chapter 18 - 1. Which economies are affected by other...

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1. Which economies are affected by other economies and by events outside their borders? Your Answer: All economies, regardless of their size. Correct. All economies, regardless of their size, depend to some extent on other economies and are affected by events outside their borders. 2. When does a country run a trade surplus? Your Answer: When it exports, regardless of how much it imports. Correct Answer: When it exports more than it imports. Incorrect. When a country exports more than it imports, it runs a trade surplus. When a country imports more than it exports, it runs a trade deficit. 3. The trade situation of the United States changed significantly in 1976, when the country began to experience continuous: Your Answer: Trade surpluses. Correct Answer: Trade deficits. Correct. Before 1976 the United States generally ran a trade surplus. This changed in 1976, and since 1976 the United States has run a trade deficit. The deficit reached a local peak of $145.2 billion in 1987, fell to $27.5 billion in 1991, and then rose dramatically to over $600 billion by 2004. 4. The collective set of restrictions known as Corn laws around the nineteenth century in Great Britain had the purpose of: Your Answer: Discouraging exports.
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Correct Answer: Protecting landlords’ incomes. Incorrect. For a number of years, imports and exports of grain had been subject to a set of tariffs, subsidies, and restrictions collectively called the Corn Laws. Designed to discourage imports of grain and to encourage exports, the Corn Laws’ purpose was to keep the price of food high. The Corn Laws clearly worked to the advantage of those in power. 5. Ricardo’s theory of comparative advantage states that specialization and free trade will benefit: Your Answer: Partners in trade that have comparative advantages, but not absolute advantages. Correct Answer: All trading partners, even those that may be absolutely less efficient producers. Incorrect. Ricardo’s theory that specialization and free trade will benefit all trading partners (real wages will rise), even those that may be absolutely less efficient producers. 6. A country enjoys an absolute advantage over another country if: Your Answer: That country uses fewer resources to produce a product than the other country does. Correct. A country enjoys an absolute advantage over another country in the production of a product if it uses fewer resources to produce that product than the other country does. 7. A country enjoys a comparative advantage over another country if: Your Answer: That country does not have an incentive to trade with the other country. Correct Answer: That country can produce a good at a lower cost in terms of other goods than it could be in the other country. Incorrect. Even if a country has an absolute advantage, it may still benefit from specialization and trade.
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chapter 18 - 1. Which economies are affected by other...

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