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CHAPTER 1 THE INTERNATIONAL ECONOMY MULTIPLE-CHOICE QUESTIONS 1. A primary reason why nations conduct international trade is because: a. Some nations prefer to produce one thing while others produce other things b. Resources are not equally distributed among all trading nations c. Trade enhances opportunities to accumulate profits d. Interest rates are not identical in all trading nations 2. A main advantage of specialization results from: a. Economies of large-scale production b. The specializing country behaving as a monopoly c. Smaller production runs resulting in lower unit costs d. High wages paid to foreign workers 3. International trade in goods and services is sometimes used as a substitute for all of the following except: a. International movements of capital b. International movements of labor c. Domestic production of the same goods and services d. Domestic production of different goods and services 4. If a nation has an open economy, it means that the nation: a. Allows private ownership of capital b. Has flexible exchange rates c. Has fixed exchange rates d. Conducts trade with other countries 5. International trade forces domestic firms to become more competitive in terms of: a. The introduction of new products b. Product design and quality c. Product price d. All of the above 1
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Chapter 1: The International Economy 2 6. The movement to free international trade is most likely to generate short-term unemployment in which industries? a. Industries in which there are neither imports nor exports b. Import-competing industries c. Industries that sell to domestic and foreign buyers d. Industries that sell to only foreign buyers 7. International trade is based on the idea that: a. Exports should exceed imports b. Imports should exceed exports c. Resources are more mobile internationally than are goods d. Resources are less mobile internationally than are goods 8. Arguments for free trade are sometimes disregarded by politicians because: a. Maximizing domestic efficiency is not considered important b. Maximizing consumer welfare may not be a chief priority c. There exist sound economic reasons for keeping one’s economy isolated from other economies d. Economists tend to favor highly protected domestic markets 9. How much physical output a worker producers in an hour’s work depends on: a. The worker’s motivation and skill b. The technology, plant, and equipment in use c. How easy the product is to manufacture d. All of the above 10. The largest amount of trade with the United States in recent years has been conducted by: a. Canada b. Germany c. Mexico d. United Kingdom 11. Increased foreign competition tends to: a. Intensify inflationary pressures at home b. Induce falling output per worker-hour for domestic workers c. Place constraints on the wages of domestic workers d. Increase profits of domestic import-competing industries 12. __________ is the ability of a firm/industry, under free and fair market conditions, to design, produce, and
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