Recent evidence regarding the exchange-rate pass-through effect in the U.S. reflects a declining trend. How can this be explained? What will be an ideal response? ANSWER There is evidence that the exchange-rate pass-through effect to import prices has been declining in developing economies, particularly for the U.S. One explanation offered for this trend is […]
Explain the elasticities and absorption approaches to the BOT. What is the most notable shortcoming of these approaches? What will be an ideal response? ANSWER The elasticities approach analyzes the effect of devaluation on the trade balance based on elasticities of supply and demand for foreign exchange and international trade. The absorption approach views […]
Briefly describe the factors that contributed to the U.S. Current Account deficits of the 1990s. What will be an ideal response? ANSWER Rapid U.S. economic growth raised income and import demand; economic growth was low or negative for U.S. trading partners, depressing export demand.
Offshoring became a concern in the 1980s when modern communication and transport technology made it possible for firms to relocate production abroad. Indicate whether the statement is true or false ANSWER TRUE
The Dutch Disease refers to a deadly outbreak of influenza that destroyed all international trade for the Netherlands in the 1960s. Indicate whether the statement is true or false ANSWER FALSE
The Ricardian model demonstrates that A) trade between two countries will benefit both countries. B) trade between two countries may benefit both regardless of which good each exports. C) trade between two countries may benefit both if each exports the product in which it has a comparative advantage. D) trade between two countries may benefit […]
Write down a model that will allow you to analyze the BOP and exchange rate in a monetary framework. Then, discuss the consequences of an increase in the foreign inflation rate under fixed, flexible, and managed floating systems. What will be an ideal response? ANSWER R^ – E^ = P^F + Y^ – D^. […]
As Europe explored monetary union, evidence to date suggests that increased variability in exchange rates A) reduces foreign trade and investment. B) increases foreign trade and investment. C) does not seem to have an impact on foreign trade and investment. D) hurts foreign investment but not trade. E) hurts foreign trade but not investment. […]
According to OLI theory, a firm might be unwilling to license its production to a foreign firm for fear that its technology may be stolen or its brand name harmed, which leads the firm to internalize control over its asset and set up its own foreign subsidiary. Indicate whether the statement is true or false […]
Suppose that there are two factors, capital and land, and that the United States is relatively capital abundant while Canada is relatively land abundant. According to the HO model, A) Canadian landowners should support Canada-U.S. free trade. B) Canadian capital owners should oppose Canada-U.S. free trade. C) U.S. capital owners should support Canada-U.S. free trade. […]
