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7 Written Questions

6 Multiple Choice Questions

  1. Dissimilar good with different factor intensities are lumped together in trade statistics.
  2. A country has a comparative advantage in the production of a good if the relative cost (opportunity cost) of producing that good is lower than that of its trading partner.
  3. As new products mature, comparative advantage shifts from one country to another. New products are intensive in highly skilled workers (inventors, engineers), giving highly educated countries a comparative advantage. As a product matures large scale production takes over, favoring capital abundant countries. Finally, production becomes routine, and labor abundant countries have the comparative advantage.
  4. states that as countries move towards free trade, each country's abundant factor receives a higher rate of payment, and each country's scarce factor is harmed by a lower rate of return.
    o U.S example- Our abundant factor is highly skilled labor, which will benefit from expanded trade with China. Our scarce factor is unskilled labor which is harmed by trade with China.
  5. are demonstrated by showing that each country moves to a higher CIC. OR, by showing that both countries can have higher levels of consumption of both goods.
  6. The economic doctrine that contends a country's wealth is determined by its holdings of precious metals and espouses trade policies that promote the accumulation of gold and silver.
    *The school of thought that advocated policies designed to generate trade surpluses, so as to increase a country's holdings of gold.

6 True/False Questions

  1. Adam Smith's Wealth of Nationsstates that as countries move towards free trade, each country's abundant factor receives a higher rate of payment, and each country's scarce factor is harmed by a lower rate of return.
    o U.S example- Our abundant factor is highly skilled labor, which will benefit from expanded trade with China. Our scarce factor is unskilled labor which is harmed by trade with China.

          

  2. Portfolio CapitalFinancial assets including, stocks, bonds, deposits, and currencies.

          

  3. Dynamic Gains from Tradeare demonstrated by showing that each country moves to a higher CIC. OR, by showing that both countries can have higher levels of consumption of both goods.

          

  4. The Index of Opennessare demonstrated by showing that each country moves to a higher CIC. OR, by showing that both countries can have higher levels of consumption of both goods.

          

  5. Intra-industry tradeOccurs when a country imports and exports the same good.

          

  6. Portfolio InvestmentThe acquisition of portfolio capital. Usually refers to such transactions across national borders and/or across currencies.

          

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