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7 Written questions

6 Multiple choice questions

  1. The acquisition of portfolio capital. Usually refers to such transactions across national borders and/or across currencies.
  2. 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.
  3. Wealth depends on productive capacity
  4. Occurs when a country imports and exports the same good.
  5. A country has an absolute advantage in a good if it can produce that good by using fewer inputs than its trading partner
  6. Dissimilar good with different factor intensities are lumped together in trade statistics.

6 True/False questions

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


  2. MercantilismFinancial assets including, stocks, bonds, deposits, and currencies.


  3. 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.


  4. The Product Life Cycle Theory of TradeAs 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.


  5. The Heckschler-Ohlin Modelstates 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. Foreign Direct Investment (FDI)A corporation's purchase of real assets, such as production facilities and equipment, in a foreign country.