International Economics, 7E (Husted/Melvin)

International Economics, 7e (Husted/Melvin) Chapter 10 International Trade and Economic Growth

Multiple-Choice Questions 1)

1 ______refer to government programs designed to exploit natural comparative advantage by policies increasing production of a few export goods most closely related to a country's resource base. A)

2 Comparative advantage B)

3 Primary- export-led development C)

4 Import- substitution development D)

5 Inward- looking development Answer:

7 ______seek to promote rapid industrialization by erecting high barriers to foreign goods to encourage policies local production, A)

8 Comparative advantage B)

11 Outward- looking development Answer:

13 ______involve government support for manufacturing sectors in which a country has potential policies comparative advantage. A)

14 Comprehensiv e development B)

17 Outward- looking development Answer:

19 Developi countries that concentrate production in agricultural products or raw materials may face a ng secular decline in their international terms of trade due to A)

20 sluggish demand for these products in developed countries. B)

21 large increases in the supplies of these products on world markets due to export expansion policies. C)

22 inelastic demand for these products in developed countries. D)

23 All of the above. Answer:

25 Recently, many developing countries throughout the world have begun to institute policies that seek to A)

26 liberalize international trade by lowering trade barriers. B)

27 reduce dependence on international trade by raising trade barriers. C)

28 reduce on international trade by instituting laws that call for buying only domestically made dependence goods. D)

29 Two of the above. Answer:

32 If the n of an export industry leads to the provision of infrastructure such as roads or airports, this is expansio called a(n) A)

33 secondary effect. B)

34 linkage effect. C)

35 elementary effect. D)

36 None of the above. Answer:

38 Economi c growth occurs because A)

39 labor forces grow. B)

40 capital stocks grow. C)

41 new inventions raise productivity. D)

42 All of the above. Answer:

44 If an experiences an increase in its labor force, everything else constant, then its production economy possibilities frontier (PPF) will A)

45 expand outward but keep its original shape. B)

46 expand outward largely in the direction of the labor intensive good. C)

47 expand outward largely in the direction of the capital intensive good. D)

48 not expand until capital grows. Answer:

50 If an experiences an increase in its labor force, everything else constant, then at constant world economy prices, it will A)

51 produce more of the labor intensive good and less of the capital intensive good. B)

52 produce more of both goods. C)

53 produce the same amount of both goods. D)

54 produce less of the labor intensive good and more of the capital intensive good. Answer:

56 If an experiences an increase in its labor force, everything else constant, then at constant world economy prices, it will A)

57 export more, if the country was initially labor abundant. B)

58 import more, if the country was initially labor abundant. C)

59 export more, if the country was initially capital abundant. D)

60 Both A and B above. Answer:

62 ______economic growth occurs when, after growth, exports and imports rise by the same proportion. A)

63 Rising B)

64 Neutral C)

65 Biased D)

66 Technological Answer:

68 12)

69 Economi c growth at constant world prices will ______cause the output of one good to fall absolutely. A)

70 never B)

71 sometimes C)

72 always Answer:

74 ______growth is said to occur when a country's welfare falls as the country grows. A)

75 Protrade biased B)

76 Antitrade biased C)

77 Immizerizing D)

78 Anti-neutral Answer:

80 Recent guest worker programs have involved temporary migration from A)

81 poor countries to richer countries. B)

82 poor countries to other poor countries. C)

83 rich countries to poor countries. D)

84 rich countries to other rich countries. Answer:

86 The rarest migration pattern is for people to move permanently from A)

87 poor countries to richer countries. B)

88 poor countries to other poor countries. C)

89 rich countries to poor countries. D)

90 rich countries to other rich countries. Answer:

92 An example of direct foreign investment is given by A)

93 the sale of U.S. government bonds to foreigners. B)

94 the sale of General Motors bonds to foreigners. C)

95 multinational corporations such as Ford. D)

96 all of the above. Answer:

98 If Lo is initial labor force in the economy and Wo is the initial wage, then payments to capital initially the are given by area A)

99 A. B)

100 B. C)

101 A + B. D)

102 not shown in the diagram. Answer:

104 18)

105 If ion were to lead to an inflow of workers so that the overall labor force were to rise to L1, then immigrat A)

106 wages would rise and payments to capital would fall. B)

107 wages would rise and payments to capital would rise. C)

108 wages would fall and payments to capital would fall. D)

109 wages would fall and payments to capital would rise. Answer:

111 ______would gain from expanded immigration. A)

112 Domestic labor B)

113 Domestic capital C)

114 Both domestic labor and capital D)

115 Neither domestic labor nor capital Answer:

117 ______would likely oppose policies that allowed foreign workers to immigrate more freely. A)

118 Domestic labor B)

119 Domestic capital C)

120 Both domestic labor and capital D)

121 Neither domestic labor nor capital Answer:

122 A True or False Questions 1)

123 Import- on development policies have been especially effective in promoting employment in newly substituti industrializing sectors because these policies discourage the import of foreign capital goods. Answer:

124 125 F N Over countries grow in a fashion so that their production possibility E time, frontiers always retain the same shape. A ns w er:

126 127 F T Econo growth at constant prices will never lead to a fall in the output of E mic one good. A ns w er:

128 129 F T Legal gration to the United States peaked just before World War I, but E immi today is almost zero. A ns w er:

130 131 F I Rich country to poor country migration is relatively uncommon. E A ns w er:

132 T N 6 E )

133 Internati factor flows tend to lower incomes of those factors in host countries that most directly onal substitute for that factor, and to raise the incomes of other factors. Answer:

134 T N Sale U.S. government bonds to foreigners is an example of direct E of foreign investment in the United States. A n s w e r:

135 136 F N The in which growth occurs affects the pattern of trade of a country. E way A ns w er:

137 T N A ent in outward-looking development policies is to maintain E key open markets so that internal prices reflect world prices. elem A n s w e r:

138 139 True N Econ omic growth could make a country worse off. E A n s w e r:

140 T N Write essay that compares and contrasts primary-export-led E an development policies with import-substitution policies. Essay Answ Quest er: ions

141 Primary-export- led development policies are aimed at encouraging the exports of natural comparative advantage primary products. The hope is that these exports will generate substantial linkage effects that will bring about general economic development. Potential problems in this approach include the possibility of a secular deterioration in the country's terms of trade as well as volatility in world prices. Import- substitution policies seek to promote development by encouraging local industrialization behind initially high trade barriers. This is an example of the infant industry argument for protection. In practice, these policies have had dismal records, as trade barriers have imposed incredible distortions on domestic economies.

143 The way in which a country grows affects the pattern of trade of a country. True or false. Discuss. Answer:

144 Growth causes a country's PPF to shift out. This has implications for both production and consumption. Since trade is the difference between production and consumption, it will tend to be affected as well. Growth can be neutral, in which case trade volumes increase, but proportionate to initial levels. Growth can be protrade biased, in which case the country tends to trade more relative to its GNP after growth, or trade can be antitrade biased, in which case it tends to trade less. All of these situations depend upon what happens to the country's overall capital/labor ratio as growth occurs as well as income elasticities of demand.

146 3)

147 Immigrat ion tends to lower the income of all factors of production. True or false. Illustrate graphically. Answer:

148 False. Immigration tends to lower the wages of workers who substitute directly for the immigrants. Non- competing factors would tend to gain.

149 150