Chapter 8 And 10

60 Questions | Total Attempts: 15

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Economics Quizzes & Trivia

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Questions and Answers
  • 1. 
    The European Union is primarily intended to permit:
    • A. 

      Countries to adopt scientific tariffs on imports

    • B. 

      An agricultural commodity cartel within the group

    • C. 

      The adoption of export tariffs for revenue purposes

    • D. 

      Free movement of resources and products among member nations

  • 2. 
    Which of the following represents the stage where economic integration is least complete?
    • A. 

      Free Trade

    • B. 

      Monetary union

    • C. 

      Common market

    • D. 

      Customer union

  • 3. 
    Customs union theory reasons that the formation of a customs union will decrease members' real welfare when the
    • A. 

      Trade diversion effect exceeds the trade creation effect

    • B. 

      Trade production effect exceeds the trade consumption effect

    • C. 

      Trade consumption effect exceeds the trade production effect

    • D. 

      Trade creation effect exceeds the trade diversion effect

  • 4. 
    Which economic integration scheme is solely intended to abolish trade restrictions among member countries, while setting up common tariffs against nonmembers?
    • A. 

      Economic Union

    • B. 

      Common market

    • C. 

      Free Trade area

    • D. 

      Customer union

  • 5. 
    Assume that the formation of a customs union turns out to include the lowest-cost world producer of the product in question. Which effect could not occur for the participating countries? 
    • A. 

      Trade creation-production effect

    • B. 

      Trade creation-consumption effect

    • C. 

      Trade diversion

    • D. 

      Scale economies and competition

  • 6. 
    Which organization of nations permits free trade among its members in industrial goods, while each member maintains freedom in its trade policies toward non-member countries?
    • A. 

      European Union

    • B. 

      Benelux

    • C. 

      Council for Mutual Economic Assistance

    • D. 

      North American Free Trade Association

  • 7. 
    Which form of economic integration occurs when participating countries abolish tariffs on trade among themselves, establish a common tariff on imports from nonmembers, and permit free movement of capital and labor within the organization?
    • A. 

      Free trade area

    • B. 

      Economic union

    • C. 

      Common market

    • D. 

      Monetary union

  • 8. 
    static welfare effect resulting from the formation of the European Union would be: 
    • A. 

      Economies of scale

    • B. 

      Trade diversion

    • C. 

      Investment incentives

    • D. 

      Increased competition

  • 9. 
    dynamic welfare gain resulting from the formation of the European Union would be:
    • A. 

      Trade diversion

    • B. 

      Trade creation

    • C. 

      Diseconomies of scale

    • D. 

      Economies of scale

  • 10. 
    Which organization was founded in 1957 whose objective was to create an economic union among its members?
    • A. 

      General Agreements on Tariffs and Trade

    • B. 

      Organization of Economic Cooperation and Development

    • C. 

      European Union

    • D. 

      Latin American Free Trade Association

  • 11. 
    Which nation is not a member of the North American Free Trade Association?
    • A. 

      Canada

    • B. 

      Greenland

    • C. 

      Mexico

    • D. 

      United States

  • 12. 
    The European Union has achieved all of the following except
    • A. 

      Adopted a common fiscal policy for member nations

    • B. 

      Established a common system of agricultural price supports

    • C. 

      Disbanded all tariffs among its member countries

    • D. 

      Levied common tariffs on products imported from nonmembers

  • 13. 
    Which country is not a member of the European Union?
    • A. 

      Spain

    • B. 

      Germany

    • C. 

      France

    • D. 

      Iceland

  • 14. 
    The implementation of the European Union has: 
    • A. 

      Made it harder for Americans to compete against the Germans in the British market

    • B. 

      Made it easier for Americans to compete against the Germans in the British market

    • C. 

      Made it harder for Americans to compete against the Japanese in the British market

    • D. 

      Made it easier for Americans to compete against the Japanese in the British market

  • 15. 
    The common agricultural policy of the European Union has:
    • A. 

      Increased American farm exports to the EU

    • B. 

      Decreased American farm exports to the EU

    • C. 

      Lowered the price of American farm exports to the EU

    • D. 

      Not affected the price of American farm exports to the EU

  • 16. 
    Consider Figure 8.1. With free trade, Greece imports:
    • A. 

      3 calculators from France

    • B. 

      5 calculators from France

    • C. 

      3 calculators from Germany

    • D. 

      5 calculators from Germany

  • 17. 
    Consider to Figure 8.1. Assume Greece levies a per-unit tariff of $20 on imports from both Germany and France.
    • A. 

      1 calculator from Germany

    • B. 

      1 calculator from France

    • C. 

      3 calculators from Germany

    • D. 

      3 calculators from France

  • 18. 
    Referring to Figure 8.1, suppose Greece forms a customs union with France. Greece will import: 
    • A. 

      3 calculators at a per-unit price of $30

    • B. 

      3 calculators at a per-unit price of $40

    • C. 

      6 calculators at a per-unit price of $30

    • D. 

      6 calculators at a per-unit price of $40

  • 19. 
    Suppose that steel from Japan faces a 20 percent tariff in France and a 25 percent tariff in Italy, while France and Italy maintain free trade between each other. France and Italy are therefore part of a (an): 
    • A. 

      Free trade area

    • B. 

      Customs union

    • C. 

      Common market

    • D. 

      Economic union

  • 20. 
    Suppose that Mexico and Canada form a free-trade area. Mexicans then decrease auto manufacturing and increase imports of autos from Canada, while the Canadians decrease computer production and import more computers from Mexico. This is an example of:
    • A. 

      Trade diversion

    • B. 

      Trade creation

    • C. 

      Trade destruction

    • D. 

      Trade exhaustion

  • 21. 
    Suppose that the United Kingdom and Italy abolish all tariffs on each other's goods and all restrictions on movements of factors of production between them. They also implement a common protectionist policy toward other countries. This is an example of a (an):
    • A. 

      Free-trade area

    • B. 

      Customs union

    • C. 

      Common market

    • D. 

      Economic union

  • 22. 
    In the United States, which group was most likely to be hurt by the North American Free Trade Agreement? 
    • A. 

      Unskilled labor

    • B. 

      Skilled labor

    • C. 

      Owners of capital equipment

    • D. 

      Owners of financial capital

  • 23. 
    The failure of the centrally-planned economies was exemplified by all of the following except
    • A. 

      Interest rates that were below free-market levels

    • B. 

      Consumer and producer goods of inferior quality

    • C. 

      Declining rates of economic growth

    • D. 

      Shortages of essential goods and services

  • 24. 
    The transition of the former communist countries to market economies requires:
    • A. 

      Implementation of governmental price controls

    • B. 

      Privatization of public property

    • C. 

      Transforming competitive industries into monopolies

    • D. 

      The sale of private industries to the government

  • 25. 
    In the former Soviet Union, major manufacturing firms were typically:
    • A. 

      Owned and operated by employee labor unions

    • B. 

      Owned and operated by the government

    • C. 

      Privately owned, but operated by the government

    • D. 

      Publically owned, but operated by the private sector

  • 26. 
    The former communist countries included all of the following except:
    • A. 

      East Germany

    • B. 

      Soviet Union

    • C. 

      Austria

    • D. 

      Poland

  • 27. 
    The economic reforms of the early 1990s that occurred in the former Soviet Union and Eastern Europe resulted in:
    • A. 

      The formation of the Council for Mutual Economic Assistance

    • B. 

      Multinational firms refusing to operate in these nations

    • C. 

      A movement from centrally-planned economies toward market economies

    • D. 

      A movement from market economies toward centrally-planned economies

  • 28. 
    Suppose that Canada has domestic firms that could supply its entire market for radios at a price of $50, while U.S. firms could supply radios at $40 and Mexico at $30. Suppose that Canada initially has a 50 percent tariff on imports of radios and then forms a free trade area with the United States. As a result, Canada realizes:
    • A. 

      Trade creation, no trade diversion, and overall welfare gains

    • B. 

      Trade creation, no trade diversion, and overall welfare losses

    • C. 

      Trade diversion, no trade creation, and potential overall welfare losses

    • D. 

      Trade diversion, trade creation, and potential overall welfare gains

  • 29. 
    As of 2002, members of the European Monetary Union agreed to replace their currencies with the:
    • A. 

      Mark

    • B. 

      Dollar

    • C. 

      Franc

    • D. 

      Euro

  • 30. 
    The formation of the European Monetary Union is expected to entail benefits for member countries which include all of the following except:
    • A. 

      Greater certainty for investors within the EMU

    • B. 

      Lower costs of transactions within the EMU

    • C. 

      Independent monetary policies run by the central bank of each member country

    • D. 

      Enhanced competition among companies in member countries

  • 31. 
    A main disadvantage of the European Monetary Union is that:
    • A. 

      Each member country loses the use of monetary policy as to tool to combat recession

    • B. 

      There is a high degree of labor mobility among the member countries

    • C. 

      Prices are highly flexible in response to changing economic conditions

    • D. 

      Wages are highly flexible in response to changing economic conditions

  • 32. 
    A common market 
    • A. 

      Allows the imposition of common external trade barriers against non-members

    • B. 

      Represents less economic integration than a free trade area

    • C. 

      Does not permit free movement of goods among member nations

    • D. 

      Does not allow free movement of factors of production among nations

  • 33. 
    On the balance-of-payments statements, merchandise imports are classified in the: 
    • A. 

      Current account

    • B. 

      Capital account

    • C. 

      Unilateral transfer account

    • D. 

      Official settlements account

  • 34. 
    Which of the following is considered a capital inflow
    • A. 

      A sale of U.S. financial assets to a foreign buyer

    • B. 

      A loan from a U.S. bank to a foreign borrower

    • C. 

      A purchase of foreign financial assets by a U.S. buyer

    • D. 

      A U.S. citizen's repayment of a loan from a foreign bank

  • 35. 
    Which of the following is classified as a credit in the U.S. balance of payments? 
    • A. 

      U.S. exports

    • B. 

      U.S. gifts to other countries

    • C. 

      A flow of gold out of the U.S.

    • D. 

      Foreign loans made by U.S. companies

  • 36. 
    Which of the following indicates the international investment position of a country at a given moment in time?
    • A. 

      The balance of payments

    • B. 

      The capital account of the balance of payments

    • C. 

      The current account of the balance of payments

    • D. 

      The balance of international indebtedness

  • 37. 
    Concerning the U.S. balance of payments, which account is defined in essentially the same way as the net export of goods and services, which comprises part of the country's gross domestic product?
    • A. 

      Merchandise trade account

    • B. 

      Goods and services account

    • C. 

      Current account

    • D. 

      Capital account

  • 38. 
    If the United States government sells military hardware to Saudi Arabia, the transaction would be recorded on the U.S. balance of payments as a:
    • A. 

      Current account debit

    • B. 

      Current account credit

    • C. 

      Capital account debit

    • D. 

      Capital account credit

  • 39. 
    The current account of the U.S. balance of payments does not include:
    • A. 

      Investment income

    • B. 

      Merchandise exports and imports

    • C. 

      The sale of securities to foreigners

    • D. 

      Unilateral transfers

  • 40. 
    The value to American residents of income earned from overseas investments shows up in which account in the U.S. balance of payments? 
    • A. 

      Current account

    • B. 

      Trade account

    • C. 

      Unilateral transfers account

    • D. 

      Capital account

  • 41. 
    Table 10.2. International Investment Position of the United States  U.S. assets abroad      U.S. government assets$800 billion     U.S. private assets$200 billion  Foreign assets in the U.S.      Foreign official assets$600 billion     Foreign private assets$300 billion  Consider Table 10.2. The U.S. balance of international indebtedness suggests that the United States is a net:
    • A. 

      Debtor

    • B. 

      Creditor

    • C. 

      Spender

    • D. 

      Exporter

  • 42. 
    For the first time since World War I, in 1985 the United States became a net international:
    • A. 

      Exporter

    • B. 

      Importer

    • C. 

      Debtor

    • D. 

      Creditor

  • 43. 
    A country that is a net international debtor initially experiences: 
    • A. 

      An augmented savings pool available to finance domestic spending

    • B. 

      A higher interest rate, which leads to lower domestic investment

    • C. 

      A loss of funds to trading partners overseas

    • D. 

      A decrease in its services exports to other countries

  • 44. 
    Credit (+) items in the balance of payments correspond to anything that: 
    • A. 

      Involves receipts from foreigners

    • B. 

      Involves payments to foreigners

    • C. 

      Decreases the domestic money supply

    • D. 

      Increases the demand for foreign exchange

  • 45. 
    Debt (-) items in the balance of payments correspond to anything that:
    • A. 

      Involves receipts from foreigners

    • B. 

      Involves payments to foreigners

    • C. 

      Increases the domestic money supply

    • D. 

      Decreases the demand for foreign exchange

  • 46. 
    When all of the debit or credit items in the balance of payments are combined:
    • A. 

      Merchandise imports equal merchandise exports

    • B. 

      Capital imports equal capital exports

    • C. 

      Services exports equal services imports

    • D. 

      The total surplus or deficit equals zero

  • 47. 
    In the balance of payments, the statistical discrepancy is used to: 
    • A. 

      Ensure that the sum of all debits matches the sum of all credits

    • B. 

      Ensure that trade imports equal the value of trade exports

    • C. 

      Obtain an accurate account of a balance-of-payments deficit

    • D. 

      Obtain an accurate account of a balance-of-payments surplus

  • 48. 
    The role of ____ is to direct one nation's savings into another nation's investments:
    • A. 

      Merchandise trade flows

    • B. 

      Services flows

    • C. 

      Current account flows

    • D. 

      Capital flows

  • 49. 
    When a country realizes a deficit on its current account:
    • A. 

      Its net foreign investment position becomes positive

    • B. 

      It becomes a net demander of funds from other countries

    • C. 

      It realizes an excess of imports over exports on goods and services

    • D. 

      It becomes a net supplier of funds to other countries

  • 50. 
    Reducing a current account deficit requires a country to:
    • A. 

      Increase private saving relative to investment

    • B. 

      Increase private consumption relative to saving

    • C. 

      Increase private investment relative to consumption

    • D. 

      Increase private investment relative to saving

  • 51. 
    Reducing a current account surplus requires a country to: 
    • A. 

      Increase the government's deficit and increase private investment relative to saving

    • B. 

      Increase the government's deficit and decrease private investment relative to saving

    • C. 

      Decrease the government's deficit and increase private investment relative to saving

    • D. 

      Decrease the government's deficit and decrease private investment relative to saving

  • 52. 
    The burden of a current account deficit would be the least if a nation uses what it borrows to finance:
    • A. 

      Unemployment compensation benefits

    • B. 

      Social Security benefits

    • C. 

      Expenditures on food and recreation

    • D. 

      Investment on plant and equipment

  • 53. 
    Economic integration is the process of eliminating restrictions on international trade, payments, and factor mobility.
    • A. 

      True

    • B. 

      False

  • 54. 
    When a group of countries establish a free-trade area, they achieve the highest stage of economic integration.
    • A. 

      True

    • B. 

      False

  • 55. 
    Trade creation and trade diversion refer to the short run (static) effects of economic integration while economies of scale, stimulus to investment, and effects on competition refer to the long run (dynamic) effects.
    • A. 

      True

    • B. 

      False

  • 56. 
    Referring to the balance-of-payments statement, an international transaction refers to the exchange of goods, services, and assets between residents of one country and those abroad.
    • A. 

      True

    • B. 

      False

  • 57. 
    The balance of payments includes international transactions of households and businesses, but not government.
    • A. 

      True

    • B. 

      False

  • 58. 
    Because the balance of payments utilizes double-entry accounting, merchandise exports will always be in balance with merchandise imports.
    • A. 

      True

    • B. 

      False

  • 59. 
    The "goods and services" account of the balance of payments shows the monetary value of international flows associated with transactions in goods, services, and unilateral transfers.
    • A. 

      True

    • B. 

      False

  • 60. 
    A positive balance on the goods-and-services account of the balance of payments indicates an excess of exports over imports which must be added to the nation's gross domestic product.
    • A. 

      True

    • B. 

      False