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Exam 3: Business in a Borderless World

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Question 1

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Explain the terms balance of trade, trade deficit, and trade surplus in the context of the United States.

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A nation's balance of trade is the difference in value between its exports and imports. Because the United States imports more products than it exports, it has a negative balance of trade, or trade deficit. The trade deficit fluctuates according to such factors as the health of the United States and other economies, productivity, perceived quality, and exchange rates. Trade deficits are harmful because they can mean the failure of businesses, the loss of jobs, and a lowered standard of living. When a nation exports more goods than it imports, it has a favorable balance of trade, or trade surplus. Until about 1970, the United States had a trade surplus due to an abundance of natural resources and the relative efficiency of its manufacturing systems.

Question 2

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Bolivia, South America is the only country in the world that is able to grow a rare plant that is used to produce a healing ointment for arthritis patients. Because Bolivia is the only country with access to this plant, it has a(n)

A) comparative advantage.
B) comparative disadvantage.
C) absolute advantage.
D) absolute disadvantage.
E) domestic advantage.

F) C) and D)
G) A) and E)

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Question 3

Multiple Choice

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An American company that manufactures coffee makers has a foreign firm assemble the water reservoir tanks for the machines but the final product carries the name of the American firm. This is an example of

Which statement about the General Agreement on Tariffs and Trade (GATT) is true?

U.S. exports to China have been rapidly increasing but not fast enough to offset the imports from China. This means that the United States has a(n)

At the conclusion of a business meeting in Brazil, David gave the A-OK sign to the people in the room. This hand gesture in America means OK, however, the Brazilians were embarrassed because in their culture the gesture is perceived as rude. This situation exemplifies how even simple differences in ________ can cause misunderstandings in international relationships.

Trade deficits can help businesses succeed, create more jobs, and improve the standard of living.

Which statement is true about CIBERs?

A U.S. firm is considering doing business in a foreign country. What economic factor should the business consider regarding the country in which it will conduct its business?

________ involves standardizing products, and their promotion and distribution if possible, for the whole world, as if it were a single entity.

A catastrophic flood crippled a country's government. In an effort to help local businesses rebuild, the government forced foreign businesses out of the country. This is an example of a(n) ________ barrier to trade.

An American firm decides to build another manufacturing plant in Poland to handle the demand for its products in that country. This is an example of

The Asia-Pacific Economic Cooperation (APEC) is a trade agreement between Asian countries and does not include the United States.

Many U.S. companies have taken advantage of Mexico's low labor costs and proximity to the United States to set up maquiladoras.

The General Agreement on Tariffs and Trade (GATT) provided a forum for tariff negotiations and a place where international trade problems could be resolved.

Fit Rite Fasteners, a firm based in the United States, buys metal parts from China to manufacture its fasteners. In doing so, the company is engaged in exporting.

What is the primary purpose of a protective tariff?

Describe NAFTA as a trade agreement. What is its purpose? What has been advantageous about the agreement and what are its controversies?

If Thailand wants to limit the amount of sugar that the United States imports into its country, it would do so by imposing a(n)

Describe how economic barriers such as economic development, infrastructure, exchange rates, and devaluation affect international trade.