ECON 340 Exam 2 with correct answers
100% 2026
Which of the following would be an example of foreign direct investment from he US to Taiwan?
a. A US bank buys bonds issued by a Taiwan computer manufacturer
b. A US car manufacturer enters into a contract with a Taiwan firm for the latter to make and see
it spark plugs
c. Microsoft hires a Taiwanese computer programmer to debug some software for it
d. The state of California rents space in Taipei for one of its employees to use promoting tourism
in California
e. Warren Buffet (a US citizen) buys a controlling share in a Taiwanese electronics firm - Correct
Answers e. Warren Buffet (a US citizen) buys a controlling share in a Taiwanese electronics firm
What is the relationship between foreign direct investment (FDI) and multinational enterprises
(MNEs)?
a. an MNE never involves FDI
b. FDI is never done by an MNE
c. All MNE's involve FDI
d. All FDI is done by MNE
e. Some (but not all) MNE's do some (but not all) FDI - Correct Answers c. All MNE's involve FDI
What is the connection, if any, between comparative advantage (CA) and foreign direct
investment (FDI)?
a. Nothing. CA has nothing to do with FDI
b. Countries often engage in FDI in industries where the country they invest in has a
comparative disadvantage
c. Countries often engage in FDI in industries where the country they invest in has a
comparative advantage
d. When a country's firms invest abroad, this helps to create CA in the same industry at home
,e. When a country's firms invest abroad, this helps to create CA in the same industry in the
country where they undertake the investment - Correct Answers c. Countries often engage in
FDI in industries where the country they invest in has a comparative advantage
If a German manufacturer of household appliances wants to take advantage of the cheaper
labor available in the Czech Republic, which of the following actions will NOT serve that
purpose?
a. Build a manufacturing subsidiary there and employ Czech workers
b. Build a plant in the Czech Republic and send all German workers to operate it
c. License a Czech firm to produce its products under its own label
d. Contract for a Czech firm to do some of the processing for it
e. Buy a Czech firm that produces similar products, and adapt it to produce its own products -
Correct Answers b. Build a plant in the Czech Republic and send all German workers to operate
it
Tariff Jumping occurs when
a. A firm that otherwise would have exported to a country instead invests there in order to
avoid paying the country's tariff
b. A country raises a tariff against a foreign exporter who sells to it below cost
c. Countries raise (and lower) their tariffs in an effort to stabilize the price of a product on the
domestic market
d. A firm buys inputs from domestic firms rather than importing them from abroad over a tariff
e. A government levies a tariff on the price of a good that already has been increased by
another tariff - Correct Answers a. A firm that otherwise would have exported to a country
instead invests there in order to avoid paying the country's tariff
When a company moves its tax residence to a low-tax jurisdiction such as the UK or Ireland, on
what portion of its earnings does it pay less taxes?
a. Its earnings from production in the country that it moves its tax residence from
, b. Its earnings from production in the country that moves its tax residence to
c. Its earnings on intangible assets, like holdings of noble gases
d. Its earnings on intangible assets, like patents
e. None. Rules of the IMF require that such jurisdictions levy taxes at the same rate as a firm's
original country - Correct Answers d. Its earnings on intangible assets, like patents
DFI - Correct Answers Direct Foreign Investment: Building or buying real assets, such as factories
and equipment, in another country
MNE - Correct Answers Multinational enterprise: A company that operates in
more than one country.
TNC - Correct Answers Transnational Corporation: Same as MNE if a corporation, but usually
used with negative connotation
MOFA - Correct Answers Majority-Owned Foreign Affiliate: A foreign subsidiary of a company, a
majority of whose ownership shares are held by that company
What are 3 ways that a company in one country can serve (sell its product to) a market in a
foreign country? - Correct Answers 1. FDI
2. Export
3. Licensing
How could US firms doing FDI abroad cost jobs in the US? How could it save jobs in the US? -
Correct Answers FDI could cost jobs if a US firm moves production abroad that it otherwise
would have continued to do in the US.
It could save jobs if moving part of a firm's operations abroad permits it to stay in business
when it otherwise would not, thus saving the jobs of those it continues to employ in the US
100% 2026
Which of the following would be an example of foreign direct investment from he US to Taiwan?
a. A US bank buys bonds issued by a Taiwan computer manufacturer
b. A US car manufacturer enters into a contract with a Taiwan firm for the latter to make and see
it spark plugs
c. Microsoft hires a Taiwanese computer programmer to debug some software for it
d. The state of California rents space in Taipei for one of its employees to use promoting tourism
in California
e. Warren Buffet (a US citizen) buys a controlling share in a Taiwanese electronics firm - Correct
Answers e. Warren Buffet (a US citizen) buys a controlling share in a Taiwanese electronics firm
What is the relationship between foreign direct investment (FDI) and multinational enterprises
(MNEs)?
a. an MNE never involves FDI
b. FDI is never done by an MNE
c. All MNE's involve FDI
d. All FDI is done by MNE
e. Some (but not all) MNE's do some (but not all) FDI - Correct Answers c. All MNE's involve FDI
What is the connection, if any, between comparative advantage (CA) and foreign direct
investment (FDI)?
a. Nothing. CA has nothing to do with FDI
b. Countries often engage in FDI in industries where the country they invest in has a
comparative disadvantage
c. Countries often engage in FDI in industries where the country they invest in has a
comparative advantage
d. When a country's firms invest abroad, this helps to create CA in the same industry at home
,e. When a country's firms invest abroad, this helps to create CA in the same industry in the
country where they undertake the investment - Correct Answers c. Countries often engage in
FDI in industries where the country they invest in has a comparative advantage
If a German manufacturer of household appliances wants to take advantage of the cheaper
labor available in the Czech Republic, which of the following actions will NOT serve that
purpose?
a. Build a manufacturing subsidiary there and employ Czech workers
b. Build a plant in the Czech Republic and send all German workers to operate it
c. License a Czech firm to produce its products under its own label
d. Contract for a Czech firm to do some of the processing for it
e. Buy a Czech firm that produces similar products, and adapt it to produce its own products -
Correct Answers b. Build a plant in the Czech Republic and send all German workers to operate
it
Tariff Jumping occurs when
a. A firm that otherwise would have exported to a country instead invests there in order to
avoid paying the country's tariff
b. A country raises a tariff against a foreign exporter who sells to it below cost
c. Countries raise (and lower) their tariffs in an effort to stabilize the price of a product on the
domestic market
d. A firm buys inputs from domestic firms rather than importing them from abroad over a tariff
e. A government levies a tariff on the price of a good that already has been increased by
another tariff - Correct Answers a. A firm that otherwise would have exported to a country
instead invests there in order to avoid paying the country's tariff
When a company moves its tax residence to a low-tax jurisdiction such as the UK or Ireland, on
what portion of its earnings does it pay less taxes?
a. Its earnings from production in the country that it moves its tax residence from
, b. Its earnings from production in the country that moves its tax residence to
c. Its earnings on intangible assets, like holdings of noble gases
d. Its earnings on intangible assets, like patents
e. None. Rules of the IMF require that such jurisdictions levy taxes at the same rate as a firm's
original country - Correct Answers d. Its earnings on intangible assets, like patents
DFI - Correct Answers Direct Foreign Investment: Building or buying real assets, such as factories
and equipment, in another country
MNE - Correct Answers Multinational enterprise: A company that operates in
more than one country.
TNC - Correct Answers Transnational Corporation: Same as MNE if a corporation, but usually
used with negative connotation
MOFA - Correct Answers Majority-Owned Foreign Affiliate: A foreign subsidiary of a company, a
majority of whose ownership shares are held by that company
What are 3 ways that a company in one country can serve (sell its product to) a market in a
foreign country? - Correct Answers 1. FDI
2. Export
3. Licensing
How could US firms doing FDI abroad cost jobs in the US? How could it save jobs in the US? -
Correct Answers FDI could cost jobs if a US firm moves production abroad that it otherwise
would have continued to do in the US.
It could save jobs if moving part of a firm's operations abroad permits it to stay in business
when it otherwise would not, thus saving the jobs of those it continues to employ in the US
