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Q. If trade were to open up between R and P, where could the world terms of trade locate in the figure above (somewhere on the PC/PF axis)? Could relative wages (w/r) in the two countries become equal? Is this consistent with the Heckscher- Ohlin model? Explain.
Answer: The terms of trade would settle somewhere among the two autarky relative prices on the PC/PF axis. The relative wages (w/r) will be inferior to the highest and higher than the lowest on the vertical axis above however will not coincide. This final result is in contradiction to the factor price equalization expectation we have from the model.
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Q. Present the case against floating exchange rates. Answer: 1.The discipline obligatory on individual countries by a fixed rate would be lost. 2. Undermine specu
opportunity cost version is an improvement over the classical theory of international trade?comment
Q. Suppose E is fixed at E 0 and that the asset markets are in equilibrium. Suddenly output rises. What monetary measures keep the current exchange rate constant given unchanged e
Q. Who are the major participants in the foreign exchange market? Answer: 1. Commercial banks 2. Corporations 3. Nonblank financial institutions 4. Central banks
Q. The 1980s are considered as the "lost decade" of Latin American growth. Explain why? Answer: Whilst the Great Depression made it hard for developing countries to make pa
The international financial system
roles of international trade in economic growth of the country
Q. Use a figure to study the following question: Consider that the economy is at a point on the DD-AA schedule that is above both AA and DD, where both the asset and output markets
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