chapter_19 - Principles of Macroeconomics 9e ­...

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Unformatted text preview: Principles of Macroeconomics, 9e ­ TB1 (Case/Fair/Oster) Chapter 19 1 Internation al Trade, Comparativ e Advantage, and Protectionis 19.1 m Trade 1 M ul ti pl e C h o i c e 1) A country has a trade surplus when A) its exports exceed its imports. B) its exports equal its imports. C) its government spending exceeds its tax revenues. D) its exports are less than its imports. Answer: A Diff: 1 Topic: Trade Surpluses and Deficits Skill: Definition 2) A country's trade is balanced when A) its imports exceeds its exports. B) its government expenditures are equal to its tax revenues. C) its net exports equal to zero. D) its net exports are greater than zero. Answer: C Diff: 1 Topic: Trade Surpluses and Deficits Skill: Definition 3) A country has a trade deficit when A) its exports exceed its imports. B) its exports equal its imports. C) its exports are less than its imports. D) government spending is greater than tax receipts. Answer: C Diff: 1 Topic: Trade Surpluses and Deficits Skill: Definition 4) If a country has a trade surplus of $40 billion, which of the following can be true? A) The country's exports are $160 billion and its imports are $120 billion. B) The country's exports are $110 billion and its imports are $150 billion. C) The country's exports are $120 billion and its imports are $140 billion. D) The country's exports are $140 billion and its imports are $40 billion. Answer: A Diff: 1 Topic: Trade Surpluses and Deficits Skill: Conceptual AACSB: Reflective Thinking 5) If a country has a trade deficit of $30 billion, which of the following can be true? A) The country's exports are $150 billion and its imports are $120 billion. B) The country's exports are $110 billion and its imports are $140 billion. C) The country's exports are $120 billion and its imports are $140 billion. D) The country's exports are $140 billion and its imports are $40 billion. Answer: B Diff: 1 Topic: Trade Surpluses and Deficits Skill: Conceptual AACSB: Reflective Thinking 6) In the year ________, the United States switched from running a trade surplus to running a trade deficit. A) 1950 B) 1966 C) 1976 D) 1994 Answer: C Diff: 1 Topic: Trade Surpluses and Deficits Skill: Fact 2 Tr ue /F al s e 1) If Belgium has exports of 50 billion euros and imports of 40 billion euros, then it is running a trade deficit. Answer: FALSE Diff: 2 Topic: Trade Surpluses and Deficits Skill: Conceptual AACSB: Reflective Thinking 2) If Japan has a exports of 70 billion yen and imports of 60 billion yen, it is running a trade surplus. Answer: TRUE Diff: 2 Topic: Trade Surpluses and Deficits Skill: Conceptual AACSB: Reflective Thinking 3) If a country's imports are greater than its exports, a country has a trade deficit. Answer: TRUE Diff: 2 Topic: Trade Surpluses and Deficits Skill: Conceptual AACSB: Reflective Thinking 4) A country's balance of trade must be balanced. Answer: FALSE Diff: 2 Topic: Trade Surpluses and Deficits Skill: Conceptual AACSB: Reflective Thinking 5) If a country's imports are less than its exports, a country has a trade surplus. Answer: TRUE Diff: 2 Topic: Trade Surpluses and Deficits Skill: Conceptual AACSB: Reflective Thinking 19.2 The 1 M ul ti pl e C h o i c e 1) The purpose of the Corn Laws was to A) encourage imports and discourage exports, and thus keep the price of food low. B) encourage both exports and imports in order to integrate the British economy with the rest of Europe. C) discourage both imports and exports in order to promote economic self-sufficiency in Britain. D) discourage imports and encourage exports, and thus keep the price of food high. Answer: D Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Fact 2) The theory of comparative advantage is credited to A) Adam Smith. B) David Ricardo. C) John Maynard Keynes. D) Milton Friedman. Answer: B Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Fact 3) Country A would have an absolute advantage compared to Country B in the production of corn if A) corn can be produced at lower cost in terms of other goods than it could be in Country B. B) Country A uses fewer resources to produce corn than Country B does. C) the demand for corn is higher in Country A than in Country B. D) corn sells for a higher price in Country A than in Country B. Answer: B Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 4) The in the production of a product enjoyed by one country over another when it uses fewer resources to advantage produce that product than the other country does is A) an absolute advantage. B) a comparative advantage. C) a relative advantage. D) a productive advantage. Answer: A Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Definition 5) Accordin g to the theory of comparative advantage, a country A) exports the goods in which its has a comparative advantage. B) imposes tariffs on goods in which it does not have comparative advantage. C) imports the goods in which it has a comparative advantage. D) exports goods in which it has absolute advantage. Answer: A Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Fact 6) China has comparative advantage in textile and an absolute advantage in radios. Japan has a comparative advantage a in radios and an absolute advantage in textiles. According to this scenario A) Japan should export both radios and textiles. B) China should import both radios and textiles. C) China should export textiles and import radios. D) Japan should export textiles and import radios. Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 7) Country A has a comparative advantage compared to Country B in the production of shoes, if A) Country A can produce shoes at a lower monetary cost than Country B can. B) Country A can produce shoes using fewer resources than Country B can. C) the demand for shoes is higher in Country A than in Country B. D) Country A can produce shoes at a lower cost in terms of other goods than Country B can. Answer: D Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 8) Accordin g to the theory of comparative advantage, a country should A) specialize and export goods with the highest opportunity cost. B) specialize and export goods with the lowest production cost. C) specialize and export goods with the lowest opportunity cost. D) specialize and export goods with the lowest average cost. Answer: C Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Fact 9) When one country can produce a product at a lower cost in terms of other goods, that country is said to have A) an absolute advantage. B) a comparative advantage. C) a productive advantage. D) an unfair advantage. Answer: B Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Definition 10) The United States imports televisions from Japan and Japan imports computer chips from the United States. If the theory of comparative advantage guides trade between the two countries, it must be true that A) the opportunity cost of producing televisions in Japan is higher than that in the United States. B) the opportunity cost of producing computer chips in the United States is higher than that in Japan. C) the United States has comparative advantage in producing computer chips. D) the United States has comparative advantage in producing televisions. Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 11) If Russia absolute advantage in the production of wheat and China has an absolute advantage in the production of has an textiles, then A) neither country has anything to gain from specialization and trade. B) it is reasonable to expect that specialization will benefit both countries, but trade will not. C) it is reasonable to expect that specialization and trade will benefit both countries. D) it is reasonable to expect that trade will benefit both countries, but specialization will not. Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 12) If Brazil has a comparative advantage in the production of coffee compared to the United States, then A) Brazil also has an absolute advantage in the production of coffee. B) the United States has an absolute advantage in the production of coffee. C) Brazil can produce coffee at a lower opportunity cost than the United States. D) the United States cannot produce coffee. Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 13) The United States has a comparative advantage in the production of wheat, and Haiti has a comparative advantage in the production of sugar. If both countries specialize based on the theory of comparative advantage, A) only the production of wheat will increase. B) the production and consumption of both goods will increase. C) only the production of both goods will increase. D) only the consumption of both goods will increase. Answer: B Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 14) Suppose and India are both engaged in the production of radios and rice, and that Japan has an absolute advantage that Japan in the production of both goods. If India has a lower opportunity cost for producing rice, then A) India has a comparative advantage in rice production, but there will be no gains from specialization and trade. B) Japan has a comparative advantage in the production of both goods. C) India has a comparative advantage in the production of rice, but it is outweighed by Japan's absolute advantage in rice production. D) India has a advantage in the production of rice, and specialization and trade between the two countries can be comparative mutually beneficial. Answer: D Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 15) If the slopes of the production possibility frontiers involving sugar and rice in countries A and B are equal, A) the opportunity cost of producing sugar is less in Country A. B) the opportunity cost of producing rice is less in Country B. C) specialization does not benefit either country. D) each country will produce identical quantities of sugar and rice. Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 16) Suppose and Chile are both engaged in the production of copper and wheat, and that Argentina has an absolute that advantage in the production of both goods. If Chile has a comparative advantage in the production of Argentina copper, then Chile A) has a lower for copper, which means that it should specialize in production of copper and engage in trade. opportunity cost B) has a lower for producing copper, but specialization is not feasible because Argentina has a lower monetary opportunity cost cost of copper production. C) has a higher for copper, which means it should specialize in the production of wheat and engage in trade. opportunity cost D) should continue to produce copper, but only for domestic consumption, because trade is not a viable option. Answer: A Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Table 19.1 below to answer the questions that follow. Table 19.1 17) Refer to Table 19.1. In Mexico, the opportunity cost of 1 bushel of bananas is A) 1/2 bushel of oranges. B) 1 bushels of oranges. C) 2 bushel of oranges. D) 5 bushels of oranges. Answer: B Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 18) Refer to Table 19.1. In Guatemala, the opportunity cost of 1 bushel of oranges is A) 1/2 bushel of bananas. B) 1 bushels of bananas. C) 2 bushel of bananas. D) 4 bushels of bananas. Answer: C Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 19) Refer to Table 19.1. In Mexico, the opportunity cost of 1 bushel of oranges is A) 1/2 bushel of bananas. B) 1 bushels of bananas. C) 2 bushel of bananas. D) 5 bushels of bananas. Answer: B Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 20) Refer to Table 19.1. In Guatemala, the opportunity cost of 1 bushel of bananas is A) 1/2 bushel of oranges. B) 1 bushels of oranges. C) 2 bushel of oranges. D) 4 bushels of oranges. Answer: A Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 21) Refer to Table 19.1. The opportunity cost of producing a bushel of oranges in Mexico is A) twice as much as that in Guatemala. B) half as much as that in Guatemala. C) the same as that in Guatemala. D) four times as much as that in Guatemala. Answer: B Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 22) Refer to Table 19.1. Guatemala has A) a comparative advantage in orange production. B) an absolute advantage in orange production. C) an absolute advantage in banana production. D) a comparative advantage in banana production. Answer: D Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 23) Refer to Table 19.1. Guatemala has A) a comparative advantage but not an absolute advantage in orange production. B) a comparative advantage but not an absolute advantage in banana production. C) an absolute advantage and a comparative advantage in banana production. D) an absolute advantage and a comparative advantage in orange production. Answer: B Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 24) Refer to Table 19.1. Mexico has A) a comparative advantage but not an absolute advantage in orange production. B) a comparative advantage but not an absolute advantage in banana production. C) an absolute advantage and a comparative advantage in banana production. D) an absolute advantage and a comparative advantage in orange production. Answer: D Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 25) Refer to 19.1. Guatemala should specialize in and export ________, and Mexico should specialize in and export Table ________. A) oranges; oranges B) bananas; bananas C) bananas; oranges D) oranges; bananas Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 26) Refer to Before specialization, Mexico produces 120 bushels of oranges and 80 bushels of bananas, and Table Guatemala produces 40 bushels of oranges and 20 bushels of bananas. After specialization, the increase 19.1. in orange production is A) 10 bushels of oranges. B) 20 bushels of oranges. C) 25 bushels of oranges. D) 40 bushels of oranges. Answer: D Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 27) Refer to Before specialization, Mexico produces 160 bushels of oranges and 40 bushels of bananas, and Table Guatemala produces 30 bushels of oranges and 40 bushels of bananas. After specialization, the increase 19.1. in banana production is A) 10 bushels of bananas. B) 15 bushels of bananas. C) 20 bushels of bananas. D) 40 bushels of bananas. Answer: C Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 28) Refer to 19.1. For both countries to benefit from trade, the terms of trade must be between ________ bushel(s) of Table oranges to bushel(s) of bananas. A) 1:1/2 and 1:4 B) 2:3 and 2:1 C) 1:1 and 1:1/2 D) 1:1 and 1:2. Answer: D Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Table 19.2 below to answer the questions that follow. Table 19.2 29) Refer to Table 19.2. In China, the opportunity cost of A) a tractor is 1 motorcycle. B) a motorcycle is 10 tractors. C) a tractor is 10 motorcycles. D) a motorcycle is 1/30 of a tractor. Answer: C Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 30) Refer to Table 19.2. In Thailand, the opportunity cost of A) a motorcycle is 1/15 of a tractor. B) a motorcycle is 15 tractors. C) a motorcycle is 1/30 of a tractor. D) a tractor is 20 motorcycles. Answer: A Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 31) Refer to 19.2. ________ has a comparative advantage in motorcycles and ________ has an absolute advantage in Table motorcycles. A) China; neither B) Neither; neither C) Thailand; neither D) Thailand; China Answer: C Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 32) Refer to 19.2. If both countries specialize and trade with each other, Thailand will export ________ and China Table will import ________. A) motorcycles; tractors B) tractors; motorcycles C) tractors; tractors D) motorcycles; motorcycles Answer: D Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 33) Refer to Table 19.2. The most that Thailand will be willing to pay for a tractor is A) 5 motorcycles. B) 10 motorcycles. C) 15 motorcycles. D) 20 motorcycles. Answer: C Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 34) Refer to Table 19.2. The most that China will be willing to pay for a motorcycle is A) 1/20 of a tractor. B) 1/10 of a tractor. C) 1/30 of a tractor. D) 1/5 of a tractor. Answer: B Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 35) Refer to Table 19.2. Which terms of trade benefits both countries? A) 1 tractor for 10 motorcycles B) 1 tractor for 12.5 motorcycles C) 1 motorcycle for 10 tractors D) 1 motorcycle for 1/5 of a tractor Answer: B Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 36) The terms of trade refers to A) the documents that two countries sign in order to facilitate trade. B) the conditions imposed by the importing country regarding the quality of the imported goods. C) the exchange rate determined by the exporting and the importing countries. D) the ratio at which one country trades a domestic product for imported product. Answer: D Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Definition 37) Specializa tion and trade allow a country to A) produce and consume on its production possibility frontier. B) produce and consume inside its production possibility frontier. C) produce and consume outside its production possibility frontier. D) produce on its production possibility frontier and consume outside it. Answer: D Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 38) The main advantage of trade between two countries is that A) trade makes both countries more self-sufficient. B) employment in both countries will increase. C) both countries have consumption choices beyond their current resource and production constraints. D) trade will lead to a more equitable distribution of income in both countries. Answer: C Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 39) Accordin g to comparative advantage, trade between two countries A) maximizes the amount of inputs that are used in the production of all products. B) guarantees that consumption levels will be equal in the two countries. C) will benefit all the industries in each of the countries. D) allows each of t...
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