It is generally claimed that state trading, or centrally controlled trading will tend to reach a lower economic welfare than would be reached by allowing market forces to determine trade flow directions and terms of trade. Illustrate a counter-example to this proposition. ANSWER In general, if we begin with any suboptimal distortion, the theory […]
The WTO seems at times to be interfering in domestic policy since A) the line between domestic policies and de factor protectionism is often fuzzy. B) it is a supra-national organization with the power to overturn governments. C) it determines which nations may trade what with whom. D) it punishes naughty nations. E) it exempts […]
The largest trading of foreign exchange occurs in A) New York. B) London. C) Tokyo. D) Frankfurt. E) Singapore. ANSWER B
We often observe “pseudo-intra-industry trade” between the United States and Mexico. Actually, such trade is consistent with A) comparative advantage associated with Heckscher-Ohlin model. B) oligopolistic markets. C) optimal tariff issues. D) the Ricardian model of trade. E) the specific factors model of trade. ANSWER A
Suppose the dollar is subject to a floating exchange rate system and that R is the number of dollars per unit of foreign exchange. If R increases, then the dollar A) depreciates. B) appreciates. C) is devalued. D) is revalued. E) Both A and C. ANSWER A
The stimulation of a large economy aimed at increasing growth in the rest of the world is commonly known as A) pass-through effect. B) locomotive effect C) investment effect. D) domino effect. ANSWER B
Industrialized countries typically ________ their floating exchange rates. Developing countries often ________ their floating exchange rates. A) manage; peg B) peg; manage C) allow markets to determine; fix D) fix; manage E) fix; allow markets to determine ANSWER A
Labor standards in trade are typically opposed by most developing countries who believe that they will be used A) to further neo-imperialist colonial exploitation. B) to charge these countries with crimes against child-labor standards at the Hague. C) as a protectionist tool by import-competing producers in industrial countries. D) as a means of spreading U.S. […]
Two countries engaged in trade in products with scale economies, produced under conditions of monopolistic competition, are likely to be engaged in A) intra-industry trade. B) price competition. C) inter-industry trade. D) Heckscher-Ohlinean trade. E) immiserizing trade. ANSWER A
An examination of the Ricardian model of comparative advantage yields the clear result that trade is (potentially) beneficial for each of the two trading partners since it allows for an expanded consumption choice for each. However, for the world as a whole the expansion of production of one product must involve a decrease in the […]
