Midterm

Question 1

A physical restriction on the quantity of goods that can be imported during a specific time period.

Answer 1

absolute quota

Question 2

An approach to currency depreciation that deals with the income effects of depreciation; a decrease in domestic expenditures relative to income must occur for depreciation to promote payments equilibrium, according to the absorption approach.

Answer 2

absorption approach

Question 3

A tariff expressed as a fixed percentage of the value of the imported product.

Answer 3

ad valorem (of value) tariff

Question 4

A tariff expressed as a fixed percentage of the value of the imported product.

Answer 4

Ad valorem tariff

Question 5

A system of semifixed exchange rates where it is understood that the par value of the currency will be changed occasionally in response to changing economic conditions.

Answer 5

adjustable pegged exchange rates

Question 6

A mechanism that works to return a balance of payments to equilibrium after the initial equilibrium has been disrupted; the process takes two different forms: automatic (economic processes) and discretionary (government policies).

Answer 6

adjustment mechanism

Question 7

Includes those of North America and Western Europe, plus Australia, New Zealand, and Japan.

Answer 7

advanced nations

Question 8

A rich country specializes in manufacturing niches and gains productivity through groups of firms clustered together, some producing the same product and others connected by vertical linkages.

Answer 8

agglomeration economies

Question 9

A duty levied against commodities a home nation believes are being dumped into its markets from abroad.

Answer 9

antidumping duty

Question 10

(as applied to currency markets) When, over a period of time, it takes fewer units of a nation’s currency to purchase one unit of a foreign currency.

Answer 10

appreciation

Question 11

A method of determining short-term exchange rates where investors consider two key factors when deciding between domestic and foreign investments; relative levels of interest rates and expected changes in the exchange rate itself over the term of the investment.

Answer 11

asset market approach

Question 12

A case of national self-sufficiency or absence of trade.

Answer 12

autarky

Question 13

(of the balance-of-payments process) A mechanism that works to return a balance of payments to equilibrium automatically through the adjustments in economic variables.

Answer 13

automatic adjustment

Question 14

A statement that summarizes a country’s stock of assets and liabilities against the rest of the world at a fixed point in time.

Answer 14

balance of international indebtedness

Question 15

A record of the flow of economic transactions between the residents of one country and the rest of the world.

Answer 15

balance-of-payments

Question 16

Why nations export and import certain products.

Answer 16

basis for trade

Question 17

The practice of imposing protectionist policies to achieve gains from trade at the expense of other nations.

Answer 17

beggar-thy-neighbor policy

Question 18

cA customs union formed in 1948 that includes Belgium, the Netherlands, and Luxembourg.

Answer 18

Benelux

Question 19

The price that the bank is willing to pay for a unit of foreign currency.

Answer 19

bid rate

Question 20

A storage facility operated under the lock and key of (in the case of the United States) the U.S. Customs Service.

Answer 20

bonded warehouse

Question 21

Emigration of highly educated and skilled people from developing nations to industrial nations.

Answer 21

brain drain

Question 22

A new international monetary system created in 1944 by delegates from 44 member nations of the United Nations that met at Bretton Woods, New Hampshire.

Answer 22

Bretton Woods system

Question 23

Supplies of a commodity financed and held by a producers’ association; used to limit commodity price swings.

Answer 23

buffer stock

Question 24

When a home nation’s government, through explicit laws, openly discriminates against foreign suppliers in its purchasing decisions.

Answer 24

buy national policies

Question 25

Gives the holder the right to buy foreign currency at a specified price.

Answer 25

call option

Question 26

The net result of both private sector and official capital and financial transactions.

Answer 26

capital and financial account

Question 27

Government imposed barriers to foreign savers investing in domestic assets or to domestic savers investing in foreign assets; also known as exchange controls.

Answer 27

Capital controls

Question 28

A country's ratio of capital inputs to labor inputs.

Answer 28

Capital-labor ratio

Question 29

A country's ratio of capital inputs to labor inputs.

Answer 29

capital/labor ratio

Question 30

A group of firms or nations that attempts to support prices higher than would exist under more competitive conditions.

Answer 30

cartel

Question 31

When free-market forces of supply and demand are allowed to determine the exchange value of a currency.

Answer 31

clean float

Question 32

Measures the relation between the prices a nation gets for its exports and the prices it pays for its imports.

Answer 32

commodity terms of trade

Question 33

Members of the European Union agree to maintain identical governmental agricultural policies to support farmers.

Answer 33

common agricultural policy

Question 34

A group of trading nations that permits the free movement of goods and services among member nations, the initiation of common external trade restrictions against nonmembers, and the free movement of factors of production across national borders within the economic bloc.

Answer 34

common market

Question 35

A situation in which a country produces only one good.

Answer 35

complete specialization

Question 36

A tariff that is a combination of a specific tariff and an ad valorem tariff.

Answer 36

compound tariff

Question 37

The standards imposed by the IMF on borrowing countries to qualify for a loan that can include requirements that the borrowers initiate programs to correct economic difficulties, adopt austerity programs to shore up their economies, and put their muddled finances in order.

Answer 37

conditionality

Question 38

In the case of an MNE, diversification into nonrelated markets.

Answer 38

conglomerate integration

Question 39

A constant rate of sacrifice of one good for another as a nation slides along its production possibilities schedule.

Answer 39

constant opportunity costs

Question 40

The difference between the amount that buyers would be willing and able to pay for a good and the actual amount they do pay.

Answer 40

Consumer surplus

Question 41

A trade restriction's loss of welfare that occurs because of increased prices and lower consumption.

Answer 41

consumption effect

Question 42

Post-trade consumption points outside a nation's production possibilities schedule.

Answer 42

consumption gains

Question 43

Economic standards required of all nations in a monetary union; in the instance of the Maastricht Treaty, these standards included price stability, low long-term interest rates, stable exchange rates, and sound public finances.

Answer 43

convergence criteria

Question 44

Fuel economy standards imposed by the U.S. government on automobile manufacturers.

Answer 44

corporate average fuel economy (CAFE) standards

Question 45

When a foreign company sells a product in the U.S. market at a price below average total cost.

Answer 45

cost-based definition

Question 46

When a foreign company sells a product in the U.S. market at a price below average total cost.

Answer 46

Cost-based definition of dumping

Question 47

When ad valorem tariffs are levied as a percentage of the imported commodity's total value as it arrives at its final destination.

Answer 47

cost-insurance-freight (CIF) valuation

Question 48

A levy imposed by importing countries to counteract foreign export subsidies; the size of the duty is limited to the amount of the export subsidy.

Answer 48

countervailing duty

Question 49

Risk associated with political developments in a country, especially the government's views concerning international investments and loans.

Answer 49

Country risk

Question 50

A process that multinational corporations and banks carry out to help them decide whether to do business abroad

Answer 50

country risk analysis

Question 51

The process of moving funds into foreign currencies to take advantage of higher investment yields abroad while avoiding exchange rate risk.

Answer 51

Covered interest arbitrage

Question 52

A system in which a nation makes small, frequent changes in the par value of its currency to correct balance-of-payments disequilibriums.

Answer 52

crawling peg

Question 53

The probability that part or all of the interest or principal of a loan will not be repaid.

Answer 53

Credit risk

Question 54

A balance of payments transaction that results in a receipt of a payment from foreigners.

Answer 54

credit transaction

Question 55

The resulting rate derived when the exchange rate between any two currencies can be derived from the rates of these two currencies in terms of a third currency.

Answer 55

cross exchange rate

Question 56

A monetary authority that issues notes and coins convertible into a foreign anchor currency at a fixed exchange rate.

Answer 56

currency board

Question 57

Financial crises that often end in currency devaluations or accelerated depreciations.

Answer 57

currency crashes

Question 58

A situation in which a weak currency experiences heavy selling pressure, also called a speculative attack.

Answer 58

currency crisis

Question 59

Investment risk associated with currency depreciations and appreciations as well as exchange controls.

Answer 59

Currency risk

Question 60

The conversion of one currency to another currency at one point in time, with an agreement to reconvert it to the original currency at a specified time in the future.

Answer 60

currency swap

Question 61

The net value of monetary flows associated with transactions in goods and services, investment income, employee compensation, and unilateral transfers.

Answer 61

current account

Question 62

An agreement among two or more trading partners to remove all tariff and nontariff trade barriers among themselves; each member nation imposes identical trade restrictions against nonparticipants.

Answer 62

customs union

Question 63

The process of determining the value of an imported product.

Answer 63

customs valuation

Question 64

The net loss of economic benefits to a domestic economy because of the protective and consumption effect of a trade barrier.

Answer 64

deadweight loss

Question 65

A balance of payments transaction that leads to a payment to foreigners.

Answer 65

debit transaction

Question 66

Any arrangement that reduces the value of contractual obligations of the debtor nation.

Answer 66

debt forgiveness

Question 67

Any voluntary scheme that lessens the burden on the debtor nation to service its external debt.

Answer 67

Debt reduction

Question 68

The scheduled interest and principal payments as a percentage of export earnings.

Answer 68

debt service/export ratio

Question 69

When a commercial bank sells its loans at a discount to the debtor-nation's government for local currency that it then uses to finance an equity investment in the debtor nation.

Answer 69

Debt/equity swap

Question 70

When a commercial bank sells its loans at a discount to the debtor-nation's government for local currency that it then uses to finance an equity investment in the debtor nation.

Answer 70

debt/equity swaps

Question 71

The requirement for international reserves; depends on two related factors: (1) the monetary value of international transactions and (2) the disequilibrium that can arise in balance-of-payments positions; the requirements for international reserves include assets such as key foreign currencies, special drawing rights, and drawing rights at the International Monetary Fund.

Answer 71

demand for international reserves

Question 72

When a nation's capacity to produce has been achieved, and further increases in aggregate demand pull prices upward.

Answer 72

demand-pull inflation

Question 73

Occurred in the 1970s when the official price of gold was abolished as the unit of account for the international monetary system.

Answer 73

demonetization of gold

Question 74

(as applies to currency markets) When, over a period of time, it takes more units of a nation's currency to purchase one unit of a foreign currency.

Answer 74

depreciation

Question 75

Occurs when speculators expect a current trend in exchange rates to continue and their transactions accelerate the rise or fall of the target currency's value.

Answer 75

Destabilizing speculation

Question 76

An official change in a currency's par value, that causes the currency's exchange value to depreciate.

Answer 76

devaluation

Question 77

Most nations in Africa, Asia, Latin America, and the Middle East.

Answer 77

developing nations

Question 78

Consist of government restrictions on the market economy.

Answer 78

Direct controls

Question 79

A condition under a managed floating system when free-market forces of supply and demand are not allowed to achieve their equilibrating role; countries may manage their exchange rates to improve the competitiveness of their producers.

Answer 79

dirty float

Question 80

The valuation of a currency when it is worth less in the forward market than in the spot market.

Answer 80

discount

Question 81

The most recent round of multilateral trade negotiations under the World Trade Organization.

Answer 81

Doha Round

Question 82

Occurs when residents of a foreign country use the U.S. dollar alongside or instead of their domestic currency.

Answer 82

Dollarization

Question 83

Requirements that stipulate the minimum percentage of a product's total value that must be produced domestically if the product is to qualify for zero tariff rates.

Answer 83

domestic content requirements

Question 84

A subsidy that is sometimes granted to producers of import-competing goods.

Answer 84

domestic production subsidy

Question 85

The amount of tariff revenue shifted from domestic consumers to the tariff-levying government.

Answer 85

domestic revenue effect

Question 86

A system of accounting in which each credit entry is balanced by a debit entry, and vice versa, so that the recording of any transaction leads to two offsetting entries.

Answer 86

double entry accounting

Question 87

When foreign buyers are charged lower prices than domestic buyers for an identical product after allowing for transportation costs and tariff duties.

Answer 87

Dumping

Question 88

A changing pattern in comparative advantage; governments can establish policies to promote opportunities for changes in comparative advantage over time.

Answer 88

dynamic comparative advantage

Question 89

Effects that relate to member nations' long-term rates of growth, that includes economies of scale, greater competition, and investment stimulus.

Answer 89

dynamic effects of economic integration

Question 90

The effect of trade on the country's growth rate and thus on the volume of additional resources made available to, or utilized by, the trading country.

Answer 90

dynamic gains from international trade