Verified Test Bank Ch7 Government Policy and International

Global Business Today, 11e (Hill)

Chapter 7 Government Policy and International Trade

1) An ad valorem tariff is levied as a fixed charge for each unit of an imported good.

2) Import tariffs protect domestic producers against foreign competitors.

3) Export tariffs are not as common as import tariffs.

4) When the government provides a low-interest loan to a failing industry to bolster business, it is an example of a subsidy.

5) In most countries, the retail industry tends to be one of the largest recipients of subsidies.

6) Quota rent refers to the extra profit that producers make when supply is artificially limited by an import quota.

7) The purpose of an export tariff is to encourage exporting and guarantee the sufficient supply of a good within a country.

8) Dumping occurs when companies sell goods in a foreign market at below their costs of production.

9) Governments can protect consumers from unsafe products by issuing a limit or a ban on such products.

10) One of the more frequent political arguments for government intervention states that it is necessary to protect industries from foreign competition.

11) The Trump Administration justified tariffs on foreign steel imports in 2018 by saying it was a national security issue.

12) The infant industry argument is the oldest economic argument that promotes government intervention.

13) Alexander Hamilton promoted the idea that government should support a new industry with government intervention tactics until the industry is strong enough to face international competition.

14) Paul Krugman argues that although strategic trade policy looks unappealing in theory, in practice it is most likely to be workable.

15) Krugman's main concern with a strategic trade policy is the growth of monopolies within the marketplace.

16) The Smoot-Hawley Act aimed to liberalize trade by eliminating tariffs, subsidies, and import quotas.

17) After the Great Depression, there was a favorable shift in the U.S. government toward free trade.

18) One of the reasons for the trend toward greater protectionism during the 1980s and 1990s was that many countries found ways to get around GATT regulations.

19) In the Uruguay Round of the WTO, member countries sought to exempt trade in services from GATT rules.

20) The World Trade Organization's TRIPS agreement focuses on extending free trade agreements to services.

21) Antidumping actions seem to be concentrated in certain sectors of the economy such as basic metal industries (e.g., aluminum and steel), chemicals, plastics, and machinery and electrical equipment.

22) Tariff rates on manufactured products tend to be much higher than tariff rates on agricultural products.

23) The British decision to withdraw from the European Union suggests that there isn't a global consensus on the issue of free trade.

24) The threat of antidumping action enhances the ability of a firm to use aggressive pricing to gain market share in a country.

25) Government intervention can be self-defeating because it tends to protect the inefficient rather than help firms become efficient global competitors.

26) There are seven main instruments used in trade policy with ________ being the oldest and the simplest.

A) local content requirements

B) tariffs

C) subsidies

D) voluntary export restraints

E) import quotas

27) Mexico has raised the taxes on cheeses imported from the United States. These taxes are an example of a(n)

A) subsidy.

B) referendum.

C) antidumping policy.

D) local content requirement.

E) tariff.

28) A charge of 12–18 percent is levied by the government of a foreign nation on the value of automobile accessories imported from a neighboring country. This increased the price of those imported car accessories for the consumers. This foreign nation is using a(n)

A) local content tariff.

B) ad valorem tariff.

C) subsidy.

D) import quota.

E) antidumping duty.

29) In some years, the U.S. government has paid wheat farmers an additional 50 cents on every bushel of wheat they sell. This money is an example of a(n)

A) local content tariff.

B) ad valorem tariff.

C) subsidy.

D) import quota.

E) antidumping duty.

30) A nation that imposes a fixed charge of $3 per barrel of oil imported into the country is relying on which instrument of trade?

A) specific tariff

B) GATT tariff

C) subsidies

D) import quotas

E) antidumping duties

31) One objective of export tariffs is to

A) abide by the rules enforced by the WTO.

B) curb the competition offered by foreign firms to domestic firms.

C) reduce exports from a sector to ensure a sufficient supply.

D) maintain a positive trade deficit.

E) increase the flow of capital in the international market.

32) Following the global financial downturn in 2008–2009, some developed nations subsidized automobile makers to help them survive the economic climate. One negative consequence of this action was that

A) the companies had an unfair competitive advantage in the global industry.

B) most of these companies implemented export quotas that drove up prices.

C) more companies attempted to enter the industry and sales flattened.

D) it wasn't possible for these companies to meet local content requirements.

E) agricultural producers lost all subsidies they were promised.

33) The group that benefits the most from receiving subsidies is

A) government.

B) international organizations such as the WTO.

C) domestic producers.

D) importers.

E) foreign competitors.

34) Some countries limit the amount of sugar that can be imported. This restriction is called a(n)

A) voluntary export restraint.

B) ad valorem tariff.

C) import quota.

D) local content requirement.

E) government subsidy.

35) A tiny South Pacific island country produces large quantities of coconut-based products. To protect this industry, the island government mandates that only designated trading companies can import the crop, each of which is allocated the right to import a maximum number of pounds of coconuts each year. This is an example of a(n)

A) import duty.

B) subsidy.

C) import tariff.

D) local content requirement.

E) import quota.

36) A(n) ________ is in place when a lower tariff rate is applied to imports within the government quota than those over the quota.

A) tariff rate quota

B) voluntary import restraint

C) import duty

D) quota rent

E) import quota

37) The country of Plena imposes an ad valorem tariff of 10 percent on 1 million tons of rice imports, after which an out-of-quota tariff of 80 percent is applied. What trade policy instrument is Plena using?

A) subsidy

B) tariff rate quota

C) voluntary export restraint

D) tariff ceiling

E) local content requirement

38) If a country is experiencing a surge of electronic imports from a trading partner, it might ask that country to set a limit on how much can be exported. This limit is known as a

A) tariff rate quota.

B) quota rent.

C) voluntary export restraint (VER).

D) quota share.

E) export embargo.

39) How do voluntary export restraints affect the prices of goods?

A) VERs do not affect the price of goods for consumers.

B) VERs always reduce the domestic price of an imported good.

C) VERs always raise the domestic price of an imported good.

D) Typically, VERs will lower the price of goods while the quota is in place.

E) VERs will always raise the export price of domestic goods.

40) Domestic producers experience limited import competition when a VER is in place. As a result, these producers make extra profit because supply is artificially limited by the import quota. This extra profit is called

A) net profit.

B) quota rent.

C) trade surplus.

D) profit margin.

E) quota share.

41) For many years, there have been limits set on the amount of sugar that foreign producers can sell in the U.S. market. This is mandated by a

A) net profit.

B) tariff rate quota system.

C) trade surplus.

D) subsidy agreement.

E) quota share.

42) One way to ensure that there is sufficient supply of a good within a country is to enact a(n) ________, which discriminates against producers from exporting goods.

A) local content requirement

B) tariff rate quota system

C) trade surplus

D) subsidy agreement

E) export tariff

43) In 1975, OPEC did not allow the export of U.S. crude oil in order to drive up the price of oil. This action is an example of a(n)

A) local content requirement.

B) export ban.

C) trade surplus.

D) subsidy agreement.

E) export tariff.

44) For years, the world used a small nation in Central America as a place to assemble goods and benefit from cheap labor. To shift its manufacturing base from simple assembly to full-fledged manufacture of components and finished goods, the nation introduced a policy that stated 35 percent of the value of a product must be produced locally. This is an example of a(n)

A) international allocation requirement.

B) local content requirement.

C) specific quota requirement.

D) ad valorem portion requirement.

E) domestic sales requirement.

45) ComTek Limited has an order to sell 50,000 central processing units (CPUs) to Brazil, but the Brazilian government stipulated that 35 percent of the component parts of those CPUs must be produced in Brazil. This stipulation is an example of a(n)

A) voluntary export restraint.

B) quota rent.

C) import quota.

D) local content requirement.

E) antidumping policy.

46) According to the ________, U.S. government agencies must give preference to U.S. products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage.

A) Export Administration Act

B) Helms-Burton Act

C) Hawley-Burton Act

D) Buy America Act

E) Volcker Rule

47) If the U.S. Department of Education put out a contract for 150,000 laptop computers and the contract stated that preference would be given to bids that declared at least 51 percent of the materials by value in the computers were produced in the United States, which legislative act is this stipulation based on?

A) Export Administration Act

B) Helms-Burton Act

C) Hawley-Burton Act

D) Buy America Act

E) Volcker Rule

48) ________ are put in place to make it difficult for imports to enter a country.

A) Free trade policies

B) Consumer regulations

C) Subsidies

D) Administrative trade policies

E) Open market plans

49) If France decides it wants to make it difficult for other countries to export wine to French businesses and creates bottling standards that don't exist anywhere else in the world, it would be implementing ________ policies as a way to restrict these imports.

A) antidumping

B) voluntary export restraint

C) administrative trade

D) monopolistic competition

E) tariff rent

50) If Indonesia exports vast quantities of cheap textiles to Italy, selling them at below their costs of production, it would be an example of

A) monopolism.

B) dumping.

C) offshoring.

D) nearshoring.

E) subsidizing.

51) Dumping takes place when foreign producers

A) attempt hostile takeovers of domestic firms and usurp the available resources for production.

B) indiscriminately exploit the natural resources of a foreign country to create a later demand that can be met only by imports.

C) eliminate competition by subsidizing prices in a foreign market with home market profits and eventually raising prices to earn substantial profits.

D) capture the niche market rather than the masses.

E) export only a small quantity of their products into an importing country.

52) Firms engage in dumping in order to

A) unload excess production in foreign markets.

B) cut labor costs to reduce the costs of production.

C) provide a wider range of products for consumers in foreign markets.

D) meet the voluntary export requirements imposed on it.

E) obtain subsidies from the importing country.

53) Ultimately, antidumping policies are put in place to

A) protect consumers from high prices.

B) prevent domestic firms from unloading their excess production in domestic markets.

C) protect domestic producers from unfair foreign competition.

D) protect consumers from substandard and hazardous products.

E) prevent foreign products from entering domestic market.

54) Arguments for international trade typically focus on political and ________ reasons.

A) theoretical

B) social

C) economic

D) ethical

E) human rights

55) Some governments "threaten" trade sanctions or other measures as a way to get another government to enforce safety standards or enforce intellectual property laws. This method of intervention is known as

A) diversification.

B) deregulation.

C) retaliation.

D) liberalization.

E) monopolization.

56) Why is retaliation by government intervention a risky strategy?

A) It encourages dumping by foreign companies.

B) It could result in increased tariff barriers by the country that is being pressured.

C) It may expose certain industries that are important for national security to foreign competition.

D) It allows firms to sell goods in the foreign market at below their fair market value.

E) It makes it difficult for domestic firms to make any investments by borrowing money from the domestic capital market.

57) Paint products containing lead are banned from entering the United States. This ban is in place to

A) protect domestic businesses from unfair pricing.

B) protest the pricing of paint below its costs of production.

C) protect consumers from unsafe products.

D) increase the trade surplus of the United States.

E) reduce dumping of lead paint.

58) The principal function of the trade sanctions the United States has in place against Cuba is to

A) prevent other countries from trading with Cuba.

B) aid Cuba in creating a direct trade route to the United States

C) create a nearby dumping site for large businesses.

D) impoverish Cuba to lead to the downfall of the communist government.

E) force Cuba to enter into the NATO agreement.

59) During the 1980s and 1990s, trade sanctions were put in place by Western governments against South Africa in response to the apartheid policies in place there. These trade sanctions were a response to

A) voluntary export restraints.

B) excess tariffs on imports.

C) decreasing birth rates.

D) human rights violations.

E) environmental abuses.

60) Many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with well-established industries in developed countries. This demonstrates the

A) economic development argument.

B) comparative advantage theory.

C) national security argument.

D) infant industry argument.

E) mixed economy theory.

61) Indonesia might have a potential comparative advantage in manufacturing textiles but is unable to compete with established textile manufacturing in Japan, at least for the near future. Indonesia could claim the

A) economic development argument.

B) comparative advantage theory.

C) national security argument.

D) infant industry argument.

E) mixed economy theory.

62) One of the main reasons why many economists remain critical of the infant industry argument is its reliance on the assumption that

A) protection of manufacturing from foreign competition is harmful.

B) absolute advantage cannot sustain productivity of an industry.

C) foreign firms too come under the definition of infant industry when they newly enter a foreign market.

D) firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets.

E) foreign competition will eventually cause domestic firms to improve the quality of their products.

63) A major reason why many economists remain critical of the infant industry argument is because it

A) makes the domestic industry inefficient.

B) does not provide guaranteed employment for citizens.

C) affects the standards of living and per capita income of the people.

D) promotes foreign direct investment.

E) leads to reduced prices in domestic markets.

64) According to ________, a government should use subsidies to support promising firms that are active in newly emerging industries.

A) strategic trade policy

B) public policy

C) absolute advantage

D) product life-cycle theory

E) industrialization

65) Paul Krugman believed that a country that attempts to use strategic trade policy to establish a domestic firm in a dominant position in a global industry, is most likely to

A) dominate the industry.

B) move away from protectionism.

C) provoke retaliation.

D) incur huge financial debts.

E) upset the special-interest groups within the economy.

66) According to Krugman, ________ is the best indicator of the dangers of a strategic trade policy.

A) a decrease in subsidies

B) a decrease in protectionism

C) the occurrence of a trade war

D) huge financial debts for the countries involved

E) the occurrence of a global recession

67) AllMetal Corp., based in Houston, believes the ideal way for the United States to respond when foreign competitors are already being supported by government subsidies is not to retaliate but to establish rules that help minimize trade-distorting subsidies. Which theorist does AllMetal's management agree with?

A) Krugman

B) Hofstede

C) Hamilton

D) Heckscher-Ohlin

E) Ricardo

68) Another basis for Krugman's argument is that strategic trade policy can be captured by ________, which will distort the policy so it benefits their own needs.

A) consumers

B) special-interest groups

C) government committees

D) state-owned businesses

E) national leaders

69) The first official government policy for free trade occurred in which country?

A) China

B) Great Britain

C) United States

D) Germany

E) Argentina

70) The Smoot-Hawley Act tried to divert consumer demand away from foreign products by

A) subsidizing domestic businesses.

B) establishing tariff barriers.

C) exporting more products to Europe.

D) demanding local content requirements.

E) creating a trade deal with Canada and Mexico.

71) The Smoot-Hawley Act had a damaging effect on

A) the balance-of-payment of the United States.

B) cash flow in the domestic economy of the United States.

C) prices of natural resources in the United States.

D) employment abroad.

E) accrued liabilities of the United States.

72) Which multilateral trade agreement was established under U.S. leadership in 1947, with the objective to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like?

A) General Agreement on Tariffs and Trade (GATT)

B) North American Free Trade Agreement (NAFTA)

C) Central American Free Trade Agreement (CAFTA)

D) Free Trade Areas of the Americas (FTAA)

E) North Atlantic Treaty Organization (NATO)

73) The ultimate purpose of GATT was to

A) promote U.S. imports of electronics.

B) diminish U.S. exports.

C) subsidize agricultural workers.

D) safeguard intellectual property rights.

E) establish free trade.

74) One of the reasons why protectionist pressures arose around the world during the 1980s was

A) the different ways many countries found to get around GATT regulations.

B) the opening up of national markets to cheap products from China.

C) the fall of the Soviet Union.

D) the persistent trade lead taken by the United States.

E) the Japanese failure in industries such as automobiles and semiconductors that strained the world trading system.

75) The economic prosperity enjoyed by ________ during the 1980s and 1990s strained the world trading system and created the demand for increased protectionist measures.

A) the United States

B) India

C) the Soviet Union

D) Japan

E) China

76) Bilateral voluntary export restraints, or VERs, circumvented GATT agreements because

A) these nations withdrew their membership to the GATT.

B) the member nations had ceased to recognize GATT as a regulatory body for international trade.

C) VERs were not a recognized trade barrier under the GATT constitution.

D) neither the importing country nor the exporting country complained to the GATT bureaucracy for it to take action.

E) member nations erected a wall of tariff barriers.

77) What is one provision of the Uruguay Round Agreement?

A) A wide range of services were to be excluded from GATT fair trade and market access rules.

B) Tariffs on industrial goods were to be raised by more than one-third, and tariffs were to be scrapped on more than 50 percent on a wide range of services.

C) The International Monetary Fund (IMF) was to be created to implement the GATT agreement.

D) Barriers on trade in textiles were to be significantly reduced over 10 years.

E) Average tariff rates imposed by developed nations on manufactured goods were to be raised by 20 percent of the value, the highest level in modern history.

78) What is one major advantage the World Trade Organization had over the GATT agreement?

A) Disagreements with the GATT policy were punishable by law.

B) Procedures under the WTO had strict time limits.

C) The WTO was not allowed to make rulings on intellectual property.

D) The WTO procedures had to be mandated by the federal government.

E) The procedures under GATT could only be between two nations.

79) The WTO's Agreement on ________ is an attempt to narrow the gaps in the way intellectual property rights are protected around the world and to bring them under common international rules.

A) Intellectual Property Rights Enforcement Directive (IPRED)

B) Court of Arbitration of Intellectual Property (CAIP)

C) Trade-Related Aspects of Intellectual Property Rights (TRIPS)

D) Intellectual Property Rights Enforcement and Resolution (IPRER)

E) International Body on Intellectual Property (IBIP)

80) GATS, a sister body of the World Trade Organization, is responsible for extending free trade agreements in what area?

A) services

B) commodities

C) intellectual property

D) agriculture

E) start-up companies

81) Why did telecommunications companies welcome the telecommunication deal brokered by WTO in 1997?

A) It enhanced protection of patents, copyrights, and trademarks (intellectual property).

B) It helped resolve deadlock situations arising out of the unwillingness to lower trade barriers between neighboring countries.

C) It offered a greater ability for companies to offer a global, seamless service for all their corporate needs.

D) It liberalized trade policies by eliminating tariffs, subsidies, import quotas, antidumping duties, and local content requirements.

E) It reduced the export of pirated imitations of patented innovations pioneered in a different country.

82) The WTO was encouraged to extend its reach to encompass regulations governing foreign direct investment, something GATT had never done. Two of the first industries targeted for this reform were

A) global telecommunication and financial services industries.

B) scientific research and defense sector.

C) pharmaceuticals and heavy metal industry.

D) pharmaceuticals and biotechnology.

E) scientific research and agriculture.

83) SilverFinn makes high-end jewelry for women. This jewelry is manufactured and patented in Italy. Manufacturers in Argentina create counterfeit SilverFinn jewelry and sell it in local markets at nearly similar prices to the original SilverFinn jewelry sold in other countries. This lack of intellectual property protection is like to result in

A) expansion of the world market for SilverFinn products.

B) reduction in the export opportunities for SilverFinn jewelry in Argentina.

C) reduction in import of all Argentinian goods.

D) increase in the prices of jewelry produced by SilverFinn.

E) reduction in export opportunities from Argentina to other countries.

84) The WTO rules say that a country can impose antidumping duties on

A) violators of intellectual property laws.

B) farmers who receive subsidies for more than two years.

C) foreign governments that replicate products made by a foreign producer.

D) foreign goods being sold cheaper than at home.

E) nations that don't cooperate with trade agreements.

85) A bound tariff rate is

A) the lowest rate that can be charged.

B) equal to the spot exchange rate.

C) based on the forward exchange rate.

D) the average tariff rate a country sets within a year.

E) the highest rate that can be charged.

86) President Trump has voiced his opposition to many free trade deals. Because of this, some say that he maintains a(n) ________ view on trade.

A) comparative advantage

B) expansionist

C) absolute advantage

D) open economy

E) mercantilist

87) A loophole in antidumping laws that is being exploited by many countries to pursue protectionism is the

A) slackness of enforcement agencies.

B) WTO's noncommittal approach to antidumping laws.

C) bilateral VERs which subvert antidumping laws.

D) vague definition of what constitutes "dumping."

E) lack of consensus among member nations.

88) The ________ does not reinforce that the best interests of international business are served by a free trade stance.

A) increasing integration of the world economy

B) internationalization of production

C) trend toward greater protectionism

D) implementation of open markets

E) dispersion of production activities

89) What is the result of the threat of antidumping action?

A) It helps the firm raise capital in the primary market.

B) It limits the ability of a firm to raise prices in response to high demand.

C) It enhances the firm's ability to disperse its productive activities in an efficient manner.

D) It limits the ability of a firm to use aggressive pricing to gain market share in a country.

E) It enhances a firm's competitive advantage to indigenous competitors in that country.

90) Define a tariff and describe specific tariffs and ad valorem tariffs. Explain how tariffs play a role in the U.S. government.

91) Discuss subsidies and detail how they can help domestic producers.

92) What is a voluntary export restraint? Why do exporting countries agree to VERs? Explain with an example.

93) Explain why a government would implement a local content requirement and discuss the role of the Buy America Act in the United States.

94) What are the political arguments for government intervention into international trade? Give examples.

95) One form of political argument concerning free trade is based on protecting consumers. Provide examples of several real-world situations that demonstrate this argument.

96) What is the infant industry argument? What are its implications for the world economy? What are the criticisms of this argument?

97) Briefly describe the two components of strategic trade policy.

98) Discuss Krugman's views on strategic trade policy.

99) Give a brief description of the origin, functions, and successes of GATT from 1947 to 1979, before protectionist trends gained momentum across the world.

100) Explain why there was greater pressure under GATT for protectionism around the world during the 1980s and 1990s.

101) Explain the organizational structure and the key functions of the WTO.

102) Briefly discuss the four issues at the forefront of the current agenda of the WTO.

103) Review the two major events that occurred in 2016 that made some believe that not all countries are interested in embracing free trade and lowering trade barriers between nations.

104) How does the increasing integration of the world economy and internationalization of production affect the selection of a trade policy?