Potential Exam Questions

1 January 2017

A that causes A’s national supply curve to shift out. (c)the effect on the likely pattern of trade of a change in tastes in B in favor of good S. 3) Given the input-output relationships in the table below: Countries AB Goods X84 Y41 (a)Which country has absolute advantage in which good and why?

Which country has comparative advantage in which good and why? (c)If A is endowed with 8000 hours of labor, how much X will it produce after trade begins? How much Y? Explain. (d)What is the allowable range on A’s wages relative to B’s if trade is flowing between these two countries according to comparative advantage? 4) Compare and contrast the classical and HO theories of international trade. 5) Compare and contrast the predictions of the Heckscher-Ohlin and classical models about likely trading partners of various countries with the predictions of the Linder hypothesis.

Tariffs can never raise a country’s standard of living. True or false? Explain carefully. 7) Why do countries impose protection even if it lowers economic welfare? Explain fully. 8) Briefly describe some of the current policies the United States has in place to limit both fairly and unfairly traded goods. 9) Why is NAFTA controversial? Briefly describe both sides of this controversy. 10) What is immizerizing growth? Describe how it could happen and give at least one cited historical example.

Suppose an investor has the choice of buying a bond in Germany paying 5% interest in euros or else buying a similar bond in the United States paying 5% interest in U. S. dollars. If the exchange rate today is 0. 87 euros per dollar, what would the exchange rate have to be at the maturity of the bonds for the investor to earn the same return from either bond? 12) 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? 13) What is pricing to market? Where is it most prevalent? 14) In recent years, “country risk analysis” has become an important part of international business. What do we mean by “country risk”? Briefly explain the factors that are involved in a country risk analysis. 15) What policies would you recommend to the U. S. government to lower the balance of trade deficit and decrease net capital inflows?

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