added economy.

Question 14

Worldwide, the trade balance must be:

A) unsure.
B) negative.
C) positive.
D) zero.
E) dependent on the country.

Question 15

Prior to 1975, the United States had:

A) balanced trade.
B) a trade deficit.
C) a trade surplus.
D) a balanced budget.
E) a zero rate of inflation.

Question 16

Over time, the "economic distance" between countries has:

A) remained unchanged.
B) fallen as costs have stayed constant.
C) fallen as costs have fallen.
D) increased as more countries have actively engaged in trade.
E) None of these answers is correct.

Question 17

In 2006, the United States' trade balance was about:

A) 11 percent of GDP.
B) -5.6 percent of GDP.
C) 0 percent of GDP.
D) equal to government spending.
E) -2.4 percent of GDP.

Question 18

By the year 2000, the average worldwide tariff was about ________ percent.

A) 0
B) 4
C) 10
D) 14
E) 8

Question 19

Which country had a trade balance in 2014 that was roughly equal to the share of its own GDP and share of U.S. GDP?

A) France
B) Germany
C) China
D) the United Kingdom
E) None of these answers is correct.

Question 20

Economists call an economy in which each person produces all of the goods that he or she consumes a(n) ________ economy.

A) simple
B) Robinson Crusoe
C) two-good
D) island
E) benevolent planner

Question 21

The basic motivation for international trade is that:

A) an economy values goods other economies produce more than it values its own excess production.
B) people like to consume a limited basket of goods.
C) people like to consume an extended basket of goods.
D) economies value goods that other economies produce less than they value what they produce.
E) economies value goods that other economies produce more than they value what they themselves produce.

Question 22

Over time, international trade enables an economy to:

A) run a trade deficit forever.
B) smooth consumption.
C) run a trade surplus forever.
D) experience variations in consumption.
E) None of these answers is correct.

Question 23

If Country A runs a trade deficit against Country B for one year, then it:

A) must produce some other good in the future.
B) must compensate Country B by exporting its excess production in the future.
C) may continue to run a deficit for all time.
D) None of these answers is correct.
E) All of these answers are correct.

Question 24

If the United States is running persistent trade deficits now, it:

A) must make loans to the rest of world.
B) is expected to run trade surpluses at some point in the future.
C) is expected to run trade surpluses now.
D) must increase its money supply to buy imports.
E) must run a government budget deficit.

Question 25

Refer to the following table when answering the following questions.
Table 19.1: East and West Fish and Chip Production
Consider Table 19.1. Which of the following statements is true?

A) The West has an absolute advantage in the production of both fish and chips and has a comparative advantage in the production of chips.
B) The East has an absolute advantage in the production of both fish and chips and has a comparative advantage in the production of fish.
C) The West has an absolute advantage in the production of chips and the East has an absolute advantage in the production of chips.
D) The East has a comparative advantage in chip production and the West has a comparative advantage in the production of fish.
E) Not enough information is given.

Question 26

From the national income identity, if:

A) .
B) .
C) .
D) .
E) .

Question 27

Intertemporal trade allows economies to:

A) smooth risk over time.
B) reduce consumption over time.
C) always have a trade surplus.
D) run trade deficits for all periods.
E) None of these answers is correct.

Question 28

Refer to the following table when answering the following questions.
Table 19.1: East and West Fish and Chip Production
Consider Table 19.1. In autarky, the price of fish in terms of chips is ________ in the West, and in the East the price is ________.

A) 1; 1
B) 1/2; 1/3
C) 2; 3
D) 2; 10
E) Not enough information is given.

Question 29

With intertemporal trade, trade imbalances move in tandem with:

A) budget deficits.
B) financial flows.
C) changes in consumption.
D) interest rate flows.
E) changes in inflation.

Question 30

Refer to the following table when answering the following questions.
Table 19.1: East and West Fish and Chip Production
Consider Table 19.1. In the West, with autarky, per person fish consumption is ________ kilos and per person chip consumption is ________ kilos, assuming people spend half their incomes on each good.

A) 75; 7.5
B) 50; 100
C) 100; 50
D) 200; 100
E) Not enough information is given.

Question 31

Refer to the following table when answering the following questions.
Table 19.1: East and West Fish and Chip Production
Consider Table 19.1. In the East, with autarky, total fish production is ________ kilos and total chip production is ________kilos, assuming people spend half their incomes on each good.

A) 30; 10
B) 10,000; 5,000
C) 12,000; 4,000
D) 200; 200
E) Not enough information is given.

Question 32

Refer to the following table when answering the following questions.
Table 19.1: East and West Fish and Chip Production
Consider Table 19.1. In the West, with autarky, total fish production is ________ kilos and per person fish consumption is ________ kilos, assuming people spend half their incomes on each good.

A) 22,500; 75
B) 10,000; 5,000
C) 10,000; 100
D) 5,000; 2,250
E) Not enough information is given.

Question 33

From the national income identity, if:

A) NX $\lt$ 0,
C + I $\lt$ Y + G.
B) .
C) .
D) .
E) .

Question 34

With trade:

A) an economy can realize higher welfare.
B) an economy can specialize in the production of fewer goods.
C) an economy moves to a higher production-possibilities frontier.
D) members of an economy can consume more of all goods.
E) All of these answers are correct.

Question 35

If the United States is running a trade deficit this year, it also must ________ now, and in the long run, ________.

A) lend to China; run balanced trade with China.
B) borrow from China; run a trade surplus
C) lend to China; run balanced trade with China
D) lend to China; run a trade deficit
E) Not enough information is given.

Question 36

In a two-period example of intertemporal trade, if NX > 0 in period 1, then for trade to balance in period 2:

A) C + I + G = YY.
B) NX $\lt$ 0.
C) C + I + G > Y.
D) NX $\gt$ 0.
E) Not enough information is given.

Question 37

If a country is better at producing all goods, it has a(n):

A) trade deficit.
B) comparative advantage.
C) absolute advantage.
D) trade surplus.
E) None of these answers is correct.

Question 38

Refer to the following table when answering the following questions.
Table 19.1: East and West Fish and Chip Production
Consider Table 19.1. In autarky, the price of fish in terms of chips is ________ in the West; in the East the price is ________.

A) 3; 2
B) 1/2; 1/3
C) 1; 1
D) 2; 10
E) None of these answers is correct.

Question 39

Refer to the following table when answering the following questions.
Table 19.1: East and West Fish and Chip Production
Consider Table 19.1. In the East, with autarky, per person consumption of fish is ________ kilos and per person chip consumption is ________ kilos, assuming people spend half their incomes on each good.

A) 10; 30
B) 100; 50
C) 12,000; 4,000
D) 30; 10
E) Not enough information is given.

Question 40

Intertemporal trade deficits and surpluses reflect:

A) international exchange rates.
B) international lending and borrowing.
C) movements in money across borders.
D) differences in interest rates.
E) differences in preferences.

Question 41

Refer to the following table when answering the following questions.
Table 19.1: East and West Fish and Chip Production
Consider Table 19.1. With free trade, the ________ specializes in chips, producing 100 percent of the world supply, or ________ kilos.

A) East; 8,000
B) West; 10,000
C) West; 20,000
D) West; 100,000
E) East; 24,000

Question 42

Generally, the losses due to free trade are ________, and the benefits are ________.

A) concentrated within particular groups; spread thinly across the rest of the economy
B) spread thinly across the rest of the economy; concentrated within particular groups
C) concentrated within particular groups; also concentrated within particular groups
D) spread thinly across the rest of the economy; also spread thinly across the rest of the economy
E) zero; infinite

Question 43

Under free trade:

A) losses generally are concentrated in specific industries, but benefits are felt economywide.
B) losses generally are concentrated in all industries, but benefits are felt economywide.
C) losses generally are concentrated in specific industries and are felt economywide.
D) winners are concentrated within a specific sector.
E) no one loses, and there are only gains to the economy.

Question 44

An impact of free trade is that:

A) workers in the sector in which an economy has a comparative disadvantage lose their work.
B) on aggregate, the economy is no better off.
C) workers in each sector see an improvement in their welfare.
D) capital moves seamlessly across borders.
E) None of these answers is correct.

Question 45

According to Lori Kletzer from the University of California at Santa Cruz:

A) the majority of economic immigrants are from Canada.
B) the United States has a trade surplus, not a deficit.
C) exchange rates in developing countries are more stable than previously believed.
D) about 7.5 million workers lost their jobs because of imports.
E) real interest rates are equal across countries once they have been adjusted for risk.

Question 46

To raise incomes for workers from lower income countries, it is more effective to allow ________ because ________ in developed countries.

A) black markets to exist (e.g., drugs); there is higher demand
B) free migration; there is higher productivity
C) free trade; there are higher tariff barriers
D) free movement of remittances; wages are higher
E) free capital movement; real interest rates are more stable

Question 47

Refer to the following table when answering the following questions.
Table 19.1: East and West Fish and Chip Production
Consider Table 19.1. With free trade, the West has a comparative advantage in ________ production and dedicates ________ percent of its labor to fish.

A) fish; 75
B) fish; 100
C) chips; 50
D) chips; 0
E) Not enough information is given.

Question 48

Free labor migration is more effective at improving welfare in low-income countries than moving capital because:

A) it moves the labor to the place where productivity is high.
B) low-income countries do not have much capital per person.
C) it moves labor to the place where there is a lot of capital per person.
D) it moves labor to the place where there is not much capital per person.
E) it is cheaper to move labor than capital.

Question 49

Because free trade ________, it is incumbent on an economy to ________.

A) creates losses for specific sectors; redistribute the gains
B) generates gains for all sectors; raise taxes
C) generates gains for specific sectors only; tax them less heavily
D) creates losses for specific sectors; hasten their decline to better take advantage of comparative advantage
E) None of these answers is correct.

Question 50

Refer to the following table when answering the following questions.
Table 19.1: East and West Fish and Chip Production
Consider Table 19.1. With free trade, the price of fish in terms of chips must be:

A)2.
B) about 0.42.
C) 2.4.
D)3.
E) Not enough information is given.

Question 51

According to the President's Council of Economic Advisers, "The gains from trade that take place ________ are no different than the gains from trade ________. When a good or service is produced at lower cost in another country, it makes sense to import it rather than to produce it domestically."

A) over the Internet or telephone lines; in physical goods transported by ship or plane
B) over the Internet or telephone lines; due to the movement of real assets
C) due to the movement of real assets; over the Internet or telephone lines
D) due to the movement of financial assets; in physical goods transported by ship or plane
E) due to the movement of financial assets; over the Internet or telephone lines

Question 52

Refer to the following table when answering the following questions.
Table 19.1: East and West Fish and Chip Production
Consider Table 19.1. In autarky, the price of fish in terms of chips is ________ in the West, and in the East the price is ________; therefore, the West has a comparative advantage in ________.

A) 2; 3; fish
B) 3; 2; chips
C) 2; 3; chips
D) 1/2; 1/3; fish
E) Not enough information is given.

Question 53

There is discussion of expanding the North American Free Trade Agreement (NAFTA) to include other Latin American countries, called the Free Trade Agreement of the Americas (FTAA). If you are a union member, you might object to the signing of a free trade agreement:

A) only if members of your labor pool will be adversely affected, because free trade means gains for the economy as a whole.
B) only if members of your labor pool will be adversely affected.
C) only if members of your labor pool will be adversely affected, because free trade means losses for the economy as a whole.
D) if all labor will be adversely affected, because free trade means losses for the economy as a whole.
E) None of these answers is correct.

Question 54

Refer to the following table when answering the following questions.
Table 19.1: East and West Fish and Chip Production
Consider Table 19.1. With free trade in the East, fish consumption ________ and potato consumption ________, compared to autarky.

A) rises; falls
B) rises; stays the same
C) stays the same; rises
D) stays the same; stays the same
E) rises; rises

Question 55

Suppose, in the North, one unit of labor produces units of fish or
Units of chips. In the South, one unit of labor produces
Units of fish and
Units of chips. For the South to specialize in fish, which of the following must be true?

A)
B)
C)
D)
E)

Question 56

According to the model of free trade, if the United States were to open its borders to Mexican migrants:

A) both American and Mexican wages would fall.
B) American wages would be permanently higher than Mexican wages.
C) Mexican wages would remain well below American wages.
D) Mexican wages would rise above American wages.
E) wages of Americans and Mexicans would equalize.

Question 57

According to the model of free trade and free factor migration, given the choice, Americans would prefer ________ because ________.

A) free trade over free migration; additional benefits would accrue to the migrant population under free migration
B) free migration over free trade; the benefits are shared across both populations under free migration
C) free migration over free trade; additional benefits would accrue to Americans under free migration
D) free trade over free migration; all benefits would accrue to Americans under free trade
E) None of these answers is correct.

Question 58

Given the choice, the world is most efficient under:

A) autarky.
B) isolationism.
C) free migration.
D) protected trade.
E) monopoly.

Question 59

Refer to the following table when answering the following questions.
Table 19.1: East and West Fish and Chip Production
Consider Table 19.1. With free trade in the West, fish consumption ________ and potato consumption ________, compared to autarky.

A) rises; falls
B) stays the same; rises
C) rises; stays the same
D) stays the same; stays the same
E) rises; rises

Question 60

Refer to the following table when answering the following questions.
Table 19.1: East and West Fish and Chip Production
Consider Table 19.1. With free trade, the price of fish in terms of chips must be:

A)2.
B) some value between 1/2 and 1/3.
C) some value between 2 and 3.
D)3.
E) Not enough information is given.

Question 61

If private saving equals private investment and there is a trade deficit, there must be a(n) ________; this is called ________.

A) net outflow of savings; the J-curve
B) government budget deficit; the twin deficits
C) government budget surplus; balanced trade
D) excess supply of private savings; a budget surplus
E) excess supply of private savings; the investment deficit

Question 62

Which of the following is true?

A) The net flow of goods is associated with a net flow of financial assets in the opposite direction.
B) The net flow of goods is associated with a net flow of financial assets in the same direction.
C) If net exports are positive, then there is a net outflow of capital.
D) The net flow of goods is associated with a net flow of money only.
E) The trade balance is always equal to investment minus savings.

Question 63

When the U.S. economy runs a trade ________, it is implicitly asking the rest of the world to ________.

A) deficit; finance some of its savings
B) surplus; finance some of its investment
C) deficit; finance some of its investment
D) balance; finance some of its investment
E) surplus; buy more U.S.-made goods and services

Question 64

Running trade deficits in some periods and trade surpluses in others allows a country to:

A) run budget deficits.
B) increase consumption in every period.
C) smooth consumption.
D) increase interest rates.
E) increase the value of its currency vis-à-vis other currencies.

Question 65

Which of the following CANNOT be used to finance a trade deficit?

A) stocks
B) money
C) bonds
D) All of these answers are correct.
E) None of these answers is correct.

Question 66

According to economic theory, fast-growing countries should be running ________, but the evidence is that in fast-growing countries, ________.

A) trade deficits; the permanent-income hypothesis does not hold
B) trade surpluses; the permanent-income hypothesis is wrong
C) trade deficits; the permanent-income hypothesis holds
D) balanced trade; people want to smooth their consumption
E) balanced trade; people do not think about the future

Question 67

From the national income identity in the United States, if NX $\lt$ 0, this must equal the:

A) additional borrowing the United States does to finance the gap between investment and domestic savings.
B) additional lending the United States does to finance the gap between investment and domestic savings.
C) additional lending the United States does to earn a return on its excess savings.
D) federal government's budget surplus.
E) additional borrowing the U.S. federal government does to finance its budget deficit.

Question 68

From the national income identity, we can derive the following relationship for the trade balance (net exports):

A) NX= I.
B) NX = I -S.
C) NX = S - I.
D) NX = Y - C- I.
E) NX= C.

Question 69

Greg Mankiw and the President's Council of Economic Advisers reasoned that the arguments in favor of comparative advantage and free trade were NOT made irrelevant by:

A) exchange rate volatility.
B) large nontariff barriers.
C) the Internet.
D) outsourcing.
E) patents and monopoly pricing.

Question 70

If a country is running a trade deficit this year, it must pay for these goods by:

A) selling financial assets.
B) running a trade surplus in the future.
C) selling government debt to foreign institutions.
D) All of these answers are correct.
E) None of these answers is correct.

Question 71

In China, total saving ________ investment; therefore, China ________.

A) equals; imports more and invests abroad
B) is less than; exports its excess production and invests abroad
C) is greater than; imports more, because Chinese consumers would prefer to consume rather than save
D) equals; exports its excess production and invests abroad
E) is greater than; exports its excess production and invests abroad

Question 72

In addition to the migration of ________ jobs to lower-cost countries, recently we have seen ________ jobs migrate abroad as well.

A) financial; automobile
B) blue-collar; white-collar
C) white-collar; blue-collar
D) automobile; construction
E) cement manufacturing; ship-building

Question 73

According to Matthew Slaughter of Dartmouth College, in a study of multinational corporations, he found that for every ________ was/were created domestically.

A) one job outsourced, about two jobs
B) one job outsourced, about one-half job
C) job outsourced, another
D) two jobs outsourced, about one job
E) None of these answers is correct.

Question 74

As with new technology, trade can be viewed as a way for an economy to increase its production possibilities and welfare.

Question 75

According to a study conducted by Jagdish Bhagwati, Arvind Panagariya, and T. N. Srinivasan, the overall impacts of ________ in the U.S. economy are small because ________.

A) exchange rate volatility; the United States has a currency board
B) trade; it is a small percentage of the overall economy
C) tariffs; the effective tariff rate is zero
D) "dumping"; of monopoly power
E) outsourcing; less than 1 percent of the relevant job pool is leaving

Question 76

When economists in the 1980s and 1990s studied the impact of trade on American ________, they found that the impacts were________ because________.

A) wages; small; most trade was with other high-income countries
B) inflation rates; zero; Americans did not buy imported goods
C) real exchange rates; minimal; goods are not traded
D) service prices; large; of the Balassa-Samuelson effect
E) exports; large; the dollar appreciated sharply

Question 77

When the central government runs a budget deficit, the economy runs the risk of ________; this phenomenon is called ________.

A) balanced trade; protectionism
B) running a trade deficit; the twin deficits
C) running a financial account deficit; the J-curve
D) running a financial account deficit; the yield curve
E) an exchange rate depreciation; purchasing power parity

Question 78

From the national income identity:

A) the trade balance is equal to the net capital outflow.
B) the trade balance is always greater than the net capital inflow.
C) if there is a trade surplus, there is a net capital inflow.
D) the trade balance equals the federal government's budget balance.
E) None of these answers is correct.

Question 79

In ________, the United States became a net debtor to the rest of the world.

A) 2001
B) 1986
C) 1995
D) 1976
E) 1980

Question 80

The national income identity can be rearranged to yield the relationship between:

A) the international flow of goods and services to the international flow of capital.
B) the national flow of goods and services to the national flow of capital.
C) the international flow of goods and services to the government's budget constraint.
D) savings and the international flow of capital.
E) the money supply and the exchange rate.