Ch 7 Ch 10 Trade policies in Developing Countries testKrugman_TB_ch10

Ch 7 Ch 10 Trade policies in Developing Countries testKrugman_TB_ch10

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Unformatted text preview: International Economics, 8e (Krugman) Chapter 10 Trade Policy in Developing Countries 10.1 Import-Substituting Industrialization 1) he infant industry argument was an important theoretical basis for T A) eo-colonialist theory of international exploitation. n B) mport-substituting industrialization. i C) istoriography of the industrial revolution in Western Europe. h D) ast-Asian miracle. E E) one of the above. N Answer: B Question Status: revious Edition P 2) ophisticated theoretical arguments supporting import-substitution policies include S A) erms of trade effects. t B) cale economy arguments. s C) earning curve considerations. l D) he problem of appropriability. t E) one of the above. N Answer: D Question Status: revious Edition P 3) hich of the following could explain why the terms of trade of developing countries might deteriorate over W time? A) eveloping country exports consist mainly of manufactured goods. D B) eveloping country exports consist mainly of primary products. D C) ommodity export prices are determined in highly competitive markets. C D) ommodity export prices are solely determined by developing countries. C E) one of the above. N Answer: C Question Status: revious Edition P 4) hich trade strategy have developing countries used to restrict imports of manufactured goods so that the W domestic market is preserved for home producers? A) nternational commodity agreement i B) xport promotion e C) ultilateral contract m D) mport substitution i E) one of the above. N Answer: D Question Status: revious Edition P 5) he infant industry argument is that T A) omparative advantage is irrelevant to economic growth. c B) eveloping countries have a comparative advantage in agricultural goods. d C) eveloping countries have a comparative advantage in manufacturing. d D) eveloping countries have a potential comparative advantage in manufacturing. d E) one of the above. N Answer: D Question Status: revious Edition P 1 6) he infant industry argument calls for active government involvement T A) nly if the government forecasts are accurate. o B) nly if some market failure can be identified. o C) nly if the industry is not one already dominated by industrial countries. o D) nly if the industry has a high value added. o E) one of the above. N Answer: B Question Status: revious Edition P 7) he imperfect capital market justification for infant industry promotion T A) ssumes that new industries will tend to have low profits. a B) ssumes that infant industries will soon mature. a C) ssumes that infant industries will be in products of comparative advantage. a D) ssumes that banks can allocate resources efficiently. a E) one of the above. N Answer: A Question Status: revious Edition P 8) he United States, as it began its long and successful growth in the early 19th Century, consciously promoted T domestic production through such activities as tariffs, Clayʹs American System, and many direct subsidies to railroads, canal companies, farmers (free land) etc. Today we view this blatant example of large scale and extensive import-substitution industrialization as having been very successful. Comment on this. Answer: is an interesting point and emphasizes that economic models tend to be a -historical. That is, they This lack the historic perspective; and thus may be misleading as guides to long run issues, such as economic growth. This also suggests that trade policy per se is almost certainly not sufficient to explain why some countries grow and others do not. Question Status: revious Edition P 9) efer to above figure. If OmL1 workers are employed in manufacturing then what is the marginal R productivity of labor in manufacturing? Answer: OmWm. Question Status: revious Edition P 10) efer to above figure. If OmL1 workers are employed in manufacturing then what is the marginal R productivity of labor in agriculture? Answer: OfWf. Question Status: revious Edition P 2 11) efer to above figure. If manufacturing labor were to increase to OmL2, how much value would the R economy as a whole gain? Answer: triangle ABC. The Question Status: revious Edition P 12) efer to above figure. Why would workers not shift from agriculture to manufacturing in the initial situation R where wages are higher in the latter? Answer: Imperfections in the labor market. Question Status: revious Edition P 13) efer to above figure. If the economy were in the initial position (where OmL1 workers were in R manufacturing, what trade policy might gain ABC of economic welfare? Answer: Import-substitution giving protection to manufacturing. Question Status: revious Edition P 10.2 Results of Favoring Manufacturing: Problems of Import-Substituting Industrialization 1) eneral equilibrium considerations lead to the realization that import-substituting policies have an effect of G A) iscouraging exports. d B) ncouraging exports. e C) ncouraging an efficient use of a countryʹs resources. e D) enerating large tariff revenues for the government. g E) one of the above. N Answer: A Question Status: revious Edition P 2) reason why it is difficult for developing countries to maintain a cartel is that A A) he elasticity of demand for a cartelʹs output decreases over time. t B) roducers in the cartel have an economic incentive to cheat. p C) conomic profits discourage other producers from entering the industry. e D) roducers in the cartel have the motivation to lower prices but not to raise prices. p E) one of the above. N Answer: B Question Status: revious Edition P 3) mport substitution policies make use of I A) ariffs that discourage goods from entering a country. t B) uotas applied to goods that are shipped abroad. q C) roduction subsidies granted to industries with comparative advantage. p D) ax breaks granted to industries with comparative advantage. t E) one of the above. N Answer: A Question Status: revious Edition P 4) razilʹs export record in 1999 illustrated the principle that B A) large country will tend to have few exports. a B) small country will tend to have a high export ratio. a C) rotectionist policies tend to discourage exports. p D) xport-promoting policies do not tend to work. e E) one of the above. N Answer: C Question Status: revious Edition P 3 5) he disappointment with import-substitution policies is in part because T A) he rapid and continuous growth record of South American countries. t B) any countries pursuing this strategy experienced stagnation in their growth. m C) his policy is inconsistent with sophisticated economic growth models. t D) his policy tended to create world-class industrial competitors. t E) one of the above. N Answer: B Question Status: revious Edition P 6) t is argued that import substitution is a misguided trade policy if the intent is to promote long-term I economic growth. Explain the reasons underlying this argument. Answer: Import substitution promotes that economic activity in which the country is relatively inefficient. This lowers the real income at any given time and decreases the resources which can be used for investment purposes, hence lower growth rates. An additional answer is that import substitution by creating a protected domestic market fails to provide incentives to produce high, or world-class quality-which means this country, cannot market in foreign countries. With such a (perceived) limited market, endogenous economic growth will not be forthcoming. Finally, it may be that exposure to world competition has its own dynamic effect promoting economic growth. Question Status: revious Edition P 10.3 Trade Liberalization Since 1985 1) he high correlation between rapid growth in exports and rapid economic growth observed in several East T Asia countries in recent decades proves that A) xport promoting trade policy leads to relatively rapid economic growth. e B) free-trade orientation of trade policy results in rapid economic growth. a C) xports help growth, whereas imports impede growth. e D) rade policy is perhaps the most important policy area for promotion of economic development. t E) one of the above. N Answer: E Question Status: revious Edition P 2) he relatively rapid economic growth experienced by Chile in the late 1980s T A) upported the conventional Latin American reliance on import substitution. s B) elied on the Harris-Todaro model to explain this growth. r C) ejected the conventional Latin American reliance on import substitution. r D) emonstrated the importance of market failure as a reason for import substitution. d E) one of the above. N Answer: C Question Status: revious Edition P 3) o help developing countries expand their industrial base, some industrial countries have reduced tariffs on T designated manufactured imports from developing countries below the levels applied to imports from industrial countries. This policy is called A) xport-led growth. e B) eneralized system of preferences. g C) ost Favored Nation. M D) eciprocal trade agreement. r E) one of the above. N Answer: B Question Status: revious Edition P 4 4) o help developing nations strengthen their international competitiveness, many industrial nations have T granted tariff reductions to developing nations under the A) nternational commodity agreements program. i B) ultilateral contract program. m C) eneralized system of preferences program. g D) xport led growth program. e E) one of the above. N Answer: C Question Status: revious Edition P 5) xport-led growth tends to E A) iscourage competition in the global economy. d B) xploit domestic comparative advantages. e C) ead to unemployment among domestic workers. l D) elp firms benefit from diseconomies of large-scale production. h E) one of the above. N Answer: B Question Status: revious Edition P 6) n efficient economy would set the marginal product in the traditional sector A A) ower than that in the modern non-traditional sector. l B) igher than that in the modern sophisticated sector. h C) qual to that in the modern sophisticated sector. e D) ower in the relatively capital intensive sector. l E) igher in the relatively capital intensive sector. h Answer: C Question Status: revious Edition P 7) he experience of sub‐Saharan Africa, as compared to that of ʺOther Asiaʺ (not including the HPAEs) T supports the argument that A) igh rates of protection tend to harm economic growth. h B) he poorer is the country the easier it is for it to ʺcatch upʺ economically. t C) ow rates of protection tend to promote economic growth. l D) oth A and C. B E) one of the above. N Answer: E Question Status: revious Edition P 8) he experience of Chileʹs foreign sector in the last two decades of the 20th Century supports the proposition T that economic growth is supported by A) mport substitution. i B) ndustrialization policies. i C) rade liberalization policies. t D) oth A and B above. B E) one of the above. N Answer: C Question Status: revious Edition P 5 9) hinaʹs recent experience supports the proposition that C A) economic miraclesʺ are solely to be expected in small countries. ʺ B) entral planning and socialism can promote sustained economic growth. c C) lessening of income disparities is a prerequisite for economic growth. a D) rowth in a large country cannot be affected by its foreign sector. g E) one of the above. N Answer: E Question Status: revious Edition P 10) he consensus today is that import-substitution protectionist industrial policy has not served the developing T countriesʹ growth ambitions well. This fact proves that policies relying on export-driven growth are the ʺwinning ticketʺ for these countries. Answer: Although there are many who draw precisely this lesson from the ʺ East Asian Miracleʺ of the past half-century, such a conclusion does not necessarily follow logically. Although the four HPAEs succeeded in their economic as well as in their export sector growth, they differed among themselves considerably in the degree and manner with which they abjured protectionist policies. In any case, export-promotion policies may distort relative prices to the same extent as import protectionist policies, and hence may lead to the same waste and misallocation of national resources. Question Status: revious Edition P 10.4 Export-Oriented Industrialization: The East Asian Miracle 1) istorically those few developing countries which have succeeded in significantly raising their per-capita H income levels A) id not accomplish this with import-substituting industrialization. d B) id accomplish this with import-substituting industrialization. d C) ended to provide heavy protection to domestic industrial sectors. t D) avored industrial to agricultural or service sectors. f E) one of the above. N Answer: A Question Status: revious Edition P 2) tatistical evidence suggests that S A) ree trade policies promote economic growth more effectively than do import substitution policies. f B) mport substituting policies tend to promote effective exploitation of scale economies. i C) mport substitution tends to lead to relatively low effective rates of protection. i D) mport substitution is to this day the preferred growth strategy promoted by the World Bank. i E) one of the above. N Answer: A Question Status: revious Edition P 3) he growth successes of the high performance Asian economies T A) upports the belief that economic development requires import substitution policies. s B) ejects the belief that export-oriented industrialization is likely to promote economic development. r C) ejects the belief that economic development requires import substitution policies. r D) uggests that free trade policies are required for successful economic development. s E) one of the above. N Answer: C Question Status: revious Edition P 6 4) hich industrialization policy used by developing countries places emphasis on the comparative advantage W principle as a guide to resource allocation? A) xport promotion e B) mport substitution i C) nternational commodity agreements i D) nfant Industry promotion I E) one of the above. N Answer: A Question Status: revious Edition P 5) aiwan and South Korea are examples of developing nations that have recently pursued these T industrialization policies A) mport substitution. i B) xport promotion. e C) ommercial dumping. c D) ultilateral contract. m E) one of the above. N Answer: B Question Status: revious Edition P 6) ll the following nations except ________ have recently utilized export-led growth policies. A A) ong Kong H B) outh Korea S C) rgentina A D) ingapore S E) one of the above. N Answer: C Question Status: revious Edition P 7) he development of countries like South Korea has been supported by all of the following except T A) igh domestic interest rates. h B) igh domestic saving rates. h C) arge endowments of human capital. l D) igh levels of labor productivity. h E) one of the above. N Answer: A Question Status: revious Edition P 8) n 2003, the per-capita income in China was roughly ________ of that in the U.S. I A) ne hundredth o B) ne eighth o C) ne half o D) he same as t E) one of the above. N Answer: B Question Status: revious Edition P 7 9) he ʺEast Asian Miracleʺ is T A) he ability of so many people to live in such small areas. t B) he fact that so many Influenza varieties originate from this region. t C) he fact that poor dualistic economies managed to escape the vicious circle of poverty. t D) he ability to maintain large positive trade balances with the U.S. t E) one of the above. N Answer: C Question Status: revious Edition P 10) he HPAE (High Performance Asian Economies) countries T A) ave all consistently supported free trade policies. h B) ave all consistently maintained import-substitution policies. h C) ave all consistently maintained non-biased efficient free capital markets. h D) ave all maintained openness to international trade. h E) one of the above. N Answer: D Question Status: revious Edition P 11) he remarkable success of the HPAEs proves that T A) rade policy is the key to successful economic growth. t B) rade policy is irrelevant to successful economic growth. t C) igh educational standards is the key to successful economic growth. h D) ual economies must suffer economic stagnation. d E) one of the above. N Answer: E Question Status: revious Edition P 12) he HPAE ʺeconomic miracleʺ illustrates a clear case in which T A) xports and growth were positively related. e B) xports were promoted by successful economic growth. e C) conomic growth was determined by successful export promotion. e D) rade policy dominated other considerations in promoting economic growth. t E) one of the above. N Answer: A Question Status: revious Edition P 13) he ʺEast Asian Miracleʺ of the ʺFour Tigersʺ in the 1960s was replicated by T A) eveloping countries around the world. d B) ther East Asian countries. o C) ub Sahara African countries. S D) ndustrialized countries. I E) one of the above. N Answer: B Question Status: revious Edition P 8 14) lassical and Neoclassical trade theory makes the case that free trade can bring a country to an optimum and C economically efficient use of its resources; and hence is an optimal trade-policy, if the objective is maximizing long term economic growth. There are those who argue that the experience of the Asian Miracle countries, such as Taiwan, South Korea and Singapore verify this argument in the real world. Explain. There are others who argue that the experience of these countries cannot be used to verify or support the argument above. Explain. Answer: Both arguments may indeed be made. These countries did in fact tend to promote exports in a consistent set of policies. However, they tended to do this via conscious National industrial-policy (e.g., South Korea using ʺthe Japanese systemʺ), and hence (with the possible exception of Hong Kong) do not provide a good test-tube for the long run effects of a free-trade stance. Question Status: revious Edition P 9 ...
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