Multiple Choice Answers

1.The principle of comparative advantage:
A.applies only when the gold standard is in effect.
B.is the basic reason that the US has been running trade deficits.
C.states that it is advantageous to export more than you import.
D.states that total output is greatest when each product is made by the country that has the lowest opportunity cost.

2.At the core of the American trade problem is that:
A.Americans spend too much on consumption.
B.the dollar is too low.
C.the Japanese are excluding American products by means of high protective tariffs.
D.American manufacturers are too quality conscious and should instead concentrate on reducing costs.

3.High protective tariffs:
A.would be supported by most economists.
B.will become more likely if we do not reduce our trade deficit.
C.have very little support.
D.would definitely solve all our trade problems.

4.A hollow corporation:
A.makes goods abroad and ships them to the United states.
B.makes goods in the United States and ships them abroad.
C.imports foreign goods and puts its own name on them.
D. makes goods in the United States and has them sold abroad under another company’s name.

5.Which statement is true?
A.The Japanese have not been selling below cost nor taking advantage of economies of scale.
B.The Japanese have been selling below cost and have been taking advantage of economies of scale.
C.The Japanese have been selling below cost but have not been taking advantage of economies of scale.
D.The Japanese have been taking advantage of economies of scale but have not been selling below cost.

6.The Chinese economic expansion since the early 1980s and the Japanese economic expansion from the late 1940s through the 1980s were:
A.virtually identical.
B.both dependent on the American market.
C.based in the economic principles of Karl Marx.
D.based on closing their domestic markets to American goods and services.

7.The least applicable argument for protection of US industry against foreign competition is the __argument.
A.national security
B.infant industry
C.low wage
D.employment

8.A balance-of-trade surplus exists:
A.if the dollar value of exports exceeds the dollar value of imports.
B.if the dollar value of imported capital exceeds the dollar value of exports.
C.only if there is relative price inflation domestically.
D.only if full employment exists domestically.

9.Which statement is False?
A.Chinese factories have been pirating American goods and selling those products in China.
B.Most often “made in China” is actually made elsewhere by multinational companies that use China as a final assembly station.
C.Both China and Japan have closed markets to American-made products
D.Our trading position with Japan is very much like a colony and a colonial power.

10.Which statement is False?
A.If the US can produce rice more efficiently than Japan can, the US enjoys an absolute advantage.
B.Economists dislike both tariffs and import quotas.
C.Under the law of comparative advantage, total output is greatest when each product is made by the country that produces it most efficiently.
D.No nation will engage in trade with another nation unless it will gain by that trade.

11.Which statement is true?
A.Nations should strive for self-sufficiency.
B.The US balance of trade has always been positive.
C.Our biggest trade deficit was a little over $150 billion.
D.The US balance of trade turned negative in the mid-1970s.

12.Which statement is true?
A.The US is both the worlds leading creditor nation and the leading debtor nation.
B.The US is neither the worlds leading creditor nation nor the worlds leading debtor nation.
C.The US is the worlds leading creditor nation and not the worlds leading debtor nation.
D.The US is the worlds leading debtor nation and not the worlds leading creditor nation.

13.Each of the following is a requirement of a gold standard EXCEPT:
A.a nation defines its currency in terms of gold.
B.a nations money supply is made up of gold or gold certificates.
C.a nation must maintain a fixed ratio between its gold stock and its money supply.
D. there must be no barriers to the free flow of gold into and out of the country.

14.The demise of the gold standard led to:
A.more international trade.
B.greater and greater devaluation.
C.freely floating exchange rates.
D.balance-of-payment surpluses.

15.A US importer of French wine would pay in:
A.dollars
B.gold
C.euros
D.special drawing rights.

16.If we were on an international gold standard.
A.inflation would be eliminated.
B.recessions would be eliminated.
C.trade deficits and surpluses would be eliminated.
D.no nation would ever have to devaluate its currency.

17.Appreciation of the Canadian dollar will:
A. intensify an existing disequilibrium in Canadas balance of payments.
B.make Canadas exports less expensive and its imports more expensive.
C.make Canadas exports more expensive and its imports less expensive.
D.make Canadas exports and imports both more expensive.
18.Freely floating exchange rates are determined by the:
A.forces of supply and demand for currencies
B.government with a trade surplus
C.government with a trade deficit
D. IMF

19.Depreciation of the dollar relative to the yen means that the:
A.dollar price of the yen has fallen
B.yen prices of Japanese goods have increased to the Japanese
C.dollar prices of imported goods from Japan have increased
D.yen are less expensive to Americans.

20.Under a system of freely flexible(floating) exchange rates an American trade deficit with Mexico will tend to cause:
A. The US government to ration pesos to American importers.
B. a flow of gold from the US to Mexico
C. an increase in the peso price of dollars
D. an increase in the dollar price of pesos