Module 17.2: Trade Restrictions

Question 1

What are two reasons to support trade restriction?

Answer 1

1) Infant industry - protect new industries from international competition
2) National security - may be in countries best interest to protect producers of goods crucial to the countries defense

Question 2

What are quotas, export subsidies, minimum domestic content, and voluntary export restraint?

Answer 2

quotas - limits on the amount of imports allowed

export subsidies - government payments to firms that export goods

minimum domestic content - requirement that some percentage of product content must be from the domestic country.

voluntary export restraint - a country voluntarily restrics the amount of a good that can be exported, often in the hope of avoiding tariffs or quotas imposed by their trading partners.

Question 3

What are the effects of all four of these protectionist policies?

Answer 3

1) reduce imports
2) increase price
3) decrease consumer surplus
4) increase domestic quantity supplied
5) increase produce surplus

Question 4

What is the affect of capital restrictions on economic welfare?

Answer 4

Thought is to decrease economic welfar, however, over the short term they have helped developing countries avoid the impact of great inflows of foreign capital.

Question 5

What are free trade areas?

Answer 5

All barrier and export of goods and services among member countries are removed?

Question 6

What is a customs union?

Answer 6

All barriers to import and export of goods and services are removed

All countries adopt a common set of trade restrictions with non-members

Question 7

What is a common market?

Answer 7

All barriers to import and export of goods and services are removed

All countries adopt a common set of trade restrictions with non-members

All barriers to the movement of labor and capital goods among member countries are removed.

Question 8

What is an economic union?

Answer 8

All barriers to import and export of goods and services are removed

All countries adopt a common set of trade restrictions with non-members

All barriers to the movement of labor and capital goods among member countries are removed.

Member countries establish common institutions and economic policy

Question 9

What is a Monetary union?

Answer 9

All barriers to import and export of goods and services are removed

All countries adopt a common set of trade restrictions with non-members

All barriers to the movement of labor and capital goods among member countries are removed.

Member countries establish common institutions and economic policy

Member countries adopt a single currency.

Question 10

What are the four objectives of placing restrictions on flow of investment capital into their country, out of their country, or both?

Answer 10

1) Reduce the volatility of domestic asset prices
2) Maintain fixed exchange rates
3) Keep domestic interest rates low
4) Protect strategic industries

Question 11

What three sub accounts comprise the current account?

Answer 11

1) Merchandise and services
2) Income receipts
3) Unilateral transfers - one way asset transfers

Question 12

What two sub accounts comprise the capital account?

Answer 12

1) Capital transfers

2) Sales and purchases of non-financial assets

Question 13

What two sub accounts comprise the financial account?

Answer 13

1) Government-owned assets abroad

2) Foreign-owned assets in the country

Question 14

What is the formula for the relation between the trade deficit, saving, and domestic investment?

Answer 14

X - M = private savings + government savings - investment

Question 15

What are the main goals of the International Monetary Fund?

Answer 15

1) Promoting international monetary cooperation’s
2) Facilitating the expansion and balanced growth of international trade
3) promoting exchange stability
4) assisting in the establishment of multilateral system of payments
5) making resources available

Question 16

What is the main goal of the world bank?

Answer 16

vital source of financial and technical assistance to developing countries around the world.

Question 17

What are the main goals of the world trade organization?

Answer 17

only international organization dealing with the global rules of trade between nations.