Unit 5

Question 1

Trade barriers

Answer 1

Tariff, Quota, Embargo, Subsidy

Question 2

Tariff

Answer 2

Tax on imported goods

Question 3

Protective tariff

Answer 3

Used to protect domestic industries

Question 4

Revenue tariff

Answer 4

Used exclusively to generate gov revenue

Question 5

Quota

Answer 5

Limit on the amount of goods that can be imported

Question 6

Embargo

Answer 6

Gov order which completely blocks all trade with a particular country (political)

Question 7

Subsidy

Answer 7

A direct payment to domestic industry designed to increase exports or to project that industry

Question 8

Effects of tariffs and quotas

Answer 8

Increased price on imported goods
Reallocate resources to inefficient producers
Hinder innovation and technological improvements that lower costs

Question 9

Free trade

Answer 9

Free flow of goods and services between countries without any restrictions or barriers

Question 10

Free trade benefits

Answer 10

Access to more markets for exports
More variety of goods and services
Lower prices for consumers
Specialization: allows countries to focus resources on products in which they hold a competitive advantage

Raises real incomes of all trading partners

As free trade increases poverty decreases

Question 11

Free trade costs

Answer 11

Increase competition and elimination of non-efficient firms
Shifts jobs to cheaper labor markets resulting in job loss or gains
Differences in standards among products

Question 12

Changes in exchange rates

Answer 12

Increased supply of currency = decreased exchange rate
Decreased supply of currency= increased exchange rate
Increased demand for currency= increased exchange rate
Decreased demand for currency= decreased exchange rate

Question 13

Appreciation

Answer 13

Currency has become more valuable compared to another

Increased exchange rate

Question 14

Depreciation

Answer 14

Occurs when the exchange rate of a currency decreases

When one country appreciates the other depreciates

Question 15

Is depreciation bad?

Answer 15

Not really
If the US dollar depreciates foreign investment goes up
Increased net exports
Decreased imports
Increased AD

Question 16

FOREX Shifters

Answer 16

1)Change in tastes
Ex) British tourists flock to US
Dollar demand increase, Pounds supply decrease

2)Changes in relative incomes (results in more imports)
US buys more imports
US demand for pounds appreciates

3) Changes in relative PL (inflation) (more imports)
US prices increase, US demand for cheaper imports increase, US demand for pounds increase, US supply of dollar decrease

4) Changes in relative interest rates
US had a higher interest rates, British people want to put $ in US Banks, capital flow increase towards US, British demand for dollar appreciates, British supply of pounds depreciates

Question 17

Fixed exchange rate

Answer 17

Gov actively manages the country’s currency

Question 18

Floating exchange rate

Answer 18

US

The market determines the value of a country’s currency

Question 19

Protectionism

Answer 19

Is the practice of limiting trade to protect domestic industries

Tariffs, import quotas

Question 20

Low exchange rates =

Answer 20

More exports

Question 21

Higher interest rates =

Answer 21

Exports low

Question 22

Capital Account

Answer 22

Investments

Question 23

Current account

Answer 23

Donations to other countries, sending money to friends in other countries