a. the largest in the world.
b. smaller than FDI to China.
c. smaller than their share of trade flows.
d. called horizontal FDI.
ANSWER: a
132. Which of the following is an example of horizontal FDI?
a. Ford Motor Company acquires the British firm Jaguar.
b. Lenovo, a Chinese company, acquires IBM's personal computing business.
c. Fiat, an Italian company, merges with Agrale, a Brazilian automotive manufacturer.
d. General Motors Corporation builds a plant in China to supply Buicks to the Chinese market.
ANSWER: a
133. China has received a great deal of FDI. Why?
a. Firms such as automakers can take advantage of low wages and also avoid Chinese tariffs if their production is finished in China.
b. The U.S. government has encouraged domestic firms to buy foreign firms.
c. Loans to purchase manufacturing facilities in other nations are subsidized by the U.S. government.
d. China has a system of business that is free from corruption and interference by the Chinese government.
ANSWER: a
134. Which of the following statements is true?
a. FDI is largely restricted between high-income countries but rarely faces restrictions in developing countries.
b. FDI is largely unrestricted between high-income countries but sometimes faces restrictions in developing countries.
c. FDI is never restricted among high-income or developing countries.
d. FDI is always heavily restricted among high-income and developing countries.
ANSWER: b
135. One of the main reasons for China to actively invest in foreign companies is to
a. enhance the competitiveness of Chinese firms globally.
b. take advantage of low wages in foreign countries.
c. make best use of its technological expertise in the world market.
d. meet the growing demand of the high population in China.
ANSWER: d
136. How did the novel coronavirus and the World Health Organization’s declaration of a global pandemic affect trade in China over the first few months of 2020?
a. It increased China’s international trade in goods but left services unaffected.
b. It decreased China’s international trade in goods but increased China’s international trade in services.
c. It increased China’s international trade in goods but decreased China’s international trade in services.
d. It decreased China’s international trade in goods and services.
ANSWER: d
137. Which of the following is a reason that firms engage in vertical FDI?
a. Firms want to engage in automated production techniques.
b. Firms anticipate higher technology and access to capital.
c. Legal structure, education, highways, and communications technology are usually better in lower-income nations.
d. Firms want to take advantage of lower wages in developing countries.
ANSWER: d
Objective Short Answer
138. How does trade in the modern world economy differ from trade in the past—say, 1925?
ANSWER: In the past, trade occurred in more standardized goods (such as raw materials) that were shipped long distances but were not shipped back and forth between countries during the manufacturing process. The type of trade has also changed. U.S. trade has shifted away from agriculture and raw materials toward manufactured goods. Most trade now occurs among wealthy, industrialized nations.
139. Why isn't the U.S.–China bilateral trade balance a good indicator of the inequality of imports and exports between the United States and China?
ANSWER: In the official trade statistics, the value of Chinese exports to the United States includes the value of the imported material inputs used in producing these exports instead of reporting only the value added by China. This inflates China’s export figures because it does not net out their input costs.
140. Why should bilateral trade balances be viewed with some caution?
ANSWER: Bilateral trade balances do not account for inputs that exporting and importing countries may import from each other or from third countries. If value-added is small, bilateral trade balances do not represent the GDP produced in either country. Bilateral trade balances do not account for inputs produced by, and profits earned by, home country subsidiaries operating in the other country.