International Economics, 7e (Gerber)
Chapter 17 China and India in the World Economy
17.1 Introduction: New Challenges
1) China’s economic reforms began in
A) 1960.
B) 1978.
C) 1991.
D) 1998.
2) India’s economic reforms began in
A) 1960.
B) 1978.
C) 1991.
D) 1998.
3) Which of the following countries has the highest population in the world?
A) Indonesia
B) Russia
C) India
D) China
4) China’s economic reforms have focused on
A) privatizing state-owned enterprises and increasing efficiency.
B) reducing persistent inflation and current account deficits.
C) transitioning from socialism and toward private ownership.
D) reducing exchange rate instability.
5) India’s economic reforms have focused on
A) privatizing state-owned enterprises and increasing efficiency.
B) reducing persistent inflation and current account deficits.
C) transitioning from socialism and toward private ownership.
D) reducing exchange rate instability.
6) Which of the following countries has the second highest population in the world?
A) Indonesia
B) Russia
C) India
D) China
7) Explain why China and India are considered disruptive to the world’s status quo.
17.2 Demographic and Economic Characteristics
1) Openness and change in the economic models of India and China have meant for the world
economy all of the following EXCEPT
A) hundreds of millions of people have escaped poverty.
B) many manufactured goods and services have become cheaper.
C) forced some firms to downsize, offshore or otherwise change business practices.
D) increased the market power of firms in industrialized countries as they gained most from this
evolving trade.
2) Which of the following is true?
A) India is the world’s largest democracy.
B) India began reforming and opening its economy prior to China.
C) At the end of the twenty-first century, China will have a larger population than India.
D) India has a larger manufacturing sector than China.
3) For China
A) there was a long period of success with the economic results of communism so it was hard to
change policies.
B) reform of its economic system was rapid, with a quick dismantling of most of the controls
exercised by the state and party over the economic system, but not the political system.
C) economic reforms were intended to create more wealth to distribute, not do undo the
communist party.
D) there are no longer state owned enterprises.
4) China’s initial economic reforms were in which sector?
A) Manufacturing
B) Infrastructure
C) Agriculture
D) Mining
5) Which primary trade partner of India suffered setbacks that ultimately helped lead India to
embark on economic reform?
A) The United Kingdom
B) The United States
C) The Soviet Union
D) South Korea
6) What did China create to allow more international trade?
A) Special economic zones
B) Foreign exchange centers
C) More open and transparent government meetings
D) New educational efforts
7) Which of the following is not a potential source of comparative advantage for China in the
manufacturing sector?
A) Abundant low wage, low skill workers
B) A large domestic market that can lead to scale economies
C) Coastal areas with good logistics for international trade
D) Abundant credit from China’s government sector to set up manufacturing operations
8) Analysts that favor a fast transition to market economies argue that China’s success with a
gradual transition is a special case because
A) its trade flows were relatively large.
B) so much of its labor force was in agriculture.
C) heavy industry already had a strong foothold when the transition began.
D) its coastal areas were already relatively well developed.
9) Which of the following is FALSE about the transition from communism to capitalism in
Russia and China?
A) China chose a dual track strategy.
B) China’s transition strategy was considered gradualist.
C) Russia’s transition was aided by the large number of workers it had in heavy industry.
D) China’s transition was aided by the large number of workers it had in rural agriculture.
10) Special economic zones in China have been
A) the same as export processing zones.
B) centers of economic reform.
C) controlled by state run enterprises.
D) poor regions that are targeted for industrial development.
11) The percentage of world GDP represented by the G7 is ________ and the percentage of
world GDP represented by China and India is ________.
A) falling; rising
B) falling; falling
C) rising; falling
D) rising; rising
12) China has a larger population than India and is expected to be the most populous nation in
the world throughout the twenty-first century.
13) The largest migration pattern in China at present is from urban centers to more rural areas to
escape traffic and pollution.
14) China has few state-owned enterprises left in its economy.
15) Russia chose a slow approach to creating a private economy and China chose a fast
approach.
16) China’s economy was much more agricultural than Russia’s, and observers believe this aided
its economic transition.
17) China’s economy did not decline at all during its transition from communism to capitalism.
18) Why have China and India received so much international attention and investment?
19) Who was the leader of Chinese economic reforms?
20) Who was the leader of India’s economic reforms?
21) Three forces played a significant role in preparing Indian policy makers for economic
reform. Describe them.
22) Describe China’s reform path, including the forces that started China’s reform efforts and
how they continued through the 1980s and early 1990s.
23) Why did the USSR collapse and China succeed? Explain.
17.3 China and India in the World Economy
1) The gravity model predicts that China and India will trade with
A) smaller economies that are close by.
B) larger economies that are close by.
C) larger economies that are distant.
D) smaller economies that are distant.
2) What is the best explanation for why China and India have received so much international
interest and foreign investment?
A) Their large populations
B) Their geographic location
C) Their control over natural resources
D) Government incentives provided to foreign firms
3) When explaining China and India’s trade patterns,
A) proximity and GDP explain a significant portion.
B) many complex factors determine trading partners.
C) patterns are very different for each country.
D) exchange rates determine most of the pattern of trade.
4) Which of the following is the best explanation of exports and imports in China and India?
A) Exports are heavily subsidized through government policy.
B) Many barriers to imports exist.
C) Exports and imports are tied together, with exports depending on imported inputs and
technology.
D) Imports are not important to either nation’s economy.
5) Agriculture in India is protected because
A) it is not an important source of employment.
B) it is an infant industry.
C) it is important for national security.
D) it is relatively inefficient.
6) Which of the following is NOT a true statement?
A) India can easily relocate workers from the country to the city.
B) India would raise income faster if it moved workers from agriculture to manufacturing.
C) High agricultural tariffs in India protect rural workers.
D) India has low tariffs in manufacturing.
7) Which of the following is NOT a true statement?
A) It is unclear whether any of the decline in U.S. manufacturing employment can be attributed
to Chinese growth.
B) China’s growth has been beneficial to many countries.
C) China does not import many goods.
D) China had large trade surpluses.
8) Direct foreign investment has been most critical for China’s domestic consumer market.
9) China is not an important market for other nations’ exports.
10) Tariffs on non-agricultural goods are much higher in India than in China.
11) India lags China in the development of a large manufacturing sector.
12) India would raise income levels faster if workers migrated from the country to the city.
13) China is the only country that runs large trade surpluses.
14) Can U.S. manufacturing job losses be attributed to the growth of manufacturing in China?
15) Some claim that China’s trade surpluses are created by currency undervaluation. Is this true?
Explain.
17.4 Four Issues
1) Which of the following is FALSE about services trade for India and China?
A) China exports more services than India does.
B) India has a trade surplus in services.
C) China has a trade surplus in services.
D) India trades primarily information services and other business services.
2) In China
A) wages are beginning to rise, reducing its comparative advantage.
B) there is little advantage from scale economies.
C) the middle class is not expanding.
D) poor coastal areas limit trade.
3) Because of China’s growth, natural resources
A) are in greater demand, but that demand is mostly going to the previously industrialized
nations so it is having little effect on economic development in developing countries.
B) are in greater demand and the natural resources are increasingly coming from developing
countries.
C) prices are falling since China has tremendous negotiating power.
D) are not in high demand since labor and capital are the emphasized inputs in Chinese
manufacturing.
4) Which of the following would NOT be a sign that China wants to become a high technology
producer?
A) More patents are being sought and granted in China.
B) Large spending on infrastructure
C) Rapid expansion of science, engineering and research
D) Less emphasis on education spending
5) Which of the following accurately depicts the situation of India’s trade in services and what it
might mean for the global economy?
A) It is not perceived as threatening to the industrialized nations so it is likely to grow without
any impact.
B) Because it is nothing new, other economies have had time to adjust.
C) It creates only harm to other national economies.
D) It may lead to protectionist sentiment and policies in other nations as comparative advantages
shift.
6) Trade in services such as information technology
A) is like other trade; it creates winners and losers, but the gains for national economies likely
outweigh the costs.
B) creates gains for India’s economy, but national welfare losses for the countries that import
these services.
C) make it highly likely that information technology jobs will ultimately disappear in the
industrialized countries.
D) is not perceived as threatening by industrialized countries so is unlikely to lead to any
protectionist sentiment or pressures in the way the manufacturing does.
7) Which of the following is NOT a challenge to doing business in China?
A) Issues related to the business climate, such as taxes
B) The availability of credit
C) Failure to protect intellectual property
D) Poor infrastructure and port facilities to support export of products
8) The Asian Infrastructure Investment Bank (AIIB)
A) has been very effective in reaching its goals.
B) lends only to Chinese businesses.
C) is as large as the IMF.
D) provides financing to developing countries.
9) Environmental problems in China
A) increase pressure for decentralization of power and authority from the ruling Communist
party.
B) are not recognized by local Chinese interests, but get large amounts of attention from global
activists.
C) are improving at a rapid pace in Chinese urban areas.
D) are generally not an issue domestically or globally.
10) China has a trade deficit in services, while India has a trade surplus in services.
11) China exports more services than India.
12) What is the difference between Chinese and Indian trade in services?
13) Why does India argue that the demand for reduction of greenhouse gasses by developed
countries is hypocritical?