Questions: International Trade Theory

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Chapter 05
International Trade Theory

True / False Questions

1. (p. 161) Propagated in the 16th and 17th centuries, mercantilism advocated that countries should discourage both imports and exports. FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 5-1
Topic: An Overview of Trade Theory

2. (p. 161) Free trade refers to a situation where a government attempts to influence through quotas or duties what its citizens can buy from another country, or what they can produce and sell to another country. FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 5-1
Topic: An Overview of Trade Theory

3. (p. 161) Proposed in 1776, David Ricardo's theory was the first to explain why unrestricted free trade is beneficial to a country. FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 5-1
Topic: An Overview of Trade Theory

4. (p. 161) According to Adam Smith, the invisible hand of the market mechanism, rather than government policy, should determine what a country imports and what it exports. TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 5-1
Topic: An Overview of Trade Theory

5. (p. 161) Nineteenth century English economist David Ricardo popularized a laissez-fair stance of government towards trade. FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 5-1
Topic: An Overview of Trade Theory

6. (p. 162) The great strength of the theories of Smith, Ricardo, and Heckscher-Ohlin is that they identify the specific benefits of international trade. TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 5-1
Topic: An Overview of Trade Theory

7. (p. 162) A country's economy would gain only if its citizens buy products that are made in that country. FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 5-1
Topic: An Overview of Trade Theory

8. (p. 163) During the 1980s, economist such as Paul Krugman developed what has come to be known as the new trade theory. TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 5-1
Topic: An Overview of Trade Theory

9. (p. 164) The first theory of international trade emerged in England in the mid-16th century. Referred to as the theory of comparative advantage, its principle assertion was that gold and silver were the mainstays of national wealth and essential to vigorous commerce. FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 5-2
Topic: Mercantilism

10. (p. 164) The main tenet of mercantilism was that it was in a country's best interests to maintain a trade surplus. TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 5-2
Topic: Mercantilism

11. (p. 165) Zero-sum game refers to a situation in which an economic gain by one country results in an economic loss by another. TRUE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 5-2
Topic: Mercantilism

12. (p. 165) A positive-sum game refers to a situation in which major industrial nations can benefit even if some of them are able to benefit more than others. FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 5-2
Topic: Mercantilism

13. (p. 165) If a country is more efficient than any other country in the production of a product, it has what is known as definitive advantage in the production of that product. FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 5-2
Topic: Absolute Advantage

14. (p. 165) In his 1776 landmark book, "The Wealth of Nations," Adam Smith supported the mercantilist assumption that trade is a zero-sum game. FALSE

AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 5-2
Topic: Absolute Advantage

15. (p. 165) According to Adam Smith, countries...
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