Question 1

Since NAFTA was signed, Mexico saw the productivity of its firms:

Accepted Answer

Studies have shown that after NAFTA was signed, productivity in maquiladora plants (which are foreign-owned assembly plants in Mexico that use imported materials) increased at a faster pace compared to nonmaquiladora plants.

Question 2

Studies of NAFTA have concluded that free trade caused ______ in the variety of U.S. imports from Mexico.

Accepted Answer

Studies have found that NAFTA has led to an increase in the variety of U.S. imports from Mexico as a result of lower trade costs and increased competition. This has allowed U.S. consumers to have access to a wider range of goods at lower prices.

Question 3

Using data from Trade Adjustment Assistance claims, we can make an accurate estimate of:

Accepted Answer

Trade Adjustment Assistance claims are filed by workers who have lost their jobs due to foreign competition. Therefore, using this data, we can estimate the number of jobs lost due to NAFTA, which can give us an understanding of the unemployment caused by this trade agreement. However, this data cannot accurately estimate the variety of products imported from Mexico or exported to Mexico, nor can it estimate the barriers to trade erected by affected firms.

Question 4

NAFTA is believed to have __________ manufacturing productivity, especially in the maquiladora plants.

Accepted Answer

NAFTA is believed to have raised manufacturing productivity, especially in the maquiladora plants, as it allowed for more efficient trade practices, increased competition, and access to larger markets. This led to an increase in foreign investment and technology transfer, which ultimately boosted productivity and economic growth.

Question 5

Studies of U.S.-Canadian free trade have concluded that the number of new jobs created in Canadian manufacturing was _________ the number of jobs lost elsewhere in Canadian manufacturing due to free trade.

Accepted Answer

The correct answer is C because studies have shown that the number of new jobs created in Canadian manufacturing was greater than the number of jobs lost elsewhere in Canadian manufacturing due to free trade.

Question 6

Which of the following probably slowed NAFTA's effect on the wages of Mexican workers?

Accepted Answer

The Mexican peso crisis caused a severe economic downturn in Mexico and led to a decline in wages for Mexican workers, which likely slowed the overall impact of NAFTA on their wages.

Question 7

Studies of NAFTA have concluded that increases in the variety of U.S. imports from Mexico are equivalent to about a ________ per year reduction in Mexican import prices.

Accepted Answer

Studies of NAFTA have shown that the increase in the variety of U.S. imports from Mexico, due to the reduction in trade barriers, effectively acts like a 1.2% per year reduction in Mexican import prices. This is because consumers get access to a wider range of products at lower prices, which is economically similar to reducing the prices of imports.

Question 8

The United States has benefited from NAFTA substantially in terms of increased:

Accepted Answer

NAFTA has increased the variety of goods available to American consumers by facilitating the trade of many different products between Canada, the U.S., and Mexico. While it has also led to a loss of some manufacturing jobs, it has been beneficial for U.S. consumers in terms of increased choices of products.

Question 9

The unemployment caused by NAFTA in the United States from 1994 to 2002:

Accepted Answer

According to a study conducted by the Center for Economic and Policy Research, the unemployment caused by NAFTA in the United States from 1994 to 2002 totaled 13% of manufacturing job losses in the country during that period. The study found that while NAFTA did contribute to job losses, it was not the sole cause and that overall employment levels in the United States did not decline as a result of the trade agreement.

Question 10

U.S. unemployment as a result of free-trade agreements such as NAFTA:

Accepted Answer

Free-trade agreements can cause temporary unemployment as industries adjust, but the economy typically adapts over time, creating new opportunities.

Question 11

U.S. Trade Adjustment Assistance:

Accepted Answer

U.S. Trade Adjustment Assistance is available to workers in service industries.

Question 12

Studies have concluded that NAFTA caused ________ in economic welfare to Canada.

Accepted Answer

Multiple studies have found that NAFTA had a positive impact on Canada's economy, leading to increased trade and investment, job creation, and higher productivity. While there have been some negative effects on specific industries and regions, overall, Canada has experienced a net gain in economic welfare as a result of NAFTA.

Question 13

A recap of the effects of NAFTA for its first nine years reveals some adjustment costs were offset by:

Accepted Answer

NAFTA led to an expansion of varieties of imports from Mexico, which increased benefits for U.S. consumers. While there were some adjustment costs, the expansion of trade allowed for more competition, lower prices, and increased consumer surplus. The other choices are incorrect as there is no correlation between NAFTA and increased exports of U.S. manufactured goods to China, increased benefits for low-wage Mexican workers, or increased employment of low-skilled American workers.

Question 14

Studies of U.S.-Canadian free trade have concluded that free trade produced what effect on Canadian firms?

Accepted Answer

Studies have shown that Canadian firms experienced increased productivity and innovation as a result of the free trade agreement with the US. This increase in productivity was mainly due to increased competition and access to larger markets.

Question 15

Mexico's gains from NAFTA have benefited mostly:

Accepted Answer

NAFTA has led to the growth of industries such as automobiles, electronics, and aerospace in Mexico, which employ higher-income workers with specialized skills. These industries have contributed significantly to Mexico's economic growth and development. Additionally, NAFTA has facilitated the growth of maquiladora plants along the U.S.-Mexico border, which also employ higher-skilled workers. While there have been some benefits for agricultural workers, overall the gains from NAFTA have primarily benefited higher-income workers.

Question 16

NAFTA probably helped productivity in Mexico's maquiladora sector, but:

Accepted Answer

Increased competition from other countries may have limited Mexico's maquiladora sector's output growth, despite the benefits of increased productivity from NAFTA.

Question 17

Approximately how many U.S. workers received Trade Adjustment Assistance from 1994 to 2002 as a result of job losses due to NAFTA?

Accepted Answer

From 1994 to 2002, approximately 525,000 U.S. workers received Trade Adjustment Assistance due to job losses attributed to the North American Free Trade Agreement (NAFTA), which is equivalent to 0.525 million.

Question 18

Suppose that imports and exports in an industry are $100 million and $200 million, respectively. Will the index of intra-industry trade for this industry rise, fall, or remain unchanged if exports fall to $100 million?

Accepted Answer

The index of intra-industry trade is calculated as (2 * min(exports, imports)) / (exports + imports). Initially, it is (2 * 100) / (100 + 200) = 0.67. If exports fall to $100 million, the index becomes (2 * 100) / (100 + 100) = 1. Thus, the index will rise.

Question 19

Studies of NAFTA have concluded that from 1994 to 2003, free trade caused ______________in the productivity of Mexican maquiladora firms producing for export than for Mexican firms mainly producing for the Mexican domestic market.

Accepted Answer

Studies have shown that free trade under NAFTA led to larger increases in the productivity of Mexican maquiladora firms producing for export compared to Mexican firms mainly producing for the domestic market. This is because maquiladora firms were able to take advantage of foreign investment and technology transfer, leading to improvements in productivity.

Question 20

When imports and exports for the same type of good are nearly equal:

Accepted Answer

When imports and exports for the same type of good are nearly equal, it is an indication that nearly all the trade is intra-industry. This means that the countries involved are trading similar, but not necessarily identical, products within the same industry. It also indicates that the countries have similar levels of production efficiency and are engaging in trade to take advantage of differences in quality, design, or marketing. This type of trade is common in developed countries and can lead to mutual gains from trade.

Quiz 6: Increasing Returns to Scale and Monopolistic Competition