International Economics

7 Written Questions

1. Financial assets including, stocks, bonds, deposits, and currencies.
2. The gains from trade that occur over time because trade causes an increase in a country's economic growth or induces greater efficiency in the use of existing resources.
3. Dissimilar good with different factor intensities are lumped together in trade statistics.
4. Production is spread around the world with various countries producing components that are assembled and sold around the world. Each country specializes in a particular component in order to gain economies of large scale production.
5. 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.
6. Occurs when a country imports and exports the same good.
7. The ratio of a country's exports divided by its GDP.

6 Multiple Choice Questions

1. A country has an absolute advantage in a good if it can produce that good by using fewer inputs than its trading partner
   1. Comparative Advantage
   2. Gains from trade
   3. Absolute Advantage
   4. Capital Abundant
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.
   1. The Stolper-Samuelson Theory
   2. Intra-industry trade
   3. Dynamic Gains from Trade
   4. The Product Life Cycle Theory of Trade
3. 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.
   1. Intra-industry trade
   2. Capital Abundant
   3. Dynamic Gains from Trade
   4. Gains from trade
4. 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.
   1. Portfolio Investment
   2. Portfolio Capital
   3. Gains from trade
   4. Mercantilism
5. A country has a comparative advantage in (and will export) that good which is intensive in the use of that country's abundant resource.
   1. The Stolper-Samuelson Theory
   2. The Index of Openness
   3. The Heckschler-Ohlin Model
   4. Gains from trade
6. The acquisition of portfolio capital. Usually refers to such transactions across national borders and/or across currencies.
   1. Portfolio Capital
   2. Mercantilism
   3. Capital Abundant
   4. Portfolio Investment

6 True/False Questions

1. Explanations for Intra-industry trade → Occurs when a country imports and exports the same good.

   True        False

2. The importance of being unimportant → the 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.

   True        False

3. Comparative Advantage → A country has an absolute advantage in a good if it can produce that good by using fewer inputs than its trading partner

   True        False

4. Adam Smith's Wealth of Nations → the situation where a country has a high capital-to-labor ratio relative to another country.

   True        False

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

   True        False

6. Capital Abundant → the situation where a country has a high capital-to-labor ratio relative to another country.

   True        False