ECON 461

International Trade
Final Exam
Spring Quarter 2014
Prof !iorgio Canarella

1"
O#er t$e la%t fift& &ear%' trade $a% gro(n
1"
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*"
%lo(er t$an during t$e fir%t +0 &ear% of t$e t(entiet$ ,entur&
-"
fa%ter t$an during t$e fir%t +0 &ear% of t$e t(entiet$ ,entur&
C"
%lo(er t$an !.P
."
fa%ter t$an !.P
E"
-ot$ - and .

2"
/$i,$ of t$e follo(ing i% a T01E %tatement regarding t$e index of openne%%2
2"
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*"
T$e 1nited State%' a% t$e large%t parti,ipant in international trade' $a% an unu%uall& $ig$ index of openne%%
-"
T$e 1S openne%% index $a% %$o(n a %tead& ri%e o#er t$e la%t 110 &ear%
C"
If a ,ountr& $a% a relati#el& $ig$ openne%% index ,ompared to it% neig$3or%' it mu%t $a#e lo(er 3arrier% to trade
."
Smaller ,ountrie% tend to $a#e $ig$er openne%% mea%ure% t$an larger ,ountrie%

4"
/$i,$ of t$e follo(ing 5ind% of agreement% 3et(een t(o or more ,ountrie% (ould 3e an example of a deep integration mea%ure2
4"
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*"
*n agreement to redu,e tariff% and 6uota%
-"
*n agreement to impo%e t$e %ame limit% on ,artel% and monopolie%
C"
*n agreement to redu,e export%
."
*n agreement to unif& ,u%tom% form% in order to %peed up ,ro%%73order traffi,
E"
*n agreement to limit import%

4"
/$i,$ of t$e follo(ing i% F*8SE2
4"
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*"
T$e openne%% index $elp% to gi#e a %en%e of $o( important trade i% to an e,onom&
-"
* ,ountr& t$at exported 920 3illion' imported 940 3illion' and $ad !.P of 9100 3illion (ould $a#e an index of openne%% of 0+ or +0
per,ent
C"
It i% po%%i3le for an openne%% index to 3e greater t$an 100 per,ent
."
Smaller ,ountrie% tend to $a#e lo(er openne%% mea%ure% t$an large ,ountrie%

+"
*,,ording to t$e text' ($i,$ of t$e follo(ing (ould NOT 3e a rea%on to ,on#in,e e,onomi%t% t$at t$e 3enefit% of trade out(eig$ t$e
,o%t%2
+"
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*"
Trade ma5e% po%%i3le in,rea%ed inno#ation' a,,e%% to ne( te,$nolog&' and e,onomie% of %,ale
-"
T$e a%%o,iated ,o%t% are minor and negligi3le
C"
T$e e#iden,e of %tati%ti,al ,ompari%on% of ,ountrie%
."
T$e ,a%ual empiri,al e#iden,e of $i%tori,al experien,e
E"
Trade 3enefit% ,on%umer% in term% of lo(er pri,e% and in,rea%ed #ariet& of good%

6"
E,onomi%t% o#er($elmingl& %upport more open mar5et% 3e,au%e trade
6"
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*"
in,rea%e% t$e profit margin% of firm%
-"
lead% to a 3etter allo,ation of re%our,e% in%ide ,ountrie%
C"
dire,tl& 3enefit% e#er&one in t$e ,ountr&
."
,reate% :o3%
E"
*ll of t$e a3o#e

;"
/$i,$ of t$e follo(ing i% a pro3lem t$at ari%e% ($en tr&ing to ,la%%if& regional trade agreement%2
;"
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*"
Some agreement% in,lude ,ultural i%%ue% ($ile ot$er% do not
-"
T$e definition of free trade area in,lude% t$at of a ,u%tom% union
C"
T$e mo%t fa#ored nation ,lau%e in,lude% all of t$em
."
<an& agreement% ,om3ine element% from different ,ategorie%
E"
None of t$e a3o#e

="
T$e primar& mi%%ion of t$e /orld -an5 toda& i% to
="
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*"
pro#ide a %afe pla,e for people around t$e (orld to put t$eir mone&
-"
$elp ,ountrie% manage t$eir ex,$ange rate%
C"
pro#ide ,apital to firm% around t$e (orld
."
pro#ide finan,ial a%%i%tan,e for t$e re,on%tru,tion of (ar7damaged nation%
E"
pro#ide ,apital to underde#eloped ,ountrie%

>"
* free trade agreement plu% a ,ommon %et of tariff% to(ard non7mem3er% i% ,alled
>"
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*"
a ,u%tom% union
-"
a free trade area
C"
a ,ommon mar5et
."
an e,onomi, union
E"
a partial trade agreement

10"
/$i,$ of t$e follo(ing (a% NOT a ,reation of t$e -retton /ood% ,onferen,e2
10"
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*"
/TO
-"
/orld -an5
C"
I<F
."
I-0.
E"
None of t$e a3o#e

11"
T$e original mi%%ion of t$e /orld -an5 (a% to
11"
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*"
pro#ide a %afe pla,e for people around t$e (orld to put t$eir mone&
-"
$elp ,ountrie% manage t$eir ex,$ange rate%
C"
pro#ide ,apital to firm% around t$e (orld
."
pro#ide finan,ial a%%i%tan,e for t$e re,on%tru,tion of (ar7damaged nation%
E"
pro#ide ,apital to underde#eloped ,ountrie%

12"
/$i,$ of t$e follo(ing i% NOT a feature of a ,ommon mar5et2
12"
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*"
Fa,tor mo3ilit&
-"
Free trade in good% and %er#i,e% 3et(een t$e mem3er%
C"
Common external 3arrier% to trade
."
Su3%tantial ,oordination of ma,roe,onomi, poli,ie% among t$e mem3er%

14"
/$en t$e 1nited State% gi#e% <FN %tatu% to C$ina' it mean% t$at
14"
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*"
C$ina i% treated 3etter t$an ot$er 1S trading partner%
-"
C$ina i% treated (or%e t$an ot$er 1S trading partner%
C"
C$ina i% legall& 3ound to re,ipro,ate
."
C$ina i% treated t$e %ame a% ot$er 1S trading partner%
E"
C$ina i% 3etter t$an all t$e nation% in t$e /TO

14"
T$e international organi?ation t$at %er#e% a% a forum for trade di%,u%%ion% and t$e de#elopment of trade rule% i% ,alled
14"
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*"
-retton /ood%
-"
t$e 1nited Nation%
C"
t$e /TO
."
t$e /orld -an5
E"
t$e I<F

1+"
*n important fun,tion of international in%titution% during time% of ,ri%i% i% to
1+"
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*"
ma5e good% nonri#al
-"
pre#ent nondi%,rimination
C"
pre#ent free riding
."
en,ourage free riding
E"
ma5e good% nonex,luda3le

16"
One rea%on mar5et% ma& fail to pro#ide t$e optimal 6uantit& of pu3li, good% i% t$e pro3lem of
16"
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*"
nontariff 3arrier%
-"
nondi%,rimination
C"
e,onomi, integration
."
free rider%
E"
determining ($at t$e pu3li, (ant%

1;"
<o%t fa#ored nation @<FN" %tatu% mean% t$at a ,ountr& treat% anot$er ,ountr&
1;"
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*"
(or%e t$an it% ot$er trading partner%
-"
an& (a& it ,$oo%e% %in,e it i% t$e Amo%t fa#ored nationA
C"
t$e %ame a% it% ot$er trading partner%
."
3etter t$an it% ot$er trading partner%
E"
None of t$e a3o#e

1="
T$e e,onomi, p$ilo%op$& t$at fa#or% %tri,t limit% on import% and %trong %upport for export% i% ,alled
1="
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*"
a3%olute ad#antage
-"
autar5&
C"
?ero %um
."
mer,antili%m
E"
,omparati#e ad#antage

1>"
If a nation $a% no a3%olute ad#antage' t$en it
1>"
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*"
%till gain% from trade
-"
,an onl& gain from trade if it rai%e% it% produ,ti#it& le#el%
C"
,an onl& gain from trade if it produ,e% out%ide it% produ,tion po%%i3ilitie% ,ur#e
."
,an onl& gain from trade if it redu,e% (age% paid
E"
,annot gain from trade

20"
Competition 3et(een t$e 1nited State% and <exi,o i%
20"
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*"
e6ui#alent to t$e ,ompetition 3et(een t(o giant ,orporation%
-"
a %truggle o#er ($i,$ ,ountr& (ill 5eep t$e mo%t ad#an,ed te,$nolog&
C"
unfair if (age% in <exi,o are lo(er t$an in t$e 1nited State%
."
a %truggle o#er ($i,$ ,ountr& (ill get t$e 3e%t :o3%
E"
not a meaningful (a& to anal&?e trade

21"
Certain 5ind% of tropi,al fruit% are impo%%i3le to gro( outdoor% in t$e 1nited State% Suppo%e' $o(e#er' t$at in order to ,reate :o3% in
/&oming' t$e 1S go#ernment offered exten%i#e %u3%idie% to firm% to produ,e 3anana% /it$ t$e %u3%idie%' firm% ,ould 3uild
green$ou%e% and offer t$e fruit at (orld pri,e%
21"
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*"
T$e 1nited State% $a% a ,omparati#e ad#antage' 3ut i% not ,ompetiti#e
-"
T$e 1nited State% $a% a ,omparati#e ad#antage and i% ,ompetiti#e
C"
T$e 1nited State% i% ,ompetiti#e' 3ut doe% not $a#e a ,omparati#e ad#antage
."
T$e 1nited State% no( $a% a ,omparati#e ad#antage in 3anana%
E"
None of t$e a3o#e

22"
/$en e,onomi%t% tal5 a3out t$e gain% from trade t$e& mean t$at
22"
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*"
no one e#er get% $urt 3& trade
-"
3u%ine%% firm% 3enefit from trade 3ut not ne,e%%aril& indi#idual%
C"
e,onomi, re%tru,turing i% u%uall& 6ui,5 and painle%%
."
t$e 3enefit% of trade out(eig$ t$e lo%%e%
E"
trade in,rea%e% go#ernment re#enue t$roug$ taxe% on import%

24"
If t(o ,ountrie% agree to %pe,iali?e and trade 3a%ed on ,omparati#e ad#antage' ($i,$ of t$e follo(ing i% mo%t li5el& to 3e T01E2
24"
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*"
One of t$e ,ountrie% (ill 3ot$ ,on%ume and produ,e on it% produ,tion po%%i3ilitie% ,ur#e
-"
-ot$ of t$e ,ountrie% (ill ,on%ume out%ide t$eir re%pe,ti#e produ,tion po%%i3ilitie% ,ur#e%
C"
Onl& one of t$e ,ountrie% (ill produ,e on and ,on%ume out%ide it% produ,tion po%%i3ilitie% ,ur#e
."
One of t$e ,ountrie% (ill end up re,ei#ing all of t$e gain% from trade

1%e t$e data in t$e ta3le 3elo( to an%(er t$e follo(ing 6ue%tion@%"B
Table 3.1
Output per Hour Worked

24"
-a%ed on Ta3le 41' trade 3et(een t$e 1nited State% and <exi,o (ill o,,ur a% long a% t$e relati#e pri,e of %$oe% i% 3et(een
24"
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*"
t$ree ,omputer% and one ,omputer
-"
t$ree ,omputer% and t(o ,omputer%
C"
one7$alf ,omputer and one7t$ird ,omputer
."
%ix ,omputer% and t$ree ,omputer%
E"
None of t$e a3o#e

2+"
If one nation i% a3le to produ,e a good at a lo(er opportunit& ,o%t t$an anot$er' it $a%
2+"
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*"
a ,omparati#e ad#antage in t$at good
-"
a te,$nologi,al ad#antage in t$at good
C"
an a3%olute ad#antage in t$at good
."
a produ,ti#it& ad#antage in t$at good
E"
no rea%on to (ant to trade t$at good

26"
T$e 3a%i% for free trade i% t$e ,on,ept of
26"
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*"
,omparati#e ad#antage
-"
differen,e% in natural re%our,e% and ,limate
C"
a3%olute ad#antage
."
differen,e% in nominal (age%

2;"
1%ing t$e CO model' a%%ume t$at t$e 1nited State% i% ,apital a3undant and <exi,o i% la3or a3undant If %o&3ean% are ,apital inten%i#e
and a#o,ado% are la3or inten%i#e' it (ould 3e rea%ona3le to expe,t t$e 1nited State% to
2;"
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*"
in,rea%e %o&3ean produ,tion' 3ut %till produ,e %ome a#o,ado%
-"
%pe,iali?e ,ompletel& in %o&3ean produ,tion
C"
%pe,iali?e ,ompletel& in a#o,ado produ,tion
."
in,rea%e a#o,ado produ,tion' 3ut %till produ,e %ome %o&3ean%

1%e t$e 3elo( mentioned ta3le for t$e follo(ing 6ue%tion@%"
Suppo%e t$at all good% are made (it$ t(o fa,tor%Dla3or and ,apital T$e ta3le 3elo( %$o(% t$e total endo(ment% of ea,$ fa,tor in
t$e 1nited State% and Canada
Table 4.1
Endowment of Labor and Capital

2="
-a%ed on Ta3le 41' relati#e to t$e 1nited State%' Canada i%
2="
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*"
,apital %,ar,e
-"
la3or %,ar,e
C"
la3or a3undant
."
None of t$e a3o#e
E"
Not enoug$ information to tell

2>"
/$i,$ of t$e follo(ing %tatement% i% NOT true a3out international trade t$eor&2
2>"
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*"
T$e Ce,5%,$er7O$lin t$eor& %a&% t$at if t$e pri,e of a good ri%e%' t$en t$e in,ome of fa,tor% u%ed inten%i#el& in it% produ,tion ri%e% a%
(ell
-"
*% t$e (age7rent ratio fall%' t$e la3or7inten%i#e ,ommodit& 3e,ome% ,$eaper relati#e to t$e land7inten%i#e ,ommodit&
C"
T$e e6uali?ation of t$e (age7rent ratio 3et(een trading nation% doe% not impl& t$e e6uali?ation of t$e real (age rate and t$e real
rental rate for land
."
T$e Ce,5%,$er7O$lin t$eorem %tate% t$at a ,ountr& $a% a ,omparati#e ad#antage in t$e produ,tion of t$at good ($i,$ u%e% t$e
,ountr&E% a3undant fa,tor more inten%i#el&
E"
T$e fa,tor7pri,e t$eorem i% t$e re%ult of fa,tor endo(ment t$eor&

40"
If t$e pri,e of a good ri%e%' t$en t$e effe,t on t$e in,ome of t$e fa,tor% t$at are u%ed inten%i#el& in it% produ,tion (ill 3e
40"
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*"
to rai%e in,ome 3& an a3%olute amount t$at i% more t$an t$e ri%e in pri,e%
-"
to rai%e in,ome 3& a greater per,entage t$an t$e ri%e in pri,e%
C"
to rai%e in,ome 3& an a3%olute amount t$at i% le%% t$an t$e ri%e in pri,e%
."
to rai%e in,ome 3& a %maller per,entage t$an t$e ri%e in pri,e%
E"
to ,au%e in,ome to fall

1%e t$e 3elo( mentioned ta3le for t$e follo(ing 6ue%tion@%"
Suppo%e t$at all good% are made (it$ t(o fa,tor%Dla3or and ,apital T$e ta3le 3elo( %$o(% t$e total endo(ment% of ea,$ fa,tor in
t$e 1nited State% and Canada
Table 4.1
Endowment of Labor and Capital

41"
-a%ed on Ta3le 41' a,,ording to t$e Stolper7Samuel%on T$eorem' t$e in,ome di%tri3ution effe,t% of free trade in t$e 1nited State% are
li5el& to fa#or
41"
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*"
,apital
-"
la3or
C"
eit$er ,apital or la3or' depending on 1S produ,ti#it&
."
neit$er ,apital nor la3or
E"
Not enoug$ information to tell

42"
/$i,$ of t$e follo(ing i% NOT a propo%ition of t$e Ce,5%,$er7O$lin model2
42"
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*"
Countrie% (ill ,ompletel& %pe,iali?e in t$e produ,t in ($i,$ t$e& $a#e a ,omparati#e ad#antage if free trade i% allo(ed to o,,ur
-"
If <exi,o i% an un%5illed la3or a3undant ,ountr&' t$en <exi,o $a% a ,omparati#e ad#antage in t$e produ,tion of good% t$at u%e
un%5illed la3or more inten%i#el&
C"
If t$e 1nited State% i% a %5illed la3or a3undant ,ountr&' t$en t$e 1nited State% $a% a ,omparati#e ad#antage in t$e produ,tion of good%
t$at u%e %5illed la3or more inten%i#el&
."
* ,ountr& $a% a ,omparati#e ad#antage in t$e produ,tion of t$at ,ommodit& ($i,$ u%e% more inten%i#el& t$e ,ountr&E% more a3undant
re%our,e
E"
T$e effe,t of international trade i% to tend to e6uali?e fa,tor pri,e% 3et(een t$e trading nation%

44"
*fter trade open%' t$e %$ort run impa,t on t$e in,ome of t$e #aria3le fa,tor (ill 3e
44"
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*"
an in,rea%e
-"
?ero
C"
a de,rea%e
."
indeterminate' depending on t$e ,on%umption pattern of t$e o(ner% of t$e #aria3le fa,tor
E"
indeterminate' depending on t$e produ,ti#it& of t$e #aria3le fa,tor

44"
Empiri,al te%t% of t$e t$eor& of ,omparati#e ad#antage $a#e pro#ided
44"
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*"
%trong %upport for 3ot$ t$e 0i,ardian and Ce,5%,$er7O$lin model%
-"
%trong %upport for t$e 0i,ardian model and mixed %upport for t$e Ce,5%,$er7O$lin model
C"
mixed %upport for t$e 0i,ardian model and %trong %upport for t$e Ce,5%,$er7O$lin model
."
mixed %upport for 3ot$ 0i,ardian and Ce,5%,$er7O$lin model%
E"
no %upport for eit$er t$e 0i,ardian or t$e Ce,5%,$er7O$lin model%

4+"
If t$e ,a%e %tudie% are ,orre,t in t$eir anal&%i% of fa,tor a3undan,e'
4+"
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*"
C$ine%e un%5illed la3or %$ould %ee t$eir in,ome ri%e a% trade in,rea%e%
-"
1S %5illed la3or input% %$ould %ee t$eir in,ome% fall a% trade in,rea%e%
C"
C$ine%e ,apital o(ner% %$ould %ee t$eir in,ome ri%e a% trade in,rea%e%
."
<exi,an ,apital o(ner% %$ould %ee t$eir in,ome ri%e a% trade in,rea%e%

46"
In e,onomi, term%' tariff% are preferred to 6uota% 3e,au%e
46"
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*"
gi#en t$e (a& 6uota% are u%uall& admini%tered' tariff% ,au%e a %maller net national (elfare lo%%
-"
tariff% are ea%ier to admini%ter
C"
t$ere i% le%% lo%% of ,on%umer %urplu%
."
dome%ti, manufa,turer% gain more produ,er %urplu%
E"
6uota% ,reate a greater produ,tion ineffi,ien,&

1%e t$e grap$ 3elo( and t$e follo(ing information to an%(er t$e next 6ue%tion@%" T$e (orld pri,e of %o&3ean% i% 9200 per 3u%$el'
and t$e importing ,ountr& i% %mall enoug$ not to affe,t t$e (orld pri,e
Figure 6.1

4;"
-a%ed on Figure 61' $o( mu,$ re#enue (ill t$e go#ernment rai%e from a 902+ per 3u%$el tariff on %o&3ean import%2
4;"
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*"
T$e go#ernment (ill rai%e 91+ million
-"
T$e go#ernment (ill rai%e 9+ million
C"
T$e go#ernment (ill rai%e 92+ million
."
T$e go#ernment (ill rai%e 942+ million
E"
T$e go#ernment (ill %ee no in,rea%e in in,omeF 3e,au%e t$e ,ountr& i% %mall' foreign firm% (ill %impl& not %er#e it after t$e tariff i%
impo%ed

4="
Nominal rate% of prote,tion
4="
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*"
,annot 3e negati#e
-"
are al(a&% greater t$an effe,ti#e rate% of prote,tion
C"
are al(a&% %maller t$an effe,ti#e rate% of prote,tion
."
refer to t$e tariff% pla,ed on intermediate good% u%ed to ma5e t$e final good or %er#i,e

4>"
/$i,$ of t$e follo(ing (ould 3e a dead(eig$t lo%% from a tariff2
4>"
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*"
T$e de,rea%e in ,on%umer %urplu% due to a drop in ,on%umption
-"
T$e de,rea%e in ,on%umer %urplu%
C"
T$e in,rea%e in produ,er %urplu%
."
T$e %$ift of ,on%umer %urplu% to go#ernment
E"
*ll of t$e a3o#e

40"
In ($i,$ (a& are tariff% different from 6uota%2
40"
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*"
T$e& redu,e t$e #olume of imported produ,t%
-"
T$e& rai%e go#ernment re#enue
C"
T$e& in,rea%e t$e dome%ti, 6uantit& %upplied of t$e produ,t
."
T$e& rai%e t$e pri,e of t$e imported produ,t% to ,on%umer%

41"
/$i,$ of t$e follo(ing i% NOT ,orre,t a3out t$e effe,t% of a tariff on an imported produ,t2
41"
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*"
Tariff% in,rea%e go#ernment re#enue
-"
Tariff% mean $ig$er pri,e% and le%% ,on%umption for ,on%umer% of t$e produ,t
C"
Tariff% 3enefit dome%ti, produ,er% 3& rai%ing pri,e and dome%ti, output
."
Tariff% in,rea%e t$e effi,ien,& of $o( re%our,e% are allo,ated

1%e t$e grap$ 3elo( and t$e follo(ing information to an%(er t$e next 6ue%tion@%" T$e (orld pri,e of %o&3ean% i% 9200 per 3u%$el'
and t$e importing ,ountr& i% %mall enoug$ not to affe,t t$e (orld pri,e
Figure 6.1

42"
-a%ed on Figure 61' %uppo%e t$e go#ernment put% a tariff of 902+ per 3u%$el on %o&3ean import% Co( mu,$ (ill t$e tariff reduce
import%2
42"
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*"
Import% (ill de,rea%e 3& 60 million 3u%$el%
-"
Import% (ill not ,$ange after t$e tariff
C"
Import% (ill de,rea%e 3& 20 million 3u%$el%
."
Import% (ill de,rea%e 3& 10 million 3u%$el%

44"
In order for large ,ountrie% to %u,,e%%full& u%e tariff% to in,rea%e (ell 3eing'
44"
))))))
*"
t$e dead(eig$t lo%% ,reated 3& t$e tariff mu%t 3e greater t$an t$e go#ernment re#enue t$e tariff generate%
-"
dome%ti, produ,tion mu%t in,rea%e more %ignifi,antl& t$an for t$e %mall ,ountr& ,a%e
C"
dome%ti, ,on%umption and import% mu%t de,rea%e more %ignifi,antl& t$an in t$e %mall ,ountr& ,a%e
."
t$e& mu%t $a#e %ignifi,ant mar5et po(er %o t$at foreign firm% (ill ,ut pri,e% to pre%er#e t$eir %ale%

44"
Gour text identifie% all of t$e follo(ing a% rea%on% ($& un%u%taina3le de3t ma& o,,ur e!ept
44"
))))))
*"
($en go#ernment offi,ial% tr& to 3u& #ote% (it$ un%u%taina3le %pending
-"
($en ,ountrie% are dependent on one or t(o 5e& export ,ommoditie%' and t$ere i% a %udden drop in t$e pri,e of t$o%e ,ommoditie%
C"
($en t$ere are ,orrupt politi,ian% and pra,ti,e%
."
($en natural di%a%ter% o,,ur
E"
($en ,i#il ,onfli,t% are re%ol#ed and a pea,e di#idend o,,ur%

4+"
/$i,$ of t$e follo(ing i% F*8SE a3out t$e Cig$l& Inde3ted Poor Countrie% initiati#e2
4+"
))))))
*"
Countrie% 6ualif& for de3t relief partl& 3a%ed on t$eir le#el of po#ert&
-"
<o%t of t$e ,ountrie% in,luded are in %u37Sa$aran *fri,a
C"
External de3t le#el% mu%t 3e $ig$ relati#e to export% in order to 6ualif&
."
Countrie% do not $a#e to $a#e e%ta3li%$ed a pa%t tra,5 re,ord of e,onomi, reform in order to 6ualif& a% long a% t$e& ma5e future
,ommitment%

46"
* ,urrent a,,ount defi,it implie% t$at
46"
))))))
*"
export% of good% and %er#i,e% ex,eed import% of good% and %er#i,e%
-"
t$e finan,ial a,,ount i% in %urplu%
C"
unilateral tran%fer% are po%iti#e
."
t$e finan,ial a,,ount i% negati#e
E"
None of t$e a3o#e

4;"
*ll of t$e follo(ing are true a3out foreign dire,t in#e%tment @F.I" and portfolio in#e%tment e!ept
4;"
))))))
*"
3ot$ portfolio in#e%tment% and F.I are t$e %ame in t$at t$e& 3ot$ gi#e t$eir $older% a ,laim on t$e future output of t$e foreign
e,onom&
-"
in,rea%e% in t$e flo( of portfolio in#e%tment% in,rea%e t$e li5eli$ood of finan,ial ,ri%i%
C"
F.I i% relati#el& illi6uid ,ompared to portfolio in#e%tment
."
portfolio in#e%tment% $a#e 3een on t$e de,line in re,ent &ear% @or de,ade%"
E"
F.I in#e%tor% mu%t 3e (illing to go t$roug$ man& up% and do(n% in order to 3enefit from t$eir long7term in#e%tment%

4="
If a ,ountr& run% a ,urrent a,,ount %urplu% and national pri#ate %a#ing% e6ual% dome%ti, in#e%tment' t$en t$e ,om3ined go#ernmental
a,,ount%
4="
))))))
*"
mu%t 3e po%iti#e
-"
mu%t 3e 3alan,ed
C"
,ould 3e eit$er negati#e or po%iti#e' depending on t$e net international in#e%tment po%ition
."
,ould 3e eit$er negati#e or po%iti#e' depending on t$e ,apital a,,ount
E"
mu%t 3e negati#e

4>"
*ll el%e e6ual and gi#en t$e ,urrent %&%tem of ex,$ange rate%' if t$e 1nited State% enter% a period of ex,eptionall& %trong gro(t$'
4>"
))))))
*"
t$e pre%%ure on t$e dollar i% to re#alue
-"
t$e pre%%ure on t$e dollar i% to depre,iate
C"
t$e pre%%ure on t$e dollar i% to de#alue
."
t$e pre%%ure on t$e dollar i% to appre,iate
E"
-ot$ * and .

+0"
Suppo%e t$at t$e nominal ex,$ange rate 3et(een t$e 1S dollar and t$e <exi,an pe%o i% 010 dollar% per pe%o If <exi,oE% inflation i%
10 per,ent and t$e 1nited State%E inflation i% 0 per,ent' from t$e 1S point of #ie(' t$e real ex,$ange rate
+0"
))))))
*"
appre,iate% to 011 dollar% per pe%o
-"
depre,iate% to 00> dollar% per pe%o
C"
depre,iate% to 011 dollar% per pe%o
."
appre,iate% to 02 dollar% per pe%o
E"
appre,iate% to 00> dollar% per pe%o

+1"
*n in,rea%e in t$e 1S demand for t$e <exi,an pe%o
+1"
))))))
*"
,au%e% t$e 1S dollar to depre,iate
-"
,au%e% <exi,an good% to 3e relati#el& more expen%i#e
C"
,au%e% an in,rea%e in t$e 1S dollar pri,e of a <exi,an pe%o
."
,au%e% t$e <exi,an pe%o to appre,iate
E"
*ll of t$e a3o#e

+2"
T$e Smit$%onian *greement of 1>;1 (a% $ailed 3& Pre%ident Nixon a% a fundamental reorgani?ation of t$e international monetar&
%&%tem In fa,t' ($at it a,,ompli%$ed (a%
+2"
))))))
*"
t$e elimination of gold 3a,5ing for t$e dollar
-"
t$e de#aluation of t$e dollar
C"
t$e redu,tion of t$e gold ,ontent of t$e dollar
."
t$e re#aluation of t$e dollar
E"
-ot$ - and C

+4"
*,,ording to pur,$a%ing po(er parit&' ($i,$ of t$e follo(ing i% F*8SE a3out an o#er#alued dollar ,ompared to t$e Hapane%e &en2
+4"
))))))
*"
Pri,e% in t$e 1nited State% (ould tend fall
-"
1S mer,$ant% (ould 3e moti#ated to import more Hapane%e good%
C"
Hapane%e mer,$ant% (ould tend to export more to t$e 1nited State%
."
O#er t$e long term' t$e ex,$ange rate (ould fall
E"
Pri,e% in Hapan (ould tend to ri%e

+4"
Suppo%e t$at t$e nominal ex,$ange rate 3et(een t$e 1S dollar and t$e Canadian dollar i% 0;+ 1S dollar% per Canadian dollar If
CanadaE% rate of inflation i% 0 per,ent and t$e 1S rate i% 10 per,ent' t$en t$e real ex,$ange rate for t$e 1S dollar (ill
+4"
))))))
*"
appre,iate 3& 10 per,ent
-"
depre,iate 3& a3out > per,ent
C"
depre,iate 3& 10 per,ent
."
appre,iate 3& a3out > per,ent
E"
None of t$e a3o#e

++"
1S opponent% of N*FT* argue t$at t$e agreement (ill $urt t$e 1nited State% In t$eir #ie(' N*FT*E% greate%t $arm (ill 3e it%
++"
))))))
*"
$armoni?ation of produ,t %afet& %tandard%
-"
$armoni?ation of la3or poli,ie%
C"
:o3 de%tru,tion and do(n(ard pre%%ure on 1S (age%
."
$armoni?ation of t$e u%e of pe%ti,ide% and $er3i,ide%
E"
$armoni?ation of en#ironmental poli,ie%

+6"
T$e 1nited State% fun,tion% a% a A%afet& #al#eA for t$e <exi,an e,onom&
+6"
))))))
*"
($en 1S firm% engage in dire,t foreign in#e%tment in <exi,o
-"
($en <exi,an (or5er% ($o ,anEt find :o3% in <exi,o migrate to t$e 1nited State% and %end part of t$eir in,ome 3a,5 to <exi,o
C"
($en t$e 1S go#ernment 3ail% <exi,o out of finan,ial ,ri%i%
."
($en t$e 1S mar5et 3u&% produ,t% from t$e ma6uiladora indu%tr&

+;"
One rea%on ($& mo%t e,onomi%t% fore,a%t t$at t$e effe,t% of N*FT* on t$e 1S e,onom& (ould 3e %mall i% 3e,au%e
+;"
))))))
*"
t$e <exi,an e,onom& i% %mall relati#e to t$e 1S e,onom&
-"
N*FT* doe% not 3ring do(n tariff% far enoug$
C"
<exi,o (a% not expe,ted to li#e up to it% o3ligation% under t$e agreement
."
N*FT* trade opening pro#i%ion% onl& ,o#er a $andful of %e,tor%
E"
t$e 1nited State% (a% not expe,ted to li#e up to it% o3ligation% under t$e agreement

+="
T$e %ingle mo%t important rea%on for CanadaE% %ee5ing a free trade agreement (it$ t$e 1nited State% (a% to
+="
))))))
*"
a#oid international out%our,ing in lo( (age ,ountrie%
-"
en%ure it% a3ilit& to :oin N*FT*
C"
en%ure it% a,,e%% to t$e 1S mar5et
."
$armoni?e it% en#ironmental la(% (it$ t$e 1nited State%
E"
en%ure t$e ,ontinuation of it% %o,ial program%

+>"
T$e /orld -an5E% #ie( of t$e effe,ti#ene%% of indu%trial poli,ie% in Ea%t *%ia i% t$at' in general' t$e&
+>"
))))))
*"
(or5ed in Hapan and Iorea' 3ut not in t$e ot$er ,ountrie%
-"
$indered gro(t$
C"
are t$e main fa,tor in t$e %u,,e%% of t$e Ea%t *%ian e,onomie%
."
$ad little or no effe,t on gro(t$
E"
en,ouraged gro(t$

60"
/$i,$ of t$e follo(ing i% a fal%e %tatement a3out edu,ation in t$e CP*E2
60"
))))))
*"
Spending (a% fo,u%ed on t$e primar& and %e,ondar& le#el' ($ere it $a% t$e greate%t %o,ial impa,t
-"
*n emp$a%i% on %tate funding of ad#an,ed degree program%' %u,$ a% engineering and ,omputer %,ien,e' in,rea%ed manufa,turing
produ,tion %ignifi,antl&
C"
*% t$e a#erage edu,ational le#el ro%e' (or5er% ,ould ta5e on more te,$nologi,al' %op$i%ti,ated produ,tion' pu%$ing ne( in#e%tment
into produ,t line%
."
8itera,& rate% ro%e dramati,all& in t$e CP*E and laid a foundation for a %5illed la3or for,e

61"
One e,onomi, ad#antage of a large %$are of export% in !.P i% t$at ,ountrie%
61"
))))))
*"
(ill $a#e greater e6ualit& in t$eir in,ome%
-"
,an maintain lo(er rate% of unemplo&ment
C"
,an redu,e t$eir 3udget defi,it%
."
de#elop more la3or7inten%i#e indu%tr&
E"
,an pur,$a%e t$e import% t$e& need

62"
In general' t$e relation%$ip 3et(een demo,ra,& and e,onomi, gro(t$ i% t$at
62"
))))))
*"
demo,ra,ie% are mu,$ more #aria3le in t$eir rate% of gro(t$ t$an undemo,rati, nation%
-"
demo,rati, nation% gro( fa%ter t$an undemo,rati, nation%
C"
demo,rati, nation% gro( %lo(er t$an undemo,rati, nation%
."
t$ere doe% not %eem to 3e a relation%$ip 3et(een demo,ra,& and e,onomi, gro(t$
E"
demo,ra,ie% are mu,$ le%% #aria3le in t$eir rate% of gro(t$ t$an undemo,rati, nation%

64"
One of t$e mo%t important (a&% in ($i,$ lo,al in%ta3ilitie% are 6ui,5l& %pread to t$e international e,onom& i% t$roug$
64"
))))))
*"
firm%
-"
la3or
C"
good%
."
,apital
E"
%er#i,e%

64"
From t$e late 1>40% until t$e ,reation of t$e /TO' t$e organi?ation t$at (a% primaril& re%pon%i3le for ,ondu,ting round% of trade
negotiation% (a% t$e
64"
))))))
*"
/orld -an5
-"
!*TT
C"
ITO
."
1nited Nation%
E"
I<F

6+"
I<F ,onditionalit& refer% to t$e
6+"
))))))
*"
te,$ni,al a%%i%tan,e t$e I<F gi#e%
-"
,$ange% a ,ountr& mu%t ma5e in order to re,ei#e I<F finan,ial a%%i%tan,e
C"
minimum %i?e of a national de3t pro3lem t$at a ,ountr& mu%t $a#e 3efore t$e I<F get% in#ol#ed
."
minimum7%i?ed loan t$e I<F (ill ma5e
E"
maximum7%i?ed loan t$e I<F (ill ma5e

66"
/$i,$ of t$e follo(ing i% F*8SE2
66"
))))))
*"
-e,au%e of international re,ognition of national %o#ereignt&' indi#idual nation% are unaffe,ted 3& glo3al trade and ,apital flo(%
-"
-e,au%e trade poli,ie% are la(% of indi#idual nation%' it i% diffi,ult for ot$er nation% and international organi?ation% to for,e ,$ange% on
un(illing nation %tate%
C"
Foreign in#e%tor% ma& not $a#e a legal rig$t to impo%e poli,ie% on a nation %tate' 3ut t$e nation %tate ma& %till experien,e
,on%e6uen,e% of poor poli,ie%
."
National %o#ereignt& limit% out%ider%E a3ilit& to ,$ange t$e trade la(% and pra,ti,e% of indi#idual nation %tate%

6;"
T$e To5&o 0ound of t$e !*TT negotiation% (a% nota3le 3e,au%e it (a% t$e fir%t round
6;"
))))))
*"
to 3egin e%ta3li%$ing rule% on %u3%idie%
-"
t$at in,luded textile% and apparel
C"
to 3egin di%,u%%ion% of ex,$ange rate%
."
t$at in,luded Hapan
E"
to limit t$e tariff% of t$e 1nited State%

6="
/$i,$ of t$e follo(ing i% T01E2
6="
))))))
*"
*3%olute ad#antage i% 3a%ed on ,omparing t$e opportunit& ,o%t% of trading partner%
-"
.a#id 0i,ardo propo%ed t$e t$eor& of a3%olute ad#antage a% t$e 3a%i% for trade
C"
T$e 0i,ardian model a%%ume% la3or i% perfe,tl& mo3ile
."
*dam Smit$ propo%ed t$e t$eor& of ,omparati#e ad#antage a% t$e 3a%i% for trade in The Wealth of Nations.

6>"
In our %imple trade model' $a#ing a ,omparati#e ad#antage in a produ,t implie% t$at a ,ountr& (ill %pe,iali?e ,ompletel& in t$e
produ,t
6>"
))))))
*"
($ere total output i% lo(er per (or5er7$our
-"
(it$ t$e lo(e%t opportunit& ,o%t
C"
($ere total output i% greater per (or5er7$our
."
(it$ t$e $ig$e%t opportunit& ,o%t

1%e t$e data in t$e ta3le 3elo( to an%(er t$e follo(ing 6ue%tion@%"B
Table 3.1
Output per Hour Worked

;0"
-a%ed on Ta3le 41' t$e opportunit& ,o%t of a pair of %$oe% in t$e 1nited State% i%
;0"
))))))
*"
one7$alf ,omputer
-"
t$ree ,omputer%
C"
one ,omputer
."
t(o ,omputer%
E"
None of t$e a3o#e

;1"
Suppo%e t$at -ra?il i% ,apital a3undant and C$ile i% natural re%our,e a3undant If tim3er i% natural re%our,e inten%i#e and ,omputer%
are ,apital inten%i#e' t$en
;1"
))))))
*"
C$ile (ill produ,e more tim3er after trade 3egin% (it$ -ra?il
-"
-ra?il (ill produ,e more tim3er after trade 3egin% (it$ C$ile
C"
C$ile (ill produ,e more ,omputer% after trade 3egin% (it$ -ra?il
."
-ra?il (ill ,ompletel& %pe,iali?e in ,omputer% on,e trade 3egin% (it$ C$ile

;2"
In t$e ,a%e of a %mall ,ountr&' produ,er %urplu%
;2"
))))))
*"
in,rea%e% more (it$ 6uota%
-"
in,rea%e% more (it$ a 6uota t$an (it$ an e6ui#alent tariff
C"
in,rea%e% t$e %ame (it$ tariff% and e6ui#alent 6uota%
."
in,rea%e% more (it$ a tariff t$an (it$ an e6ui#alent 6uota
E"
i% not ,$anged 3& tariff% or 6uota%

"!enario 6.1
Suppo%e t$at 1nited State% furniture ma5er% import 9100 of (ood and part% in order to ma5e a dining room ta3le %elling for 9+00 T$e
import% $a#e no tariff of 6uota re%tri,tion%

;4"
-a%ed on S,enario 61 a3o#e' if a tariff of 20 per,ent i% pla,ed on import% of dining room ta3le%' and anot$er tariff of +0 per,ent i%
pla,ed on import% of (ood and part%' t$en t$e effe,ti#e rate of prote,tion on ta3le% made in t$e 1nited State% i%
;4"
))))))
*"
0 per,ent
-"
;0 per,ent
C"
+0 per,ent
."
12+ per,ent
E"
20 per,ent

;4"
Effi,ien,& lo%%e% are
;4"
))))))
*"
t$e in,rea%e in produ,er %urplu% t$at i% ,reated 3& a tariff
-"
t$e total lo%% in ,on%umer %urplu% from a tariff
C"
t$e dead(eig$t lo%% t$at i% ,reated 3e,au%e dome%ti, firm% $a#e to ,$arge $ig$er pri,e% to produ,e unit% of output t$an foreign firm%
(ould $a#e to ,$arge
."
dead(eig$t lo%%e% ,au%ed 3& ,on%umer% 3eing pre#ented 3& tariff% from 3u&ing produ,t% at t$e (orld pri,e' produ,t% t$at t$e& #alue
more $ig$l& t$an t$at pri,e

;+"
/$i,$ of t$e follo(ing de%,ri3e% t$e a%&mmetr& <on,ur Ol%on o3%er#ed in t$e in,enti#e% to %upport and oppo%e trade poli,&2
;+"
))))))
*"
T$e 3enefit% of prote,tion are %pread out o#er a large num3er of firm% and indu%trie%' 3ut t$e ,o%t% are ,on,entrated on ,on%umer%
-"
T$e ,o%t% of prote,tion are ,on,entrated on a fe( firm%' and t$e 3enefit% of prote,tion are %pread out o#er a large num3er of
,on%umer%
C"
T$e 3enefit% of poli,& are ,on,entrated' and t$e ,o%t% are %pread out o#er a large num3er of parti,ipant%
."
T$e 3enefit% of t$o%e %ee5ing prote,tion out(eig$ t$e ,o%t% impo%ed 3& t$e prote,tion

;6"
1S tariff% and 6uota% redu,e national (elfare t$e mo%t in
;6"
))))))
*"
ma,$iner&
-"
textile%
C"
agri,ulture
."
,$emi,al produ,t%
E"
,lot$ing

1%e t$e information in t$e follo(ing ta3le to an%(er t$e follo(ing 6ue%tion@%"
Table #.1

;;"
-a%ed on Ta3le >1' t$e 3alan,e on t$e ,apital a,,ount i%
;;"
))))))
*"
J200
-"
7200
C"
0
."
J100
E"
7100

;="
One of t$e pro3lem% (it$ ex,e%%i#e de3t i% t$at
;="
))))))
*"
it (or%en% t$e ,entral go#ernmentE% 3udget po%ition 3& adding large de3t %er#i,e pa&ment% to ot$er 3udget item%
-"
it redu,e% t$e 6uantit& of re%our,e% a#aila3le to in#e%t in e,onomi, de#elopment
C"
it ,an inten%if& and %pread a ,ri%i%
."
if de3t %er#i,e i% %u3%tantial' %,$ool%' $ealt$ ,lini,%' road%' port%' ot$er infra%tru,ture' and %o,ial need% are le%% li5el& to 3e addre%%ed
E"
*ll of t$e a3o#e

;>"
*ll el%e e6ual' if Canada rai%e% it% intere%t rate%'
;>"
))))))
*"
t$e dollar depre,iate%
-"
t$e 1S demand for Canadian dollar% in,rea%e%
C"
t$e Canadian %uppl& of Canadian dollar% in,rea%e%
."
-ot$ * and -
E"
-ot$ * and C

=0"
* firm t$at 3u&% foreign ex,$ange in order to ta5e ad#antage of $ig$er foreign intere%t rate% i%
=0"
))))))
*"
re%ponding to flu,tuation% in t$e 3u%ine%% ,&,le
-"
demon%trating pur,$a%ing po(er parit&
C"
ignoring t$e nominal rate of ex,$ange
."
engaging in intere%t rate ar3itrage
E"
%pe,ulating

=1"
Pur,$a%ing po(er parit& @PPP" mea%urement% of in,ome are a (a& to ma5e international ,ompari%on% 3& ,orre,ting for national
differen,e% in
=1"
))))))
*"
go#ernment %u3%idie%
-"
inflation
C"
unemplo&ment
."
pri,e% of good% and %er#i,e%
E"
e,onomi, gro(t$

=2"
/$i,$ of t$e follo(ing i% F*8SE a3out in,rea%ed 1S enfor,ement effort% on t$e 1SK<exi,an 3order2
=2"
))))))
*"
Illegal migration $a% mo#ed to(ard more in$o%pita3le area% on t$e 3order
-"
T$e in,rea%e of enfor,ement per%onnel %tationed at t$e 3order $a% 3een #er& effe,ti#e in a#erting migration
C"
<igrant% are %ta&ing in t$e 1nited State% longer on a#erage t$an t$e& (ere 3efore t$e enfor,ement effort%
."
T$ou%and of migrant% are e%timated to $a#e died %in,e t$e in,rea%ed enfor,ement effort% 3egan

=4"
/$i,$ of t$e follo(ing e,onomi, ,ondition% ,au%e export gro(t$ to 3e a 3a%i% for fa%ter o#erall e,onomi, gro(t$2
=4"
))))))
*"
E,onomie% of %,ale in produ,tion for t$e (orld mar5et
-"
Cig$ and ,on%tant le#el% of produ,ti#it& in export produ,tion
C"
* larger7t$an7a#erage manufa,turing %e,tor
."
.i%e,onomie% of %,ale in produ,tion for t$e dome%ti, mar5et
E"
* larger7t$an7 a#erage %er#i,e %e,tor

=4"
0e,ent te,$nologi,al ,$ange% $a#e $ad profound effe,t% on t$e mo#ement of ,apital a,ro%% international 3oundarie% One of t$e main
effe,t% $a% 3een
=4"
))))))
*"
a long7run de,line in real intere%t rate%
-"
a long7run in,rea%e in real intere%t rate%
C"
a de,rea%e in t$e tran%a,tion ,o%t% of mo#ing ,apital
."
an in,rea%e in t$e tran%a,tion ,o%t% of mo#ing ,apital
E"
None of t$e a3o#e

=+"
One of t$e di%tingui%$ing ,$ara,teri%ti,% of ,apital mo3ilit& toda& i% t$at
=+"
))))))
*"
t$ere are far more 5ind% of finan,ial in%trument% t$an t$ere (ere 100 &ear% ago
-"
foreign ,apital flo(% are 3etter managed and rarel& ,au%e finan,ial pro3lem%
C"
nation% are no longer dependent on t$eir o(n national %a#ing% for t$eir in#e%tment fund%
."
t$e 3ul5 of foreign ,apital flo(% are tied to la3or flo(%
E"
None of t$e a3o#e

=6"
-a%ed on t$e t$eor& of ,omparati#e ad#antage' nation% maximi?e t$eir (ell 3eing ($en t$e&
=6"
))))))
*"
in,rea%e trade %urplu%e%
-"
,reate more :o3%
C"
allo,ate re%our,e% more effi,ientl&
."
in,rea%e export%

=;"
/$i,$ of t$e follo(ing i% T01E a,,ording to t$e ,a%e %tudie% on N*FT* and C$ina pre%ented in t$e ,$apter2
=;"
))))))
*"
T$e 1nited State% $a% relati#e %,ar,it& in un%5illed la3or
-"
T$e 1nited State% $a% relati#e %,ar,it& in ,apital
C"
<exi,o $a% relati#e a3undan,e in %5illed la3or
."
C$ina $a% relati#e a3undan,e in ,apital

=="
/$i,$ of t$e follo(ing i% F*8SE2
=="
))))))
*"
P$arma,euti,al%' ,omputer $ard(are' tele,ommuni,ation% e6uipment' and ot$er $ig$ te,$nolog& produ,t% are #alua3le 3e,au%e of t$e
inno#ation and re%ear,$ t$e& in,orporate
-"
Soft(are' mo#ie%' mu%i,' and ot$er arti%ti, expre%%ion% are #alued for t$eir ,reati#it&
C"
T$e prote,tion gi#en to ,reator% and inno#ator% #aried greatl& internationall& until %tandardi?ation 3egan (it$ t$e %igning of t$e T0IP%
agreement
."
.e#eloping ,ountrie% u%uall& %trongl& ad#o,ate t$e prote,tion of intelle,tual propert& rig$t%
E"
*t t$e end of t$e t(entiet$ ,entur&' more and more traded good% and %er#i,e% in,orporated %pe,iali?ed 5no(ledge and uni6ue idea%

=>"
AC$eap foreign (age%A i% a poor argument for prote,tion 3e,au%e it fail% to re,ogni?e t$e importan,e of produ,ti#it& /$i,$ of t$e
follo(ing doe% NOT ,ontri3ute to in,rea%ing produ,ti#it&2
=>"
))))))
*"
Capital
-"
Edu,ation and training
C"
!o#ernment %u3%idie%
."
Infra%tru,ture

>0"
T$e ,urrent a,,ount 3alan,e of t$e 1nited State% 3egan to deteriorate in
>0"
))))))
*"
t$e earl& 1>>0%
-"
t$e earl& 1>=0%
C"
t$e late 1>=0%
."
t$e earl& 1>;0%
E"
t$e late 1>60%

>1"
/$i,$ of t$e follo(ing (ould NOT 3e a ,au%e for an in,rea%ed *meri,an demand for t$e <exi,an pe%o2
>1"
))))))
*"
T$e 1nited State% $a#ing lo(er intere%t rate% t$an <exi,o
-"
<ore e,onomi, expan%ion in t$e 1nited State%
C"
In,rea%ed *meri,an demand for <exi,an good%
."
T$e expe,tation 3& %pe,ulator% t$at t$e #alue of t$e pe%o i% edging up
E"
None of t$e a3o#e

>2"
1nder N*FT*' en#ironmental %tandard% are
>2"
))))))
*"
not $armoni?ed
-"
$armoni?ed around <exi,an rule%
C"
$armoni?ed around 1S rule%
."
$armoni?ed around Canadian rule%
E"
$armoni?ed around a ,om3ination of t$e rule% in all t$ree ,ountrie%

>4"
* ma:or impa,t of t$e tran%atlanti, telegrap$ (a%
>4"
))))))
*"
a redu,tion in time re6uired to o3tain mar5et information and ,on,lude a tran%a,tion 3et(een Ne( Gor5 and 8ondon
-"
a de,rea%e in trade 3arrier% 3et(een t$e 1nited State% and Europe
C"
an in,rea%e in la3or flo(% a,ro%% t$e *tlanti,
."
an in,rea%e in trade ,onfli,t% 3et(een t$e 1nited State% and Europe
E"
None of t$e a3o#e

>4"
/$i,$ of t$e follo(ing i% T01E2
>4"
))))))
*"
* ,ommon mar5et i% more deepl& integrated t$an a ,u%tom% union
-"
Cu%tom% union% re6uire t$e ,reation of a ,ommon ,urren,&
C"
T$e European 1nion i% a %$allo(er and 3roader form of integration t$an N*FT*
."
N*FT* i% an example of a ,u%tom% union

>+"
Suppo%e t$at Canada ,an produ,e 1+ tim3er or 4 film and <exi,o ,an produ,e > tim3er or 4 film Suppo%e t$at opportunit& ,o%t% are
,on%tant /$i,$ of t$e follo(ing i% F*8SE2
>+"
))))))
*"
Canada and <exi,o (ould find trade mutuall& ad#antageou% at a ratio of one unit of film to %ix unit% of tim3er
-"
T$e opportunit& ,o%t% for produ,ing tim3er are lo(er in Canada t$an in <exi,o
C"
Canada $a% an a3%olute ad#antage in tim3er produ,tion
."
<exi,o $a% a ,omparati#e ad#antage in film produ,tion

>6"
1%ing t$e %pe,ifi, fa,tor% model' a%%ume t$at %tra(3err& produ,tion re6uire% t$e %pe,ifi, fa,tor of land' tra,tor produ,tion re6uire% t$e
%pe,ifi, fa,tor of ,apital' and la3or i% #aria3le If t$e 1nited State% i% ,apital a3undant ,ompared to <exi,o' and <exi,o i% land
a3undant ,ompared to t$e 1nited State%' t$en in t$e %$ort run (it$ trade (e (ould expe,t
>6"
))))))
*"
t$e in,ome of 1S (or5er% to in,rea%e
-"
t$e in,ome of <exi,an land o(ner% to in,rea%e
C"
t$e in,ome of <exi,an (or5er% to in,rea%e
."
t$e in,ome of 1S land o(ner% to in,rea%e

>;"
Hapane%e tariff% and 6uota% redu,e national (elfare t$e mo%t in
>;"
))))))
*"
,$emi,al produ,t%
-"
agri,ulture
C"
,lot$ing
."
ma,$iner&
E"
textile%

1%e t$e follo(ing ta3le to an%(er t$e next 6ue%tion@%" *ll #alue% are net
Table #.3

>="
-a%ed on Ta3le >4' if #alue% in t$e ta3le are amended to refle,t a net in,rea%e in 1S foreign dire,t in#e%tment of 100' t$en t$e ne(
3alan,e for t$e ,apital a,,ount 3alan,e 3e,ome%
>="
))))))
*"
72+
-"
J2+
C"
J;+
."
7;+
E"
J22+

>>"
Co#ered intere%t ar3itrage in#ol#e% 3ot$
>>"
))))))
*"
t$e pur,$a%e of a foreign a%%et and a for(ard ,ontra,t in t$e mar5et for foreign ex,$ange
-"
t$e %ale of a foreign a%%et and t$e pur,$a%e of a for(ard ,ontra,t in t$e mar5et for foreign ex,$ange
C"
t$e pur,$a%e of a dome%ti, a%%et and a %pot ,ontra,t in t$e mar5et for foreign ex,$ange
."
t$e %ale of dome%ti, %to,5% and t$e pur,$a%e of foreign 3ond%
E"
None of t$e a3o#e

100"
/$i,$ of t$e follo(ing i% mo%t important in determining t$e num3er of :o3% in an e,onom&2
100"
)))))
*"
Tax poli,ie%
-"
<a,roe,onomi, poli,ie%
C"
1r3an poli,ie%
."
En#ironmental poli,ie%
E"
Trade poli,ie%