Chapter 5: Trade and Factor Mobility Theory The Balance of Payments

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What is external debt?

Debt owed to domestic creditors in foreign currency

Debt owed to foreign creditors in domestic currency

Debt owed to foreign creditors and denominated in foreign currency (correct)

Debt owed to international organizations

Which indicator does growing public debt serve as according to the text?

Tax increases

Reduced growth (correct)

Rising inflation

Increasing austerity

What is the main purpose of a country’s balance of payments (BOP)?

Tracking government spending

Monitoring domestic inflation rates

Reporting trade and financial interactions with the rest of the world (correct)

Recording all economic transactions within the country

Which components make up a country's balance of payments?

Current account and financial account Signup and view all the answers

According to mercantilism, how should countries handle trade?

Export more than they import Signup and view all the answers

What does Factor-Mobility Theory focus on in relation to countries' competitive positions?

Stability and dynamics of production factors Signup and view all the answers

What is the primary purpose of using import trade controls as a foreign policy weapon?

To promote changes in foreign countries' political policies or capabilities Signup and view all the answers

Which of the following is NOT a type of tariff mentioned in the text?

Consumption tariff Signup and view all the answers

Which of the following is a criterion for assessing tariffs?

Value-based Duty Signup and view all the answers

What is the purpose of the Cotonou Agreement mentioned in the text?

To formalize preferential trade relationships and strengthen political ties Signup and view all the answers

Which of the following is NOT a purpose of tariffs?

Promoting environmental protection Signup and view all the answers

Which of the following statements about import trade controls is NOT supported by the text?

They can be used to promote changes in domestic political policies Signup and view all the answers

What does a favorable balance of trade indicate?

The country is exporting more than it imports Signup and view all the answers

According to the Theory of Absolute Advantage, why should citizens buy goods from abroad?

To benefit from cheaper prices Signup and view all the answers

What does Neomercantilism aim to achieve by running an export surplus?

Social or political objectives Signup and view all the answers

What type of advantage considers climate, natural resources, and labor force availability?

Natural Advantage Signup and view all the answers

Which type of technology enables a country to produce a unique or easily distinguished product?

Product Technology Signup and view all the answers

According to the Theory of Specialization, what forms the basis of a country's wealth?

Available goods and services Signup and view all the answers

What can wreak havoc on economies that depend on the export of primary products?

Uncontrollable factors like weather and business cycles abroad Signup and view all the answers

What leads to a deterioration in the terms of trade for emerging economies?

Slower growth in demand for primary products Signup and view all the answers

What is the aim of countries engaging in export-led development?

Promoting the development of industries with export potential Signup and view all the answers

Why might foreign companies invest in a restricted area due to import restrictions?

To produce goods in that area Signup and view all the answers

What does industrialization under export-led development emphasize?

Products with export potential Signup and view all the answers

What does every nation monitor in relation to its economic welfare?

Absolute economic welfare and relative position compared to other countries Signup and view all the answers

What is the primary reason for implementing import quotas?

To limit supply and discourage price competition Signup and view all the answers

What is a key advantage of Voluntary Export Restraints (VERs) over import quotas?

VERs are easier to remove or switch off than import quotas Signup and view all the answers

What is the purpose of 'Buy Local' legislation?

To give preference to domestically produced goods in government purchases Signup and view all the answers

Which of the following is NOT an example of a non-tariff barrier mentioned in the text?

Imposing minimum domestic content requirements Signup and view all the answers

What is the purpose of standards and labels for imported goods?

To protect the safety and health of the domestic population Signup and view all the answers

What is the purpose of foreign-exchange controls in the context of international trade?

To require importers to secure government permission to obtain foreign currency for trade transactions Signup and view all the answers