International Economics Theory and Policy 10th Edition By Paul R. Krugmanth Edition

Exam Reserve For Global Finance Theory and Practice 10th Edition By Paul R. Krugman

ISBN-10:0133423646 , ISBN-13:978-0133423648

Unit 11 Commerce Strategy in Advancing Nations

11.1 Substituting Imported Industrial Progress

1) The juvenile industry argument was a vital theoretical groundwork for

A) neo-imperialist theory of worldwide exploitation.

B) import-substituting industrial progress.

C) history of the industrial revolution in Western Europe.

D) the East-Asian phenomenon.

E) the decrease of duties on Western Europe.

Response: B

Page Ref: 275-281

Difficulty: Fundamental

2) Sophisticated theoretical reasons assisting import-substitution policies involve

A) trade terms effects.

B) efficiency of scale arguments.

C) learning curve considerations.

D) the challenge of ownership.

E) domestic market failure arguments.

Response: D

Page Ref: 275-281

Difficulty: Fundamental

3) Why might the trade terms of developing nations deteriorate over time?

A) Developing nation exports consist mainly of manufactured goods.

B) Developing nation exports consist mainly of primary products.

C) Commodity export prices are determined in highly competitive markets.

D) Commodity export prices are solely determined by developing nations.

E) Developing nation exports are too diverse.

Response: C

Page Ref: 275-281

Difficulty: Fundamental

4) What trade strategy have developing nations employed to restrict imports of manufactured goods in order to preserve the domestic market for local producers?

A) global commodity agreement

B) export promotion

C) multilateral agreement

D) import substitution

E) export subsidies

Response: D

Page Ref: 275-281

Difficulty: Fundamental

5) The juvenile industry argument claims that

A) comparative advantage is insignificant to economic progress.

B) developing nations have a comparative advantage in agricultural items.

C) developing nations have a comparative advantage in manufacturing.

D) developing nations have a potential comparative advantage in manufacturing.

E) developing nations have no chance to compete with industrialized nations.

Response: D

Page Ref: 275-281

Difficulty: Fundamental

6) The juvenile industry argument calls for active government involvement

A) only if the government forecasts are accurate.

B) only if some market failure can be identified.

C) only if the industry is not one already dominated by industrial nations.

D) only if the industry has a high value added.

E) only if the industry is independently able to earn high returns.

Response: B

Page Ref: 275-281

Difficulty: Fundamental

7) The imperfect capital market justification for juvenile industry promotion

A) assumes that new industries will tend to have low profits.

B) assumes that juvenile industries will soon mature.

C) assumes that juvenile industries will be in products of comparative advantage.

D) assumes that banks can allocate resources efficiently.

E) assumes that developing nation will reward the donor nation.

Response: A

Page Ref: 275-281

Difficulty: Fundamental

8) The United States, as it initiated its long and successful progression in the early nineteenth century, consciously fostered domestic production through actions such as tariffs, Clay’s American System, and numerous direct subsidies to railroads, canal companies, farmers (free land), etc. Today we perceive this blatant instance of large-scale and extensive import-substitution industrialization as having been very successful. Comment on this.

Response: This is an intriguing viewpoint and underscores that economic models are sometimes ahistorical. That is, they lack the historical context; and thus may be deceiving as guides to long-term issues, such as economic growth. This also suggests that trade policy per se is probably not sufficient to explain why some nations develop and others do not.

Page Ref: 275-281

Difficulty: Moderate

9) Refer to the above figure. If OmL1 workers are employed in manufacturing then what is the marginal productivity of labor in manufacturing?

Response: OmWm.

Page Ref: 275-281

Difficulty: Moderate

10) Refer to the above figure. If OmL1 workers are employed in manufacturing then what is the marginal productivity of labor in agriculture?

Response: OfWf.

Page Ref: 275-281

Difficulty: Moderate

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