Washburn University

BU 355

TRUE/FALSE QUESTIONS

Chapter 7: Test

1)Subsidies are a trade policy instrument.

2. Import tariffs protect domestic producers against foreign competitors.

3. By lowering production costs, subsidies help foreign competitors gain export markets.

4. In recent decades, a fall in subsidies, quotas, and voluntary export restraints has been accompanied by a rise in tariff barriers.

5. Specific tariffs are levied as a proportion of the value of the imported good.

6. Government intervention in international trade can take the form of reducing restrictions on imports and encouraging foreign direct investment.

7. Political arguments for government intervention are usually concerned with protecting consumer interests within the country.

8. Governments can protect consumers from unsafe products by issuing a limit or a ban on such products.

9. Some countries argue that government intervention to protect certain domestic industries can compromise national security.

10. The Common Agricultural Policy (CAP) established by the European Union was designed to reduce prices of domestic produce and protect consumers from unfair premiums.

11. The main gains from subsidies accrue to importers, whose international competitiveness is increased as a result of these subsidies.

12. According to Alexander Hamilton, governments must temporarily support new industries until they have grown strong enough to meet international competition.

13. According to Paul Krugman, a country that adopts a strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry will probably provoke retaliation.

14. Both import quotas and voluntary export restraints (VERs) benefit domestic producers by limiting import competition.

15. The Buy America Act specifies that government agencies must give preference to American products when putting contracts for equipment out for bid unless the foreign products have a significant advantage.

16. Dumping is variously defined as selling goods in a foreign market at below their costs of production, or as selling goods in a foreign market at below their "fair" market value.

17. Paul Krugman asserts that a strategic trade policy is almost certain to be captured by special-interest groups within the economy, who will distort it to their own needs.

18. The strategic trade policy arguments of the new trade theorists suggest an economic justification for government intervention in international trade and this justification challenges the rationale for unrestricted free trade.

19. Paul Krugman argues that although strategic trade policy looks unappealing in theory, in practice it is most likely to be workable.

20. Free trade as a government policy was first officially embraced by Germany in 1846, when the Bundestag repealed the Corn Laws.

21. The Smoot-Hawley Act aimed to liberalize trade by eliminating tariffs, subsidies, and import quotas.

22. Pressures for greater protectionism increased around the world during the 1980s and early 1990s due to the strain caused by the persistent trade deficit in the world's largest economy, Japan.

23. One of the reasons for the trend toward greater protectionism was that many countries found ways to get around GATT regulations.

24. In the Uruguay Round of the WTO, member countries sought to exempt trade in services from GATT rules.  Governments of developed nations are setting an example by unilaterally lowering their trade barriers.
25. Antidumping actions seem to be concentrated in certain sectors of the economy such as basic metal industries (e.g., aluminum and steel), chemicals, plastics, and machinery and electrical equipment.

26. Trade barriers encourage firms to disperse their productive activities—design, production, and assembly—to foreign nations.