Q.1 What is the main purpose of international trade for developing countries?
To isolate their economy
To increase foreign exchange and economic growth
To eliminate local businesses
To increase domestic unemployment
Explanation - Developing countries engage in international trade to earn foreign exchange, access technology, and promote economic growth.
Correct answer is: To increase foreign exchange and economic growth
Q.2 Which theory suggests that countries should specialize in producing goods where they have a comparative advantage?
Absolute advantage theory
Comparative advantage theory
Heckscher-Ohlin theory
Product life-cycle theory
Explanation - David Ricardo's theory of comparative advantage states that countries benefit by specializing in goods they can produce at lower opportunity costs.
Correct answer is: Comparative advantage theory
Q.3 What is the role of exports in development?
Exports reduce domestic income
Exports provide foreign exchange and boost growth
Exports increase dependency on imports
Exports lead to trade deficits
Explanation - Exports help developing countries earn foreign currency, improve the balance of payments, and stimulate economic growth.
Correct answer is: Exports provide foreign exchange and boost growth
Q.4 Which of the following is a limitation of relying solely on exports for development?
Exports create foreign exchange
Exports are immune to global market fluctuations
Exports may lead to dependence on a few commodities
Exports always ensure economic stability
Explanation - Heavy reliance on a few export commodities makes developing countries vulnerable to global price fluctuations.
Correct answer is: Exports may lead to dependence on a few commodities
Q.5 Which policy encourages local industries by limiting imports?
Export promotion policy
Import substitution industrialization
Free trade policy
Monetary policy
Explanation - Import substitution aims to reduce dependency on imports by promoting domestic production of previously imported goods.
Correct answer is: Import substitution industrialization
Q.6 What is meant by 'terms of trade'?
The ratio of a country's imports to exports
The price ratio of exports to imports
The total value of exports
The total value of imports
Explanation - Terms of trade indicate how much import goods a country can obtain per unit of exported goods; an improvement means exports buy more imports.
Correct answer is: The price ratio of exports to imports
Q.7 Which organization aims to regulate international trade and reduce trade barriers?
World Bank
International Monetary Fund
World Trade Organization
United Nations Development Programme
Explanation - The WTO facilitates global trade by promoting free trade, reducing tariffs, and resolving trade disputes.
Correct answer is: World Trade Organization
Q.8 How does trade liberalization affect developing countries?
Reduces competition
May increase access to markets and technology but also exposes to competition
Eliminates need for exports
Guarantees economic growth
Explanation - Trade liberalization can improve access to goods, technology, and markets, but domestic industries may face stiff competition from foreign firms.
Correct answer is: May increase access to markets and technology but also exposes to competition
Q.9 Which type of trade involves developing countries exporting raw materials and importing finished goods?
Balanced trade
Primary product trade
Industrial trade
Barter trade
Explanation - Developing countries often export primary commodities like minerals and agricultural products and import manufactured goods, leading to structural trade imbalances.
Correct answer is: Primary product trade
Q.10 Why is foreign direct investment (FDI) important for development?
It reduces domestic investment
It brings capital, technology, and employment opportunities
It replaces domestic trade
It reduces exports
Explanation - FDI provides much-needed capital, modern technology, and jobs, which help boost industrialization and economic development.
Correct answer is: It brings capital, technology, and employment opportunities
Q.11 Which of the following is a negative effect of trade on developing countries?
Technology transfer
Exposure to volatile global markets
Increased foreign exchange
Access to consumer goods
Explanation - Dependence on exports exposes developing countries to global price fluctuations, which can destabilize their economies.
Correct answer is: Exposure to volatile global markets
Q.12 What is the significance of regional trade agreements (RTAs) for developing countries?
They eliminate all trade barriers globally
They promote trade among member countries by reducing tariffs
They prevent foreign investment
They force countries to stop exports
Explanation - RTAs, like SAARC or MERCOSUR, facilitate trade among members, enhance market access, and encourage regional cooperation.
Correct answer is: They promote trade among member countries by reducing tariffs
Q.13 Which factor can limit the benefits of trade for developing countries?
Abundant natural resources
Infrastructure deficits and low industrial capacity
High literacy rates
Strong domestic market
Explanation - Weak infrastructure, low technology, and limited industrial base can prevent developing countries from fully benefiting from trade.
Correct answer is: Infrastructure deficits and low industrial capacity
Q.14 What is 'trade dependency'?
When a country produces all goods domestically
When a country relies heavily on trade for its economic needs
When a country exports more than imports
When a country bans imports
Explanation - Trade dependency occurs when a country's economy is highly reliant on imports and exports, making it vulnerable to external shocks.
Correct answer is: When a country relies heavily on trade for its economic needs
Q.15 Which type of trade strategy focuses on promoting exports to accelerate growth?
Import substitution industrialization
Export-oriented industrialization
Protectionism
Isolationism
Explanation - Export-oriented industrialization aims to boost economic growth by producing goods for international markets.
Correct answer is: Export-oriented industrialization
Q.16 Which term describes a situation where developing countries export low-value goods and import high-value manufactured goods?
Favorable terms of trade
Unfavorable terms of trade
Balanced trade
Trade surplus
Explanation - Developing countries often face unfavorable terms of trade when they export primary products and import expensive manufactured goods.
Correct answer is: Unfavorable terms of trade
Q.17 How can technology transfer through trade benefit developing countries?
By reducing domestic production
By improving productivity and industrial capabilities
By increasing dependence on imports
By lowering education levels
Explanation - Technology transfer via trade or FDI allows developing countries to adopt advanced methods, enhancing productivity and competitiveness.
Correct answer is: By improving productivity and industrial capabilities
Q.18 Which of the following is a reason why developing countries may adopt protectionist trade policies?
To encourage foreign competition
To protect nascent domestic industries
To increase imports
To reduce domestic savings
Explanation - Protectionist policies, such as tariffs or quotas, help emerging domestic industries compete with established foreign firms.
Correct answer is: To protect nascent domestic industries
Q.19 Which global trend has increased trade opportunities for developing countries?
Globalization and liberalization
Isolationist policies
Decreased foreign investment
High trade tariffs everywhere
Explanation - Globalization reduces trade barriers and integrates economies, opening new markets for developing countries.
Correct answer is: Globalization and liberalization
Q.20 What is the primary challenge of export-led growth for developing countries?
Lack of natural resources
Dependence on foreign demand and market volatility
High domestic consumption
Overproduction of domestic goods
Explanation - Export-led growth depends on global demand; any downturn in foreign markets can negatively affect developing economies.
Correct answer is: Dependence on foreign demand and market volatility
Q.21 Which factor improves a country's competitive advantage in trade?
High production costs
Advanced technology and skilled labor
Weak infrastructure
Limited market access
Explanation - Countries with advanced technology, skilled workforce, and efficient production can produce goods more competitively and expand exports.
Correct answer is: Advanced technology and skilled labor
Q.22 Which of the following is an example of a non-tariff barrier?
Import quota
Export subsidy
Customs duty
All of the above
Explanation - Non-tariff barriers include import quotas, licensing requirements, and standards that restrict trade without direct taxation.
Correct answer is: Import quota
Q.23 How can trade help reduce poverty in developing countries?
By decreasing domestic production
By creating employment, generating income, and increasing market access
By increasing import dependency
By eliminating foreign investment
Explanation - Trade expansion can boost industrial activity, create jobs, and improve incomes, thereby helping to reduce poverty.
Correct answer is: By creating employment, generating income, and increasing market access
Q.24 Which policy can help developing countries move from exporting raw materials to manufactured goods?
Import liberalization
Industrial policy and export promotion
Isolationism
Restricting foreign investment
Explanation - Governments can promote industrialization and support manufacturing exports through targeted industrial policies.
Correct answer is: Industrial policy and export promotion