ECO 336 USM Midterm Exam | Questions and Answers (Complete Solutions)

ECO 336 USM Midterm Exam | Questions and Answers (Complete Solutions) An important factor that increased international capital flows in the second half of the nineteenth century was A. technological innovations. B.t h ...

ECO 336 USM Midterm Exam | Questions and Answers (Complete Solutions) An important factor that increased international capital flows in the second half of the nineteenth century was A. technological innovations. B.t he rapid rate of East Asian economic growth. C. the creation of the International Monetary Fund. D. the creation of numerous regional trade agreements. The four criteria for economic integration include trade flows, capital flows, people flows, and the similarity of prices in separate markets. True False Since the end of World War II, A. world trade has grown more slowly than world GDP in the same time period. B. world trade has grown more rapidly than world output. C. the trade-to-GDP ratios of most countries have fallen. D. trade is less important to most nations' economies than in the early part of the twentieth century. E. world trade has grown more slowly than during the years leading up to World War II. Deep integration A.is easier to achieve than shallow integration. B. does not require changing domestic policies unrelated to tariffs and quotas. C. requires cooperation with other national governments or international bodies. D.is less controversial than shallow integration. One important difference between the international economy of today and the economy of 100 years ago is A. that price differences in different markets have narrowed. B. the presence of international bodies such as the IMF and World Bank. C. that capital is mobile. D. for the first time, technological innovations have reduced the barrier of distance. E. that labor is so much more mobile. While the world was fairly integrated at the turn of the last century, most trade was in agricultural and raw materials, whereas today manufactured consumer and producer goods play a much greater role in determining exports and imports. True False Labor mobility was A. less in 1900 than in 2010. B. unimportant to global integration until the 1960s. C. greater in 1900 than in 2010. D. never controversial. One of the reasons we know that international labor mobility has been higher at other times is because A. labor was important in agriculture. B. the population was younger. C. the percent of our population that was foreign born was higher. D. wages were lower. Suppose Turkey has exports of 2 billion Turkish Lira, while its imports are 2 billion Turkish Lira. Calculate Turkey's "Index of Openness" (Trade-to-GDP ratio) assuming Turkey has 10 billion Turkish Lira of output, or GDP. Turkey's Trade-to-GDP ratio = . 4 . (Enter your response rounded to one decimal place.) The trade-to-GDP ratio for a nation that had $600 million in exports, $400 million in imports, and GDP of $2,000 million would be A. 0.5 B. 0.2 C. -0.1 D. 0.1 Capital flows between countries are smaller than in past decades in absolute terms. True False Transactions costs in international financial markets are higher today than they were in the past. True False When world capital is allowed to flow freely between countries, it is expected that capital will flow from A. countries with a high level of international trade to countries with lower levels of international trade. B. countries with high income to countries with low income. C. countries with low income to countries with high income. D. countries with abundant savings and capital to countries with low savings and capital. Your text mentions several ways that international trade flows are qualitatively different than they were a century ago. Which of the following is NOT one of those ways? A. International trade in raw commodities and agricultural products is more important than it was in the past. B. Firms' investment spending on capital goods is more important than in the past. C. It is possible to trade some types of services in a way that was not possible in the past. D. Multinational corporations play a bigger role in production than they did in the past. The elimination or reduction of trade barriers caused by non-trade-related domestic policies is referred to as A. regional trade integration. B. quota reduction. C. deep integration. D. shallow integration. Free trade in goods is predicted to A. provide consumers with greater variety. B. provide consumers with lower prices. C. increase competition for workers and firms. D. All of the above. Statistical empirical evidence consistently shows that countries that are more open A. experience persistent price gaps with other countries. B. tend to grow faster than countries that are closed. C. are more likely to run trade deficits. D. experience more rapid rates of capital outflow. A key institution that did NOT directly arise from post-WWII negotiations was the A. WTO. B. World Bank (IBRD). C. GATT. D. IMF. An example of foreign direct investment is A. a Mexican buying dollars for pesos. B. building a Starbucks shop in Canada. C. buying stock in a German company. D. All of the above. Most of what we buy and sell never makes it out of domestic markets. True False Economists A. believe that changing domestic policies affecting trade is a relatively simple process. B. describe reducing tariffs and quotas as deep integration. C. believe that the work of reducing trade barriers is done since most tariffs are low and most quotas eliminated. D. describe reducing tariffs and quotas as shallow integration. Countries such as the United States that have large populations tend to have A. lower trade-to-GDP ratios. B. higher trade-to-GDP ratios. C. relatively greater capital outflows. D. relatively smaller capital outflows. All of the following are differences in capital flows today from the past, EXCEPT A. the larger number of companies listed on world stock exchanges. B. the need to protect from sudden changes in currency values. C. the increasing variety of financial instruments. D. the problem of volatility in financial capital flows. Open economies grow more slowly than closed economies. True False A major impact of the transatlantic telegraph was A. an increase in labor flows across the Atlantic. B. a decrease in trade barriers between the United States and Europe. C. an increase in trade conflicts between the United States and Europe. D. a reduction in time required to obtain market information and conclude a transaction between New York and London The trade-to-GDP ratio is calculated by A. exports plus imports divided by GDP. B. imports divided by GDP. C. exports minus imports divided by GDP. D. exports divided by GDP. Countries that have high rates of savings also have A. stock market bubbles. B. low rates of investment. C. high rates of investment. D. low rates of growth. Domestic agricultural subsidies intended to support the nation's farmers would not be considered a trade barrier so would not be disputed internationally. True False Elimination of barriers to trade (tariffs and quotas) are referred to as shallow integration. Negotiation over domestic policies that impact international trade are referred to as deep integration. Which of the following kinds of agreements between two or more countries would be an example of a shallow integration measure? A. An agreement to impose the same limits on cartels and monopolies B. An agreement to unify customs forms in order to speed up cross-border traffic C. An agreement to use the same environmental standards D. An agreement to accept another nation's certification of architects A relative measure of the importance of trade is A. the dollar value of trade adjusted for inflation. B. trade as a percentage of investment. C. trade as a percentage of GDP. D. the dollar value of trade. When comparing current international capital flows with capital flows of the past, A. the number of financial instruments has increased over time. B. transactions costs appear to have fallen. C. the level of financial flows compared to GDP has not changed significantly. D. All of the above. E. A and B only. One of the distinguishing characteristics of capital mobility today is that A. nations are no longer dependent on their own national savings for their investment funds. B. there are far more kinds of financial instruments than there were 100 years ago. C. the bulk of foreign capital flows are tied to labor flows. D. currency markets play a less significant role than they did in the past. Capital and labor only very recently have been free to move across international borders. True False Made in the USA or Made in China has less meaning for products that A. are an agricultural product such as wheat. B. are a commodity such as iron ore. C. are a product that is produced and consumed domestically. D. are technological and involve assembling many different types of sometimes sophisticated components. Which of the following kinds of agreements between two or more countries would be an example of a deep integration measure? A. An agreement to reduce tariffs and quotas B. An agreement to impose the same limits on cartels and monopolies C. An agreement to reduce exports D. An agreement to unify customs forms in order to speed up cross-border traffic Most economists support open trade because it increase our choices as consumers, lowers costs for producers, increases competition and innovation, and leads to greater diffusion of technological change. True False The International Monetary Fund (IMF), the World Bank, the General Agreement on Tariffs and Trade (GATT) were formed A. before 1900. B. after World War II. C. to respond to the formation of the European Community in 1957. D. after World War I. Financial capital flows could include A. currency market transactions. B. construction of factories. C. sales of a business. D. real estate purchases. E. the purchase of the physical assets and operations of a multinational corporation by another. An example of a foreign direct investment (FDI) would include A. a U.S. firm expanding its U.S. operations. B. a U.S. mutual fund manager buying shares of stock in a Brazilian oil company. C. a U.S. couple buying land for their dream retirement home in Costa Rica. D. a wealthy Mexican buying U.S. Treasury bills. One of the most important and most visible roles of the IMF is to A. hold regular negotiations over tariff reductions. B. intercede by invitation when countries cannot pay their international debts. C. provide loans to countries that need capital to develop their economies. D. investigate countries that are charged with being unfair traders. Which of the following is NOT a criticism of international institutions such as the IMF, the World Bank, or the WTO? A. They ignore potentially large adjustment costs for developing nations of implementing their policies. B. They violate national sovereignty by imposing unwanted domestic policies. C. They fail to understand the effects of their policies on the vulnerable. D. Their decision minus making is biased in favor of underdeveloped nations. Which of the following is a problem that arises when trying to classify regional trade agreements? A. Many agreements combine elements from different categories. B. The most favored nation clause includes all of them. C. Some agreements include cultural issues while others do not. D. The definition of free trade area includes that of a customs union. One reason markets may fail to provide the optimal quantity of public goods is the problem of A. nondiscrimination. B. economic integration. C. free riders. D. determining what the public wants. With a partial trade agreement A. goods and services are allowed to cross boundaries without tariffs. B. two or more countries agree to liberalize trade in a selected group of categories. C. two or more countries set common tariffs toward nonminus members. D. two or more countries allow the free mobility of inputs such as labor and capital. A nation's votes at the IMF are proportional to its population. True False One of the strongest motivations for holding the Bretton Woods Conference was to design new international institutions that would A. contain communism. B. ensure that world prices were not rising too rapidly. C. help countries avoid the mistakes of the 1920s and 1930s. D. provide a collective defense security for Western Europe and North America. The original mission of the World Bank was to A. provide financial assistance for the reconstruction of war minus damaged nations. B. provide capital to underdeveloped countries. C. provide capital to firms around the world. D. help countries manage their exchange rates. Which of the following is an example of an institution whose primary concern is global stability? A. IMF (International Monetary Fund) B. OPEC (Oil Producing and Exporting Countries) C. Asian Development Bank D. NAFTA (North American Free Trade Agreement) A country's foreign exchange reserves refers to A. the total amount of a country's currency held by other nations. B. the currency of the nation itself. C. the country's holdings of gold and internationally accepted currencies. D. the country's Special Drawing Rights (SDRs) at the IMF. It is often costly for developing countries to adjust to trade agreements because A. developing countries often have limited social safety nets to provide support to workers in transition. B. their economies are more diversified than those of developed countries. C. trade agreements systematically expect more liberalization by developing countries than is expected of developed countries. D. All of the above. Institutions are A. the same thing as organizations. B. associations of individuals or groups. C. a set of rules governing behavior, whether written or not. D. always embodied in a written set of rules. The United States is an example of A. a common market. B. a customs union. C. a free trade area. D. an economic union. The World Bank formed the World Trade Organization when it became clear that to alleviate poverty in developing nations, agricultural trade barriers were going to have to be reduced. True False IMF conditionality refers to the A. changes a country must make in order to receive IMF financial assistance. B. maximumminus sized loan the IMF will make. C. minimumminus sized loan the IMF will make. D. minimum size of a national debt problem that a country must have before the IMF gets involved. E. technical assistance the IMF gives. The goals of Bretton Woods included the formation of organizations and institutions that would A. create an exchange rate system to help stabilize exchange rates. B. create an international organization to help nations that are unable to pay their international debts. C. facilitate agreements to reduce trade barriers. D. All of the above. An important function of international institutions during times of crisis is to A. make goods nonexcludable. B. prevent free riding. C. make goods nonrival. D. prevent nondiscrimination. Which of the following is NOT an example of an international public good? A. Capital flows to less minus developed countries B. Last minus resort lending C. Regional trade agreements D. Open markets during a recession Which of the following is NOT a feature of a common market? A. Common external barriers to trade B. Factor mobility C. Substantial coordination of macroeconomic policies among the members D. Free trade in goods and services between the members Many of the important international governmental institutions that deal with the global economy have their roots in the Bretton Woods conference at the end of World War II. True False From the late 1940s until the creation of the WTO, the organization that was primarily responsible for conducting rounds of trade negotiations was the A. IMF. B. ITO. C. GATT. D. World Bank. E. United Nations. Which of the following criticisms is NOT directed to the IMF? A. It serves the interests of wealthier countries. B. It violates national sovereignty. C. It creates a free minus riding problem. D. It lacks openness in its decision minus making process. Which of the following is TRUE? A. A country experiencing a debt or currency crisis would contact the World Trade Organization. B. The General Agreement on Tariffs and Trade created the World Trade Organization in the negotiations and treaty known as the Uruguay Round. C. The World Trade Organization has no power to resolve trade disputes and to enforce their resolution. D. The World Trade Organization was formed at the Bretton Woods conference. The IMF, because it can force nations to take loans and bail out packages, has more power than other international governmental organizations dealing with the global economy. True False The international organization that serves as a forum for trade discussions and the development of trade rules is called A. the United Nations. B. the IMF. C. the World Bank. D. the WTO. Which of the following was NOT a creation of the Bretton Woods conference? A. WTO B. World Bank C. IMF D. IBRD International Monetary Fund (IMF) "quotas" refer to A. the fixed amount of borrowing that each country is allowed to undertake from the IMF. B. the amount of foreign exchange reserves that each member country is obligated to hold at its central bank. C. country quantity restrictions on imported products. D. the IMF membership fee paid by countries. Until the Uruguay Round of trade negotiations, which of the following sectors were NOT included in the rules for international trade? A. Automobiles and agriculture B. Steel and textiles C. Agriculture and apparel D. Steel and agriculture The World Bank was created as a result of the Bretton Woods conference and was originally focused on the reconstruction of Europe after World War II. True False The primary mission of the World Bank today is to A. provide capital to underdeveloped countries. B. help countries manage their exchange rates. C. provide financial assistance for the reconstruction of war minus damaged nations. D. provide capital to firms around the world. \ Which of the following is FALSE? A. Because trade policies are laws of individual nations, it is difficult for other nations and international organizations to force changes on unwilling nation states. B. Because of international recognition of national sovereignty, individual nations are unaffected by global trade and capital flows. C. National sovereignty limits outsiders' ability to change the trade laws and practices of individual nation states. D. Foreign investors may not have a legal right to impose policies on a nation state, but the nation state may still experience consequences of poor policies. Which of the following are true statements regarding public goods? A. Private markets in public goods often fail due to free riding.