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Testbank Chapter 1: Introduction TRUE/FALSE 1. Many of the developing countries of the world experience traffic gridlock. ANS: T DIF: Easy REF: Introduction 2. World trade has grown about 10 percent per year since 1950. ANS: F DIF: Easy REF: 1-1 3. World trade in services representf a higher percen tage of total world trade than does world trade in merchandise. ANS: F DIF: Moderate REF: 1-1: Tables 1-1, 1-2, and 1-3 4. The Bretton Woods Conference triggered the creation of the World Trade Organization in 1944. ANS: F DIF: Moderate REF: 1-2a 5. The Treaty of Rome in 1957 was the first step in the creation of the European Union. ANS: T DIF: Easy REF: 1-2c 6. The North American Free Trade Associa tion (NAFTA) includes only the United States and Canada. ANS: F DIF: Moderate REF: 1-2c: Table 1-4 7. The euro has replaced the currencies of a ll of the countries of the European Union. ANS: F DIF: Hard REF: Table 1-2d 8. In 2007, the United States exported more goods than any other country in the world. ANS: F DIF: Moderate REF: 1-3: Figure 1-3 9. In 2007, the United States imported about 1.5 times more goods than it exported. ANS: T DIF: Hard REF: 1-3: Figures 1-3 and 1-4 10. A company that has to make large capital outlays before starting production will want to export in order to spread its costs over a large number of units produced. ANS: T DIF: Moderate REF: 1-4a 1-1 Chapter 1: Introduction 11. The “Wal-Mart effect” pushes manufacturers to se ll products at ever-lower prices, often obtained by manufacturing abroad. ANS: T DIF: Moderate REF: 1-4a 12. The term “outsourcing” refers to a st rategy whereby a company purchases plants overseas. ANS: F DIF: Moderate REF: 1-4a 13. A competitor offering a new product in a mature market can entice a company to start importing its own low-cost alternative. ANS: T DIF: Moderate REF: 1-4b 14 Consumers are becoming increasingly worldly and willing to purchase foreign-made products. ANS: T DIF: Easy REF: 1-4c 15. According to Thomas Friedman, individuals looking for jobs now compete with hundreds of other similarly trained applicants, coming from all corners of the world. ANS: T DIF: Hard REF: 1-4d 16. According to Adam Smith, countries trade when they enjoy a comparative advantage over other countries in the production of a given product. ANS: F DIF: Easy REF: 1-5a 17. A country enjoys an absolute advantage in the production of a particular good when it can produce it at a lower price than another country. ANS: T DIF: Easy REF: 1-5a 18. David Ricardo’s Theory of Comparative Advant age explains why countries that enjoy an absolute advantage in making certain goods can still pr efer to purchase these products from other countries. ANS: T DIF: Hard REF: 1-5b 19. Most trade today is more likely to be explained by the Theory of Compar ative Advantage than by the Theory of Absolute Advantage. ANS: T DIF: Moderate REF: 1-5b 20. A country often enjoys a comparative adva ntage because of the abundance of a particular production factor (land, labor, capital, or entrepreneurship) within its borders. ANS: T DIF: Easy REF: 1-5c 1-2 Testbank 21. The Factor Endowment Theory was developed by Raymond Vernon. ANS: F DIF: Easy REF: 1-5c 22. The International Product Life Cycle Theory explains why there are no televisions manufactured in Great Britain and the United States, although that technology was invented in those countries. ANS: T DIF: Easy REF: 1-5d 23. A product is invented in Country X and is first manufactured there. The International Product Life Cycle Theory holds that the product will be manufactured in developing countries within a couple of years. ANS: F DIF: Hard REF: 1-5d 24. Michael Porter views Silicon Valley is an example of a “cluster” of innovation and manufacturing. ANS: T DIF: Easy REF: 1-5e 25. Until the 1950s, most of the area rugs in the world were manufactured in Persia (Iran) and Pakistan. Artisans in these countries had develope d techniques (dyes and knots) that were unique and that other production areas were not capable of reproducing. These areas enjoyed what Michael Porter would call an “absolute advantage.” ANS: F DIF: Hard REF: 1-5e MULTIPLE CHOICE 1. The total value of international trad e (2008) in services and merchandise is about a. $ 20 billion. d. $ 20 thousand. b. $ 20 trillion. e. None of the above c. $ 20 million. ANS: B The total value of international trade was $20 trillion in 2008. DIF: Moderate REF: 1-1: Table 1-3 1-3 Chapter 1: Introduction 2. International trade is still mostly concentr ated among the developed countries of the Northern Hemisphere. Which country is the largest exporter of the world? a. United States d. Japan b. Germany e. None of the above c. China ANS: B Germany is the largest exporter in the world, and exports about 10 percent more than the United States and 20 percent more than China. DIF: Hard REF: 1-3: Figure 1-3 3. International trade is still mostly concentr ated among the developed countries of the Northern Hemisphere. Which country is the largest importer of the world? a. United States d. Japan b. Germany e. None of the above c. China ANS: A The United States is the largest importer in the world, and imports about twice what Germany imports and more than twice what China imports. DIF: Hard REF: 1-3: Figure 1-4 4. The European Union is an economic community that comprises how many countries? a. 15 d. 27 b. 25 e. None of the above c. 18 ANS: D The European Union has had 27 members since 2009. DIF: Moderate REF: 1-2c 5. The common currency of most of the countries of the European Union is called a. the euro-dollar. d. the euro. b. the european currency unit (ECU). e. None of the above c. the thaler. ANS: D The euro is the currency created in 1999 and placed in circulation in 2002. The term “euro-dollar” refers to U.S. dollars kept in accounts in [foreign ] banks not subject to the authority of the Federal Reserve Banks, and the ECU is the original name proposed for the euro and eventually abandoned. Thaler is an old European currency. DIF: Moderate REF: 1-2d 1-4
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