International Economics, 9e (Husted/Melvin)
Chapter 10 International Trade and Economic Growth
10.1 Multiple-Choice Questions
1) ________ policies refer to government programs designed to exploit natural comparative
advantage by increasing production of a few export goods most closely related to a country’s
resource base.
A) Comparative advantage
B) Primary-export-led development
C) Import-substitution development
D) Inward-looking development
2) ________ policies seek to promote rapid industrialization by erecting high barriers to foreign
goods to encourage local production,
A) Comparative advantage
B) Primary-export-led development
C) Import-substitution development
D) Outward-looking development
3) ________ policies involve government support for manufacturing sectors in which a country
has potential comparative advantage.
A) Comprehensive development
B) Primary-export-led development
C) Import-substitution development
D) Outward-looking development
4) Developing countries that concentrate production in agricultural products or raw materials
may face a secular decline in their international terms of trade due to
A) sluggish demand for these products in developed countries.
B) large increases in the supplies of these products on world markets due to export expansion
policies.
C) inelastic demand for these products in developed countries.
D) All of the above.
5) Recently, many developing countries throughout the world have begun to institute policies
that seek to
A) liberalize international trade by lowering trade barriers.
B) reduce dependence on international trade by raising trade barriers.
C) reduce dependence on international trade by instituting laws that call for buying only
domestically made goods.
D) Two of the above.
6) If the expansion of an export industry leads to the provision of infrastructure such as roads or
airports, this is called a(n)
A) secondary effect.
B) linkage effect.
C) elementary effect.
D) None of the above.
7) Economic growth occurs because
A) labor forces grow.
B) capital stocks grow.
C) new inventions raise productivity.
D) All of the above.
8) If an economy experiences an increase in its labor force, everything else constant, then its
production possibilities frontier (PPF) will
A) expand outward but keep its original shape.
B) expand outward largely in the direction of the labor intensive good.
C) expand outward largely in the direction of the capital intensive good.
D) not expand until capital grows.
9) If an economy experiences an increase in its labor force, everything else constant, then at
constant world prices, it will
A) produce more of the labor intensive good and less of the capital intensive good.
B) produce more of both goods.
C) produce the same amount of both goods.
D) produce less of the labor intensive good and more of the capital intensive good.
10) If an economy experiences an increase in its labor force, everything else constant, then at
constant world prices, it will
A) export more, if the country was initially labor abundant.
B) import more, if the country was initially labor abundant.
C) export more, if the country was initially capital abundant.
D) Both A and B above.
11) ________ economic growth occurs when, after growth, exports and imports rise by the same
proportion.
A) Rising
B) Neutral
C) Biased
D) Technological
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12) Economic growth at constant world prices will ________ cause the output of one good to fall
absolutely.
A) never
B) sometimes
C) always
13) ________ growth is said to occur when a country’s welfare falls as the country grows.
A) Protrade biased
B) Antitrade biased
C) Immizerizing
D) Anti-neutral
14) Recent guest worker programs have involved temporary migration from
A) poor countries to richer countries.
B) poor countries to other poor countries.
C) rich countries to poor countries.
D) rich countries to other rich countries.
15) The rarest migration pattern is for people to move permanently from
A) poor countries to richer countries.
B) poor countries to other poor countries.
C) rich countries to poor countries.
D) rich countries to other rich countries.
16) An example of direct foreign investment is given by
A) the sale of U.S. government bonds to foreigners.
B) the sale of General Motors bonds to foreigners.
C) the behavior of multinational corporations such as Ford.
D) all of the above.
17) ________ would gain from expanded immigration.
A) Domestic labor
B) Domestic capital
C) Both domestic labor and capital
D) Neither domestic labor nor capital
18) ________ would likely oppose policies that allowed foreign workers to immigrate more
freely.
A) Domestic labor
B) Domestic capital
C) Both domestic labor and capital
D) Neither domestic labor nor capital
19) The ratio of the percentage change in consumption of a good divided by the percentage
change in income (as measured by GDP) is known as the
A) income elasticity of demand.
B) income expansion path.
C) demand elasticity equivalent.
D) trade effectiveness.
20) Only a few countries have followed outward-oriented development strategies for extensive
periods of time. Which of the following countries is not one of those that have followed such a
strategy successfully in the last decades.
A) Russia
B) Japan
C) South Korea
D) Singapore
21) What is outsourcing?
A) The process of vertically integrating the factors of production.
B) The process of selling products overseas bypassing import tariffs.
C) The movement of production to affiliate firms outside of the country.
D) None of the above.
22) The process of achieving a quality of life in a country that is comparable to that found in a
modern economy is called ________.
A) economic development
B) economic modernization
C) comparative advantage
D) industrial growth
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23) A government program that attempts to stimulate domestic production of a good in which the
country has a natural comparative advantage because of its domestic resources is an example of
a(n) ________ policy.
A) primary-export-led
B) import-substitution development
C) outward-looking development
D) linkage-effect
24) A government program that relies on high barriers to imported goods in order to stimulate
domestic production of competing goods is an example of a(n) ________ policy.
A) primary-export-led
B) import-substitution development
C) outward-looking development
D) linkage-effect
25) A government program that attempts to stimulate growth in the production of goods in which
the country has a potential future comparative advantage is an example of a(n) ________ policy.
A) primary-export-led
B) import-substitution development
C) outward-looking development
D) linkage-effect
26) If the expansion of a country’s exports leads to growth in non-export industries this is called
a(n)
A) secondary effect.
B) linkage effect.
C) elementary effect.
D) None of the above.
27) If an economy experiences an increase in its capital stock, everything else constant, then its
production possibilities frontier (PPF) will
A) expand outward but keep its original shape.
B) expand outward largely in the direction of the labor intensive good.
C) expand outward largely in the direction of the capital intensive good.
D) not expand until the labor force grows.
28) If an economy experiences an increase in its capital stock, everything else constant, then at
constant world prices, it will
A) produce more of the labor intensive good and less of the capital intensive good.
B) produce more of both goods.
C) produce the same amount of both goods.
D) produce less of the labor intensive good and more of the capital intensive good.
10.2 True or False Questions
1) Import-substitution development policies have been especially effective in promoting
employment in newly industrializing sectors because these policies discourage the import of
foreign capital goods.
2) Over time, countries grow in a fashion so that their production possibility frontiers always
retain the same shape.
3) Economic growth at constant prices will never lead to a fall in the output of one good.
4) Legal immigration to the United States peaked just before World War I, but today is almost
zero.
5) Rich country to poor country migration is relatively uncommon.
6) International factor flows tend to lower incomes of those factors in host countries that most
directly substitute for that factor, and to raise the incomes of other factors.
7) Sale of U.S. government bonds to foreigners is an example of direct foreign investment in the
United States.
8) The way in which growth occurs affects the pattern of trade of a country.
9) A key element in outward-looking development policies is to maintain open markets so that
internal prices reflect world prices.
10) Economic growth could make a country worse off.
11) As a candidate for president of the United States, Barak Obama was an ardent supporter of
outsourcing.
12) The Dutch Disease refers to a deadly outbreak of influenza that destroyed all international
trade for the Netherlands in the 1960s.
13) The movement of production to affiliate firms outside of the country is known as
outsourcing.
14) The brain drain refers to the effects of Dutch Disease when the infection spreads to other
countries.
1) Write an essay that compares and contrasts primary-export-led development policies with
import-substitution policies.
2) The way in which a country grows affects the pattern of trade of a country. True or false.
Discuss.
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3) Immigration tends to lower the income of all factors of production. True or false.
4) What is immizerizing growth? Describe how it could happen and give at least one cited
historical example.
5) What does the “brain drain” refer to and why is it a problem for developing countries?