Economics Midterm
*This isn’t an essay, it is 25 multiple choice, 25 true and false questions that needed to be answered. Each question needs to be explained why you chose whichever answer, one sentence explanation per question is more than enough. When explaining the true or false, you can just say “If this was false, it would neglect the point being made…” Something like that. But for the true and false, be a little more specific with definitions maybe. Need a good grade on this.
Econ 320 mid-term exam
PLEASE EXPLAIN YOUR CHOICE
1. If a nation has an open economy, it means that the nation:
a.
Allows private ownership of capital
b.
Has flexible exchange rates
c.
Has fixed exchange rates
d.
Conducts trade with other countries
2. The movement to free international trade is most likely to generate short-term unemployment in which industries?
a.
Industries in which there are neither imports nor exports
b.
Import-competing industries
c.
Industries that sell to domestic and foreign buyers
d.
Industries that sell to only foreign buyers
3. Increased foreign competition tends to:
a.
Intensify inflationary pressures at home
b.
Induce falling output per worker-hour for domestic workers
c.
Place constraints on the wages of domestic workers
d.
Increase profits of domestic import-competing industries
4. The mercantilists would have objected to:
a.
Export promotion policies initiated by the government
b.
The use of tariffs or quotas to restrict imports
c.
Trade policies designed to accumulate gold and other precious metals
d.
International trade based on open markets
5. The trading principle formulated by Adam Smith maintained that:
a.
International prices are determined from the demand side of the market
b.
Differences in resource endowments determine comparative advantage
c.
Differences in income levels govern world trade patterns
d.
Absolute cost differences determine the immediate basis for trade
6. Unlike Adam Smith, David Ricardo’s trading principle emphasizes the:
a.
Demand side of the market
b.
Supply side of the market
c.
Role of comparative costs
d.
Role of absolute costs
7. If a production possibilities curve is bowed out (i.e., concave) in appearance, production occurs under conditions of:
a.
Constant opportunity costs
b.
Increasing opportunity costs
c.
Decreasing opportunity costs
d.
Zero opportunity costs
8. Increasing opportunity costs suggest that:
a.
Resources are not perfectly shiftable between the production of two goods
b.
Resources are fully shiftable between the production of two goods
c.
A country’s production possibilities curve appears as a straight line
d.
A country’s production possibilities curve is bowed inward (i.e., convex) in appearance
9. The trading-triangle concept is used to indicate a nation’s:
a.
Exports, marginal rate of transformation, terms of trade
b.
Imports, terms of trade, marginal rate of transformation
c.
Marginal rate of transformation, imports, exports
d.
Terms of trade, exports, imports
10. When a nation achieves autarky equilibrium:
a.
Input price equals final product price
b.
Labor productivity equals the wage rate
c.
Imports equal exports
d.
Production equals consumption
11. When a nation is in autarky and maximizes its living standard, its consumption and production points are:
a.
Along the production possibilities schedule
b.
Above the production possibilities schedule
c.
Beneath the production possibilities schedule
d.
Any of the above
12. Which of the following suggests that a nation will export the commodity in the production of which a great deal of its relatively abundant and cheap factor is used?
a.
The Linder theory
b.
The product life cycle theory
c.
The MacDougall theory
d.
The Heckscher-Ohlin theory
13. Which of the following is a long-run theory, emphasizing changes in the trading position of a nation over a number of years?
a.
Theory of factor endowments
b.
Comparative advantage theory
c.
Theory of the product cycle
d.
Overlapping demand theory
14. The Leontief paradox questioned the validity of the theory of:
a.
Comparative advantage
b.
Factor endowments
c.
Overlapping demands
d.
Absolute advantage
15. Eli Heckscher and Bertil Ohlin are associated with the theory of comparative advantage that stresses differences in:
a.
Income levels among countries
b.
Tastes and preferences among countries
c.
Resource endowments among countries
d.
Labor productivities among countries
16. The imposition of tariffs on imports results in deadweight welfare losses for the home economy. These losses consist of the:
a.
Protective effect plus consumption effect
b.
Redistribution effect plus revenue effect
c.
Revenue effect plus protective effect
d.
Consumption effect plus redistribution effect
17. When a government allows raw materials and other intermediate products to enter a country duty free, its tariff policy generally results in a:
a.
Effective tariff rate less than the nominal tariff rate
b.
Nominal tariff rate less than the effective tariff rate
c.
Rise in both nominal and effective tariff rates
d.
Fall in both nominal and effective tariff rates
18. The redistribution effect of an import tariff is the transfer of income from the domestic:
a.
Producers to domestic buyers of the good
b.
Buyers to domestic producers of the good
c.
Buyers to the domestic government
d.
Government to the domestic buyers
19. A beggar-thy-neighbor policy is the imposition of:
a.
Free trade to increase domestic productivity
b.
Trade barriers to increase domestic demand and employment
c.
Import tariffs to curb domestic inflation
d.
Revenue tariffs to make products cheaper for domestic consumers
20. Which of the following refers to a market-sharing pact negotiated by trading partners to moderate the intensity of international competition?
a.
Orderly marketing agreement
b.
Local content requirements
c.
Import quota
d.
Trigger price mechanism
21. Import quotas tend to lead to all of the following except:
a.
Domestic producers of the imported good being harmed
b.
Domestic consumers of the imported good being harmed
c.
Prices increasing in the importing country
d.
Prices falling in the exporting country
22. The World Trade Organization was established by the ____ of multilateral trade negotiations:
a.
Kennedy Round
b.
Tokyo Round
c.
Uruguay Round
d.
Clinton Round
23. The Export-Import Bank of the United States encourages American firms to sell overseas by providing direct loans and loan guarantees to foreign purchasers of American goods. To American firms, this represents a:
a.
Specific subsidy
b.
Ad valorem subsidy
c.
Domestic subsidy
d.
Export subsidy
24. The U.S. “trade-remedy laws” could establish all of the following except:
a.
Import tariffs to protect U.S. firms seriously injured by foreign competition
b.
Countervailing duties which neutralize foreign export subsidies
c.
Antidumping duties which protect U.S. firms from imports sold at less-than-fair-value
d.
Economic sanctions levied against hostile nations
25. Concerning the price elasticities of supply and demand for commodities, empirical estimates suggest that most commodities have:
a.
Inelastic supply schedules and inelastic demand schedules
b.
Inelastic supply schedules and elastic demand schedules
c.
Elastic supply schedules and inelastic demand schedules
d.
Elastic supply schedules and elastic demand schedules
TRUE/FALSE PLEASE EXPLAIN YOUR CHOICE.
26. Opening the economy to international trade tends to lessen inflationary pressures at home.
27. The benefits of international trade accrue in the forms of lower domestic prices, development of more efficient methods and new products, and a greater range of consumption choices.
28. According to the price-specie-flow-doctrine, a trade-surplus nation would experience gold outflows, a decrease in its money supply, and a fall in its price level.
29. According to the principle of absolute advantage, international trade is beneficial to the world if one nation has an absolute cost advantage in the production of one good while the other nation has an absolute cost advantage in the other good.
30. Ricardo’s theory of comparative advantage was of limited relevance to the real world since it assumed that labor was only one of several factors of production.
31. With constant opportunity costs, a nation will achieve the greatest possible gains from trade if it partially specializes in the production of the commodity of its comparative disadvantage.
32. The price-specie-flow mechanism illustrated why nations could not maintain trade surpluses or trade deficits over the long run.
33. The theory of reciprocal demand best applies when two countries are of equal economic size, so that the demand conditions of each nation have a noticeable impact on market prices.
34. According to Ricardian theory, comparative advantage depends on relative differences in labor productivity.
35. The Heckscher-Ohlin theory asserts that relative differences in labor productivity underlie comparative advantage.
36. The Heckscher-Ohlin theory suggests that land-abundant nations will export land-intensive goods while labor-abundant nations will export labor-intensive goods.
37. With a compound tariff, a domestic importer of an automobile might be required to pay a duty of $200 plus 4 percent of the value of the automobile.
38. A ad valorem tariff provides domestic producers a declining degree of protection against import-competing goods during periods of changing prices.
39. When material inputs enter a country at a very low duty while the final imported product is protected by a high duty, the result tends to be a high rate of protection for domestic producers of the final product.
40. Under the Offshore Assembly Provision of U.S. tariff policy, U.S. import duties apply only to the value added in the foreign assembly process, provided that U.S.-made components are used by overseas companies in their assembly operations.
41. The deadweight losses of an import tariff consist of the protection effect plus the consumption effect.
42. An import quota is a physical restriction on the quantity of goods that may be imported during a specified time period.
43. To the extent that domestic importing companies organize as a monopoly buyer, and foreign exporting companies behave as competitive sellers, the importing companies capture the revenue effect of a quota.
44. By limiting the amount of foreign sourcing, local content laws are viewed as a means of jobs preservation for domestic workers.
45. Among the codes of conduct addressed at the Tokyo Round of multilateral trade negotiations were customs valuation, product standards, subsidies and countervailing duties, government procurement policies, and import licensing procedures.
46. The U.S. trade-remedy laws attempt to redress hardships for U.S. firms resulting from actions and policies of foreign firms and governments.
47. According to the escape clause, temporary trade restrictions may be imposed in industries where domestic producers are substantially being harmed by surging imports.
48. The Commodity Credit Corporation makes available export credit financing for U.S. agricultural exports.
49. According to the strategic-trade-policy hypothesis, government can alter the terms of competition to favor domestic companies, thus increasing their profits at the expense of their rivals.
50. Empirical research indicates that the demand and supply schedules for most primary products are relatively inelastic to changes in price.