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Q:
The European Parliament is responsible for proposing European Union (EU) legislation, implementing it, and monitoring compliance with EU laws by member-states.
Q:
The European Council is composed of one representative from the government of each member-state but the membership varies depending on the topic being discussed.
Q:
The European commission is the ultimate controlling authority within the European Union because draft legislation from the commission can become EU law only if the council agrees.
Q:
With the signing of the Treaty of Rome in 1957, the European Free Trade Association was established.
Q:
Of the two trade blocs in Europe, the European Union is by far the most significant, in terms of membership as well as economic and political influence in the world economy.
Q:
In theory, the World Trade Organization rules should ensure that a free trade agreement results in trade diversion.
Q:
Trade creation occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area.
Q:
Some economists have pointed out that the benefits of regional integration are determined by the extent of trade diversion, as opposed to trade creation.
Q:
To achieve full economic union, the European Union (EU) introduced a common currency, the euro, controlled by a central EU bank.
Q:
In terms of regional economic integration, linking neighboring economies and making them increasingly dependent on each other creates incentives for political cooperation between the neighboring states.
Q:
Economic theories suggest that free trade and investment is a positive-sum game, in which all participating countries stand to gain.
Q:
A political union addresses the issue of how to make a coordinating bureaucracy accountable to the citizens of member nations of an economic union.
Q:
In a customs union, a common currency is adopted.
Q:
A common market has no barriers to trade among member-countries, includes a common external trade policy, and allows factors of production to move freely among members.
Q:
The emphasis of the European Free Trade Association has been on free trade in consumer goods.
Q:
In a free trade area, all barriers to the trade of goods and services among member countries are removed and a common external trade policy is adopted.
Q:
As with free trade in general, regional economic integration creates gain for consumers, but it can be challenging for some producers.
Q:
Describe the Central American Common Market and the Central America Free Trade Agreement.
Q:
What are the two impediments to regional economic integration?
Q:
Which of the following is a threat facing the emergence of single markets?
A. Threat of getting engulfed in a trade war
B. Increased price competition throughout the European Union
C. Increase in price differentials across nations
D. Reduced environmental standards in order to lure investments
E. Threat of greenfield investments
Q:
Which of the following is true of the East African Community (EAC)?
A. Their program includes cooperation on immigration, road and telecommunication networks, investment, and capital markets.
B. Its aim is to eliminate import tariffs among the six original members.
C. It is the world's largest free trade area.
D. It seeks to apply national environmental standards, provided such standards have a scientific basis.
E. It seeks to protect intellectual property rights.
Q:
Which of the following is true with regard to the Asia-Pacific Economic Cooperation (APEC)?
A. The stated aim of APEC is to increase multilateral cooperation in view of the economic rise of the Pacific nations.
B. The goal of APEC is to reduce import tariffs among the six original members to zero.
C. APEC is the worlds largest free trade area.
D. Collectively, the member-states account for about 85 percent of the worlds GNP, 75 percent of world trade, and much of the growth in the world economy.
E. APEC currently has 25 member-states, including such economic powerhouses as Germany, India, and Brazil.
Q:
Which of the following is true of the Asia-Pacific Economic Cooperation (APEC)?
A. It does not include the United States, Japan, and China.
B. The meeting of APEC members in Seattle in 1993 led to greater economic integration.
C. It was founded in 1990 at the suggestion of Australia.
D. APEC members signed a free trade agreement with China that removes tariffs on 90 percent of traded goods.
E. APEC members have established a free trade zone.
Q:
The _____ refers to an attempt to establish a free trade area between Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.
A. Asia-Pacific Economic Cooperation
B. South Asian Association for Regional Cooperation
C. Asian Clearing Union
D. Association of Southeast Asian Nations
E. Maastricht Treaty
Q:
Which of the following is a major obstacle to the establishment of the Free Trade Area of the Americas?
A. The United States wants its southern neighbors to agree to tougher enforcement of intellectual property rights, which they do not want to embrace.
B. Some constituent nations insist on a common currency, an initiative that has not found support among many nations.
C. Brazil and Argentina want the United States to open up critical industries such as telecom and airlines.
D. The major trading blocks in the region, NAFTA and Mercosur, have opposed its establishment.
E. There is no consensus on trade policies between Brazil and Argentina.
Q:
Which of the following is the goal of the Caribbean Single Market and Economy?
A. To remove all trade barriers between member nations in practice
B. To establish a political union
C. To adopt a common currency
D. To harmonize macroeconomic and monetary policy between member states
E. To establish an economic union
Q:
Which of the following refers to an association of English-speaking Caribbean states that are attempting to establish a customs union?
A. CARICOM
B. Central American Free Trade Agreement
C. Central American Common Market
D. Free Trade Area of the Americas
E. Caribbean Single Market and Economy
Q:
Which of the following is the aim of the Central America Free Trade Agreement?
A. Lowering of trade barriers between the United States and the Central American Common Market countries
B. Elimination of trade barriers between the CARICOM and Central American Common Market countries
C. Reduction of trade barriers between Caribbean Single Market and Economy nations and Central American Common Market countries
D. Introduction of a common currency for Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua
E. Reductions in tariffs and quotas between Costa Rica, Dominican Republic, and Nicaragua
Q:
The agreement of the member-states of the Central American Common Market joined by the Dominican Republic to trade freely with the United States is known as _____.
A. Central American Free Trade Agreement
B. Central American Common Market
C. Free Trade Area of the Americas
D. CARICOM
E. Caribbean Single Market and Economy
Q:
Which of the following led to the collapse of the Central American Common Market in 1969?
A. Devaluation of the Brazilian currency by 40 percent
B. Coup in Nicaragua that led to the overthrow of the incumbent regime
C. War between Honduras and El Salvador after a riot at a soccer match between teams from the two countries
D. Withdrawal from the trade arrangement by Costa Rica
E. Collapse of monetary policy between Costa Rica and El Salvador
Q:
The _____ refers to a trade pact among Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, which began in the early 1960s but collapsed in 1969 due to war.
A. Central American Common Market
B. Free Trade Area of the Americas
C. Caribbean Single Market and Economy
D. Mercosur
E. CARICOM
Q:
Which of the following is a reason why Mercosur was temporarily suspended in 2001?
A. The dotcom bust in Paraguay
B. An economic crisis in Argentina
C. The exit of Uruguay from the group
D. The devaluation of the Mexican peso
E. The Venezuelan financial crisis
Q:
Which of the following is true of Alexander Yeats' criticism of the Andean Pact?
A. He pointed out that the slowest growing items in intra-Mercosur trade were cars, buses, agricultural equipment, and other capital-intensive goods.
B. He believed that the trade creation effects of Mercosur outweighed its trade diversion effects.
C. He felt that Mercosur countries were prepared to compete globally once the groups external trade barriers came down.
D. He pointed out that Mercosur countries were insulated from outside competition by tariffs that run as high as 70 percent of value.
E. He felt that capital was being drawn toward more efficient enterprises.
Q:
How can governments restrict the outward flow of FDI?
Q:
In the context of FDI, describe the political ideologies of the radical view, the free market view, and pragmatic nationalism.
Q:
Under what circumstances, will a firm favor foreign direct investment over exporting as an entry strategy?
Q:
In the context of the internalization theory, explain why licensing may not be an attractive option.
Q:
When a firm exports, it need not bear the costs associated with FDI, and it can reduce the risks associated with selling abroad by using a native sales agent. Exporting, however, is not without its limitations. Discuss the most common limitations of exporting as compared to FDI.
Q:
What is meant by the term foreign direct investment? Describe the difference between the flow of foreign direct investment and the stock of foreign direct investment.
Q:
(p. 269) Although it normally involves much longer-term commitments, franchising is essentially the service industry version of:
A. exporting.
B. licensing.
C. foreign direct investment.
D. greenfield investment.
E. diversifying.
Q:
(p. 268) Firms for which licensing is not a good option include:
A. low-technology industries.
B. global oligopolies.
C. industries characterized by low cost pressures.
D. industries where transportation costs are high.
E. industries which need to have low control over foreign operations.
Q:
Many services have to be produced where they are sold; hence _____ is not an option.
A. FDI
B. franchising
C. greenfield investment
D. exporting
E. outsourcing
Q:
Host governments use a range of controls to restrict inward FDI. The two most common are:
A. monetary restraints and prohibition on investing in certain countries.
B. voluntary export restrictions and employment restraints.
C. ownership restraints and performance requirements.
D. tax concessions and government-backed insurance.
E. employment restraints and tax deductions.
Q:
To encourage inward FDI, it is increasingly common for governments to:
A. offer tax concessions to firms that invest in their countries.
B. exclude foreign companies from specific industries.
C. require that local investors own significant proportion of the equity in a joint venture.
D. impose high custom duties on foreign firms.
E. prohibit MNEs from joining a cartel.
Q:
Which of the following is a home-country policy for limiting outward FDI?
A. Eliminating double taxation of foreign income
B. Manipulating tax rules to encourage the firms to invest at home
C. Withdrawing government-backed insurance programs provided to local investors
D. Reducing interest rates earned on domestic investments
E. Prohibiting organizations from entering into a cartel
Q:
As an incentive to encourage domestic firms to undertake FDI, many countries have:
A. eliminated double taxation of foreign income.
B. started imposing local content requirements.
C. imposed higher import tariffs.
D. abolished the use of custom duties.
E. eliminated subsidies.
Q:
Which of the following is a major type of foreign investment risk that is insurable through government-backed programs?
A. Lack of funds
B. Risk of transaction loss
C. Poor strategic tie-ups
D. Risks of expropriation
E. Losses due to natural calamities
Q:
Offshore production refers to FDI undertaken:
A. to focus on extractive industries, such as oil and gas.
B. to serve the home market.
C. in shipping industries.
D. to decrease the prices of products in the host countries.
E. to capture tax benefits in the host country.
Q:
The most important concerns regarding the costs of FDI for the home-country center on:
A. the balance-of-payments and employment effects of outward FDI.
B. the technology capture effect and the perceived loss of national sovereignty.
C. the reverse-resource transfer effect and the exposure to foreign markets caused by FDI.
D. the import of substantial input from abroad and being held to "economic ransom."
E. the exposure to foreign markets and the decreased costs of production.
Q:
Which of the following statements is most likely to be true regarding the adverse effects of FDI on the host country?
A. It decreases the level of competition in the host country.
B. It tends to increase the prices of the products.
C. It leads to a high rate of unemployment in the long run.
D. When a foreign subsidiary imports a substantial number of its inputs from abroad, it results in a debit on the current account of the host countrys balance of payments.
E. When a foreign subsidiary sends its profits to its home country, it results in the depletion of gold reserves of the host country.
Q:
Which of the following is most likely to be the effect of FDI in the form of a greenfield investment on the host country?
A. It drives down prices and increases the economic welfare of consumers.
B. It raises unemployment levels.
C. It causes firms to fight for scarce capital investments.
D. It leads to an oligopolistic market and unfair pricing.
E. It leads to decreased productivity, product and process innovations, and lesser economic growth.
Q:
Which of the following is the only way in which a current account deficit can be supported in the long run?
A. Borrowing from the IMF
B. Selling assets to foreigners
C. Divesting stock in domestic corporations
D. Purchasing stocks, bonds, and real estate in other countries
E. Issuing negotiable instruments like the bills of exchange
Q:
When a country is importing more goods and services than it is exporting, it is incurring a(n):
A. trade surplus.
B. current account deficit.
C. positive balance of payment.
D. economic recession.
E. net capital inflow.
Q:
A current account deficit is also known as a(n) _____ deficit.
A. stock
B. inventory
C. external
D. tariff
E. trade
Q:
In the balance of payments, the _____ account records transactions involving the export and import of goods and services.
A. current
B. foreign
C. internal
D. tariff
E. savings
Q:
_____ accounts are national accounts that track both payments to and receipts from other countries.
A. Equity
B. Dematerialized
C. Balance of trade
D. Asset
E. Balance-of-payments
Q:
Indirect effects of FDI on employment in a host country arise when:
A. a foreign MNE employs a number of host-country citizens.
B. jobs are created because of increased local spending by employees of an MNE.
C. an MNE brings in managers from the home country for its operations in the host country.
D. an MNE recruits people from the host country for research and development.
E. an MNE sends it home country employees to host countries for training.
Q:
Direct effects of FDI on employment in the host country arise when a foreign MNE:
A. brings in managers trained in the latest management techniques from the home country.
B. creates jobs because of increased local spending by employees of the MNE.
C. employs a number of host country citizens.
D. causes local suppliers to hire more people.
E. creates jobs in the supporting industries.
Q:
Which of the following statements is most likely to be true regarding the effects of FDI on employment?
A. FDI does not result in job creation.
B. FDI has only indirect effects on employment in the host country.
C. The indirect employment effects of FDI are always smaller than the direct effects.
D. When FDI takes the form of an acquisition of an established enterprise in the host economy as opposed to a greenfield investment, the immediate effect is always an increase in the employment.
E. A beneficial employment effect claimed for FDI is that it brings jobs to a host country that would otherwise not be created there.
Q:
Foreign managers trained in the latest management techniques can often help to improve the efficiency of operations in the host country, whether those operations are acquired or greenfield developments. This benefit of FDI falls into the category of _____.
A. employment effects
B. balance-of-payments effects
C. effects on competition
D. resource transfer effects
E. autonomy effects
Q:
The main benefits of inward FDI for a host country arise from:
A. the resource-transfer effect, the employment effect, and the balance-of-payments effect.
B. the labor-transfer effect, the technology effect, and the currency-exchange effect.
C. the cultural awareness effect, first-mover advantage effect, and economic development effect.
D. the foreign exchange reserves effect, knowledge flow effect, and the reverse resource transfer effect.
E. the employment effect, the labor-transfer effect, and the technology effect.
Q:
Offering subsidies to foreign MNEs in the form of tax breaks or grants is one way of:
A. adopting a retaliatory stance in bilateral trade.
B. courting FDI believed to be in national interest.
C. adopting a radical stance to FDI.
D. blocking FDI inflows into the country.
E. curbing a trade war.
Q:
Which of the following is true regarding the pragmatic nationalist view of FDI?
A. One aspect of pragmatic nationalism is the tendency to aggressively court FDI believed to be in the national interest by, for example, offering subsidies to foreign MNEs in the form of tax breaks or grants.
B. The pragmatic nationalist view states that FDI always has a positive effect on the balance of payments which arises from the outflow of a foreign subsidiary's earnings and from the import of inputs from abroad.
C. According to pragmatic nationalist view, international production should be distributed among countries based on the theory of comparative advantage.
D. According to pragmatic nationalist view, FDI should not be allowed to enter into a country because its costs always outweigh its benefits.
E. The pragmatic nationalist view of FDI accepts the Marxist theory, and suggests that FDI by MNEs is an instrument of imperialism.
Q:
The tendency to aggressively court FDI believed to be in the national interest of a country is an aspect of:
A. pragmatic nationalism.
B. the radical view.
C. nationalism.
D. imitative theory.
E. eclectic paradigm.
Q:
According to the _____, FDI has both benefits and costs and should be allowed only if the benefits outweigh the costs.
A. eclectic paradigm theory
B. free market view
C. pragmatic nationalist view
D. radical view
E. internalization theory
Q:
Many host countries are concerned that a foreign-owned manufacturing plant may import many components from its home country, which has negative implications for the host country's _____.
A. free trade agreements
B. inward FDI
C. sovereignty
D. balance-of-payments position
E. gold reserves
Q:
The pragmatic nationalist view is that :
A. FDI benefits only the host country.
B. FDI does not make any positive contribution to the host economy.
C. every country should adopt the free market view.
D. FDI should not be allowed by any country as it is an instrument of economic domination rather than economic development.
E. FDI has both benefits and costs.
Q:
Britain reserves the right to intervene in FDI by:
A. reserving the right to block foreign takeovers of domestic firms in certain situations.
B. prohibiting FDIs over and above a certain fixed annual amount.
C. nationalizing certain industries that provide essential goods and services.
D. imposing economic sanctions against specific countries.
E. by limiting exports and licensing.
Q:
Which of the following statements regarding the free market view is true?
A. According to the free market view, MNEs decrease the overall efficiency of the world economy.
B. No country has adopted the free market view in its pure form.
C. According to the free market view, MNEs can never be instruments of economic development, only of economic domination.
D. According to the free market view, FDI is beneficial to the host country of an MNE but it is harmful for the home country of the MNE.
E. The free market view traces its roots to Marxist political and economic theory.
Q:
According to the free market view, how does FDI increase the efficiency of world economy through MNEs?
A. The MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe.
B. MNEs extract profits from the host country and take them to their home country and help all countries realize economies of scale.
C. When an MNE produces products, profits from the investment go abroad, and hence the MNE helps foreign exchange to rotate.
D. A foreign-owned manufacturing plant may import many components from its home country, thus improving the balance of payments of the host country.
E. MNEs increase the efficiency of world economy by increasing the flow of capital in the world market.
Q:
The _____ view argues that international production should be distributed among countries according to the theory of comparative advantage.
A. conservative
B. pragmatic nationalism
C. free market
D. radical
E. Keynesian economic
Q:
Which of the following is a reason for the decline in the popularity of the radical view of FDI?
A. The rise of communism in Eastern Europe
B. The generally steady economic growth of those countries that embraced the radical position
C. The growing belief in many countries that FDI leads to loss of jobs
D. The strong economic performance of those developing countries that embraced capitalism
E. The collapse of capitalism in the newly independent nations of Asia
Q:
According to the radical view, which of the following countries would benefit the most from FDI?
A. Host countries of MNEs
B. Third world countries
C. Less developed FDI destinations
D. Advanced, capitalist home countries of MNEs
E. Underdeveloped countries
Q:
According to the radical view of FDI, multinational enterprises (MNEs) that already exist in a country:
A. should be immediately nationalized.
B. should be made to pay higher taxes.
C. should be converted in to publicly traded companies.
D. should be banned from obtaining finance from the financial institutions in the host country.
E. should be immediately privatized.
Q:
People with radical view toward FDI argue that _____ is an instrument of imperialist domination.
A. privatization
B. a multinational enterprise
C. nationalization
D. a publicly traded company
E. outsourcing
Q:
Radical writers argue that:
A. a multinational enterprise (MNE) is an instrument of economic development rather than economic domination.
B. MNEs are more beneficial to host countries than to their home countries.
C. important jobs in the foreign subsidiaries of MNEs go to host-country nationals rather than to citizens of the home country.
D. FDI by the MNEs of advanced capitalist nations keeps the less developed countries of the world relatively backward.
E. MNEs exploit their home countries for the exclusive benefit of their host countries.
Q:
The _____ view of FDI traces its roots to Marxist political and economic theory.
A. radical
B. free market
C. pragmatic nationalism
D. comparative advantage
E. pluralist
Q:
Dunnings theory helps explain:
A. how firms try to match each others moves in different markets to try to hold each other in check.
B. the interdependence between firms in an oligopoly that leads to imitative behavior among the rivals.
C. why a greenfield investment in a new facility is better than an acquisition of or a merger with an existing local firm.
D. the problems associated with doing business in a different culture where the rules of the game may be very different.
E. how location factors affect the direction of FDI.
Q:
Silicon Valley in California is the world center for the computer and semiconductor industry and has many of the world's major computer and semiconductor companies located close to each other, thus offering the location-specific advantage of:
A. a multipoint competition.
B. an oligopoly.
C. a first mover.
D. externalities.
E. free riders.
Q:
Economists refer to knowledge "spillovers" that occur when companies in the same industry are located in the same area as:
A. technology flows.
B. overlaps.
C. corporate espionage.
D. externalities.
E. a free rider problem.