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Chapter 18 : Trade and Development
MULTIPLE CHOICE
1. The bulk of world trade originates and is exchanged between ________ economies.
a.
high-income
c.
developing
b.
low-income
d.
closed
2. Which country is the largest trading partner of the United States?
a.
Mexico
c.
China
b.
Canada
d.
Japan
3. In 2009, which nation replaced Germany as the world’s largest exporter of goods?
a.
United States
c.
Russia
b.
Japan
d.
China
4. Almost half of Asia’s exports today are sent to:
a.
North America.
c.
other Asian countries.
b.
Europe.
d.
the Middle East.
5. ________ prices are domestic prices without trade.
a.
Autarky
c.
Absolute
b.
Commodity
d.
National
6. A nation will have a(n) ________ of a good when its production of that good is relatively more
productive than that of another nation.
a.
absolute advantage
c.
relative advantage
b.
comparative advantage
d.
trade advantage
7. ________ is the ratio of the prices a nation receives for the goods it exports relative to the prices it
receives for the goods it imports.
a.
Exchange equilibrium
c.
Balance of trade
b.
International terms of trade
d.
Net exports
8. Gains from trade are made up of the gains from ________ plus the gains from ________.
a.
population size; diversification
c.
technology; education
b.
exchange; diversification
d.
exchange; specialization
9. Most world trade involves manufactured goods, but ________ still represent about one-third of the
value of all traded goods.
a.
primary products
c.
intermediate materials
b.
secondary products
d.
processed materials
10. Adam Smith’s term for the situation in which a country has the capacity to produce more than it can
sell in the domestic market is known as:
a.
safety stock.
c.
capacity maximization.
b.
leftover goods.
d.
vent for surplus.
11. Expanded production of primary products can stimulate ________ by making lower-cost primary
goods available as inputs to other industries.
a.
backward linkages
c.
horizontal linkages
b.
forward linkages
d.
vertical linkages
12. Tariff escalation makes it harder for developing nations to move up the value-added ladder by
imposing higher tariffs on imports of ________ than on ________.
a.
raw materials; processed goods
c.
primary goods; secondary goods
b.
processed goods; raw materials
d.
natural resources; finished products
13. Raul Prebisch, Hans Singer, and other economists argued that, over the long run, prices for primary
commodity exports on the world markets tend to fall relative to prices of manufactured goods. This
concept is known as:
a.
export pessimism.
c.
export cynicism.
b.
import optimism.
d.
trade confidence.
14. Which term labels the problem that emerging economies could face when experiencing export booms
of primary commodities?
a.
Holland sickness
c.
Netherlands syndrome
b.
Dutch disease
d.
Dutch illness
15. Which of the following is the price at which anyone holding foreign exchange can convert it into local
currency?
a.
real exchange rate
c.
foreign exchange rate
b.
nominal exchange rate
d.
national exchange rate
16. An increase in nontradables prices causes the real exchange rate (RER) to:
a.
appreciate.
c.
remain unchanged.
b.
depreciate.
d.
equal the nominal exchange rate.
17. The best prevention for Dutch disease effects is to avoid or reverse the initial real ________ of the
currency.
a.
appreciation
c.
devaluation
b.
depreciation
d.
purchasing power
18. ________ acts like a tax on economic activity and encourages rent-seeking behavior rather than
productive investment.
a.
Fraud
c.
Lobbying
b.
Bribery
d.
Corruption
19. According to British economist Paul Collier, which of the following significantly increases the
probability that a nation will experience a civil war?
a.
low income
b.
slow growth
c.
dependence on primary commodity exports
d.
all of the above
20. Which of the following refers to the accumulation of foreign assets, usually financed by primary
product export earnings?
a.
offshore bank account
c.
sovereign wealth fund
b.
foreign investment
d.
international hedge fund
SHORT ANSWER
IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in
pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two
terms and (2) the relationship between them.
1. Open trade, winners and losers
ANS:
Answer will vary
2. Global exchange, high-income nations
ANS:
Answer will vary
3. Openness to trade, rate of growth in GDP per capita
ANS:
Answer will vary
4. Geographic location, trade
ANS:
Answer will vary
5. Absolute advantage, comparative advantage
ANS:
Answer will vary
6. Primary products, manufactured goods
ANS:
Answer will vary
7. Exporting primary products, forward linkages
ANS:
Answer will vary
8. Export pessimism, relative price movements
ANS:
Answer will vary
9. Dutch disease, exchange rates
ANS:
Answer will vary
10. Tradable goods, nontradable goods
ANS:
Answer will vary
11. Politics, resource traps
ANS:
Answer will vary
