Classical and Neoclassical trade theory makes the case that free trade can bring a country to an optimum and economically efficient use of its resources; and hence is an optimal trade-policy, if the objective is maximizing long term economic growth. There are those who argue that the experience of the Asian Miracle countries, such as […]
The accumulation of international debt increased the debt service requirements of the indebted countries. After the debt crisis began, this caused A) the adoption of expansionary policies to return to growth. B) large capital inflows to service the debt. C) the adoption of strongly contractionary policies to reduce consumption and government deficits. D) an intensification […]
Illustrate with a graph the effects of monetary policy on the economy when exchange rates are flexible. What will be an ideal response? ANSWER Assume perfect asset substitutability and capital mobility, so the BP curve is horizontal. Shifts in LM will be matched by shifts in IS so that income changes but the interest […]
With flexible exchange rates, central banks do not have to finance deficits because BOP equilibrium is restored by changes in exchange rates. Indicate whether the statement is true or false ANSWER TRUE
The simultaneous export and import of airplanes by the United States is an example of A) increasing returns to scale. B) imperfect competition. C) intraindustry trade. D) interindustry trade. ANSWER C
The pauper labor theory, and the exploitation argument A) are theoretical weaknesses that limit the applicability of the Ricardian concept of comparative advantage. B) are theoretically irrelevant to the Ricardian model, and do not limit its logical relevance. C) are not relevant because the Ricardian model is based on the labor theory of value. D) […]
Which industry was first covered by a free trade agreement between Canada and the United States? What will be an ideal response? ANSWER Automobiles
If the forward rate is greater than the spot rate, what are markets signaling about their expectations for the future spot rates for the home currency? What will be an ideal response? ANSWER The home currency is expected to depreciate over the maturity period of the forward contact.
The reform movements that began in many Latin American economies in the late 1980s favored A) competitive devaluations. B) stronger military budgets. C) imports substitution policies. D) a stronger role for markets and more openness. E) more government regulation of industry. ANSWER D
International Reserve assets are comprised of gold, foreign exchange, and IMF special drawing rights. Indicate whether the statement is true or false ANSWER TRUE
