Chapter 8 – Growth and Development with International Trade
Multiple Choice
1. Which of the following is not a characteristic of a developing country?
A)A high proportion of the labor force in agriculture
B)A high illiteracy rate
C)Low life expectancy
D)Low population growth rate
Answer: D Page: 198
2. Equal rates of factor growth and technological progress in the production of two commodities is:
A)Immiserizing growth
B)The central focus of endogenous growth theory
C)Balanced growth
D)The engine of growth
Answer: C Page: 199
3. _____________ is the view that exports were the leading sector propelling the economies of the recently settled regions into rapid growth and development during the 19thcentury.
A)Endogenous growth theory
B)The engine of growth
C)Balanced growth theory
D)Immiserizing growth
Answer: B Page: 202
4. Which of the following was an empty and resource-rich land settled by the Europeans during the 1800s?
A)New Zealand
B)Argentina
C)Uruguay
D)All of the above
Answer: D Page: 202
5. Which of the following would be more likely to have countries using trade primarily as a vent for agricultural surplus?
A)Southeast Asia
B)Eastern Europe
C)North America
D)None of the Above
Answer: A Page: 202
6. Endogenous growth theory:
A)Provides a convincing argument against international trade in that the lack of a single regulatory entity results in the trade of unsafe products for the consumer
B)Advocates international trade because of the resulting increase of economic growth and development of participating nations
C)Is disparaging of international trade for the negative effects experienced by larger nations involved
D)Advocates international growth as a way for larger nations to accelerate slowed growth relative to that of developing countries
Answer: B Page: 203
7. Assume in base year 1990, the net barter terms of trade is equal to 100, and we find that, for the 2004 fiscal year, the US price index for exports has fallen 7 percent and the price index for imports has risen by 5 percent. What is the value of the U.S. net barter terms of trade?
A)63.4
B)101.2
C)88.6
D)112.5
Answer: C Page: 203
8. Assume in base year 1995, the net barter terms of trade is equal to 100, and we find that, for the 2004 fiscal year, the US price index for exports has risen 8 percent and the price index for imports has fallen by 4 percent. What is the value of the U.S. net barter terms of trade?
A)63.4
B)101.2
C)88.6
D)112.5
Answer: D Page: 203
9. Assume in base year 1990, the index for the volume of exports is equal to 100, and we find that, for the 2004 fiscal year, the US price index for exports has fallen 6 percent, the price index for imports has risen by 9 percent, and the index for the volume of exports is 108 after 2004. What is the value of the U.S. income terms of trade?
A)93.1
B)89.7
C)88.6
D)63.4
Answer: A Page: 205
10. Assume in base year 1990, the index for the volume of exports is equal to 100, and we find that, for the 2004 fiscal year, the US price index for exports has risen 3 percent, the price index for imports has fallen by 4 percent, and the index for the volume of exports is 95 after 2004. What is the value of the U.S. income terms of trade?
A)95.1
B)101.9
C)88.6
D)106.7
Answer: B Page: 205
11. Which of the following countries is characterized by rapid growth in gross domestic product in industrial production and manufactured exports?
A)Hong Kong
B)Korea
C)Singapore
D)All of the above
Answer: D Page: 205
12. When a nation’s terms of trade deteriorates to the point where the nation is worse off after growth than before, the nation has experienced:
A)immiserizing growth
B)post trade stagnation
C)unbalanced growth
D)impeded growth
Answer: A Page: 206
13. Which economist found that export instability was somewhat larger for developing nations than for developed nations during the postwar period?
A)Hans Singer
B)Alasdair MacBean
C)Alfred Marshall
D)Kenneth Arrow
Answer: B Page: 208
14. ______________ attempt to stabilize export prices for individual producers of an agricultural commodity.
A)Farm equalization committees
B)Agricultural stabilization commissions
C)Marketing boards
D)International commodity agreements
Answer: C Page: 209
15. ______________ attempt to stabilize and increase the prices and earnings of the primary exports of developing nations.
A)Farm equalization committees
B)Agricultural stabilization commissions
C)Marketing boards
D)International commodity agreements
Answer: D Page: 209
16. What type of international commodity agreement involves the purchase of the commodity when its price falls below an agreed minimum price, and the sale of the commodity when its price rises above the established maximum price?
E)Buffer stock
F)Export controls
G)Purchase contracts
H)None of the above
Answer: A Page: 209
17. What type of international commodity agreement seeks to regulate the quantity of the commodity exported by each nation?
A)Buffer stock
B)Export controls
C)Purchase contracts
D)None of the above
Answer: B Page: 209
18. Which of the following long-term multilateral agreements stipulates the minimum price at which importing nations agree to buy and a maximum price at which exporting nations agree to sell specified amounts of the commodity?
A)Buffer stock
B)Export controls
C)Purchase contracts
D)None of the above
Answer: C Page: 209
19. Which of the following is one of the three main advantages of an import-substitution industrialization strategy?
A)The market for the industrial product already exists, as evidenced by imports of the commodity, so that risks are reduced in setting up an industry to replace imports
B)It overcomes the smallness of the domestic market and allows a developing nation to take advantage of economies of scale
C)Production of manufactured goods for export requires and stimulates efficiency throughout the economy
D)The expansion of manufactured exports is not limited by the growth of the domestic market
Answer: A Page: 210
20. Which of the following is one of the most serious problems facing developing countries today?
A)The conditions of stark poverty prevailing in many countries
B)The unsustainable foreign debt of some of the poorest developing countries
C)The remaining trade protectionism of developed countries against developing countries exports
D)All of the above
Answer: D Page: 212
21. In 2002, what was the average per capita income of all developing economies and former communist countries?
A)$500 - $700
B)$1,000 - $2,000
C)$20,000 - $30,000
D)$8,000 - $9,000
Answer: B Page: 213
22. Which of the following is one of the three main advantages of an import-substitution industrialization strategy?
A)The market for the industrial product already exists, as evidenced by imports of the commodity, so that risks are reduced in setting up an industry to replace imports
B)It is easier for developing nations to protect their domestic market against foreign competition than to force developed nations to lower trade barriers against their manufactured exports
C)Foreign firms are induced to establish so-called tariff factories to overcome the tariff wall of developing nations
D)All of the above
Answer: D Page: 210
23. Which of the following is one of the three main disadvantages of an import-substitution industrialization strategy?
A)It may be very difficult for developing nations to set up export industries because of the competition from the more established and efficient industries in developed nations
B)Domestic industries can grow accustomed to protection from foreign competition and have no incentive to become more efficient
C)Developed nations often provide a high level of effective protection for their industries producing simple labor-intensive commodities in which developing nations already have or can soon acquire a comparative advantage
D)All of the above
Answer: B Page: 210
24.Which device has the International Tin Agreement utilized as a way of stabilizing tin prices?
A)Multilateral contracts
B)Export subsidies
C)Buffer stocks
D)Export tariffs
Answer: C Page: 209
25. As part of the deal with the IMF to renegotiate their debts after an inability to pay the interest on its foreign debt in 1982, Mexico was required to adopt which of the following measures?
A)Reduction of importation
B)Increase inflation to reduce the value of foreign debt
C)Increase domestic spending on programs aimed at bringing in the skilled workers needed to free them from the financial crisis
D)All of the above
Answer: A Page: 215
26. Which of the following is one of the three main disadvantages of an import-substitution industrialization strategy?
A)Domestic industries can grow accustomed to protection from foreign competition and have no incentive to become more efficient
B)Import substitution can lead to inefficient industries because of the smallness of the domestic market in many developing nations
C)After the simpler manufactured imports are replaced by domestic production, import substitution becomes more and more difficult and costly as more capital-intensive and technological advanced imports have to be replaced by domestic production
D)All of the above
Answer: D Page: 210
27. Which of the following is one of the advantages of export-oriented industrialization?
A)It overcomes the smallness of the domestic market and allows a developing nation to take advantage of economies of scale
B)The market for the industrial product exists domestically, as evidenced by imports of the commodity, so that risks are reduced in setting up an industry to replace imports
C)It is easier for developing nations to protect their domestic market against foreign competition than to force developed nations to lower trade barriers against their manufactured exports
D)Foreign firms are induced to establish so-called tariff factories to overcome the tariff wall of developing nations
Answer: A Page: 210
28. _______________ is the idea that exports of developing countries to developed countries cannot grow rapidly because of the protectionist policies of the developed countries.
A)Seeing the export glass half empty
B)Export pessimism
C)Import substitution
D)Export-led growth
Answer: B Page: 215
29. At which international trade gathering was there a successful reduction in trade restrictions and protectionism, averting a revival of inward-looking policies in developing countries?
A)Kennedy Round
B)Doha Round
C)Uruguay Round
D)Tokyo Round
Answer: C Page: 215
30. Which of the following is one of the advantages of export-oriented industrialization?
A)It overcomes the smallness of the domestic market and allows a developing nation to take advantage of economies of scale
B)Production of manufactured goods for export requires and stimulates efficiency throughout the economy
C)The expansion of manufactured exports is not limited by the growth of the domestic market
D)All of the above
Answer: D Page: 210
31. Which of the following is one of the disadvantages of export-oriented industrialization?
A)It may be very difficult for developing nations to set up export industries because of the competition from the more established and efficient industries in developed nations
B)Domestic industries can grow accustomed to protection from foreign competition and have no incentive to become more efficient
C)Import substitution can lead to inefficient industries because of the smallness of the domestic market in many developing nations
D)None of the above
Answer: A Page: 210
32. The New International Economic Order called for which of the following?
A)The renegotiation of the international debt of developing countries and the reduction in interest payments
B)The establishment of international commodity agreements
C)Preferential access in developed nations’ markets to all the manufactured exports of developing nations
D)All of the above
Answer: D Page: 217
33. Which of the following is one of the disadvantages of export-oriented industrialization?
A)It may be very difficult for developing nations to set up export industries because of the competition from the more established and efficient industries in developed nations
B)Developed nations often provide a high level of effective protection for their industries producing simple labor-intensive commodities in which developing nations already have or can soon acquire a comparative advantage
C)Domestic industries can grow accustomed to protection from foreign competition and have no incentive to become more efficient
D)Both A and B
Answer: D Page: 210
34. Which terms of trade concept emphasizes a nation’s capacity to import?
A)Income terms of trade
B)Commodity terms of trade
C)Barter terms of trade
D)Price terms of trade
Answer: A Page: 205
35. International trade can contribute to the economic growth of today’s developing nations in which of the following ways?
A)Trade can lead to the full utilization of otherwise underemployed domestic resources
B)By expanding the size of the market, trade makes possible division of labor and economies of scale
C)International trade is the vehicle for the transmission of new ideas, new technology, and new managerial and other skills
D)All of the above
Answer: D Page: 202
36. For most developing countries:
A)Productivity is high among domestic workers
B)Population growth and illiteracy rates are low
C)Savings and investment levels are high
D)Agricultural goods and raw material tend to make up much of domestic output
Answer: D Page: 198
37. Ghana established a marketing board in which of the following commodities following World War II?
A)Cocoa
B)Rice
C)Bananas
D)Iron ore
Answer: A Page: 208
38. Which of the following agreements was based on export controls?
A)The International Rice Agreement
B)The International Sugar Agreement
C)The International Cocoa Bean Agreement
D)The International Banana Agreement
Answer: B Page: 209
True/False
39. True or False? During the 1970’s and 1980’s, the total foreign debt that developing countries accumulated was in the range of $150 billion to $200 billion.
Answer: False Page: 214
40. True or False? In the 1980’s, high performance Asian economies (HPAE’s) were also known as newly industrialized economies (NIE’s).
Answer: True Page: 215
41. True or False? Export pessimism is the belief that a lack of protectionist policies towards developing countries will lead to a slowing of exports in developed ones.
Answer: False Page: 215
42. True or False? The NIEO is the set of demands made by developing nations as a group at the UN for the removal of alleged inequities in the operation of the present international economic system.
Answer: True Page: 217
43. True or False? To this day, international trade remains as strong an engine of growth for regions of recent settlement as it was in the nineteenth century.
Answer: False Page: 202
44.True or False? If a nation’s terms of trade increases from ½ to 1, and consumption increases from a lower indifference curve to a higher one, this nation is experiencing immiserizing growth.
Answer: False Page: 206
45.True or False? The International Wheat Agreement, signed in 1949, is still in operation today.
Answer: False Page: 209
46.True or False? During the 1950’s, 1960’s, and 1970’s, developing countries relied upon industrialization for faster technological progress.
Answer: True Page: 209
47.True or False? One of the most serious problems facing developing countries today is the lack of high paying corporate level positions, as this is the type of skilled labor needed to alleviate the poverty problem in these nations.
Answer: False Page: 212
48.True or False? The new international Economic Order called for the renegotiation of the international debt of developing countries and the reduction in interest payments.
Answer: True Page: 216
49.True or False? The slowdown of the world economy during the 1980’s and early 1990’s gave industrial countries the ability to turn outward to address any internal problems of slow growth and unemployment.
Answer: False Page: 217
Essay
50.Briefly discuss the three most serious problems facing developing countries today.
Answer: The three most serious problems facing developing countries today are: (1) the conditions of stark poverty prevailing in many countries; (2) the unsustainable foreign debt of some of the poorest developing countries; and (3) the remaining trade protectionism of developed countries against developing countries’ exports. Starting with number one, the average per capita income of all developing economies and former communist countries was only $1,170 in 2002 as compared with $26,310 in high-income developed economies. We also know that some nations actually experienced negative growth due to some unfortunate events. However, some areas were able to experience some decent levels of growth like southern and eastern Asia. Regarding number two, developing countries have accumulated debt of over $1 trillion. Not only is this sum hard to pay of itself, but the interest that accrues as well. As such, many of the developing nations around the world have experienced difficulty in the repayment process. An example of one is Mexico, who after an inability to service the loan was forced to adopt measures that would reduce imports, cut inflation, and cease wage increases. Lastly, in an effort to ward off slow economic growth and unemployment, developed countries enacted many trade protection measures against the developing countries that held comparative advantages in the production of certain goods and services. Unfortunately this would have continued and worsened to a point of export pessimism had the issue not been somewhat resolved at the Uruguay round in December 1993. Although the problem was not completely eradicated in 1993, attempts are currently underway at the Doha Round to make more progress on the issue.
