International Economics, 7e (Gerber)

Chapter 2 International Economic Institutions Since World War II

2.1 Introduction: International Institutions and Issues Since World War II

1) Institutions are
A) the same thing as organizations.
B) associations of individuals or groups.
C) always embodied in a written set of rules.
D) a set of rules governing behavior, whether written or not.
Answer: D
2) Which of the following is an example of an institution whose primary concern is global
stability?
A) NAFTA (North American Free Trade Agreement)
B) OPEC (Oil Producing and Exporting Countries)
C) IMF (International Monetary Fund)
D) Asian Development Bank
Answer: C
2.2 The IMF, the World Bank, and the WTO

1) The international organization that serves as a forum for trade discussions and the
development of trade rules is called
A) the WTO.
B) the World Bank.
C) the IMF.
D) the United Nations.
Answer: A
2) Which of the following was NOT a creation of the Bretton Woods conference?
A) World Bank
B) IMF
C) IBRD
D) WTO
Answer: D
3) One of the strongest motivations for holding the Bretton Woods Conference was to
design new international institutions that would
A) contain communism.
B) help countries avoid the mistakes of the 1920s and 1930s.
C) provide a collective defense security for Western Europe and North America.
D) ensure that world prices were not rising too rapidly.
Answer: B
4) One of the most important and most visible roles of the IMF is to
A) hold regular negotiations over tariff reductions.
B) investigate countries that are charged with being unfair traders.
C) provide loans to countries that need capital to develop their economies.
D) intercede by invitation when countries cannot pay their international debts.
Answer: D
5) The original mission of the World Bank was to
A) provide capital to underdeveloped countries.
B) provide capital to firms around the world.
C) provide financial assistance for the reconstruction of war-damaged nations.
D) help countries manage their exchange rates.
Answer: C
6) The primary mission of the World Bank today is to
A) provide capital to underdeveloped countries.
B) provide capital to firms around the world.
C) provide financial assistance for the reconstruction of war-damaged nations.
D) help countries manage their exchange rates.
Answer: A
7) From the late 1940s until the creation of the WTO, the organization that was primarily
responsible for conducting rounds of trade negotiations was the
A) World Bank.
B) IMF.
C) United Nations.
D) GATT.
Answer: D
8) Until the Uruguay Round of trade negotiations, which of the following sectors were NOT
included in the rules for international trade?
A) Steel and agriculture
B) Agriculture and apparel
C) Steel and textiles
D) Automobiles and agriculture
Answer: B
9) Most favored nation (MFN) status means that a country treats another country
A) better than its other trading partners.
B) the same as its other trading partners.
C) worse than its other trading partners.
D) any way it chooses since it is the "most favored nation."
Answer: B
10) When the United States gives MFN status to China, it means that
A) China is treated better than other U.S. trading partners.
B) China is treated the same as other U.S. trading partners.
C) China is treated worse than other U.S. trading partners.
D) China is legally bound to reciprocate.
Answer: B
11) The Tokyo Round of the GATT negotiations was notable because it was the first round
A) that included Japan.
B) that included textiles and apparel.
C) to begin establishing rules on subsidies.
D) to begin discussions of exchange rates.
Answer: C
12) IMF conditionality refers to the
A) technical assistance the IMF gives.
B) minimum-sized loan the IMF will make.
C) maximum-sized loan the IMF will make.
D) changes a country must make in order to receive IMF financial assistance.
Answer: D
13) Which of the following is true?
A) A country experiencing a debt or currency crisis would contact the World Trade
Organization.
B) The World Trade Organization was formed at the Bretton Woods conference.
C) The General Agreement on Tariffs and Trade created the World Trade Organization in the
negotiations and treaty known as the Uruguay Round.
D) The World Trade Organization has no power to resolve trade disputes and to enforce their
resolution.
Answer: C
14) A country's foreign exchange reserves refers to
A) the currency of the nation itself.
B) the country's holdings of gold and internationally accepted currencies.
C) the total amount of a country's currency held by other nations.
D) the country's Special Drawing Rights (SDRs) at the IMF.
Answer: B
2.3 Regional Trade Agreements
1) A free trade agreement plus a common set of tariffs toward non-members is called
A) a common market.
B) a customs union.
C) a free trade area.
D) an economic union.
Answer: B
2) Which of the following is FALSE?
A) A common market is more deeply integrated than an economic union.
B) NAFTA is an example of a free trade area.
C) The European Union is a deeper form of integration than NAFTA.
D) Common markets allow for labor mobility between participating nations.
Answer: A
3) Which of the following is true?
A) A common market is more deeply integrated than a customs union.
B) The European Union is a shallower and broader form of integration than NAFTA.
C) NAFTA is an example of a customs union.
D) Customs unions require the creation of a common currency.
Answer: A
4) Which of the following is NOT a feature of a common market?
A) Substantial coordination of macroeconomic policies among the members
B) Free trade in goods and services between the members
C) Common external barriers to trade
D) Factor mobility
Answer: A
5) Which of the following is a problem that arises when trying to classify regional trade
agreements?
A) Many agreements combine elements from different categories.
B) The definition of free trade area includes that of a customs union.
C) Some agreements include cultural issues while others do not.
D) The most favored nation clause includes all of them.
Answer: A
Topic: Regional Trade Agreements
6) The United States is an example of
A) a customs union.
B) a free trade area.
C) an economic union.
D) a common market.
Answer: C
7) With a partial trade agreement,
A) goods and services are allowed to cross boundaries without tariffs.
B) two or more countries agree to liberalize trade in a selected group of categories.
C) two or more countries set common tariffs toward non-members.
D) two or more countries allow the free mobility of inputs such as labor and capital.
Answer: B
2.4 The Role of International Economic Institutions
1) One reason markets may fail to provide the optimal quantity of public goods is the
problem of
A) determining what the public wants.
B) nondiscrimination.
C) free riders.
D) economic integration.
Answer: C
2) If a good or service does not get used up as it is consumed, then it is said to be
A) nonexcludable.
B) nonrival.
C) nondiscrimination.
D) nonconsumable.
Answer: B
3) An important function of international institutions during times of crisis is to
A) make goods nonrival.
B) make goods nonexcludable.
C) prevent free riding.
D) prevent nondiscrimination.
Answer: C
4) Which of the following is NOT an example of an international public good?
A) Capital flows to less-developed countries
B) Last-resort lending
C) Open markets during a recession
D) Regional trade agreements
Answer: D
2.5 Criticism of International Institutions

1) Which of the following is NOT a criticism of international institutions such as the IMF, the
World Bank, or the WTO?
A) They violate national sovereignty by imposing unwanted domestic policies.
B) They fail to understand the effects of their policies on the vulnerable.
C) Their decision-making is biased in favor of underdeveloped nations.
D) They ignore potentially large adjustment costs for developing nations of implementing their
policies.
Answer: C
Topic: Criticism of International Institutions
Difficulty: Moderate
Objective: LO 2.5 Debate the pros and cons of international economic organizations.
AACSB: Application of knowledge

2) Which of the following criticisms is NOT directed at the IMF?

A) It lacks openness in its decision-making process.
B) It serves the interests of wealthier countries.
C) It creates a free-riding problem.
D) It violates national sovereignty.
Answer: C
Topic: Criticism of International Institutions
Difficulty: Moderate
Objective: LO 2.5 Debate the pros and cons of international economic organizations.
AACSB: Application of knowledge
3) Which of the following is FALSE?
A) National sovereignty limits outsiders' ability to change the trade laws and practices of
individual nation states.
B) Because of international recognition of national sovereignty, individual nations are unaffected
by global trade and capital flows.
C) Foreign investors may not have a legal right to impose policies on a nation state, but the
nation state may still experience consequences of poor policies.
D) Because trade policies are laws of individual nations, it is difficult for other nations and
international organizations to force changes on unwilling nation states.
Answer: B
Topic: Criticism of International Institutions
Difficulty: Difficult
Objective: LO 2.5 Debate the pros and cons of international economic organizations.
AACSB: Application of knowledge

4) Which of the following is a FALSE statement about the International Monetary Fund (IMF)?
A) The IMF was created after the Bretton Woods Conference to help to maintain the
international fixed exchange rate system that was introduced.
B) The IMF lends to national governments, initially to maintain the fixed exchange rate system,
and today to deal with debt or currency crises.
C) Multinational corporations can get IMF loans if they agree to invest in economies that are
internationally perceived as risky and otherwise unlikely to receive direct foreign investment.
D) One of the criticisms of the IMF and other international governmental organizations that deal
with the global economy is that their decision making may be biased toward policies that favor
industrialized nations.
Answer: C
Topic: Criticism of International Institutions
Difficulty: Moderate
Objective: LO 2.5 Debate the pros and cons of international economic organizations.
AACSB: Application of knowledge

5) China's alternative to the IMF is called

A) AIIB.
B) ASEAN.
C) MERCOSUR.
D) TIIP.
Answer: A
Topic: Criticism of International Institutions
Difficulty: Easy
Objective: LO 2.5 Debate the pros and cons of international economic organizations.
AACSB: Application of knowledge