Test Bank

Chapter 8: Realist and Liberal Perspectives on Globalization: Security, Domestic Economy, Trade, Investment, and Finance

Multiple Choice

1. Taxes on goods and services when they cross state borders are better known as ______.

a. tariffs

b. subsidies

c. quotas

d. price controls

Cognitive Domain: Comprehension

Answer Location: Trade

Difficulty: Medium

2. To what principle did Adam Smith trace the wealth of nations?

a. regulation

b. specialization

c. protectionism

d. productivity

Cognitive Domain: Comprehension

Answer Location: Specialization and the Division of Labor

Difficulty: Medium

3. Which term refers to the relationship in which two countries can produce more goods from the same resources if each specializes in the goods it produces most efficiently at home and the two trade these goods internationally?

a. competitive advantage

b. comparative advantage

c. contrasting advantage

d. relative advantage

Cognitive Domain: Comprehension

Answer Location: Comparative Advantage

Difficulty: Medium

4. Developing industries that require protection to get started are better known as ______ industries.

a. infant

b. nascent

c. protected

d. competitive

Cognitive Domain: Comprehension

Answer Location: Exceptions to Unrestricted Trade

Difficulty: Medium

5. In product markets where the economies of scale are so large that only one firm can make a profit in that product in world markets, that firm is said to exploit ______.

a. infant industries

b. monopoly rents

c. opportunity costs

d. comparative advantages

Cognitive Domain: Comprehension

Answer Location: Strategic Trade Theory

Difficulty: Medium

6. Competitive advantage calls for which of the following?

a. governments to lower protection and subsidies for trade

b. governments to protect and subsidize key industries and technologies

c. special interest groups to bolster key industries

d. governments to not interfere at all in the free market

Cognitive Domain: Comprehension

Answer Location: Strategic Trade Theory

Difficulty: Medium

7. Trade adjustment assistance helps workers displaced by trade by ______.

a. encouraging workers to find new jobs

b. offering workers wage insurance

c. providing social programs to help workers overcome the psychological effects of job loss

d. offering workers cash benefits or training programs

Cognitive Domain: Comprehension

Answer Location: Trade and Jobs

Difficulty: Medium

8. When a state gives another state most-favored-nation status, what does it entail?

a. A state only conducts trade with the states it has given most-favored-nation status.

b. A state applies its lowest tariff level to all states it has given most-favored-nation status.

c. A state only accepts currency from the states it has given most-favored-nation status.

d. A state has identified states with most-favored-nation status as strategically important.

Cognitive Domain: Comprehension

Answer Location: Trade Negotiations

Difficulty: Medium

9. Which of the following sectors is a primary focus of the Doha Round of negotiations to liberalize trade, with developing countries hoping to be able to export goods produced in this sector to developed countries?

a. information and communication technologies

b. light manufacturing

c. agriculture

d. pharmaceuticals

Cognitive Domain: Knowledge

Answer Location: Trade Negotiations

Difficulty: Easy

10. The expansion of multinational service industries in areas such as data processing, back-office accounting, software development, and call centers is better known as foreign ______.

a. offshoring

b. investment

c. insourcing

d. outsourcing

Cognitive Domain: Comprehension

Answer Location: Service-Sector Foreign Investments

Difficulty: Medium

11. What is the principal factor that drives people to migrate among countries?

a. regulations

b. training

c. wages

d. housing

Cognitive Domain: Comprehension

Answer Location: Immigration Policies

Difficulty: Medium

12. Which perspective is most likely to emphasize opportunities to match labor skills and economic needs across national boundaries in order to increase common material benefits?

a. the realist perspective

b. the liberal perspective

c. the identity perspective

d. the critical theory perspective

Cognitive Domain: Analysis

Answer Location: Immigration Policies

Difficulty: Medium

13. The action of central banks buying and selling their own currency in large enough quantities to affect the price of that currency is better known as ______.

a. a dirty float

b. an exchange market intervention

c. trade adjustment

d. opportunity cost

Cognitive Domain: Comprehension

Answer Location: Currency Markets

Difficulty: Medium

14. Which perspective is most likely to see a current account surplus as desirable, with the logic that it’s better to be a lender than a borrower?

a. the realist perspective

b. the liberal perspective

c. the identity perspective

d. the critical theory perspective

Cognitive Domain: Analysis

Answer Location: Balance of Payments

Difficulty: Medium

15. Which type of market exchanges instruments derived from existing loans and financial assets, hedging them against future changes in prices, earnings, or interest?

a. securities

b. bonds

c. futures

d. derivatives

Cognitive Domain: Comprehension

Answer Location: Debt Markets

Difficulty: Medium

16. Leading up to the 2008–2009 financial crisis, the insurance on securities sold by American International Group was called ______.

a. collateralized debt obligations

b. bistro deals

c. derivatives

d. credit default swaps

Cognitive Domain: Knowledge

Answer Location: Global Financial Crisis

Difficulty: Easy

17. Which country has emerged as a surplus country to finance the response to the Eurozone crisis?

a. Greece

b. Germany

c. Portugal

d. Spain

Cognitive Domain: Knowledge

Answer Location: Eurozone Crisis

Difficulty: Easy

18. According to economists, trade and investment make up the ______ economy.

a. financial

b. monetary

c. real

d. indirect

Cognitive Domain: Comprehension

Answer Location: Chapter Introduction

Difficulty: Easy

19. Which term describes the net border flows of goods and services, along with government transfers and net income on capital investment?

a. capital account

b. portfolio investment

c. macroeconomic policy

d. current account

Cognitive Domain: Comprehension

Answer Location: Snapshot of Globalization

Difficulty: Easy

20. Which term describes the net flows of capital, both portfolio and foreign direct investment, into and out of a country?

a. savings account

b. current account

c. investment account

d. capital account

Cognitive Domain: Comprehension

Answer Location: Snapshot of Globalization

Difficulty: Easy

21. Portfolio investment refers to ______.

a. the value of a country’s currency in terms of a foreign currency

b. transfers of money to buy stocks, bonds, and so on

c. net flows of capital, both portfolio and foreign direct investment, into and out of a country

d. the value of a country’s current account

Cognitive Domain: Knowledge

Answer Location: Finance

Difficulty: Easy

22. Which term describes a country’s current account and capital account balances plus reserves and statistical errors?

a. balance of payments

b. portfolio investment

c. exchange rate

d. trade deficit

Cognitive Domain: Comprehension

Answer Location: Snapshot of Globalization

Difficulty: Easy

23. If a state’s national budget is in surplus, which of the following is true?

a. The government is spending more in the economy than it is taking out of the economy in taxes and revenues.

b. The government is taking more out of the economy in taxes and revenues than it is spending in the economy.

c. The government is spending about the same in the economy as it is taking out of the economy in taxes and revenues.

d. The government is spending less in the economy than it is taking out of the economy in taxes and revenues.

Cognitive Domain: Application

Answer Location: Macroeconomic Policies

Difficulty: Medium

24. When economists refer to twin deficits, they are referring to a budget deficit linked with a(n) ______ deficit.

a. capital account

b. current account

c. trade

d. exchange rate

Cognitive Domain: Knowledge

Answer Location: Snapshot of Globalization

Difficulty: Easy

25. Governments often combine a loose monetary policy with budget deficits in order to ______.

a. increase trade with foreign countries

b. revive an economy and avoid deflation

c. fight inflation

d. absorb excess local currency

Cognitive Domain: Application

Answer Location: Macroeconomic Policies

Difficulty: Medium

26. Which perspective emphasizes repetitive interactions and urges direct coordination of macroeconomic policies through international summits?

a. the realist perspective

b. the liberal perspective

c. the identity perspective

d. the critical theory perspective

Cognitive Domain: Application

Answer Location: Macroeconomic Policies

Difficulty: Medium

27. Which scholar, author of An Inquiry into the Nature and Causes of the Wealth of Nations, traces the wealth of nations to the principle of specialization?

a. David Ricardo

b. John Maynard Keynes

c. Adam Smith

d. Karl Marx

Cognitive Domain: Knowledge

Answer Location: Specialization and the Division of Labor

Difficulty: Easy

28. Following World War II, what type of economic policies did developing countries often use to protect infant industries?

a. export-led development policies

b. macroeconomic policies

c. import substitution policies

d. trade adjustment policies

Cognitive Domain: Knowledge

Answer Location: Exceptions to Unrestricted Trade

Difficulty: Medium

29. Economies of scales are cost advantages, whereby ______.

a. the larger the amount of a good that is produced, the higher the average cost of production

b. the smaller the amount of a good that is produced, the lower the average cost of production

c. the smaller the amount of a good that is produced, the higher the average cost of production

d. the larger the amount of a good that is produced, the lower the average cost of production

Cognitive Domain: Application

Answer Location: Strategic Trade Theory

Difficulty: Medium

30. Which term describes the principle under which nations that negotiate tariff reduction offer the same low tariff to all nations that they offer to the nation that pays the lowest tariff?

a. most-favored-nation principle

b. trade adjustment principle

c. economies of scale principle

d. opportunity cost principle

Cognitive Domain: Knowledge

Answer Location: Trade Negotiations

Difficulty: Easy

31. In 1994, after the Uruguay Round of negotiations to liberalize trade, the General Agreement on Tariffs and Trade became which of the following organizations?

a. the World Trade Organization

b. the International Trade Organization

c. the World Bank

d. the International Monetary Fund

Cognitive Domain: Knowledge

Answer Location: Trade Negotiations

Difficulty: Easy

Multiple Response

1. SELECT ALL THAT APPLY. Which of the following are referred to by economists as the real economy?

a. trade

b. investment

c. economics

d. finance

Cognitive Domain: Comprehension

Answer Location: Chapter Introduction

Difficulty: Medium

2. SELECT ALL THAT APPLY. Which of the following are referred to by economists as the financial economy?

a. securities market

b. savings market

c. derivatives market

d. lending market

Cognitive Domain: Comprehension

Answer Location: Chapter Introduction

Difficulty: Medium

3. SELECT ALL THAT APPLY. A country’s capital account includes which of the following?

a. foreign direct investment

b. current account

c. trade surplus

d. portfolio investment

Cognitive Domain: Knowledge

Answer Location: Snapshot of Globalization

Difficulty: Easy

4. SELECT ALL THAT APPLY. A country’s balance of payments includes which of the following?

a. foreign direct investment

b. current account

c. exchange rate

d. capital account

Cognitive Domain: Knowledge

Answer Location: Snapshot of Globalization

Difficulty: Easy

5. SELECT ALL THAT APPLY. A country’s capital account includes which of the following?

a. foreign direct investment

b. current account

c. trade surplus

d. portfolio investment

Cognitive Domain: Knowledge

Answer Location: Snapshot of Globalization

Difficulty: Easy

6. SELECT ALL THAT APPLY. A country’s balance of payments includes which of the following?

a. foreign direct investment

b. current account

c. exchange rate

d. capital account

Cognitive Domain: Knowledge

Answer Location: Snapshot of Globalization

Difficulty: Easy

7. SELECT ALL THAT APPLY. The two types of domestic economic policies include which of the following?

a. socioeconomic policies

b. macroeconomic policies

c. microeconomic policies

d. managed economic policies

Cognitive Domain: Knowledge

Answer Location: Security and Economics

Difficulty: Easy

8. SELECT ALL THAT APPLY. Which of the following are examples of macroeconomic policies?

a. fiscal policies

b. regulatory policies

c. monetary policies

d. environmental policies

Cognitive Domain: Knowledge

Answer Location: Macroeconomic Policies

Difficulty: Easy

9. SELECT ALL THAT APPLY. Which of the following are examples of microeconomic policies?

a. regulations

b. price controls

c. national budgets

d. stimulus packages

Cognitive Domain: Knowledge

Answer Location: Microeconomic Policies

Difficulty: Easy

10. SELECT ALL THAT APPLY. Which of the following are examples of nontariff barriers?

a. quotas

b. labor standards

c. prices

d. taxes

Cognitive Domain: Knowledge

Answer Location: Trade

Difficulty: Easy

11. SELECT ALL THAT APPLY. According to Adam Smith, what is the role of the government in the market?

a. to set regulations

b. to provide for defense and education

c. to restrict the size of the market

d. to encourage public diversions, such as parks and recreation

Cognitive Domain: Comprehension

Answer Location: Specialization and the Division of Labor

Difficulty: Medium

12. SELECT ALL THAT APPLY. The Uruguay Round of trade negotiations resulted in which of the following?

a. Countries agreed to lower tariffs by a certain average across only manufactured products.

b. The principle of free trade was extended beyond manufactured goods to services, investment, agriculture, and intellectual property.

c. The World Trade Organization was created.

d. Countries agreed to grant exports from developing countries duty-free access, while similar exports from advanced countries faced tariffs.

Cognitive Domain: Knowledge

Answer Location: Trade Negotiations

Difficulty: Easy

13. SELECT ALL THAT APPLY. Until 1960, most foreign direct investment went into which of the following sectors?

a. resource-based industries

b. infrastructure

c. agriculture

d. services

Cognitive Domain: Knowledge

Answer Location: Resource-Based Foreign Investments

Difficulty: Easy

True/False

1. Quantitative easing is when central banks buy long-term securities to lower long-term interest rates directly.

Cognitive Domain: Comprehension

Answer Location: Macroeconomic Policies

Difficulty: Medium

2. Microeconomic policies apply to the economy as a whole, not a specific industry or sector.

Cognitive Domain: Comprehension

Answer Location: Microeconomic Policies

Difficulty: Medium

3. In the Single Market Act of 1987, the European Community rationalized domestic regulations among its member countries to create a single integrated market with compatible regulations.

Cognitive Domain: Knowledge

Answer Location: Microeconomic Policies

Difficulty: Easy

4. The EU’s Common Agricultural Policy is an example of price supports.

Cognitive Domain: Comprehension

Answer Location: Microeconomic Policies

Difficulty: Medium

5. The invisible hand refers to the idea that when producers and consumers act independently against competitive forces that are beyond their control, the net result is the wealth and well-being of all participants.

Cognitive Domain: Comprehension

Answer Location: Specialization and the Division of Labor

Difficulty: Medium

6. Competitive advantage refers to the relationship in which two countries can produce more goods from the same resources if each specializes in the goods it produces most efficiently at home and the two trade these goods internationally.

Cognitive Domain: Comprehension

Answer Location: Strategic Trade Theory

Difficulty: Medium

7. In the nineteenth century, Great Britain applied free-trade policies unilaterally.

Cognitive Domain: Knowledge

Answer Location: Trade Negotiation

Difficulty: Easy

8. The Doha Round is known as the Developing Country Round because it focuses on key objectives of developing countries, such as reducing agricultural subsidies in Europe and the United States.

Cognitive Domain: Knowledge

Answer Location: Trade Negotiations

Difficulty: Easy

9. A common market allows its members to retain different external tariffs.

Cognitive Domain: Comprehension

Answer Location: Trade Negotiations

Difficulty: Medium

10. Finance has become by far the biggest component of global markets, dwarfing trade and foreign direct investment.

Cognitive Domain: Comprehension

Answer Location: Finance

Difficulty: Medium

11. A managed float (or “dirty float”) is an exchange rate that is kept within a certain range through government intervention.

Cognitive Domain: Comprehension

Answer Location: Exchange Rates

Difficulty: Medium

Short Answer

1. According to the realist perspective, global markets in which governments reduce barriers to economic exchanges do not emerge usually except under a ______ power, like Great Britain or the United States.

Cognitive Domain: Analysis

Answer Location: Security and Economics

Difficulty: Medium

2. ______ refers to capital flows to a foreign country involving the acquisition or construction of manufacturing plants and other facilities.

Cognitive Domain: Comprehension

Answer Location: Investment

Difficulty: Medium

3. The capital account and current account of a country taken together constitute the ______, which records all economic transactions with other countries.

Cognitive Domain: Comprehension

Answer Location: Investment

Difficulty: Medium

4. The EU’s ______, which sets domestic prices for agricultural products above market levels, is a prominent example of the use of price supports.

Cognitive Domain: Knowledge

Answer Location: Microeconomic Policies

Difficulty: Easy

5. ______ are policy instruments other than price, such as quotas and qualitative restrictions, designed to limit or regulate imports and exports.

Cognitive Domain: Comprehension

Answer Location: Trade

Difficulty: Medium

6. The costs of alternative uses of resources based on competitive prices is a concept better known as ______.

Cognitive Domain: Comprehension

Answer Location: Specialization and the Division of Labor

Difficulty: Medium

7. Import substitution policies were used extensively in ______ to substitute domestic industries for imports, protect infant industries, and encourage economic growth.

Cognitive Domain: Knowledge

Answer Location: Exceptions to Unrestricted Trade

Difficulty: Easy

8. ______ are cost advantages whereby the larger the amount of a good that is produced, the lower the average cost of production.

Cognitive Domain: Comprehension

Answer Location: Strategic Trade Theory

Difficulty: Medium

9. ______ is measured by how much output is produced by a given input.

Cognitive Domain: Comprehension

Answer Location: Trade and Jobs

Difficulty: Medium

10. ______ are negotiations in which several countries participate and reduce trade barriers simultaneously.

Cognitive Domain: Comprehension

Answer Location: Trade Negotiations

Difficulty: Medium

11. The ______ is a phenomenon in which an abundance of natural resources inhibits development in other sectors.

Cognitive Domain: Comprehension

Answer Location: Resource-Based Foreign Investments

Difficulty: Medium

12. ______ refers to the idea that interdependence in one sector (like trade) will lead to the interdependence in another sector (like finance).

Cognitive Domain: Comprehension

Answer Location: Debt Markets

Difficulty: Medium

13. In response to the 2008–2009 financial crisis, the U.S. Congress authorized a $700 billion bailout package for the banks called the ______.

Cognitive Domain: Knowledge

Answer Location: Global Financial Crisis

Difficulty: Easy

Essay

1. What is the Washington Consensus? How does it contrast with the Beijing Consensus?

Cognitive Domain: Application

Answer Location: Macroeconomic Policies

Difficulty: Hard

2. What are the two types of domestic economic policies, and what is the difference between them?

Cognitive Domain: Application

Answer Location: Domestic Economic Policies

Difficulty: Hard

3. What is the significance of the two most recent multilateral trade talks, the Uruguay Round and the Doha Round?

Cognitive Domain: Application

Answer Location: Trade Negotiations

Difficulty: Hard

4. What is the difference between a common market and a free-trade area? What are some examples of each?

Cognitive Domain: Application

Answer Location: Trade Negotiations

Difficulty: Hard

5. What is the resource curse, and how does it impede long-term development?

Cognitive Domain: Application

Answer Location: Resource-Based Foreign Investments

Difficulty: Hard

6. What is the product life cycle, and how does it reflect foreign direct investment flows?

Cognitive Domain: Application

Answer Location: Manufacturing Foreign Investments

Difficulty: Hard