Question 1

If a country's total output grows by 10 percent and its imports fall by 6 percent because ofThe growth, this growth pattern would be classified as __________ growth.

Accepted Answer

Antitrade growth occurs when a country's total output grows, but its imports fall. This is because the country is producing more of its own goods and services, and therefore does not need to import as much.

Question 2

Suppose that country I's income elasticity of demand for imports is 0.8 and that country II's income elasticity of demand for imports is 1.5. These income elasticities indicate that growth in country I would be classified as __________ and that growth in country II Would __________.

Accepted Answer

Income elasticity of demand for imports indicates how demand for imports changes with a change in a country's income. A value less than 1 (like 0.8 for country I) suggests that demand for imports grows at a slower rate than income, often considered "antitrade" growth. A value greater than 1 (like 1.5 for country II) indicates that demand for imports grows faster than income, which can be classified as "protrade" or "ultra-protrade" growth.

Question 3

Other things equal, which one of the following types of growth in a large country will have the most adverse impact upon that country's terms of trade?

Accepted Answer

Ultra-protrade growth increases the supply of export goods significantly, which can lead to a decrease in their prices on the international market, worsening the country's terms of trade.

Question 4

If growth in national income is due entirely to growth in the labor force, under the Heckscher-Ohlin assumptions,

Accepted Answer

According to the Heckscher-Ohlin model, growth in national income is a result of growth in either capital, labor or both. However, if growth occurs solely due to an increase in the labor force, it implies that there has been no increase in capital. This implies that the capital-labor ratio has reduced, leading to a decline in labor productivity and hence, a decline in per capita income. Therefore, the best choice is option A, which suggests a decline in per capita income.

Question 5

If technological change in an industry results, at given relative factor prices, in a reduction in the amount of both capital and labor used to produce a given amount of output, but the reduction in labor requirements is greater than the reduction in capital requirements, this technological change would be called __________ in nature.

Accepted Answer

If the reduction in labor requirements is greater than the reduction in capital requirements, then the technological change is labor-saving in nature.

Question 6

If a country grows such that, at constant relative prices, the production of its export good Rises by 5 percent and the production of its import-competing good rises by 15 percent (and these are the only two goods produced in the economy), this production pattern Would be called __________ production effect.

Accepted Answer

An "antitrade" production effect occurs when a country's production of export good increases less than that of its import-competing good, leading to a decrease in net exports and an increase in imports. In this case, the production of the export good has only increased by 5 percent, while the import-competing good has increased by 15 percent, indicating an increase in imports and a decrease in net exports.

Question 7

In the analysis of growth and trade, growth in the labor force (coupled with no growth in the capital stock) in a relatively capital-abundant country would lead to what type of
"production effect" in the country?

Accepted Answer

In a relatively capital-abundant country, growth in the labor force without growth in the capital stock would lead to a situation where labor becomes relatively scarcer compared to capital. This would lead to a higher marginal product of labor, resulting in higher wages and an increase in the cost of production. As a result, the country's comparative advantage in producing capital-intensive goods would diminish, leading to a significant decrease in exports and an increase in imports. This is known as the ultra-antitrade production effect.

Question 8

If, at constant relative prices in a two-commodity and two-factor world, growth in a country's labor force causes an expansion in output of the labor-intensive good and a contraction in output of the capital-intensive good, this situation is an example of the

Accepted Answer

This is an example of the Rybczynski theorem, which states that an increase in a factor of production will cause an increase in output of the good that uses that factor intensively and a decrease in output of the other good. In this case, an increase in labor leads to an increase in output of the labor-intensive good and a decrease in output of the capital-intensive good.

Question 9

With economic growth, a country's offer curve (with the export good on the horizontal Axis)

Accepted Answer

Economic growth can lead to different shifts in the offer curve depending on the nature of the growth. Ultra-antitrade growth, which is growth that reduces the country's willingness to trade, can cause the offer curve to pivot inward.

Question 10

Suppose that the "net" or "total" effect of the consumption and production effects of a Country's growth is that the country's offer curve shifts or pivots outward (i.e., the Country is more willing to trade). In this situation, it can validly be concluded that this Country's growth can be characterized as __________ (where UP = ltra-protrade Growth, P = protrade growth, N = neutral growth, A = antitrade growth, and UA = ultra-Antitrade growth).

Accepted Answer

The correct answer is A because the country's growth is characterized as ultra-protrade growth (UP), protrade growth (P), neutral growth (N), or antitrade growth (A), but not ultra-antitrade growth (UA).

Question 11

If, when a country grows, its home production of its import good increases by 15 percent And its home consumption of the import good also increases by 15 percent, then, with the Economic growth, the country's absolute quantity of imports will __________.

Accepted Answer

The home production and consumption of the import good both increasing at the same rate indicates a growing demand for the good. As the domestic production is not sufficient to meet the increasing demand, the country will have to import more of the good, resulting in an increase in the absolute quantity of imports.

Question 12

Suppose that, prior to a technological change (innovation) in an industry, at existing Factor prices, it takes 30 units of capital and 100 units of labor to produce 500 units of Good X. (Assume that capital and labor are the only two factors of production.) After the Innovation, it takes 25 units of capital and 50 units of labor to produce 500 units of good X (at the same factor prices as before the innovation). In this situation, the technological
Change would be classified as a __________ technological change.

Accepted Answer

The technological change is considered labor-saving since it now takes fewer units of labor to produce the same amount of output. The reduction in required units of capital is irrelevant for the classification of the technological change.

Question 13

Suppose that country I's income elasticity of demand for imports (YEM) is 0.8. This YEM means that, as country I's national income rises, the "overall" or "net" effect of its growth on its trade sector is an __________ overall or net effect. In the context of the offer curve diagram, if country I is a "large" country and it grows (and assuming no growth occurs in its trading partner), this type of net effect means that country I's terms of trade, other things equal, will __________.

Accepted Answer

A YEM of 0.8 means that as country I's income rises by 1%, its imports will rise by 0.8%. This indicates that country I has a relatively high demand for imports and is likely to import more as its income increases. In the context of the offer curve diagram, if country I is a large country and it grows (and assuming no growth occurs in its trading partner), this increase in demand for imports will lead to an increase in its import supply, causing the terms of trade to deteriorate (fall). Therefore, the correct answer is D.

Question 14

In the new endogenous growth models

Accepted Answer

The new endogenous growth models recognize that growth can occur due to "spillover" effects of research and development, investment and growth are linked to acquisition of human capital, and growth does not necessarily converge to that of the growth rate of population. Therefore, all of the above choices are correct.

Quiz 11: Economic Growth and International Trade