ECON 340 INTERNATIONAL ECON UMICH STUDY QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026

ECON 340 INTERNATIONAL ECON UMICH STUDY QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026 How many countries are there in the world? a. Fewer than ten b. Between 10 and 100 c. Between 100 and 500 d. More than 500 e. The number changes too rapidly to select among these answers. - Answers C Approximately what percentage of what the United States consumes is produced inside its borders? a. 2% b. 15% c. 50% d. 85% e. 98% - Answers D The less developed countries of the world trade mostly with a. Developed countries b. Other less developed countries c. Former communist countries d. Nobody. They do not trade e. None of the above - Answers A At what date, approximately did or will the total GDP at market exchange rates of the "emerging economies" (as the term is used by The Economist) exceed that of the developed economies. a. 1998 b. 2008 c. 2018 d. 2028 e. Never - Answers C Which of the following is not an international capital flow? a. An American depositing money in a bank account in Zurich, Switzerland. b. A German buying a U.S. Treasury bill. c. A Canadian purchase of a Japanese-made automobile. d. A Brazilian firm borrows from an Argentine bank. e. A Korean car company buys a factory in California. - Answers C Which of the following countries was one of the "notable exceptions" mentioned by the Gerber textbook as not being driven into recession by contagion from the US housing crisis of 2007? a. Mexico b. Spain c. India d. Japan e. Greece - Answers C Comparing the extent of globalization today with 50 and 100 years ago, which of the following is not true? a. Trade as a fraction of GDP is greater today than it was 100 years ago. b. Trade as a fraction of GDP declined during the first half the 20th century. c. There is greater international movement of financial capital today than there was in 1950. d. The fraction of the US population that is foreign born was higher at the end of the 20th century than it was at the end of the 19th century. e. In the last 50 years, US trade as a fraction of US output of goods has grown from less than 10% to more than 20% - Answers d How did US tariffs in 2017 compare to what they were 70 years ago? a. Tariffs in 2017 had been eliminated; 70 years ago they averaged 100%. b. Tariffs in 2017 were only one tenth as large, on average, as they were then. c. Tariffs had been cut in half. d. Although different products had higher tariffs than before, the average tariff in 2017 was about the same as 70 years ago. e. Recent concerns over outsourcing have pushed US tariffs about ten percentage points above what they were just after World War II. - Answers B According to the graph of advanced and emerging nation trade shown in class, what happened in 2005 when the curves cross? a. Advanced nation trade for the first time grew larger than emerging nation trade. b. Emerging nation trade for the first time grew larger than advanced nation trade. c. Only in this year were the rates of growth of trade the same in the two groups of nations. d. World trade became the same as the sum of advanced nation trade and emerging nation trade. e. Nothing special. The curves cross only because both are measured as indices equal to 100 in 2005, and emerging nation trade grew faster than advanced nation trade in most years. - Answers E Under what US President was NAFTA negotiated? a. Ronald Reagan b. George H. W. Bush c. Bill Clinton d. George W. Bush e. Barack Obama - Answers B What is a Rule of Origin? a. A prohibition on employing illegal immigrants b. A requirement for registering to vote c. A restriction on who can invest in a country d. A specification of what qualifies for zero tariff e. A law against exporting imitations - Answers D If the UK and EU do not reach a deal on Brexit, on March 29, 2019 a. EU citizens resident in the UK may have to leave b. Canada will levy tariffs on UK exports c. Ireland will levy tariffs on goods from Northern Ireland d. The EU will levy tariffs on UK exports e. All of the above - Answers E What is a trade war? a. Countries that export dangerous goods to each other b. Tariffs and retaliation c. T wo countries using ship to blockade each other' s exports d. A verbal dispute in the World Trade Organization e. One country dumps exports into another country, which responds with an antidumping duty - Answers B Which of the following countries is not subject to Trump's tariffs on steel and aluminum? a. Canada b. Mexico c. Germany d. China e. South Korea - Answers E What do "joint ventures" have to do with the US-China trade war? a. The US objects to China's exports of marijuana to US states where it has been legalized b. China insists that the US import unwanted goods jointly with those that are in high demand c. China requires that companies investing in China use joint ventures, thereby giving their technologies to Chinese companies d. The US has responded to unfair trade practices by China by filing complaints in the WTO jointly with the EU and Japan e. President Trump is concerned that China's Confucius Institutes in the US are joint ventures that will undermine democracy - Answers C What reason is given for Trump's threatened tariffs on cars? a. That imports are hurting US producers b. National security c. Unfair acquisition of intellectual property d. Dumping e. China' s trade surplus - Answers b 8. Who wins in a trade war? a. Nobody b. The country with the highest tariffs c. The country that, in the end, has a trade surplus d. The country that collects the most revenue from its tariffs e. Both may win if rates of unemployment fall in both - Answers a What has Trump done that undermines the WTO? a. Refuse to participate in biannual WTO ministerial meeting b. Pull the US out of the organization c. Persuade allies to vote in favor of US in disputes d. Prevent China from becoming a member e. Block appointment of new judges - Answers e 10. How has the value of currencies changed since Trump started increasing tariffs? a. Dollar up; euro up; yuan up b. Dollar up; euro up; yuan down c. Dollar up; euro down; yuan down d. Dollar down; euro down; yuan down e. Dollar down; euro down; yuan up - Answers b According to the theory of comparative advantage, which of the following is not a reason why countries trade? a. Comparative advantage. b. Costs are higher in one country than in another. c. Prices are lower in one country than in another. d. The productivity of labor differs across countries and industries. e. Exports give a country a political advantage over other countries that export less. - Answers e Which of the following statements would a mercantilist not agree with? a. Imports are desirable. b. Trade is a zero-sum activity. c. The purpose of trade is to amass revenues from exports. d. A country can benefit by granting monopoly rights to individuals. e. Policies should promote exports and discourage imports. - Answers a If all prices in one country (country A) are higher than all prices in another country (B) when compared at the wage rates that happen to prevail in the two countries, and if the countries share the same currency, then if the nominal wage rate in country B remains fixed a. The nominal wage rate in country A will have to fall. b. Unemployment must be higher in country B than in country A. c. The real wage in country A must be higher than in country B. d. Workers in country A must be less productive than workers in country B. e. Trade cannot be beneficial for country A. - Answers a According to the theory of comparative advantage, a country will export a good only if a. It can produce it using less labor than other countries. b. Its productivity is higher in producing the good than the productivity of other countries in producing it. c. Its wage rate in producing the good is lower than in other countries. d. Its cost of producing the good, relative to other goods, is at least as low as in other countries. e. All of the above. - Answers d 7. According to the theory of comparative advantage, countries gain from trade because a. Trade makes firms behave more competitively, reducing their market power. b. All firms can take advantage of cheap labor. c. Output per worker in each firm increases. d. World output can rise when each country specializes in what its does relatively best. e. Every country has an absolute advantage in producing something. - Answers d If international trade takes place as a result of comparative advantage, it will cause which of the following effects in the participating countries? a. Inequality among households will be reduced. b. All individuals in each country will be better off. c. The average well-being of people in both countries will increase. d. Both countries will grow faster over time. e. All of the above. - Answers c Scholars at MIT recently tested the theory of comparative advantage. One problem with doing this is that a. The theory was never meant to apply after the 19th century. b. One cannot observe productivity in industries that are not producing. c. Countries keep their data on international trade secret. d. The theory is only valid if the world really only produces two goods. e. The theory turned out to be incorrect. - Answers b Bernhofen and Brown tested the theory of comparative advantage by looking at data from 19th century Japan. This allowed them to observe which of the following data that would not normally be available? a. Worker productivity across sectors. b. Wages of labor. c. Exports minus imports. d. Consumer preferences for foreign and domestic goods. e. Autarky prices. - Answers e Clyde Prestowitz, in his assigned reading, cites a study that measures various costs of US trade with China. Which of the following is not one of those costs? a. Unemployment compensation paid by government b. The income lost by workers who become unemployed c. Food stamps d. Lost tax receipts e. School budgets - Answers b In the Embargo Act mentioned in the Costinot and Rodriguez-Clare reading, the US banned trade with a. Britain and France b. Mexico and Canada c. Russia and China d. Germany and Austria e. Japan and Korea - Answers a Which of the following is not a possible cause of a country having a comparative advantage in a particular good? a. Low demand for the good. b. Relative abundance of the factor of production used intensively in producing the good. c. A superior technology for producing the good. d. An unusually large number of firms producing the good. e. Relative scarcity of the factor of production that is not used intensively in producing the good. - Answers d 2. Which of the following is not normally regarded as a factor of production? a. Human Capital b. Land c. Money d. Labor e. Capital - Answers c The presence of increasing returns to scale in an industry tends to Alan Deardorff Modern Theories Page 2 of 6 (7) a. Make that industry perfectly competitive. b. Discourage producers from exporting. c. Give a comparative advantage in that industry to large countries. d. Cause price in that industry to rise with output. e. Reduce industry costs the larger is the number of firms competing. - Answers c According to the factor proportions model, countries have comparative advantage in the good that a. Employs a relatively large amount of their scarce factor. b. Employs a relatively large amount of the factor that they have relatively more of than other countries. c. Uses intensively their scarce factor. d. Requires proportionately more of every factor than the goods they import. e. Increases their proportional endowment of their scarce factor. - Answers b Factor Price Equalization means that, a. All workers are equally productive. b. If a country fails to trade, its skilled workers will earn no more than its unskilled workers. c. Trade causes the return to human capital to be the same as the return to physical capital. d. For countries to trade freely, they must tax factors of production so that firms in all countries pay the same factor prices. e. Free trade causes identical factors in different countries to be paid more nearly the same than they were in autarky. - Answers e Table 1 of Bivens, "Globalization and American Wages," shows calculated effects of globalization on incomes of US middle-income households in 1995 and 2006. Why is the effect in 2006 so much larger than in 1995? a. Because the share of less developed countries in trade was larger in 2006 than in 1995. b. Because US tariffs were much lower in 2006 than in 1995. c. Because many countries ceased buying US exports after the 1997 Asian Financial Crisis. d. Because countries in Europe adopted a common currency (the euro) in 1999. e. Because the ability of US labor unions to resist globalization was undermined by the Bush administration. - Answers B Which of the following is one of the implications of the New Trade Theory? a. Countries as a whole must gain from trade. b. A country can only hurt itself by using government policies to promote exports. c. Consumers gain from the increased variety of goods that trade makes available. d. A country may export a good or import it, but not both. e. A tariff to protect an industry in a small country hurts demanders more than it helps suppliers. - Answers c Which of the following best captures Krugman's view of the lesson of the New Trade Theory for trade policy, according to his article "Is Free Trade Passé"? a. Countries are almost certain to lose from trade unless their governments intervene. b. Countries may lose from trade, and are likely to lose if their governments pursue a policy of free trade. c. Countries may gain or lose from trade, and it does not much matter what the government does. d. Countries will most likely gain from trade, and in any case they are not likely to do better if their governments intervene. e. Countries necessarily gain from trade, and government intervention can only make matters worse. - Answers d . Which of the following is a distinctive implication of the New New Trade Theory (i.e., the Melitz Model), not present in the New Trade Theory? a. Trade increases average productivity as more productive firms expand to export. b. Consumers gain from the increased variety of goods that trade makes available. c. Trade encourages research and development and thus the creation of new products. d. A country may both export and import the goods from the same industry. e. A tariff to protect an industry in a small country hurts demanders more than it helps suppliers. - Answers a A specific tax is a. Any tax on a particular imported good (as opposed to one on all imports). b. An import tax that must be paid in kind (giving the government the good itself). c.A requirement to pay the government a specified fraction of the monetary value of an imported good. d.A tax on imports defined as an amount of currency per unit of the good. e.The revenue that the government earns by aucti - Answers d A tariff on imports benefits domestic producers of the imported good because a. They get the tariff revenue. b. It raises the price for which they can sell their product on the domestic market. c. It prevents imports from rising above a specified quantity. d. It reduces their producer surplus, making them more efficient. e. All of the above. - Answers b When a large country levies a tariff on imports a. The world price falls. b. Demanders of the good on the domestic market are hurt c. Foreigners are hurt. d. The domestic price rises by less than the tariff. e. All of the above. - Answers e Starting from free trade, when a tariff is applied to imports in a small country, which of the following increase? I. Domestic output II. Domesticdemand III. Domestic price IV. Tariff revenue V. Quantity of imports a. I and III only b. II, and IV only c. I, III, and IV only d. All but V e. II and V only - Answers c According to the assigned article by Feenstra a. The efficiency costs of U.S. protectionism are quite small, less than one percent of U.S. GDP. b. The rents from U.S. quantitative restrictions are much smaller than the deadweight losses that they cause. c. The deadweight loss due to protection consists primarily of lost quota rents. d. The deadweight loss due to U.S. protection is large, more than 7% of U.S. GDP. e. The losses to foreigners due to U.S. protection are negligible, and can be ignored in estimating the global effects of U.S. trade policies. - Answers a Suppose that the tariff on shirts is 20% while the tariff on the cloth used to make the shirts is also 20% and there is no tariff on any of the inputs needed to produce cloth. The tariff on cloth is now reduced to 10%. Which of the following, if any, is not true? (Answer e if all of a-d are true.) a. The nominal rate of protection on cloth is reduced. b. The effective rate of protection on cloth is reduced. c. The nominal rate of protection on shirts is unchanged. d. The effective rate of protection on shirts is unchanged. e. None. All of the above are true. - Answers d Which of the following refers to the fact that a large country can benefit by levying a tariff? a. The "optimal tariff" b. The "terms of trade effect of a tariff" c. The "monopoly effect of a tariff" d. All of the above e. None of the above - Answers d The WTO's Agreement on Textiles and Clothing promised a. To prevent job losses in these industries in developed countries. b. To phase out all quotas on textiles and apparel by Dec. 31, 2004. c. To eliminate tariffs on these products in the next round of trade negotiations. d. To help developing countries escape from these dead-end industries. e. To assign feasible export targets to each developing country. - Answers b Which of the following is not a non-tariff barrier? a. A quota on apparel. b. A tax equal to 12% of value on imported oil. c. A voluntary export restraint on cars. d. A regulation requiring government agencies to favor domestically producers. e. The threat to levy a tariff on imports that are sold at an unfairly low price. - Answers b When the United States imposed a VER on cars from Japan a. Japanese firms were the recipients of the rents from the quantitative restriction. b. Japanese car companies responded by lowering the U.S. prices of their cars. c. Japanese car companies responded by lowering the quality of the cars they sold in the U.S. d. It was implemented by the U.S. levying a 25% tariff on cars from Japan. e. The effect was to restrict U.S. imports from all foreign countries. - Answers a The main difference between a tariff and a quota is a. A quota reduces the quantity of imports more than a tariff. b. A tariff raises the price of imports more than a quota.