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Lecture 3 – THE STANDARD TRADE MODEL

MULTIPLE CHOICE

1. If PC/PF were to increase,

(a) the cloth exporter would increase the quantity of cloth exports.

(b) the cloth exporter would increase the quantity of cloth produced.

(c) the food exporter would increase the quantity of food exports.

(d) Both (a) and (c).

(e) None of the above.

Answer: B

2. If the U.S. (a large country) imposes a tariff on its imported good, this will

(a) have no effect on economic welfare.

(b) improve the terms of trade of all countries.

(c) improve the economic welfare of the United States.

(d) harm the economic welfare of U.S.’ trading partners.

(e) None of the above

Answer: D

3. If a small country were to levy a tariff on its imports then this would

(a) have no effect on that country’s economic welfare.

(b) increase the country’s economic welfare.

(c) decrease the country’s economic welfare.

(d) change the terms of trade.(e) None of the above.

Answer: C

4. During the 19th Century, economic growth of the major trading countries was biasedtoward manufactures and away from food. The less developed countries of that timewere net exporters of food. From this information, we would expect to have observed

(a) falling terms of trade for the less developed countries.

(b) improving (rising) terms of trade for the less developed countries.

(c) no change at all in the terms of trade of the less developed countries.

(d) a decrease in the relative price of food.(e) None of the above.

Answer: B

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5. In the period preceding the recent Financial Crisis in Asia, the South East Asian countrieswere receiving large inflows of financial capital. Following John Maynard Keynes’

theory, this should have caused

(a) a glut in their banking asset situation.

(b) an improvement in their terms of trade.

(c) deterioration in their terms of trade.(d) a fluctuation upward and then downward in their terms of trade.

(e) None of the above.

Answer: B

6. If the United States exports skilled-labor intensive products and services, then we should

expect unions representing skilled labor to

(a) lobby in favor of tariffs.

(b) lobby against the imposition of tariffs.

(c) be indifferent to the issue of tariffs.

(d) lobby in favor of improved terms of trade.

(e) Not enough information.

Answer: E

7. If the U.S. Agency for International Development transfers funds to poor countries in Sub-Saharan Africa, the conventional assumption, following Keynes’ analysis (i.e., bias of demand towards own goods) would presume that this would tend to

(a) worsen the U.S. terms of trade.

(b) improve the U.S. terms of trade.

(c) worsen the terms of trade of the African aid recipients.

(d) improve the terms of trade of the African aid recipients.

(e) None of the above.

Answer: A