Question 1

The WTO seems at times to be interfering in domestic policy since

Accepted Answer

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 U.S. and other powerful member nations from many of its edicts. 
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 U.S. and other powerful member nations from many of its edicts. A

Question 2

The fact that articles of clothing sold in Walmart are produced by very poorly paid workers in Honduras, is a fact that if taken into account

Accepted Answer

A)  would prove to economists that the Ricardian model of comparative advantage is false. 
B)  would prove to economists that the equal-value in trade concept summed up in the trade triangles is incorrect. 
C)  proves to economists that trade is a negative sum game. 
D)  proves to the Anti-Globalization Movement that trade is a negative sum game. 
E)  proves that corporations are exempt from labor standards. 
A)  would prove to economists that the Ricardian model of comparative advantage is false. 
B)  would prove to economists that the equal-value in trade concept summed up in the trade triangles is incorrect. 
C)  proves to economists that trade is a negative sum game. 
D)  proves to the Anti-Globalization Movement that trade is a negative sum game. 
E)  proves that corporations are exempt from labor standards. D

Question 3

It may be argued that Japan's explicit promotion of its microchip industry was an excellent example of successful industrial policy. What criteria would you apply to determine whether such a policy is or is not successful? Judging from your own stated criteria, was Japan's exercise successful? Why or why not? What information would a government require in order to increase the probability that its industrial policy would promote long-term self-generated economic growth?

Accepted Answer

It is argued that Japan's subsidies to its nascent microchip industry was an important factor in putting Japan on the world map in this area. However, a minimal criteria for a successful industrial policy would be that the infant industry mature, and that it prove to be a profitable area of the country's comparative advantage. In this case, one might argue that the latter part of the above statement was not fulfilled, since the microchip industry was adopted by so many countries, that it became a "commodity." That is, it became a product with a very low profit margin, which was not really a good use of Japan's resources, given their alternative uses.

Question 4

Working conditions for clothing workers in Bangladesh are very poor. If countries refuse to buy clothing from Bangladesh in order to encourage change, the effect is likely to be that

Accepted Answer

A)  firms will be forced to comply and workers will be better off. 
B)  firms will refuse to comply, but workers will be better off. 
C)  firms will try to comply and workers will be worse off. 
D)  firms will try to comply and workers will be better off. 
E)  regardless of how firms respond, workers will be better off. 
A)  firms will be forced to comply and workers will be better off. 
B)  firms will refuse to comply, but workers will be better off. 
C)  firms will try to comply and workers will be worse off. 
D)  firms will try to comply and workers will be better off. 
E)  regardless of how firms respond, workers will be better off.

Question 5

The shipbreakers of Alang are

Accepted Answer

A)  a metaphysical representation of the WTO, deriving from Edgar Rice Burroughs' Princess of Mars. 
B)  an early version of the Russian Ice-breaker of the Dnieper-Alang class. 
C)  a capital-intensive industry. 
D)  competing with pollution-producing industries in countries outside of India. 
E)  doing environmentally conscious work. 
A)  a metaphysical representation of the WTO, deriving from Edgar Rice Burroughs' Princess of Mars. 
B)  an early version of the Russian Ice-breaker of the Dnieper-Alang class. 
C)  a capital-intensive industry. 
D)  competing with pollution-producing industries in countries outside of India. 
E)  doing environmentally conscious work.

Question 6

Japan's protection of its semiconductor (RAM) producers is today seen as an object lesson in

Accepted Answer

A)  how strategic planning may backfire and cause a large waste of resources. 
B)  how externalities may be successfully exploited by protectionist policies. 
C)  how excess returns may be successfully exploited by protectionist policies. 
D)  how government intervention may create a meaningful comparative advantage. 
E)  how monopolies can outlast government intervention. 
A)  how strategic planning may backfire and cause a large waste of resources. 
B)  how externalities may be successfully exploited by protectionist policies. 
C)  how excess returns may be successfully exploited by protectionist policies. 
D)  how government intervention may create a meaningful comparative advantage. 
E)  how monopolies can outlast government intervention.

Question 7

Describe the environmental Kuznets curve.

Accepted Answer

This curve shows the effect of increased

Question 8

The evidence usually cited to prove that globalization hurts workers in developing countries

Accepted Answer

A)  is inconclusive due to poor statistical design of the underlying samples. 
B)  is inconclusive due to the poorly funded Central Statistical Office of Mexico. 
C)  is inconclusive due to the ambiguous theoretical implications of the findings. 
D)  is conclusive. 
E)  does not take into account the Heckscher-Ohlin model. 
A)  is inconclusive due to poor statistical design of the underlying samples. 
B)  is inconclusive due to the poorly funded Central Statistical Office of Mexico. 
C)  is inconclusive due to the ambiguous theoretical implications of the findings. 
D)  is conclusive. 
E)  does not take into account the Heckscher-Ohlin model.

Question 9

The best economic case one can make for an active industrial policy involves

Accepted Answer

A)  the national security argument. 
B)  the technological spillover argument. 
C)  the environment preservation argument. 
D)  the high value added argument. 
E)  raising the national income. 
A)  the national security argument. 
B)  the technological spillover argument. 
C)  the environment preservation argument. 
D)  the high value added argument. 
E)  raising the national income.

Question 10

Spencer and Brander's model highlights the existence of

Accepted Answer

A)  aircraft industries. 
B)  excess returns present in highly competitive markets. 
C)  excess returns, or rents, available in non-competitive markets. 
D)  the futility of government bureaucrats' attempts to build an airplane. 
E)  natural advantages in foreign technology firms. 
A)  aircraft industries. 
B)  excess returns present in highly competitive markets. 
C)  excess returns, or rents, available in non-competitive markets. 
D)  the futility of government bureaucrats' attempts to build an airplane. 
E)  natural advantages in foreign technology firms.

Question 11

The United States

Accepted Answer

A)  does not provide more support for R&D as compared to other forms of investment. 
B)  provides support for R&D by imposing high tariffs on R&D intensive products. 
C)  provides support for R&D by providing direct subsidies for such activities. 
D)  provides support for R&D through tax legislation. 
E)  provides support for R&D through grant incentives. 
A)  does not provide more support for R&D as compared to other forms of investment. 
B)  provides support for R&D by imposing high tariffs on R&D intensive products. 
C)  provides support for R&D by providing direct subsidies for such activities. 
D)  provides support for R&D through tax legislation. 
E)  provides support for R&D through grant incentives.

Question 12

When the WTO met in Seattle to initiate a further move towards free international trade, thousands of activists met

Accepted Answer

A)  in order to promote the WTO's goals of "Trade-not Aid." 
B)  in order to laud the WTO policy orientation which would bust local monopolies and therefore help ordinary relatively poor consumers everywhere. 
C)  in order to laud the WTO policy of disallowing government sweetheart deals, which typically meant that corrupt governments subsidized their in-laws' conglomerates on the backs of poor taxpayers. 
D)  in order to support the WTO efforts of bringing about a universal shift of resources in poor countries to higher efficiency and productivity uses, which would raise the real incomes of everyone. 
E)  in order to protest WTO free trade policies that they believed hurt workers. 
A)  in order to promote the WTO's goals of "Trade-not Aid." 
B)  in order to laud the WTO policy orientation which would bust local monopolies and therefore help ordinary relatively poor consumers everywhere. 
C)  in order to laud the WTO policy of disallowing government sweetheart deals, which typically meant that corrupt governments subsidized their in-laws' conglomerates on the backs of poor taxpayers. 
D)  in order to support the WTO efforts of bringing about a universal shift of resources in poor countries to higher efficiency and productivity uses, which would raise the real incomes of everyone. 
E)  in order to protest WTO free trade policies that they believed hurt workers.

Question 13

-Refer to the above table. Suppose the U.S. government (but not Europe) offers a $10 million subsidy?

Accepted Answer

In this case Airbus would deci

Question 14

The reason Airbus succeeded in the Brander Spencer example is that

Accepted Answer

A)  Boeing made the first move in this strategic game. 
B)  Europeans tend to be better strategists than corn-fed Americans. 
C)  the Airbus actually was a better plane than the Boeing 747. 
D)  U.S. laws actually prohibit U.S. exporters from bribing foreign officials. 
E)  the subsidy removed the advantage that Boeing gained with their head start in production. 
A)  Boeing made the first move in this strategic game. 
B)  Europeans tend to be better strategists than corn-fed Americans. 
C)  the Airbus actually was a better plane than the Boeing 747. 
D)  U.S. laws actually prohibit U.S. exporters from bribing foreign officials. 
E)  the subsidy removed the advantage that Boeing gained with their head start in production.

Question 15

When one applies the Heckscher-Ohlin model of trade to the issue of trade-related income redistributions, one must conclude that North-South trade, such as U.S.-Mexico trade,

Accepted Answer

A)  must help low-skilled workers on both sides of the border. 
B)  is likely to hurt high-skilled workers in the U.S. 
C)  is likely to involve higher overall national economic gains that will be greater than any harm done to low-skilled workers in the U.S. 
D)  is likely to hurt low-skilled workers in Mexico. 
E)  gives no advantage to the workers in either country. 
A)  must help low-skilled workers on both sides of the border. 
B)  is likely to hurt high-skilled workers in the U.S. 
C)  is likely to involve higher overall national economic gains that will be greater than any harm done to low-skilled workers in the U.S. 
D)  is likely to hurt low-skilled workers in Mexico. 
E)  gives no advantage to the workers in either country.

Question 16

The proposal that trade agreements should include a system which monitors worker conditions and make the results available to consumers in the rich importing country

Accepted Answer

A)  is consistent with the Invisible Hand paradigm. 
B)  is consistent with the market failure approach. 
C)  is consistent with the Ricardian theory of comparative advantage. 
D)  is consistent with the scale economies approach to trade theory. 
E)  is consistent with the principles laid out by the WTO. 
A)  is consistent with the Invisible Hand paradigm. 
B)  is consistent with the market failure approach. 
C)  is consistent with the Ricardian theory of comparative advantage. 
D)  is consistent with the scale economies approach to trade theory. 
E)  is consistent with the principles laid out by the WTO.

Question 17

In today's world markets, poor developing countries tend to rely primarily on exports of

Accepted Answer

A)  agricultural products. 
B)  primary products. 
C)  mineral products. 
D)  manufactured products. 
E)  high-tech products. 
A)  agricultural products. 
B)  primary products. 
C)  mineral products. 
D)  manufactured products. 
E)  high-tech products.

Question 18

-Refer to the above table. How could the U.S. government justify its decision to offer a subsidy to a profitable and successful business?

Accepted Answer

It could point out that this $10 million

Question 19

The Ricardian model of comparative advantage lends support to the argument that

Accepted Answer

A)  trade tends to worsen the conditions of unskilled labor in rich countries. 
B)  trade tends to worsen the conditions of owners of capital in rich countries. 
C)  trade tends to worsen the conditions of workers in poor countries. 
D)  trade tends to worsen the conditions of workers in rich countries. 
E)  trade is mutually beneficial to the countries that engage in it. 
A)  trade tends to worsen the conditions of unskilled labor in rich countries. 
B)  trade tends to worsen the conditions of owners of capital in rich countries. 
C)  trade tends to worsen the conditions of workers in poor countries. 
D)  trade tends to worsen the conditions of workers in rich countries. 
E)  trade is mutually beneficial to the countries that engage in it.

Question 20

Low wages and poor working conditions in many U.S. trade partners

Accepted Answer

A)  prove that the gains-from-trade arguments of the Ricardian model are false. 
B)  may be a fact of life, but economists don't care. 
C)  are facts emphasized by U.S. labor in its contract negotiations. 
D)  prove that the gains-from-trade arguments of the Ricardian model are true. 
E)  prove that international trade is exploitative. 
A)  prove that the gains-from-trade arguments of the Ricardian model are false. 
B)  may be a fact of life, but economists don't care. 
C)  are facts emphasized by U.S. labor in its contract negotiations. 
D)  prove that the gains-from-trade arguments of the Ricardian model are true. 
E)  prove that international trade is exploitative.

Exam 12: Controversies in Trade Policy

The WTO seems at times to be interfering in domestic policy since

The fact that articles of clothing sold in Walmart are produced by very poorly paid workers in Honduras, is a fact that if taken into account

Working conditions for clothing workers in Bangladesh are very poor. If countries refuse to buy clothing from Bangladesh in order to encourage change, the effect is likely to be that

The shipbreakers of Alang are

Japan's protection of its semiconductor (RAM) producers is today seen as an object lesson in

Describe the environmental Kuznets curve.

The evidence usually cited to prove that globalization hurts workers in developing countries

The best economic case one can make for an active industrial policy involves

Spencer and Brander's model highlights the existence of

The United States

When the WTO met in Seattle to initiate a further move towards free international trade, thousands of activists met

-Refer to the above table. Suppose the U.S. government (but not Europe) offers a $10 million subsidy?

The reason Airbus succeeded in the Brander Spencer example is that

When one applies the Heckscher-Ohlin model of trade to the issue of trade-related income redistributions, one must conclude that North-South trade, such as U.S.-Mexico trade,

The proposal that trade agreements should include a system which monitors worker conditions and make the results available to consumers in the rich importing country

In today's world markets, poor developing countries tend to rely primarily on exports of

-Refer to the above table. How could the U.S. government justify its decision to offer a subsidy to a profitable and successful business?

The Ricardian model of comparative advantage lends support to the argument that

Low wages and poor working conditions in many U.S. trade partners

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

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