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Module 02 International Trade and Investment Answer Key
True / False Questions
1.
Record levels of American outward foreign direct investment from 2010 to 2013, totaling
more than $1.4 trillion, caused U.S. exports to decline during this time period.
2.
International trade includes exports, imports, and foreign direct investment.
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3.
Nearly 60 percent of global output is now destined for international trade.
4.
The proportion of world trade coming from Latin America, Africa, and the Middle East has
decreased since 1980.
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5.
All regions of the world experienced an absolute increase in the dollar volume of their
services exports since 1980, although the U.S. proportion has risen by approximately one-
third since that time.
6.
In 2013, the top 10 exporting and importing nations collectively accounted for over half of
all exports and imports of merchandise and services worldwide.
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7.
Approximately two-thirds of the exports from developed countries go to developed
countries.
8.
The development of expanded regional trade agreements, such as the Association of
Southeast Asian Nations, Mercosur, and the EU, can substantially alter the level and
proportion of trade flows within and across regions.
9.
There are a number of advantages in focusing attention on a nation that is already a
sizable purchaser of goods coming from the would-be exporter's country.
10.
The first formulation of international trade theory, by Adam Smith, was motivated by
political considerations.
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Topic: Trade Theories and Their Implications
11.
The central idea of mercantilism is there should be an export surplus so a nation can
accumulate precious metals.
12.
The theory of absolute advantage suggests that under free, unregulated trade, each nation
should specialize in producing those goods it can produce most efficiently, based on
naturally occurring endowments such as minerals.
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13.
According to the theory of comparative advantage, a nation can gain from trade if it is not
equally less efficient in producing two goods.
14.
If a Chinese worker earns $1.00 a day, then goods produced by this worker will cost less
than the same goods produced by an American earning $18.00 an hour.
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15.
Currency devaluation helps a nation avoid losing markets and regain competitiveness in
world markets.
16.
A theory developed by Eli Heckscher and Bertil Ohlin at the Stockholm School of
Economics suggests that differences in resource endowments will make developed
countries more likely to trade with developed countries whose resource endowments are
likely to be very similar, than with developing countries whose endowments are dissimilar.
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17.
According to the text, differences in taste, a demand variable, can reverse the direction of
trade predicted by the theory.
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18.
The international product life-cycle theory may have its greatest usefulness in explaining
trade and investment behavior when international firms introduce their new products in
home markets first.
19.
The predictable decline in the average cost of producing each unit of output as a
production facility gets larger and output increases is known as the experience curve.
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20.
Michael Porter claims that demand conditions, factor conditions, related and supporting
industries, and firm strategy, structure, and rivalry, rather than government and chance,
are factors that affect national competitiveness.
21.
Importing and foreign direct investment are two approaches to meeting overseas demand.
22.
Portfolio investment is the purchase of sufficient stock in a firm to obtain significant
management control.
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23.
The proportion of the outstanding stock of foreign direct investment accounted for by the
United States declined by two-thirds over the past 20 years.
24.
The overall volume of outward FDI from developing nations in 2013 was four times the
level in 2003.
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25.
The vast proportion of outward FDI, about two-thirds, originates from the developed
countries.
26.
Worldwide, the volume of FDI flowing into the developing countries as a whole was seven
times larger in 2000 than in 1990 and had nearly tripled again by 2013.
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27.
Foreign direct investment may be an attempt by foreign companies to establish
competitive advantage over potential competitors in other markets, due to possession of
advantages not available to local firms. Such advantages possessed by foreign companies
over their local competitors include knowledge about local market conditions and cost
efficiencies from operating at a distance.
28.
Internalization theory suggests that what an organization is good at should not be
outsourced without very careful consideration.
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29.
The dynamic capability theory states that for a firm to invest overseas, it must have three
kinds of advantages: ownership specific, internalization, and location specific.
30.
Dunning's Eclectic Theory of International Production provides an explanation for the
choice by the international firm of its overseas production facilities.
Multiple Choice Questions
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31.
Foreign direct investment (FDI) from the United States to the rest of the world reached a
record high of $1.4 trillion from 2010 to 2013. This volume of FDI was _________ the U.S.
average a decade before.
32.
According to the Exporter Data Base, small and medium-sized enterprises accounted for
___________ of all U.S. exporters.
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33.
Regarding the volume of international trade, exports of U.S. goods and services
___________ in 2014.
34.
The level of merchandise exports in 2013, worldwide, was
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35.
The level of services exports in 2013, worldwide, was
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36.
In examining the volume of international trade
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37.
One measure of the magnitude of international trade and how it has grown is
_____________ of global output that is now destined for international trade.
38.
The proportion of world trade accounted for by North America has evidenced ____ since
1980.
