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7 Written Questions

6 Multiple Choice Questions

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. the situation where a country has a high capital-to-labor ratio relative to another country.
  6. Dissimilar good with different factor intensities are lumped together in trade statistics.

6 True/False Questions

  1. Adam Smith's Wealth of Nationsthe situation where a country has a high capital-to-labor ratio relative to another country.

          

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

          

  3. Foreign Direct Investment (FDI)The acquisition of portfolio capital. Usually refers to such transactions across national borders and/or across currencies.

          

  4. The Heckschler-Ohlin ModelA country has a comparative advantage in (and will export) that good which is intensive in the use of that country's abundant resource.

          

  5. 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.

          

  6. The importance of being unimportantthe smaller of two trading economies receives the greatest gains from trade.
    Trade benefits both trading countries
    Gains due to differences in absolute advantage between countries.

          

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