Answer the following questions briefly. (a) Is it possible for each nation to have BOP surpluses? Explain. (b) What is the “statistical anomaly” that imparts a bias to trade balances? (c) Is it correct to argue that deficit countries are harmed while surplus countries benefit by international free trade? (d) How is the balance of […]
Describe the two sources of economies of scale and how these economies of scale lead to intraindustry trade. What will be an ideal response? ANSWER Internal economies of scale come from decreasing average costs as production increases. The source of the decrease in average costs could be the spread of fixed costs over a […]
For most macroeconomists A) gross national income and gross national product are the same. B) gross national income exceeds gross national product. C) gross national product exceeds gross national product. D) it is hard to tell whether gross national income equal gross national product. E) gross national product is much more important than gross national […]
Most analysts in the United States and the international financial community initially perceived the debt crisis as a temporary, short-run liquidity problem so they advised increasing capital flows to Latin America. Indicate whether the statement is true or false ANSWER TRUE
The finding that U.S. exports tend to come from labor-intensive industries, while U.S. imports are produced using relatively capital intensive techniques is known as A) the Leontief paradox. B) the balance of trade enigma. C) the Heckscher-Ohlin paradox. D) the Krugman finding. ANSWER A
Consider the following two cases. In the first, a U.S. firm purchases 18% of a foreign firm. In the second, a U.S. firm builds a new production facility in a foreign country. Both are ________, with the first referred to as ________ and the second as ________. A) foreign direct investment (FDI) outflows; greenfield; brownfield […]
Define the official settlements balance. Is there any difference between the United States and other countries in terms of what this balance measures? How does this affect the ability of the countries to run current account deficits? What will be an ideal response? ANSWER For most countries it measures international reserve changes. For the […]
Voting power in the IMF is determined by a country’s A) political power. B) quota. C) size. D) All of the above. ANSWER B
Most trade between Mexico and the United States is intrafirm. Indicate whether the statement is true or false ANSWER TRUE
What is the Fisher Effect? Provide an example. What will be an ideal response? ANSWER All else equal, a rise in a country’s expected inflation rate will eventually cause an equal rise in the interest rate that deposits of its currency offer. Similarly, a fall in the expected inflation rate will eventually cause a […]
