International Economics, 7e (Gerber)
Chapter 13 The United States in the World Economy
13.1 Introduction: A New World Economy
1) There are no questions for this section.
Topic: Introduction: A New World Economy
13.2 Background and Context
1) Major trading partners with the United States have not changed significantly over the last
several decade with the exception of trade with
A) the United Kingdom.
B) Mexico.
C) China.
D) Canada.
2) Which of the following is NOT a true statement about U.S. exports?
A) Services have become more important part of exports.
B) The U.S. is the world’s second-largest exporter of goods.
C) Three-fourths of U.S. merchandise exports are manufactured goods.
D) The manufacturing sector in the U.S. is no longer significant.
3) Which of the following is a correct statement about U.S. manufacturing?
A) U.S. manufacturing output is generally declining.
B) U.S. manufacturing employment has declined sharply since the 1970s.
C) Most relocation of U.S. manufacturing has been from southern states to northern states.
D) Productivity in U.S. manufacturing has fallen as employment has decreased.
4) Which of the following countries is NOT involved in a free trade agreement with the U.S.?
A) China
B) Australia
C) Jordan
D) Guatemala
5) Free trade agreements
A) have increased U.S. exports more than U.S. imports from free trade partners.
B) have limited benefits to the U.S.
C) have acted as substitutes for multilateral trade agreements.
D) have decreased in scope since the 1990s.
6) U.S manufacturing exports have declined since the 1990s.
7) The U.S. has free trade agreements only with Mexico and Canada.
8) U.S. trade with the rest of the world is a larger share of GDP than is typical for developed
countries.
9) The ratio of trade to GDP for the U.S. has roughly tripled since the 1960s.
10) Why is the U.S. putting less emphasis on multilateral and more emphasis on bilateral trade
agreements?
11) Describe the trends in U.S. manufacturing employment and U.S. manufacturing output over
the last 40 years. What factors have contributed to these?
12) Explain the importance of free trade agreements to the U.S. and how they benefit the U.S.
economy.
13.3 The NAFTA Model
1) Under NAFTA, environmental standards are
A) harmonized around U.S. rules.
B) harmonized around Canadian rules.
C) harmonized around a combination of the rules in all three countries.
D) not harmonized.
2) Purchasing power parity (PPP) measurements of income are a way to make international
comparisons by correcting for national differences in
A) unemployment.
B) inflation.
C) prices of goods and services.
D) economic growth.
3) Twenty-four years before CUSTA, another agreement between the same countries covered
trade in
A) textiles.
B) steel.
C) autos.
D) agriculture.
4) Which of the following is most important in determining the number of jobs in an economy?
A) Macroeconomic policies
B) Trade policies
C) Urban policies
D) Tax policies
5) One area of labor issues that the labor side agreement to NAFTA does not open to foreign
consultation or investigation is
A) the use of child labor.
B) worker exposure to unsafe conditions.
C) minimum wages.
D) workers’ rights to organize.
6) The main area of economic activity that Canada chose not to open to free trade is
A) agriculture.
B) lumber.
C) cultural industries.
D) financial services.
7) U.S. opponents of NAFTA argued that the agreement will hurt the United States. In their
view, NAFTA’s greatest harm is in its
A) harmonization of labor policies.
B) harmonization of environmental policies.
C) harmonization of the use of pesticides and herbicides.
D) job destruction and downward pressure on U.S. wages.
8) The single most important reason for Canada’s seeking a free trade agreement with the United
States was to
A) ensure its access to the U.S. market.
B) ensure its ability to join NAFTA.
C) harmonize its environmental laws with the United States.
D) avoid international outsourcing in low wage countries.
9) One problem with NAFTA that is NOT shared by some other trade blocs is that
A) national environmental laws differ greatly.
B) the countries are at very different stages of economic development.
C) the countries speak different languages.
D) the countries are not natural trading partners.
10) A slowing U.S. economy and increased enforcement of immigration laws will reduce
________ factors for Mexican immigration to the United States.
A) demand growth
B) demand pull
C) supply push
D) supply growth
11) President Salinas of Mexico devised a strategy to restore Mexican growth by encouraging
A) large inflows of foreign capital.
B) large increases in domestic savings.
C) an expansion of import substitution industrialization policies.
D) more government ownership of industrial firms.
12) Which of the following is NOT a reason Mexico and Canada wanted a free trade agreement
with the United States?
A) Mexico wanted increased direct foreign investment.
B) Canada wanted to guarantee access to the U.S. market.
C) Mexico wanted the United States to lower its high barriers to Mexican products.
D) Mexico wanted to institutionalize its economic reforms.
13) Few countries have a higher GDP per capita than the weighted average of Canada, Mexico
and U.S. GDP.
14) Even though Mexico is a developing country, the NAFTA market is very rich.
15) Free trade agreements between the United States and Canada started with the auto industry in
the year 1965.
16) In Canada, there are no preferences given to Canadian TV networks and programming over
U.S. networks and programming.
17) Most Mexican workers can increase their wages if they migrate to the United States, a
demand-pull factor for migration.
18) When did NAFTA go into effect?
19) Why are trade agreements between the U.S. and Mexico more controversial than trade
agreements between the U.S. and Canada?
20) What two trends was Canada trying to address in negotiating CUSTA?
21) In negotiating NAFTA, what two side agreements were reached?
22) What is the main problem with rules of origin?
23) What lessons did Mexico’s policy makers learn from the 1980s debt crisis? What reforms did
President Salinas pursue? What were his main goals?
24) What type of economic policy did Mexico follow from the end of World War II until the
1980s? Describe the three-stage strategy that supporters of this policy emphasized. What was the
outcome of these policies for Mexico’s manufacturing sector?
25) Explain what a purchasing power parity adjustment is and why it is necessary. Should it
always be used?
13.4 New and Old Agreements
1) One reason why most economists forecast that the effects of NAFTA on the U.S. economy
would be small is because
A) NAFTA does not bring down tariffs far enough.
B) the Mexican economy is small relative to the U.S. economy.
C) NAFTA trade opening provisions only cover a handful of sectors.
D) Mexico was not expected to live up to its obligations under the agreement.
2) Preferential agreements
A) are the same as free trade agreements.
B) provide market access without demanding reciprocation.
C) are not recognized under WTO rules.
D) must be approved by the IMF.
3) Which of the following is a free trade agreement?
A) the Trans-Pacific Partnership (TPP)
B) the Transatlantic Trade and Investment Partnership (TTIP)
C) the Caribbean Basin Initiative (CBI)
D) the African Growth and Opportunity Act (AGOA)
4) Which of the following is a preferential agreement?
A) the Trans-Pacific Partnership (TPP)
B) the Transatlantic Trade and Investment Partnership (TTIP)
C) the Caribbean Basin Initiative (CBI)
D) the Asia-Pacific Economic Cooperation (APEC)
5) Under the side agreements to the NAFTA,
A) low environmental standards should not be used to attract trade or investment.
B) the U.S. sets environmental standards.
C) the U.S. enforces environmental standards in the rest of the free trade area.
D) environmental standards are not specifically discussed.
6) Estimates of U.S. job gains and losses due to free trade agreements
A) show no change in jobs.
B) show clear gains in the number of jobs.
C) show clear losses in the number of jobs.
D) show mixed results, leading to no clear conclusion.
7) Which of the following is a true statement about U.S. job gains and losses under free trade
agreements?
A) Whether jobs have been gained or lost, the size of these gains or losses is small relative to
total U.S. job creation.
B) Free trade agreements have resulted in a significant loss of jobs in the U.S.
C) Free trade agreements have resulted in a significant gain in jobs in the U.S.
D) Free trade agreements have resulted in no change in jobs in the U.S.
8) The Trans-Pacific Partnership (TPP) is a preferential agreement.
9) A preferential agreement requires that the other country also provide market access.
10) Under the NAFTA, countries must enforce their own labor standards.
11) The TPP incorporates labor standards directly rather than as a side agreement.
12) The NAFTA would probably not have been ratified by Congress without labor and
environmental side agreements.
13) Bilateral investment treaties are uncommon.
14) What is the significant feature of a preferential arrangement?
15) What are bilateral investment treaties?
16) What is the United States’ primary trade promotion initiative with Africa?
17) Explain the key principles of the labor and environmental side agreements to the NAFTA.
18) Explain the criticisms of labor and environmental clauses and how these are being addressed
in the TPP.
19) What evidence is there as to job gains and losses in the U.S. due to free trade agreements?
20) Why is it difficult to estimate job gains or losses due to free trade agreements?