Describe the technology transfer benefit of capital flows and the political power cost of large capital flows into low-income countries. What will be an ideal response? ANSWER Benefits include new technologies, new management techniques, and new ideas. Developing countries often lack access to these without outside help. If it comes as direct investment, it […]
MacDougall showed in his tests that A) relatively higher U.S. labor productivity was associated with relatively higher U.K. export ratios. B) relatively higher U.K. labor productivity was associated with relatively higher U.K. export ratios. C) labor productivity ratios and export ratios were not associated with each other. D) None of the above. ANSWER B
With fixed exchange rates, a country A) cannot conduct independent monetary policy. B) can conduct independent monetary policy. C) cannot conduct independent fiscal policy. D) Both A and C. ANSWER A
Suppose Russia’s inflation rate is 200% over one year but the inflation rate in Switzerland is only 2%. According to relative PPP, what should happen over the year to the Swiss franc’s exchange rate against the Russian ruble? What will be an ideal response? ANSWER (Eruble/franc, t – Eruble/franc, t-1)/Eruble/franc, t-1 = 2 – […]
Discuss the differences between Absolute PPP and Relative PPP. What will be an ideal response? ANSWER Absolute PPP states that the exchange rate between two currencies equals the ratio of their price levels. Relative PPP states that the percentage change in the exchange rate between two currencies over a given period equals the difference […]
________ is necessary to “balance” the BOP statement. A) Reserve inflow B) Statistical discrepancy C) Debit transaction D) Credit transaction ANSWER B
Leontief used an input-output table in order to test the A) classical theory. B) the Heckscher-Ohlin theory. C) the Linder hypothesis. D) All of the above. ANSWER B
If the goods’ money prices do not change, a depreciation of the dollar against the pound A) makes British sweaters cheaper in terms of American jeans. B) makes British sweaters more expensive in terms of American jeans. C) makes American jeans more expensive in terms of British sweaters. D) doesn’t change the relative price of […]
Discuss the relationship between PPP and the Law of One Price. What will be an ideal response? ANSWER The law of one price applies to individual commodities while PPP applies to the general price level. Proponents of PPP argue that its validity in the long run doesn’t require the law of one price to […]
One reason that a large share of the trade between high-income industrial economies is intraindustry trade is because A) it is more advantageous than interindustry trade. B) high-income industrial economies produce in the first stage of the product cycle. C) high-income industrial economies are wealthier than developing countries. D) high-income industrial economies have dissimilar resource […]
