Questions and Answers of International Economics 5th

Governments have shown perhaps their greatest trade-policy creativity when deciding in what categories different imported goods belong. Their decisions are by no means academic. The stakes are high
What are import quotas? Why do some governments use them instead of just using tariffs to restrict imports by the same amounts? Is it because quotas bring a bigger national gain than tariffs?
Under what conditions could an import quota and a tariff have exactly the same effect on price and bring the same gains and losses (given a tariff level that restricts imports just as much as the
To protect American jobs, the U.S. government may decide to cut U.S. imports of bulldozers by 60 percent. It could do so by either (a) imposing a tariff high enough to cut bulldozer imports by 60
A small country imports sugar. With free trade at the world price of $0.10 per pound, the country’s national market is:The country’s government now decides to impose a quota that limits sugar
For a small country, consider a quota and an equivalent tariff that permit the same initial level of imports. The market is competitive, and the government uses fixed favoritism to allocate the quota
A Japanese friend asks you to explain and defend American use of Section 301.What will you say?
Suppose that the U.S. government is under heavy pressure from the Rollerblade and K2 companies to put the brakes on imports of Bauer in-line skates from Canada. The protectionists demand that the
A small country initially has free trade in motorcycles, it has one local motorcycle producer, and imports account for over half of local motorcycle sales. The government has decided to impose a
“In comparison to the GATT, two advantages of the WTO are that(a) the WTO has been more successful in completing rounds of multilateral trade negotiations and(b) the WTO has a better dispute
Do you like to eat things that are sweet? If you do, and if you live in the United States, the European Union, or Japan, then you are a victim of your country’s protectionist policies toward sugar.
A single firm’s innovations in production technology often benefit the production of other firms because these other firms learn about the new technology and can use some of the ideas in their own
Can you describe plausible conditions under which a nation would benefit from subsidizing imports of a good?
“The infant industry argument is not really an argument for a tariff on imports of a product.” Do you agree or disagree? Why?
Do you favor or oppose the government policy of offering extra adjustment assistance to workers displaced by increasing imports? Why?
Elected legislative representatives are considering enacting a quota on imports of baseball bats, with the rights to import the quota amount of bats to be given for free to the three companies that
In Chapter 2 we introduced the one-dollar, one-vote metric. If political decisions in a small country about imposing tariffs were based on this metric, how many tariffs would this country have?
A country currently has free trade in men’s t-shirts, and the country imports half of its total domestic consumption. The government of the country has fully committed to the goal of reducing the
Dumping laws and antidumping procedures sound technical and boring. The firms that use antidumping complaints to get protection from imports like it that way. Nobody else is much interested in
What are the two official definitions of dumping ?
“U.S. antidumping policy uses its injury test to ensure that antidumping duties imposed by the U.S. government enhance U.S. national well-being.” Do you agree or disagree? Why?
Which of the following three beverage exporters is dumping in the U.S. market? Which is not? How do you know? (Japan) $10 10 Average cost Price charged at the brewery for domestic sales Banzal
What is persistent dumping? Does an exporter lose profit because of the low export price? Does persistent dumping harm the importing country?
What would happen to world welfare if the United States paid exporters a subsidy of $$5$ for every pair of blue jeans they sold to Canada, but Canada charged a $$5$ countervailing duty on every
In the Airbus-versus-Boeing example in Figure 11.7, what strategy should the EU governments follow if the upper-left box ( a ) gives Airbus and Boeing each a sure gain of 5 or ( b ) gives Boeing a
You have been hired to write a defense of the idea of having a government plan to subsidize the expansion of an export-oriented industry, taking resources away from the rest of the economy. Describe
Following the Schuman Plan, “the six” (Belgium, France, West Germany, Italy, the Netherlands, and Luxembourg) set up the European Coal and Steel Community.Meanwhile, Benelux is formed by Belgium,
How are trade creation and trade diversion defined, and what roles do they play in the world gains and losses from a trade bloc?
Homeland is about to join Furrinerland in a free-trade area. Before the union, Homeland imports 10 million DVD recorders from the outside-world market at $$100$ and adds a tariff of $$30$ on each
Suppose that the United States currently imports 1.0 million pairs of shoes from China at $$20$ each. With a 50 percent tariff, the consumer price in the United States is $$30$.The price of shoes
In a presentation about Serbia’s future entry into the European Union, the speaker indicates that the effects of trade creation will be equal to about 2 percent of Serbia’s GDP, the effects of
Draw a graph like Figure 12.3B. Initially the embargo is the one shown in this graph.Then, half of the nonembargoing countries switch and become part of the embargo.Use your graph to show how this
Which of the following trade policy moves is most certain to bring gains to the world as a whole: ( a ) imposing a countervailing duty against an existing foreign export subsidy,( b ) forming a
Does a rise in national production and income per capita tend to worsen or improve air pollution, water pollution, and sanitation? Explain.
Which of the following probably violate the rules of the WTO?a. A country’s government places a tax on domestic production to reduce pollution caused by this production.b. A country’s government
Oil spills from oceangoing tankers are rare but bring huge damages to coastlines when they occur within 200 miles of shore. Unfortunately, most tanker spills do occur on or near coasts. Rank the
Which of the following would do most to cut the global buildup of carbon dioxide over the next 30 years?a. Elimination of all subsidies to energy use.b. Restoration of the original tropical rain
Use your no. 2 pencil to write down your views on this trade-and-environment debate:According to the Rainforest Action Network (RAN), a rain-forest wood called jelutong is being logged at a dangerous
Draw a graph like the one in Figure 13.5, which shows the effects of transborder pollution.There is no governmental agreement on how to control the pollution, so the German firm is dumping 180 tons
Rhinoceroses are an endangered species. Worldwide, the number of rhinos has decreased 90 percent in the past 50 years, to about 28,000. Since 1977, CITES has had a ban on international trade in rhino
In 1989, a massive transition from central planning to market economies began in the formerly socialist countries of Central and Southeastern Europe. With the breakup of the Soviet Union in 1991, the
List the main pros and cons of taking the import-replacing road to industrialization versus concentrating government aid and private energies on developing new manufacturing exports.
“The terms of trade move against primary producers in the long run.” What is the evidence in support of this proposition? How solid is the evidence?
The United States, China, India, Brazil, and Turkey are forming an international association known as Tobacco’s Altruistic Raisers (TAR) to increase the world price of tobacco.TAR’s members
Consider Figure 14.3, which shows what a cartel can do if it can act as a monopolist.In Figure 14.3, the cartel supplies the entire world market.a. What is the effect on the cartel’s
“As long as increasing exports of less-skilled-labor-intensive manufactured products are leading to rising employment and rising real wages for its workers, a developing country has no interest in
Some developing countries (including Ghana) are encouraging development of local production of basic business services like call centers and data entry, to become an important destination for
In 2008 India and Vietnam restricted their rice exports to prevent increases in their domestic rice prices, and world rice prices temporarily tripled. In 2011 the government of Thailand, at that time
Our discussion in the text stresses that multinationals succeed by using their firm-specific advantages throughout their global operations. We have also noted that most foreign direct investments are
It is widely suspected that immigrants are a fiscal burden, swelling the rolls of those receiving public assistance, using public schools, and raising police costs more than they pay back in taxes.
“Most FDI is made to gain access to low-wage labor.” Do you agree or disagree? Why?
“Multinational enterprises often establish affiliates using little of their own financial capital because they want to reduce their exposure to risks.” Do you agree or disagree? Why?
Why does much FDI occur in such industries as pharmaceuticals and electronic products, while little FDI occurs in such industries as clothing and paper products?
A firm has affiliates in both Japan, whose corporate income tax rate is 40 percent, and Ireland, whose corporate income tax rate is 15 percent. The major activity of the Irish affiliate is to produce
A country currently prohibits any FDI into the country. Its government is considering liberalizing this policy. You have been hired as a consultant to a group of foreign firms that want to see the
“As Chinese companies expand their FDI into the United States by establishing new affiliates and expanding existing affiliates, U.S. imports from China will tend to decrease.” Do you agree or
“The size of remittances can affect the conclusion about whether or not a sending country gains from international migration.” Do you agree or disagree? Why?
For each of the following observed changes in wage rates and migration flows from the low-wage South to the high-wage North, describe one shift in conditions that, by itself, could have caused the
Review the areas of gain and loss to different groups in Figure 15.4. Why do the migrants gain only areas e and f ? Why don’t they each gain the full southern wage markup ($$3.20$ − $$2.00$)?
Japan currently has a very low rate of immigration because of very restrictive Japanese government policy. You are trying to convince your Japanese friend that Japan should change its laws to permit
Your Japanese friend, from Question 17, is skeptical. What are her three strongest arguments that Japan should continue its policy of permitting little immigration?Data From Question 17Japan
Which of the following kinds of immigrants probably contributed the greatest net taxes, after deducting public-assistance and similar payments, to the U.S. government?Which probably contributed the
What is the current account balance of a nation with a government budget deficit of $$128$ billion, private saving of $$806$ billion, and domestic capital formation of$$777$ billion?
“National saving can be used domestically or internationally.” Explain the basis for this statement, including the benefits to the nation of each use of its saving.
Which of the following transactions would contribute to a U.S. current account surplus?a. Boeing barters a $$100$ million plane to Mexico in exchange for $$100$ million worth of hotel services on
“For a country that has a surplus in its current account and wants to reduce this surplus, one way to do so would be to encourage its people to save more and spend less.” Do you agree or disagree
Which of the following can effectively provide financing for a country’s current account deficit?a. Residents of the country sell foreign government bonds (that they had previously purchased) to
For the past year, a country has $$200$ million of exports of goods and services, $$160$ million of imports of goods and services, $$60$ million of income received from foreigners, and
What are the effects of each of the following on the U.S. international investment position?a. Foreign central banks increase their official holdings of U.S. government securities.b. U.S. residents
One of the currencies shown in Figure 17.1 was not there in the mid-1990s. On January 1, 1999, a major new currency, the euro (€ ), was born. The European Union (EU) created the euro, and 11 of the
In 2013, foreign exchange trading was an astounding $5 trillion per day. It is difficult to comprehend how large this number is. One comparison offers some guidance. In less than four days the amount
What has happened to the exchange-rate value of the dollar in each case?a. The spot rate goes from $$1.25$/SFr to $$1.30$/SFr.b. The spot rate goes from SFr 0.80/$ to SFr 0.77/$.c. The spot rate
A British bank has acquired a large number of dollars in its dealings with its clients.How could this bank use the interbank foreign exchange market if it was unwilling to continue holding these
For each of the following, is it part of demand for yen or supply of yen in the foreign exchange market?a. A Japanese firm sells its U.S. government securities to obtain funds to buy real estate in
The spot exchange rate between the dollar and the Swiss franc is a floating, or flexible, rate. What are the effects of each of the following on this exchange rate?a. There is a large increase in
You are a foreign exchange trader and you receive the following two quotes for spot trading:• Bank A is willing to trade at $1.50 per Swiss franc.• Bank B is willing to trade at 0.50 Swiss franc
George Soros was born Dzjchdzhe Shorask (pronounced “Shorosh”) in Budapest in 1930. The son of a lawyer, he became a global investment superstar, with a net worth in 2014 estimated at about
The Eurocurrency market is a worldwide wholesale money market of enormous scope, one beyond the easy control of any government. The traditional definition of a Eurocurrency deposit is a bank deposit
“For an investment in a foreign-currency-denominated financial asset, part of the return comes from the asset itself and part from the foreign currency.” Do you agree or disagree?Explain.
Explain the nature of the exchange-rate risk for each of the following, from the perspective of the U.S. firm or person. In your answer, include whether each is a long or short position in foreign
The current spot exchange rate is $$0.50$/SFr. The current 180-day forward exchange rate is $$0.52$/SFr. You expect the spot rate to be $$0.51$/SFr in 180 days. How would you speculate using a
You have access to the following rates:Current spot exchange rate: $$0.0100$/yen Current 180-day forward exchange rate: $$0.0105$/yen 180-day U.S. interest rate (on dollar-denominated assets):
The following rates exist:Current spot exchange rate: $1.80/£Annualized interest rate on 90-day dollar-denominated bonds: 8% (2% for 90 days)Annualized interest rate on 90-day pound-denominated
Here are today’s rates:Spot exchange rate: 3.20 Polish zloty per U.S. dollar 6-month forward exchange rate: 3.24 Polish zloty per U.S. dollar.You expect the spot exchange rate in 6 months to be
The following exchange rates exist on a particular day.Spot exchange rate: U.S. $$1.400$/euro Forward exchange rate (90 days): U.S. $$1.427$/euro The following (annualized) interest rates on
Something like the purchasing power parity theory has existed throughout the modern history of international economics. The theory keeps resurfacing whenever exchange rates have become more variable
There is tremendous social importance to international comparisons of income or production levels. To judge which countries are most in need of United Nations aid, World Bank loans, and other help,
“Short-run pressures on market exchange rates result mainly from gradual changes in flows of international trade in goods and services.” Do you agree or disagree? Why?
The current rates are:Spot exchange rate: $2.00/£.Annual interest rate on 60-day U.S. dollar–denominated bonds: 5%.Annual interest rate on 60-day pound-denominated bonds: 11%.Investors currently
As a foreign exchange trader, how would you react to each of the following news items as it flashes on your computer screen?a. Mexico’s oil reserves prove to be much smaller than touted earlier.b.
For your next foreign vacation, would it be better to go to a country whose currency is overvalued relative to PPP or one whose currency is undervalued relative to PPP(other attractions being equal)?
Mexico currently has an annual domestic inflation rate of about 20 percent. Suppose that Mexico wants to stabilize the floating market exchange-rate value of its currency(dollars/peso) in a world in
In 1990, the price level for the United States was 100, the price level for Pugelovia was also 100, and in the foreign exchange market one Pugelovian pnut (pronounced“p’noot”) was equal to $1.
Here is further information on the U.S. and Pugelovian economies.a. What is the value of k for the United States in 1990? For Pugelovia?b. Show that the change in price level from 1990 to 2013 for
Consider our example of overshooting shown in Figure 19.6, in which the domestic money supply increased by 10 percent. Assume that the path of slow adjustment of prices is that the price level rises
The price levels in Canada and Switzerland were each 110 in 1995, and the nominal spot rate was 1.5 Swiss francs per Canadian dollar in 1995. The Canadian price level rose to be 160 in 2005, the
Consider an effective exchange rate value of the euro in which the Canadian dollar gets a weight of 60 percent and the Japanese yen gets a weight of 40 percent. The nominal bilateral rates change
What is the difference between a clean float and a managed float?
For a country that is attempting to maintain a fixed exchange rate, what is the difference between a temporary disequilibrium and a fundamental disequilibrium? Contrast the implications of each type
A government has just imposed a total set of exchange controls to prevent the exchange-rate value of its currency from declining. What effects and further developments do you predict?

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