ECON 340 FINAL EXAM MULTIPLE CHOICE
QUESTIONS AND VERIFIED ANSWERS
Which of the following is NOT a preferential trading arrangement?
a. EU
b. NAFTA
c. OECD
d. GSP
e. Anti-dumping duty - Answers - OECD
Which of the following explains why trade diversion is undesirable for an importing
country that lowers its tariff against a partner in a free trade area?
a. The country imports from the partner at higher cost than it previously imported from
some other country.
b. Domestic producers suffer a loss of income.
c. Workers are laid off as producers shift production into the partner country.
d. Consumers pay a higher price for the good imported from the partner.
e. All of the above. - Answers - The country imports from the partner at higher cost than
it previously imported from some other country.
When a country eliminates its tariff against a partner country, keeping the tariff positive
against other countries, the effect of that change alone is that the partner as a whole
a. Must gain.
b. May either gain or lose.
c. Will neither gain nor lose.
d. Must lose.
,e. None of the above; it depends on whether there is trade creation or trade
diversion. - Answers - Must gain.
Because wages in Mexico before the NAFTA were only a small fraction (perhaps 1/10)
of wages in the US, we should infer that
a. Prior to NAFTA, Mexican workers were paid far below their productivity.
b. After NAFTA, most U.S. firms would be unable to compete with imports from
Mexico.
c. After NAFTA, most U.S. firms would close their U.S. plants and move to
Mexico.
d. Prior to NAFTA, since U.S. tariffs against Mexico were small, the productivity
of Mexican workers must also have been only a small fraction of that in the U.S.
e. After NAFTA, forcing Mexican workers to compete with more productive U.S.
workers would drive their wages even lower. - Answers - Prior to NAFTA, since US
tariffs against Mexico were small, the productivity of Mexican workers must also have
been only a small fraction of that in the US.
Mexico's international reserves
a. Declined during the years that NAFTA was being negotiated, which was one of the
reasons Mexico wanted the agreement.
b. Rose until NAFTA went into effect, but have declined ever since.
c. Fell during the year after NAFTA went into effect, precipitating the Peso Crisis.
d. Rose until the Peso Crisis, which caused them to fall precipitously.
e. Have risen steadily throughout the 1990s and since 2000. - Answers - Fell during the
year after NAFTA went into effect, precipitating the Peso Crisis.
What effect did the NAFTA have on US unemployment?
a. NAFTA caused the 1991 recession.
b. NAFTA caused the 2001 recession.
c. NAFTA caused US unemployment to rise by two percentage points, in 1994,
when it went into effect.
d. NAFTA caused US unemployment to rise by two percentage points, but not
, until 1995 when the Peso Crisis hit.
e. NAFTA did not disrupt the more-or-less steady decline in the US
unemployment rate that took place throughout the period between the 1991 and 2001
recessions. - Answers - NAFTA did not disrupt the more-or-less steady decline in the
US unemployment rate that took place throughout the period between the 1991 and
2001 recessions.
Why did NAFTA not have a significant effect on US unemployment?
a. No jobs were lost in the US due to NAFTA.
b. The number of workers who lost jobs due to NAFTA was a tiny fraction of
normal US labor turnover.
c. Workers who lost jobs in the US were able to move to Mexico.
d. The US reneged on its NAFTA promise to lower tariffs on imports from
Mexico.
e. Mexican companies built factories in the US that employed US workers that had
been laid off from US factories. - Answers - The number of workers who lost jobs due to
NAFTA was a tiny fraction of normal US labor turnover.
Which of the following is NOT currently part of the negotiations to form the Trans-Pacific
Partnership?
a. Japan
b. The United States
c. China
d. Australia
e. Peru - Answers - China
Of the issues being negotiated in the TTIP, which is likely to be both most difficult and
also most important, if it succeeds?
a. Tariff elimination
b. Opening public procurement
c. Freedom of migration
QUESTIONS AND VERIFIED ANSWERS
Which of the following is NOT a preferential trading arrangement?
a. EU
b. NAFTA
c. OECD
d. GSP
e. Anti-dumping duty - Answers - OECD
Which of the following explains why trade diversion is undesirable for an importing
country that lowers its tariff against a partner in a free trade area?
a. The country imports from the partner at higher cost than it previously imported from
some other country.
b. Domestic producers suffer a loss of income.
c. Workers are laid off as producers shift production into the partner country.
d. Consumers pay a higher price for the good imported from the partner.
e. All of the above. - Answers - The country imports from the partner at higher cost than
it previously imported from some other country.
When a country eliminates its tariff against a partner country, keeping the tariff positive
against other countries, the effect of that change alone is that the partner as a whole
a. Must gain.
b. May either gain or lose.
c. Will neither gain nor lose.
d. Must lose.
,e. None of the above; it depends on whether there is trade creation or trade
diversion. - Answers - Must gain.
Because wages in Mexico before the NAFTA were only a small fraction (perhaps 1/10)
of wages in the US, we should infer that
a. Prior to NAFTA, Mexican workers were paid far below their productivity.
b. After NAFTA, most U.S. firms would be unable to compete with imports from
Mexico.
c. After NAFTA, most U.S. firms would close their U.S. plants and move to
Mexico.
d. Prior to NAFTA, since U.S. tariffs against Mexico were small, the productivity
of Mexican workers must also have been only a small fraction of that in the U.S.
e. After NAFTA, forcing Mexican workers to compete with more productive U.S.
workers would drive their wages even lower. - Answers - Prior to NAFTA, since US
tariffs against Mexico were small, the productivity of Mexican workers must also have
been only a small fraction of that in the US.
Mexico's international reserves
a. Declined during the years that NAFTA was being negotiated, which was one of the
reasons Mexico wanted the agreement.
b. Rose until NAFTA went into effect, but have declined ever since.
c. Fell during the year after NAFTA went into effect, precipitating the Peso Crisis.
d. Rose until the Peso Crisis, which caused them to fall precipitously.
e. Have risen steadily throughout the 1990s and since 2000. - Answers - Fell during the
year after NAFTA went into effect, precipitating the Peso Crisis.
What effect did the NAFTA have on US unemployment?
a. NAFTA caused the 1991 recession.
b. NAFTA caused the 2001 recession.
c. NAFTA caused US unemployment to rise by two percentage points, in 1994,
when it went into effect.
d. NAFTA caused US unemployment to rise by two percentage points, but not
, until 1995 when the Peso Crisis hit.
e. NAFTA did not disrupt the more-or-less steady decline in the US
unemployment rate that took place throughout the period between the 1991 and 2001
recessions. - Answers - NAFTA did not disrupt the more-or-less steady decline in the
US unemployment rate that took place throughout the period between the 1991 and
2001 recessions.
Why did NAFTA not have a significant effect on US unemployment?
a. No jobs were lost in the US due to NAFTA.
b. The number of workers who lost jobs due to NAFTA was a tiny fraction of
normal US labor turnover.
c. Workers who lost jobs in the US were able to move to Mexico.
d. The US reneged on its NAFTA promise to lower tariffs on imports from
Mexico.
e. Mexican companies built factories in the US that employed US workers that had
been laid off from US factories. - Answers - The number of workers who lost jobs due to
NAFTA was a tiny fraction of normal US labor turnover.
Which of the following is NOT currently part of the negotiations to form the Trans-Pacific
Partnership?
a. Japan
b. The United States
c. China
d. Australia
e. Peru - Answers - China
Of the issues being negotiated in the TTIP, which is likely to be both most difficult and
also most important, if it succeeds?
a. Tariff elimination
b. Opening public procurement
c. Freedom of migration
