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Chapter 7: Trade and Development II: Economic Reform Multiple Choice Questions 1. A current account deficit means that a) a country is exporting more than it is importing. b) a country is importing more than it is exporting. c) a country is unable to pay off its loans. d) a country is making less money on its exports than on its imports. e) a government is spending more than it is receiving in revenues. Answer: b 2. Import substitution industrialization (ISI) gave rise to trade deficits primarily because a) it generated considerable exports but did not generate sufficient imports. b) export revenues were adversely affected by negative terms of trade. c) import revenues were adversely affected by negative terms of trade. d) governments were unable to continue to subsidize state owned enterprises. e) it generated a considerable demand for imports but did not generate sufficient exports. Answer: e 3. According to Oatley, government should maintain an exchange rate that a) equalizes the prices of goods in the domestic and foreign markets. b)c reates economies of scale but not economies of experience. c)i s sufficient to satisfy domestic consumption. d)s ubsidizes the prices of goods in the domestic markets. a) allows foreign markets to overprice exports. Answer: a 4. According to Oatley, policies that government used to promote industrialization weakened agriculture to such an extent that a) heavy tax burdens caused massive rural protests. b) farmers left the rural areas for urban areas in massive numbers in search of new jobs. c) the fall in payments received by government marketing boards caused severe budget deficits. d) farmers had to smuggle their goods to foreign countries to avoid taxes. e) falling prices gave farmers little incentive to increase agricultural production. Answer: e
