EC239 Chapter Notes - Chapter 1: Capital Market, International Trade, Immigration

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18 Sep 2017

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Imports are funded by large inflows of capital money invested by foreigners willing to take stake in economies. International trade allows countries to specialize in producing narrower ranges of goods, giving them > efficiencies of large-scale production. International migration & international borrowing & lending are forms of mutually beneficial trade the first a trade of labour for g & s, the 2nd a trade of current goods for the promise of future goods. International x s of risky assets such as stocks & bonds can benefit all countries by allowing each country to diversify its wealth & the variability of its income. In any sophisticated economy, there is an extensive capital market: a set of arrangements by which individuals & firms x $ (cid:374)o(cid:449) for pro(cid:373)ises to pay in the future. International economics: trade & : 2 broad subfields of the economies of the international economy = (1) international trade & (2) international money.

Related Questions

For which of the following nations does international trade account for the largest percentage of GDP?
A) Japan
B) The Netherlands
C) Germany
D) Great Britain
E) the United States

2. Suppose that workers in Transylvania can produce only two goods-- yo-yos or sweat socks. The Transylvanian currency is the dealer. In what unit is the opportunity cost of yo-yos measured?
A) dealers
B) dealers per yo-yo
C) dealers per sweat sock
D) yo-yos
E) sweat socks

3. For each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany can produce one watch for every100 pounds of cheese it produces. Which of the following is true with regard to opportunity costs in the two countries?
A) The opportunity cost of producing watches is lower in Denmark.
B) The opportunity cost of producing cheese is lower in Denmark.
C) The opportunity cost of producing watches is identical in both countries.
D) It is impossible to compare opportunity costs because the two countries use different currencies.
E) In Germany the opportunity cost of producing one pound of cheese is one watch.

4. For each bow the Romans are producing, they give up the opportunity to make 10 arrows. The Dacians are giving up producing2 bows for every 40 arrows they are producing. Which of the following is true regarding comparative advantage?
A) The Romans have a comparative advantage in producing arrows
B) The Romans have a comparative advantage in producing bows
C) The Romans have a comparative advantage in producing arrows and bows
D) The Dacians have a comparative advantage in producing arrows and bows
E) The Dacians have a comparative advantage in producing bows

5. Which of the following is not a basis for trade between two nations?
A) different skill levels of the labor forces
B) one nation's absolute advantage
C) a difference in tastes between countries
D) economies of scale
E) different capital stocks

6. The opportunity cost of producing one car in Germany is 2,000bushels of wheat, and the opportunity cost of producing one car in Canada is 1,200 bushels of wheat. The two countries can realize mutual gains from trade if they agree on terms of trade that are
A) greater than 2,000 bushels of wheat per car
B) less than 1,200 bushels of wheat per car
C) greater than 1,200 bushels of wheat per car and less than 2,000bushels of wheat per car, and Germany produces wheat
D) greater than 1,200 bushels of wheat per car and less than 2,000bushels of wheat per car, and Germany produces cars
E) greater than 1,200 bushels of wheat per car and less than 2,000bushels of wheat per car, and each country produces both goods

7. The rate at which two countries trade one good for another
A) is known as the foreign exchange rate
B) is known as the terms of trade
C) is known as the export line
D) equals the slope of the import line
E) equals the common slope of the countries' production possibilities frontiers

8. Which of the following is true?
A) International trade makes it possible for a country's consumption possibilities to exceed its production possibilities.
B) International trade requires that a country's production possibilities exceed its consumption possibilities.
C) A country's production possibilities always equal its consumption possibilities.
D) A country's consumption possibilities can never equal its production possibilities because of leakages in the system.
E) As long as there is full employment of resources, a country's production possibilities will exceed its consumption possibilities even with trade.

9. Which of the following is not a reason for international specialization?
A) some countries have educated, trained workers, while other countries have unskilled workers
B) tastes and preferences tend to be different in different countries
C) economies of scale can allow larger, specialized producers to operate at a lower average cost
D) mineral resources are often concentrated in particular countries
E) the world price of a good is determined by the world supply and demand for it

10. Ad valorem tariffs on imports are based on a percentage of an import's value; specific tariffs are based on a lump sum per physical unit imported.
A) True
B) False

raspberrychimpanzee903

31. A country's tax system influences the attractiveness of investing in that country and affects the relative level of profitability for an MNC.

a. True

b. False

32. Points inside a production possibilities frontier represent

a. unattainable production combinations

b. efficiency

c. situations where supply exceeds demand

d. unemployment of resources

33. Firms in a high-wage nation like the U.S. can compete effectively with imports from low-wage nations if

a. the U.S. reduces tariffs on imports

b. low-wage nations impose tariffs on U.S. made goods

c. labor productivity is higher in the low-wage nation

d. labor productivity is higher in the U.S.

34. Assume that production in the United States is valued at $100,000. National income is therefore $100,000. Of their income, workers save $2000, pay $6,000 in taxes, spend $89,000 on consumer goods, and spend $2000 on imports. Businesses spend $5,000 in new investment spending. And, foreigners spend $1000 on exports. To avoid any problems of inflation or unemployment, the government should have a budget deficit or surplus of:

a. $2,000 surplus

b. $1,000 deficit

c. $2,000 deficit

d. $1000 surplus

e. $0 deficit

35. Autarky means-----------------------------------------------------------------

a. the absence of government

b. lack of agriculture

c. self-sufficient, in the absence of international trade

d. short of exchange rates

36. The more people there are----------------------, the less the public as a whole will spend on goods and services.

a. unemployed

b. underemployed

c. employed

d. as discouraged workers

37, Which of the following theories holds that countries will produce and export products that use large amounts of production factors that they have in abundance?

a. Mercantilism

b. The theory of absolute advantage

c. The factor endowment theory

d. None of the above.

38. Suppose that a consumer has a marginal propensity to consume of 0.79. If this consumer earns an extra $1220, her saving would be expected to increase by-----------------------------

39. Many countries in Asia, Africa, and South America-----------------------

a. Are developing countries

b. Are industrialized nations

c. Have a high demand for nonessential products

d. Do not trade

40. Which two of the following are regarded as the main aims of the World Trade Organization (WTO)?

a) To eliminate discrimination in world trade

b) To provide financial assistance to countries with debt

c) To reduce tariff barriers

d) To make infant industry protection illegal

e) To help give preferences to smaller economies

b) and e) a) and c) a) and d) c) and e) b) and d)

41. Last year Sophia's nominal income increased by 12% while the price level rose by 5.5%. Consequently, Sophia's real income:

a. rose by approximately 7%

b. fell by approximately 1%

c. rose by approximately 2%

d. ------------------------------------

42. Consumer surplus

a. is always positive.

b. for a particular unit of consumption is computed by taking the difference between quantity demand and quantity supplied.

c. for all units consumed is the area below demand and below market price over all the units consumed.

d. added to producer surplus provides a measure of the net gain to society from the production and consumption of the good.

43. A decline in Real GDP for six or more consecutive months is called-------------------------------

a. A trough

b. A recession

c. An expansion

d. A recovery

44. What do we call the situation where capital grows faster than the labor force?

a. economic growth

b. technological change

c. productivity growth

d. capital deepening

45. The terms of trade are-------------------------------------------

a. the cost of transportation between countries

b. the ratio of wages in two countries

c. the terms which are used in the trade negotiations

d. the rate at which two products can be exchanged

tealtiger674

The country of Sylvania produces and consumes only three goods: Red Bull, pizza, and T-shirts. The quantity produced and price of each good in 2011 and 2012 is given in the following table:

a.Calculate nominal GDP for 2011 and 2012.

b.Using 2011 as the base year, calculate real GDP for 2011 and 2012.

c.Based on your answer from part (b), by what percentage did real GDP grow between 2011 and 2012?. Holding all else equal, will an increase in the efficiency of labor lead to sustained growth? Explain why or why not.

When a company engages in international trade, there are several risks involved. Risk arises when there is no guarantee of profits and there is some probability of losses. There is an increase in the export, but there is also an increase in imports, which can become a threat for the domestic producers. When a company expands its base from the domestic market to the international market, it has to face several barriers.

Some of the risks are mentioned below.

1. Logistical risk:- When a company operates in the international market, then producing and supplying the product on time is important. Sending the product to the customer in other nations require time and funds. To mitigate this risk, a company need more suppliers from different places and order surplus raw material. In this manner, the logistic risk can be reduced. It requires enough capital and hence, only big companies are able to overcome this risk.

2. Political Risk:- There are countries with unstable governments, are more prone to war and terrorism, and local authorities are ineffective. In such a country, it is difficult for the company to survive. It's can lead to a big loss for companies and big problems.

3. Regulatory Risk:- It refers to the difference in the law system from one country to another. These differences are related to filing local documents, obtaining licence, permits, registering a business, etc. Only after all these formalities are fulfilled, can the company do the business efficiently.

There are some ways of mitigating risk:-

1. Risk Acceptance:- It does not affect the company. When avoiding or fighting back to risk is not affordable, then the company should accept it.

2. Risk Avoidance:- In any case, the risk should be avoided. It's an expensive method.

3. Risk Limitations:- The business can adopt a risk limitation strategy. In this, a company can bind itself to a particular type of production, and not go beyond it. It is a combination of risk acceptance and risk avoidance factor.

4. Risk Transfer:- Risk can be transferred to a third party who is willing to accept it, in return for a sum of money. The company has to pay to transfer the risks.

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EC239 Chapter Notes - Chapter 1: Capital Market, International Trade, Immigration

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