International Trade and Foreign Direct Investment

6285 words 26 pages
Chapter 2
International Trade and Foreign Direct Investment

True/False Questions

1. The classical international trade theories are from the perspective of a country. True; Easy

2. Trade surplus refers to a situation where the value of imports is greater than the value of exports. False; Easy

3. The economic theory of mercantilism stated that a country’s wealth was determined by the amount of its gold and silver holdings. True; Easy

4. Trade deficit refers to a situation where the value of exports is greater than the value of imports. False; Easy

5. The modern international trade theories explain trade from a firm, rather than a country, perspective. True; Easy

6. The new nations of the 1500s promoted exports by
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a. factor proportions theory b. mercantilism theory c. absolute advantage theory d. comparative advantage theory e. Leontief Paradox c; Easy

33. _____ has become an optimal location for labor-intensive industries due to the availability of cheap, large pools of labor. a. The United States of America b. Sweden c. India d. The United Kingdom e. Japan c; Easy

34. _____ occurs when a country cannot produce a product more efficiently than the other country; however, it can produce that product better and more efficiently than it does other goods. a. Comparative advantage b. Differential advantage c. Absolute advantage d. Global strategic rivalry e. Country similarity a; Easy

35. Factor proportions theory states that: a. firms must develop competitive advantages to counter global competition in their industries. b. production of the new product will occur completely in the home country of its innovation. c. most trade in manufactured goods will be between countries with similar per capita incomes. d. countries would produce and export goods that required resources that were in great supply. e. a nation’s competitiveness in an industry depends on the capacity of the industry to innovate and upgrade. d; Moderate

36. The _____ theory suggests that companies first produce for domestic consumption. a.


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