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Reference no: EM132181708

1.

Lemons Oranges

Macro Islands 200 800

Micro Islands 400 400

The table shows the number of acres it takes to produce 1 container of lemos and oranges for 2 countries.

  1. Which country should specialize in orange production?
  2. Which country has the comparative advantage in lemon production?
  3. Which country has absolute advantage in the production on each fruit?

2. Assume the U.S. trades exclusively with Asian nations and that the exchange rate between the U.S. and these nations is flexible.

  1. Suppose Americans working in the cotton industry decide to boycott goods made in these Asian nations. Explain how this boycott will affect 1. the supply of dollars and 2. the international value of the dollar.
  2. There is an increase in real interest rates the U.S. but not in Asian nations. Using a correctly drawn and labeled foreign exchange graph, show and explain how this increased interest rate affects 1. the quantity of dollars supplied in the foreign exchange market and 2. the international value of the dollar.

Reference no: EM132181708

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