Macroeconomics/Microeconomics Machine-graded Assessment Items Module: Globalization, Trade and Finance

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1 Macroeconomics/Microeconomics Machine-graded Assessment Items Module: Globalization, Trade and Finance Machine-graded assessment question pools are provided for your reference and are organized by learning outcome. It is your responsibility to handle this material securely and appropriately, with proper security to prevent the quiz questions and answers from being widely available and searchable via the Internet. Send any comments or feedback to Analyze the Benefits and Costs of International Trade Short Title: Globalization, Trade and Finance Define and calculate comparative and absolute advantage Short Title: Comparative and Absolute Advantage When one nation can produce a product at lower cost relative to another nation, it is said to have a(n) in producing that product. relative advantage absolute advantage* economy of scale production efficiency The idea behind comparative advantage reflects the possibility that one party may: be able to produce everything relatively more efficiently than another party. be able to produce something at a lower dollar cost than another party. is good at producing everything. may be able to produce something at a lower opportunity cost than another party.* // Content page - Reading: Absolute Advantage It is possible that one party may: be able to produce everything relatively more efficiently than another party. have an absolute advantage, but a comparative disadvantage.* have an absolute disadvantage, but a comparative advantage.*

2 Colombia produces coffee with less labor and land than any other country. If coffee labor and coffee land cost the same in every country, then Columbia has: a comparative advantage in coffee production. an absolute advantage in coffee production.* both a comparative and absolute advantage in coffee production. // Updated 11/6/2015 question edited Here are alternate outputs from one day s labor input: USA: 12 bushels of wheat OR 3 yards of textiles. India: 3 bushels of wheat OR 12 yards of textiles. The opportunity cost of one bushel of wheat in India is: 1 yard of textiles. 3 yards of textiles. 4 yards of textiles.* 12 yards of textiles Here are alternate outputs from one day s labor input: USA: 12 bushels of wheat or 3 yards of textiles. India: 3 bushels of wheat or 12 yards of textiles. From the data, the USA: has an absolute advantage over India in the production of textiles. has an absolute advantage over India in the production of wheat* has a comparative advantage in the production of textiles. should export textiles to India Brazil can produce 100 pounds of beef or 10 autos; in contrast the United States can produce 40 pounds of beef or 30 autos. Which country has the absolute advantage in producing beef? Brazil* United States Neither Brazil can produce 100 pounds of beef or 10 autos; in contrast the United States can produce 40 pounds of beef or 30 autos. Which country has the absolute advantage in producing autos? United States* Brazil Neither Assuming that Brazil can produce 100 pounds of beef or 10 autos and the United States can produce 40 pounds of beef or 30 autos, what is the opportunity cost of producing one pound of beef in Brazil? 1/10 of an auto* 3/4 of an auto 1/5 of an auto

3 Say that Aliceland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can produce 16 units of food per year or 8 units of clothing. Which of the following is true? Georgeland has a comparative advantage, but not an absolute advantage, in producing clothing. Georgeland has both a comparative and absolute advantage in producing clothing. Aliceland has a comparative advantage, but not an absolute advantage, in producing food. Aliceland has an absolute advantage, but not comparative advantage, in producing food.* Explain how a nation s workers and consumers are affected by impact of international trade Short Title: Impact of International Trade What are the likely consequences of protecting domestic jobs in industries that are at a comparative disadvantage to our trading partners, like textiles? Lower prices for textiles. Higher prices for textiles.* More jobs for domestic textile workers.* Fewer jobs for domestic textile workers. // Content Page - Reading: Demand- and- Supply Analysis of International Trade // Updated 11/6/2015 question and answer choices edited Free trade agreements in the US have most likely lowered the wage of which type of worker? A maid in the hotel industry. A production line worker in car manufacturing.* A computer programmer.* // Content page - Reading: Demand- and- Supply Analysis of Trade When the world price of some good is above the domestic price (before trade), then after trade, that nation will likely be: importing that item and exporting whatever it produces at a comparative advantage. exporting that item and importing whatever it produces at a comparative disadvantage.* importing that item and exporting whatever it produces at an absolute advantage. exporting that item and importing whatever it produces at an absolute disadvantage. // Content Page - Reading: Absolute and Comparative Advantage Which of the following statements is false? Imports reduce business profits.* Exports enhance business profits. Balanced trade maximizes business profits. // Content page - Reading: Demand- and- Supply Analysis of Trade Which of the following phenomena can a nation expect when it opens (more widely) to international trade? Some industries will prosper and expand.* Some industries will suffer and shrink.*

4 Prices will rise. Prices will fall.* // Content Page - Reading: Absolute and Comparative Advantage Understand the way government regulations (e.g., tariffs, quotas and non- tariff barriers) affect business, consumers and workers in the economy Short Title: Impact of Government Regulations Assume that the US produces mangoes in California and also imports them from India. India produces mangoes at a lower cost. A tariff imposed by the US government on mangoes from India will: Lower the price of mangos in the US, and lower the quantity of mangoes sold in the US. Increase the price of mangoes in the US, and lower the quantity of mangoes sold in the US.* Keep the price of mangoes the same in the US, and increase the quantity of mangoes Assuming that government decision- makers are well aware of the consequences, what is the real reason why government may seek to protect an industry? The government wants to snub a foreign power. The government wants to protect overall jobs. The government is acting to preserve jobs in an industry that is threatened by competition from abroad.* // Updated 11/6/2015 question and answer choices edited Which of the following barriers to international trade harms domestic consumers? tariffs * quotas * non- tariff barriers * What area in the graph below illustrates the gain to domestic producers as a result of a government placing a tariff to protect the shoe industry. (img us- west- 2.amazonaws.com/oerfiles/Assessments/economics/supply- demand- shoes.png)

5 B+C C* C+F Use the graph below to identify the loss to consumers from the tariff. (img us- west- 2.amazonaws.com/oerfiles/Assessments/economics/supply- demand- shoes.png) F+G C+F+D+E+G* F+D+E+G Use the graph below to identify the government revenue from the tariff. (img us- west- 2.amazonaws.com/oerfiles/Assessments/economics/supply- demand- shoes.png) D D+E* F+D+E+G Differentiate between alternative international trade regimes and how they impact global trade Short Title: Trade Policy and Agreements

6 The slow pace of international trade negotiations is understandable given that: separate rules were set up for different nations.* negotiations are easy but politicians make it hard. there were many nations involved.* GATT and WTO have governmental authority. // Updated 11/6/2015 answer choices edited An example of a regional trade agreements is: NAFTA.* WTO. GATT An economic union is a: common market and coordinated fiscal policy. common market, currency union and coordinated fiscal and monetary policy.* free trade union. // Content page - Reading: How Trade Policy Is Enacted Long- term trends in global trade include(s): regional trading blocks are becoming more popular as tariffs rise more generally. regional trading blocks are becoming more popular despite tariffs falling more generally.* nations are accusing each other of dumping goods.* in general, special interests within trading nations are better protected than ever Why are some economists concerned about the proliferation of regional trade agreements? Regional trade agreements make the economies of partner nations more independent of each other. Regional trade agreements terms can conflict with those of the WTO.* Regional trade agreements may limit trade from outside the regions in agreement.* // Updated 11/6/2015 answer choices edited Trade agreements and free trade negotiations have: stimulated protests based on issues other than protecting certain industries from competition* reduced tariffs but have increased the use of non- tariff barriers. allowed for a more efficient use of the world s productive resources.* // Updated 11/6/2015 answer choices edited Trade legislation like the Smoot- Hawley Act of 1930 led to: a surge in US agricultural exports to Canada. an international trade war.*

7 a more severe Great Depression.* // Content Page Video: GATT/WTO //Video: Generally, international trade laws in the last 60 years have served to: protect certain domestic industries. limit the gains of trade to consumers. radically lower tariffs.* increase economic interdependence.* The WTO is an organization that: resolves trade disputes between nations.* can tame the political influence that an industry may exert on trade laws* resolves criminal cases between nations. // Updated 11/6/2015 answer choices edited If the US wanted to ensure that its cars could be exported to Cuba without tariffs, not give any other concessions to Cuba or anger Canada with its agreement, it should negotiate a: preferential trade area with Cuba. free Trade area.* form a customs union with Cuba. // Content Page - Video: Trade Agreements Trade Blocs // Updated 11/6/2015 scoring corrected Refer to the video on the US- South Korea free trade agreement. When Free Trade Agreements are negotiated,: consumers necessarily gain as firms lower the price of tariffed products. Some firms that sell domestically produced products may be harmed.* Some firms have greater access to export markets.* // Content Page - Video: South Korea Free- Trade Agreement // Updated 11/6/2015 answer choices edited Define currency exchange rates and explain how they influence trade balances Short Title: Exchange Rates and International Finance If the value of the Euro falls compared to the Dollar, what is the likely outcome for the US balance of trade with the EU? American imports from the EU fall American exports to the EU fall* American exports to the EU rise American imports from the EU rise* // Content Page - Reading: Strengthening and Weakening Currency // Updated 11/6/2015 question and answer choices edited

8 If the value of the Euro appreciates compared to the Dollar, what is logical outcome for US exports to the EU? Nothing. The amount of exports to the EU falls. The amount of exports to the EU rises.* // Content Page - Reading: Strengthening and Weakening Currency If the value of the Dollar rises compared to the Euro what is logical outcome for EU exports to the US? Nothing. The amount of exports to the US falls. The amount of exports to the US rises.* // Content page - Reading: Strengthening and Weakening Currency A stronger dollar will have the following effects: increases demand on the U.S. economy. makes imported goods and services cheaper.* makes American exports cheaper. makes American exporters happy. // Content Page - Reading: Strengthening and Weakening Currency If the value of the Dollar depreciates compared to the Euro what may happen to the net exports from the EU to the US? Nothing. EU s trade deficit with the US will decrease. EU s trade deficit with the US will rise.* // Content page - Reading: Strengthening and Weakening Currency A weaker U.S. dollar has its advantages: increases demand on the U.S. economy.* makes imported goods and services cheaper. makes American exports cheaper.* makes American exporters happy.* // Content Page - Reading: Strengthening and Weakening Currency Explain how the balance of trade (surplus or deficit) affects the domestic economy, and how the domestic economy affects the balance of trade Short Title: The Balance of Trade Generally speaking, when the US economy is doing well its trade deficit will: Increase.* Decrease.

9 Doesn t change deficit is tied to the exchange rates. // Content page - Reading: Macroeconomic Effects of Exchange Rates; Reading: Exchange Rate Policies As the result of exchange rate volatility: contracts for currency exchanges are less risky. even large banks are significantly exposed.* demand on a trading economy can fluctuate.* // Content Page Reading: Macroeconomic Effects of Exchange Rates An increase in the trade surplus: stimulates aggregate demand. * reduces aggregate demand. stimulates aggregate supply. // Content page - Reading: Macroeconomic Effects of Exchange Rates; Reading: Exchange Rate Policies A nation suffering from inflation would have a reason to welcome: a wave of foreign investment. currency appreciation.* currency depreciation. the inflation- fighting effects of less expensive imports.* // Content Page Reading: Macroeconomic Effects of Exchange Rates ; Reading: Exchange Rate Policies A larger trade deficit causes: higher unemployment. * higher inflation. lower real GDP. * A nation suffering from high unemployment would welcome: A wave of foreign investment* currency appreciation currency depreciation* effects of less expensive exports* // Content Page - Reading: Macroeconomic Effects of Exchange Rates; Reading: Exchange Rate Policies Connect globalization, international trade and international finance Short Title: Globalization Free Trade 1. has income distribution effects*

10 2. results in gains from trade* 3. may impoverish a nation // Content page - Reading: Introduction to Globalization; Reading: Trade Winds Some success stories in global trade include(s): the Doha Round of trade talks sponsored by the World Trade Organization. a regional trade block that includes the U.S. and a few Central American nations.* cultural blending and variety never seen before.* // Content Page Reading: Trade Winds Protectionist policies like tariffs and quotas: has income distribution effects.* results in gains from trade. may impoverish a nation.* // Content page - Reading: Introduction to Globalization; Reading: Trade Winds Some of the forces working against freer global trade are: the support of environmental and labor groups. strategic trade policy by national governments.* bi- lateral trade agreements.* industries that are at a comparative advantage. // Content Page Reading: Trade Winds A British trade deficit results in: lending by Britain to China certain long term harm to the British economy British indebtedness.* // Content page - Reading: Introduction to Globalization; Reading: Trade Winds The global movement toward generally freer trade: threatens established livelihoods and ways of life.* offers gains from trade to all trading nations.* is supported by all sectors of each trading nation. allows for sustained trade deficits by some nations.* // Content Page Reading: Trade Winds