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) […]
According to Linder, the gains from international trade come about because consumers are exposed to A) a greater variety of goods. B) increasing returns to scale. C) imperfect competition. D) None of the above. ANSWER A
The Shipbreakers of Alang represent a perfect example of how a developing country can apply the principles of the Heckscher-Ohlin model, since A) shipbreaking is generally considered to be a capital-intensive operation and India, being a large country has much capital. B) shipbreaking is a labor-intensive operation in India, and India has many workers since […]
What policies would you recommend to the U.S. government to lower the balance of trade deficit and decrease net capital inflows? What will be an ideal response? ANSWER Lower the fiscal deficit.
Who are the major participants in the foreign exchange market? What will be an ideal response? ANSWER (1 ) Commercial banks (2 ) Corporations (3 ) Nonbank financial institutions (4 ) Central banks
The “East Asian Miracle” of the “Four Tigers” in the 1960s was replicated by A) developing countries around the world. B) other East Asian countries. C) Sub Sahara African countries. D) Industrialized countries. E) Eastern European countries. ANSWER B
