Subsidies are a trade policy instrument. |
True |
Tariffs are the most complex instrument of trade policy. |
False |
Tariffs are the instrument that the GATT and WTO have been most successful in limiting. |
True |
In recent decades, a fall in subsidies, quotas, and voluntary export restraints has been accompanied by a corresponding fall in nontariff barriers. |
False |
Nontariff barriers include subsidies, quotas, voluntary export restraints, and antidumping duties. |
True |
Specific tariffs are levied as a proportion of the value of the imported good. |
False |
Ad valorem tariffs reduce the cost of imported products relative to domestic products. |
False |
Tariffs are largely pro-producer and anti-consumer. |
True |
Tariffs increase the overall efficiency of the world economy because a protective tariff encourages domestic firms to produce products more efficiently at home that, in theory, could be produced abroad. |
False |
Export tariffs are far less common than import tariffs. |
True |
The main gains from subsidies accrue to importers, whose international competitiveness is increased as a result of these subsidies. |
False |
Japan has a long history of supporting inefficient domestic producers with farm subsidies. |
True |
A direct restriction on the quantity of some good that may be imported into a country is a quota rent. |
False |
Quotas benefit consumers the most. |
False |
The Buy America Act specifies that government agencies must give preference to American products when putting contracts for equipment out for bid unless the foreign products have a significant advantage. |
True |
Administrative trade policies are bureaucratic rules that are designed to make it easy for imports to enter a country. |
False |
Dumping is variously defined as selling goods in a foreign market at below their costs of production, or as selling goods in a foreign market at below their "fair" market value. |
True |
Antidumping policies are designed to punish foreign firms that engage in dumping industrial waste into the environment. |
False |
The fair market value of a good is normally judged to be lesser than the costs of producing that good. |
False |
Countries sometimes argue that it is necessary to protect certain industries because they are important for national security. |
True |
Protecting consumers from "dangerous" products and furthering the goals of foreign policy are types of economic arguments for intervention. |
False |
The relationship between pollution and income levels follows a linear pattern. |
False |
The infant industry argument is the oldest economic argument for government intervention. |
True |
Until the early 1980s, most economists saw little benefit in government intervention and strongly advocated a free trade policy. |
True |
Brazil’s auto industry, once the world’s tenth-largest and built behind tariff barriers and quotas, has been proven as one of the world’s most inefficient. |
True |
Protection of manufacturing from foreign competition does no good unless the protection helps make the industry efficient. |
True |
The roots of strategic trade policy arguments can be traced back to the late 18th century and the works of Adam Smith and David Ricardo. |
False |
Several economists, including Paul Krugman, point out that although free trade policy looks appealing in theory, in practice it may be unworkable. |
False |
The Smoot-Hawley Act was a multilateral agreement whose objective was to liberalize trade by eliminating tariffs, subsidies, and import quotas. |
False |
In the Uruguay Round of the WTO, member countries sought to exempt trade in services from GATT rules. |
False |
The United States wanted the WTO to allow governments to impose tariffs on goods imported from countries that did not abide by what the United States saw as fair labor practices during a WTO meeting at the end of November 1999. |
True |
Antidumping actions seem to be concentrated in certain sectors of the economy such as basic metal industries (e.g., aluminum and steel), chemicals, plastics, and machinery and electrical equipment. |
True |
The biggest defenders of agricultural subsidies are the developed nations of the world. |
True |
Free trade in agriculture could help to jump-start economic growth among the world’s poorer nations and alleviate global poverty. |
True |
The threat of antidumping action enhances the ability of a firm to use aggressive pricing to gain market share in a country. |
False |
Government intervention may invite retaliation and trigger a trade war |
True |
Which of the following is one of the seven main instruments utilized in trade policy? |
A |
While _____ tariffs are levied as a fixed charge for each unit of a good imported, _____ tariffs are levied as a proportion of the value of the imported good. |
D |
Tariffs cause damage to _____ because this group must pay more for certain imports. |
C |
According to experts, which of the following groups most benefits from the imposition of tariffs? |
A |
A protective tariff encourages domestic firms to produce products at home that, in theory, could be produced more efficiently abroad. This results in: |
D |
The U.S. government imposed an eight to thirty percent tariff on steel imports into the United States in March 2002. This belongs to which of the following categories? |
B |
Tariffs: |
B |
One of the objectives of export tariffs is to: |
C |
Which of the following is a government payment to a domestic producer? |
B |
_____ take many forms including cash grants, low-interest loans, tax breaks, and government equity participation in domestic firms. |
B |
By lowering production costs, subsidies help domestic producers in: |
A |
_____ tend(s) to be one of the largest beneficiaries of subsidies in most countries. |
C |
By lowering production costs, _____ help domestic producers compete against foreign imports. |
D |
Governments typically pay for subsidies by: |
B |
Advocates of _____ believe that subsidies can help a firm achieve a first-mover advantage in an emerging industry. |
A |
Which of the following groups would most benefit from receiving subsidies? |
C |
An import quota is a direct restriction on the quantity of some good that may be __________ by a country. |
B |
Under a(n) _____, a lower tariff rate is applied to imports within the quota than those over the quota. |
A |
A(n) _____ is a quota on trade imposed by the exporting country, typically at the request of the importing country’s government. |
D |
Foreign producers agree to VERs because they fear: |
C |
Agreeing to a VER is seen by foreign producers as a way to make the best of a bad situation by appeasing _____ pressures in a country. |
B |
The Multi-Fiber Agreement (MFA) of 1974 fixed upper limits on exports of textiles from all major exporting countries to all major importing countries. The MFA is an example of: |
A |
The extra profit that producers make when supply is artificially limited by an import quota is referred to as a: |
B |
Both import quotas and VERs benefit _____ by limiting import competition, but they result in higher prices, which hurt _____. |
A |
A(n) _____ requires that some specific fraction of a good must be produced domestically. |
B |
Local content regulations have been widely used by developing countries to shift their manufacturing base from the simple _____ of goods whose parts are manufactured elsewhere into the local _____ of component parts. |
B |
Local content regulations provide protection for a domestic producer of parts in much the same way a(n) _____ does, by limiting foreign competition. |
D |
If Apple won an order to sell 500 new minicomputers to Australia, but the Australian government stipulated that 20 percent of the component parts of the minicomputers it purchased must be produced in Australia, that stipulation would be an example of a(n): |
D |
The _____ in the U.S. specifies that government agencies must give preference to American products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage. |
D |
In addition to the formal instruments of trade policy, informal bureaucratic rules that are designed to make it difficult for imports to enter a country are referred to as: |
D |
At one time, the French government required that all imported videotape recorders arrive in France through a small customs entry point that was both remote and poorly staffed. This is an example of a(n): |
C |
_____ are specific duties representing a special tariff for punishing foreign firms engaged in dumping, which can be fairly substantial and stay in place for up to five years. |
D |
In the context of international trade, _____ is defined as selling goods in a foreign market at a price below their costs of production or as selling goods in a foreign market at below their "fair" market price. |
B |
If China were to export vast quantities of cheap toys to India, selling them at below their costs of production, it would constitute: |
B |
In the context of dumping, predatory behavior can be described as foreign producers: |
C |
One of the motives for foreign firms engaged in dumping may be: |
A |
An alleged example of _____ occurred in 1997, when two Korean manufacturers of semiconductors, LG Semicon and Hyundai Electronics, were accused of selling dynamic random access memory chips in the U.S. market at below their costs of production. |
A |
The two US agencies that deal with antidumping complaints are the: |
C |
Which of the following is considered to be the ultimate objective of antidumping policies? |
C |
In general, what are the two paths of arguments for government intervention into the free flow of trade? |
C |
Furthering the goals of foreign policy and advancing the human rights of individuals in exporting countries are examples of issues covered by _____ for government intervention. |
A |
_____ arguments for government intervention into international trade are typically concerned with boosting the overall wealth of a nation. |
A |
Which of the following is perhaps the most common political argument for government intervention into the free flow of trade? |
C |
At times, countries contend that it is necessary to protect industries such as those related to defense—aerospace, advanced electronics, and semiconductors—because these industries are important for: |
C |
Some argue that governments should use the threat of _____ to intervene in trade policy as a bargaining tool to help open foreign markets and force trading partners to "play by the rules of the game." |
C |
Why is retaliation by government intervention a risky strategy? |
B |
In 2006, several countries of the European Union and U.S. banned imports of Mattel toys with high levels of lead, manufactured in China. The underlying motive for such a move could be: |
C |
Which of the following would be a likely action motivated by the desire of governments to protect their consumers from unsafe products? |
C |
Which of the following actions reflect the use of trade policies by governments to further their foreign policy objectives? |
A |
U.S. trade sanctions against Cuba, Libya, and Iran are examples of: |
B |
Legislation that allows Americans to sue foreign firms that use property in Cuba confiscated from them after the 1959 revolution is known as the: |
D |
Which one of the following Acts represents U.S. legislation that is similar to the Helms-Burton Act, but is aimed at Libya and Iran? |
B |
_____ status allows countries to export goods to the U.S. under favorable terms. |
A |
China did not join the WTO until 2001, so historically the decision of whether to grant MFN status to China was a real one. The decision was made more difficult by the perception that China had a(n) _____. |
C |
Environmental organizations pushing for greater regulation of international trade argue that there is a strong relationship between _____ and environmental pollution and degradation. |
C |
Empirical evidence suggests the relationship between income levels and pollution is not a linear one—rather it is an inverted U-shaped relationship—implying that international trade, and the growth that results from it, may not be damaging to the environment. Important exceptions to this trend are: |
C |
Which of the following is one of the reasons offered to explain the high levels of carbon dioxide emissions in developed countries like the U.S.? |
A |
If countries do not meet their targets for reducing carbon emissions specified in international treaties, they may find themselves the targets of _____. |
D |
According to the text, which of the following factors is likely to be the least important in determining location decisions for businesses? |
C |
With the development of the _____ and _____, the economic arguments for government intervention have undergone a renaissance in recent years. |
C |
Which of the following is by far, the oldest economic argument for government intervention into the free flow of trade? |
B |
According to _____, many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with well-established industries in developed countries. |
D |
_____ has recognized the infant industry argument as a legitimate reason for protectionism. |
A |
One of the main reasons why many economists remain critical of the infant industry argument is its assumption that: |
D |
Protection of manufacturing from foreign competition does no good unless the protection: |
A |
Given financial support, firms based in countries with a potential comparative advantage have an incentive to endure the necessary initial losses in order to make long-run gains without requiring _____. |
C |
According to the text, given efficient global capital markets, the only industries that would require government protection would be: |
A |
A government should use subsidies to support promising firms that are active in newly emerging industries, according to the _____ argument. |
A |
According to the text, governments should target technologies that may be important in the future and use _____ to support development work aimed at commercializing those technologies. |
A |
An important component of strategic trade policy is that it might pay governments to intervene in an industry if it helps domestic firms overcome the barriers to entry created by foreign firms that have already reaped _____. |
B |
To try and establish Airbus as a global competitor against Boeing, the governments of Britain, France, Germany, and Spain: |
D |
The strategic trade policy arguments of the new trade theorists challenge the rationale for unrestricted free trade found in the work of classic trade theorists. In response to this challenge to economic orthodoxy, a number of economists—including some of those responsible for the development of the new trade theory, such as Paul Krugman are: |
C |
According to Paul Krugman, a country that attempts to use strategic trade policy to establish a domestic firm in a dominant position in a global industry will probably: |
C |
According to Krugman, the ideal way for a country to respond when one’s competitors are already being supported by government subsidies is probably not to engage in retaliatory action but to: |
A |
According to Krugman, one of the reasons for not embracing strategic trade policy is that such a policy might: |
B |
Which of the following historical events signified the first official embracing of free trade as a government policy by Great Britain? |
B |
Which of the following represents the reason for the British Parliament repealing the Corn Laws in 1846? |
B |
According to the text, the only reason Great Britain pushed the case for trade liberalization for as long as 80 years in the 19th century was that: |
C |
The economically damaging effects of the Great Depression were worsened in 1929 by the _____. |
B |
Which one of the following aimed at avoiding rising unemployment by protecting domestic industry and diverting consumer demand away from foreign products, erected an enormous wall of tariff barriers? |
A |
A particularly odd aspect of the Smoot-Hawley tariff-raising binge was that the United States was running a balance-of-payment surplus at the time and it was the world’s largest _____ nation. |
D |
Established under U.S. leadership in 1947, which of the following was a multilateral agreement whose objective was to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like? |
A |
Which of the following statements regarding GATT is true? |
D |
One of the reasons that protectionist pressures arose around the world during the 1980s was: |
A |
_____ is one of the ways in which countries can circumvent GATT regulations and is exemplified by the agreement between Japan and America under which Japanese producers promised to limit their auto imports into the United States. |
A |
Bilateral voluntary export restraints, or VERs, circumvented GATT agreements, because: |
D |
The main effect of the Uruguay Round Agreement on agricultural products was that: |
B |
All of the following were provisions of the Uruguay Round Agreement EXCEPT: |
D |
Which of the following has taken over responsibility to arbitrate trade disputes and monitor the trade policies of member countries and resulted because of the Uruguay Round agreement? |
B |
The WTO’s Agreement on _____ is an attempt to narrow the gaps in the way intellectual property rights are protected around the world and to bring them under common international rules. |
C |
Countries that have been found by the arbitration panel to violate GATT rules may appeal to _____ of the World Trade Organization, but its verdict is binding. |
B |
The millennium round of talks of WTO attempted to get the assembled countries to agree to work toward: |
C |
Two of the first industries targeted for reform by the WTO with a view to encompass regulations governing foreign direct investment were: |
A |
Which of the following countries, with minor exceptions, is fully open to inward investment by foreign banks, insurance, and security companies? |
D |
Human rights activists see WTO rules as _____ the ability of nations to stop imports from countries where child labor is used or working conditions are hazardous. |
B |
One of the loopholes in antidumping laws that is being exploited by many countries to pursue protectionism is the: |
D |
Which of the following is NOT true about agricultural subsidies? |
A |
_____ are the highest rate that can be charged, which is often, but not always, the rate that is charged. |
C |
Which of the following has been excluded from the agenda for the Doha round of WTO talks that began in 2001? |
D |
The threat of antidumping action limits the ability of a firm to: |
D |
According to the text, most economists would probably argue that the best interests of international business are served by a free trade stance, but not a _____ stance. |
C |
Chapter 6- Global Business
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