Practice Questions Exam 1
The GATT was
an international treaty governing trade.
For trade to take place, a country must face a world relative price that is
different from the relative price that would prevail in the absence of trade
Since the end of World war II , the view within the advanced democracies concerning the amount of trade has recently been questioned by a
largely political movement composed of traditional protectionists and new ideologies
When an economy is open to trade, the relative price of a good is determined by the
relative supply of demand for the world
In claiming that 'size matters' the gravity model asserts that there is a strong empirical relationship between the size of a country's economy and the
volume of its imports and exports
An important insight of international trade theory is
when countries exchange goods and services with one and other it is usually beneficial to both countries
Internation capital markets
- link the capital markets of individual countries -grown significantly since the 1960's
A century ago, most British imports came from relatively distant locations: North America, Latin America, and Asia. Today, most British imports come from other European countries. How does this fit in with the changing types of goods that make up world trade?
A century ago trade was mostly in commodities that were not produced in Europe. Today, 61 percent of trade is in manufactured goods, and as the gravity model predicts, Britain trades with the other large European economies.
Despite major gains, Chinese manufacturing workers have much lower productivity than their U.S. counterparts. Chinese service workers are relatively more productive, but most services aren't tradable. So which matters for Chinese wageslong dashmanufacturing or service productivity? For Chinese wages,
Both sectors matter because Chinese wages are a function of productivity and prices in all sectors
The quantity of direct foreign investment by the United States into Mexico has increased dramatically during the last decade. How would you expect this increase quantity of direct foreign investment to affect migration flows from Mexico to the US, all else being equal?
Direct foreign investment has increased the amount of capital per worker in Mexico. This will increase the marginal product of labor and increase the real wage, which should slow the flow of labor from Mexico.
Suppose a specific factors economy produces two goods: X and Y. Given that the economy is open to trade, and assuming that D is consumption, Q is production, and P is price, the budget constraint can be defined as
Dx-Qx=[Py/Px]x(Qy-Dy)
The international debt crisis of 1982 was precipitated when ________ could not pay its international debts
Mexico
The claim that trade exploits a country and makes it worse off if its workers receive much lower wages than workers in other countries is shown by the Ricardian model to
Miss the point because it fails to consider the alternative, which would be even lower wages
In 1986, the price of oil on world markets dropped sharply. Since the United States is an oil-importing country, this was widely regarded as good for the U.S. economy. Yet in Texas and Louisiana, 1986 was a year of economic decline. Why? In Texas and Louisiana, 1986 was a year of economic decline because in these two states,
Oil production was reduced
Within each country that opens itself to international trade
Some factor owners gain, but other factor owners lose
Assume a specific factors economy produces two goods, cloth and food, and that when representing this economy graphically, cloth is on the x-axis and food is on the y-axis. For a trading economy
The budget constraint is tangent to the production possibility frontier at the chosen production point
According to the gravity model, a characteristic that tends to affect the probability of trade existing between any two countries is
The distance between them
Assume a specific factors economy produces two goods, cloth and food, and that when representing the output of this economy graphically, cloth is on the x- axis and food is on the y-axis. When the price of cloth increase by 5% and the price of food increases by 5%
The real wage rates are unaffected
Canada and Australia are english speaking countries with population that are not too different in size. But canadian trade is twice as large, relative to GDP as australia's, why is this
Transportation costs for imports and exports are higher in Australia because of the distance goods must travel Canada is close to a major economy
A century ago each country's exports where sharped largely by
climate and natural resources
The sources of modern trade are largely rooted in
country differences in human and human-created resources
Cost-benefit analysis of international trade
focuses attention on conflict of interest within countries
Since WWII (early 1950's) the proportion of most countries' production being sued in some other country
increased
Transactions that involve the physical movement of goods or a tangible commitment of resources are the domain of
international trade analysis
The degree of specialization predicted by the basic Ricardian model
is much more extreme than is observed in the real world
In the current post-industrial economy, international trade in services (including banking and financial services)
is relatively small
A country has a comparative advantage in producing a good if
its opportunity cost of producing that good is lower than elsewhere
In the real world, the dividing line between trade and monetary issues is
neither simple nor clear-cut
The coordination of international macroeconomic policies among sovereign nations has
only recently been advocated by economists
In each sector of a specific factors economy, profit- maximizing employers will demand labor up to the point where
the Marginal product of labor times the price of the product equals the wage rate
Over the past 40 years the composition of developing-country exports has
undergone a dramatic shift from primary products to manufactures