The terms of trade are A) the terms negotiated in a trade agreement. B) exports plus imports divided by GDP. C) the value of the real exchange rate. D) taxes plus transaction costs paid on imports. E) the ratio of export prices to import prices. ANSWER E
Date: September 10th, 2020
Explain Purchasing Power Parity. What will be an ideal response? ANSWER PPP states that the exchange rate between two countries’ currencies equals the ratio of the countries’ price levels. A fall in a currency’s domestic purchasing power (i.e. an increase in the domestic price level) will be associated with a proportional currency depreciation in […]
Date: September 10th, 2020
Describe the controversy surrounding the HO model and the widening of the American income gap. What will be an ideal response? ANSWER Over the past three decades, real wages in America paid to blue collar workers have only risen slightly whereas real wages paid to college graduates have risen significantly. Many pundits claim that […]
Date: September 10th, 2020
A product is produced in a monopolistically competitive industry with scale economies. If this industry exists in two countries, and these two countries engage in trade with each other, then we would expect A) each country will export different varieties of the product to the other. B) the country in which the price of the […]
Date: September 10th, 2020
The excess of total credits over total debits in the current and private capital accounts is called the A) BOP deficit. B) BOP surplus. C) official settlements account surplus. D) official settlements account deficit. ANSWER C
Date: September 10th, 2020
The proposal that trade agreements should include a system which monitors worker conditions and make the results available to consumers in the rich importing country A) is consistent with the Invisible Hand paradigm. B) is consistent with the market failure approach. C) is consistent with the Ricardian theory of comparative advantage. D) is consistent with […]
Date: September 10th, 2020
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 […]
Date: September 10th, 2020
Explain carefully why the assumption of identical technology worldwide eliminates the classical basis for international trade. What will be an ideal response? ANSWER In the classical model, differences in technology between the two countries lead to differences in autarky prices. If one were to replace that assumption with the HO assumption of identical technologies, […]
Date: September 10th, 2020
An industry is characterized by scale economies and exists in two countries. In order for consumers of its products to enjoy both lower prices and more variety of choice A) the two countries must engage in international trade with each other. B) each country’s marginal cost must equal that of the other country. C) the […]
Date: September 10th, 2020
The high correlation between rapid growth in exports and rapid economic growth observed in several East Asia countries in recent decades A) proves that export promoting trade policy leads to relatively rapid economic growth. B) proves that a free-trade orientation of trade policy results in rapid economic growth. C) proves that exports help growth, whereas […]
Date: September 10th, 2020
