Chapter 17 "Resources for Global (International Trade) Test Review

Question 1

List the four reasons nations trade.

Answer 1

1. unequal distribution of resources
2. different levels of tech
3. lack of raw materials
4. specialization

Question 2

Define the difference between exports and imports.

Answer 2

Exports - things coming out (made in America sent to another country)
Imports - things coming in (made in another country sent to America)

Question 3

Define absolute advantage.

Answer 3

Ability to produce more of a good using the same resources as another country

Question 4

What is a PPC?

Answer 4

Shows all combinations of 2 “goods” which can be provided if resources are used efficiently

Question 5

Define comparative advantage.

Answer 5

Ability to produce a good at a lower opportunity cost

Question 6

List some other benefits of international trade.

Answer 6

• bring stability between countries (ex. US & Japan)
• economic growth
• generate jobs
• consumers have more (bigger consumption)

Question 7

What are two major ways trade has been restricted?

Answer 7

• Tariffs - tax on imports to increase price in domestic
• Quota - limit on an amount of a good to be imported. Reduces supply of product to keep prices from falling.

Question 8

Define the difference between protective tariff and a revenue tariff.

Answer 8

Protective Tariff - tariff high enough to protect domestic (at home) industries.
Revenue Tariff - tariff high enough to generate revenue for government without actually prohibiting imports

Question 9

List other barriers to trade and explain.

Answer 9

• embargo - government order prohibiting movement of goods to a country
• inspections - imported foods are inspected more rigorously than domestic foods
• licenses - required to import if the government is slow in granting license or the fees too high, trade is restricted
• health concern - countries concerned of genetically altered crops/animals & refuse to allow this imported into their country
• nationalism & culture - some countries prefer own foods instead of food grown somewhere else.

Question 10

Explain the difference between protectionists and free traders.

Answer 10

Protectionists - favor trade barriers to protect domestic industries
Free Traders - prefer fewer or even no restrictions to trade

Question 11

Discuss the SIX arguments for protectionism.

Answer 11

1. National defense (security) - too dependent on other countries
2. Protecting infant industries - new (young) industries need to gain strength and experience before competing globally
3. Protecting jobs at home - protection from cheap foreign labor
4. Keep money at home - limiting imports will keep American money at home instead of allowing it to go to other countries (BIG argument)
5. Balance of payments - difference between money going out and in (another argument)
6. National pride - pride in “your” product (ex: France - wine and cheese)

Question 12

Explain the Smoot-Harley Tariff Act of 1930.

Answer 12

Act signed on June 17, 1930 by Herbert Hoover
Goal - protect American farmers against agricultural imports.
Raised prices 50% (HIGHEST PROTECTIVE TARIFF IN HISTORY) adding considerable strain to international economic climate of Great Depression

Question 13

What was the Reciprocal Trade Agreements Act?

Answer 13

(1934) - signed by Franklin D. Roosevelt. Authorized the US to lower tariff rates by 50% as long as other country involved lower tariffs as well.

Question 14

Explain NAFTA (North American Free Trade Agreement)

Answer 14

President at time was Bill Clinton. Signed by Canada, Mexico, and U.S
- trilateral trade bloc
- Into force on Jan. 1st, 1994 under Bill Clinton creating world’s LARGEST FREE TRADE AGREEMENT AT THAT TIME!!!!!!!!!!(bigger than EU AT THAT TIME)

Question 15

NAFTA has been replaced by what?

Answer 15

USMCA (signed by Donald Trump in 2019) - keep tariffs at 0 while opening Canadian market. Delivered more jobs and better labor protections

Question 16

What is the LARGEST FREE TRADE ZONE in the world today.

Answer 16

EU-Japan

Question 17

List the TOP FIVE ECONOMIES in the world today.

Answer 17

1. America
2. China
3. Japan
4. Germany
5. India

Question 18

What is a Free Trade Zone?

Answer 18

geographical area where foreign companies can freely trade with one another

Question 19

What may be a problem when traveling in a foreign country?

Answer 19

Unable to purchase goods using American dollars

Question 20

Define foreign exchange rate.

Answer 20

Rate at which one currency can be converted into another (also called rate of exchange)

Question 21

How do you convert?

Answer 21

• Foreign currency to American currency - divide
• American to foreign currency - multiply

Question 22

Explain the difference between a fixed exchange rate and a flexible (floating) exchange rate.

Answer 22

Fixed exchange rate - currency system in which price of 1 currency is FIXED against one another
Flexible (floating) exchange rate - currency system that allows exchange rate to be determined by market (supply/demand)

Question 23

What are the United States’ FOUR largest trading partners?

Answer 23

• China
• Japan
• Canada #1
• Mexico

Question 24

Define balance of trade.

Answer 24

Relationship between imports and exports

Question 25

Define trade surplus.

Answer 25

(positive balance) consists of exporting more than is imported

Question 26

Define trade deficit.

Answer 26

(Negative balance) also know as trade gap - consists of a country importing more than it exports

Question 27

Strong dollar vs. weak dollar

Answer 27

Strong dollar - foreign goods less expensive for consumers in U.S leading consumers to purchase imported goods Weak dollar - foreign consumers can better afford goods made in US and foreign goods become more expensive for consumers in US, so imports likely to decrease.