Economics

Business

Quiz 32 :
The Causes and Aftermath of the Financial Crisis

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Quiz 32 :
The Causes and Aftermath of the Financial Crisis

Major exports: Major exports of the U.S. economy are services on total exports, industrial supplies, and capital goods. Major imports: Major imports of the U.S. economy are industrial supplies, consumer goods, capital goods, and then services. Autos and food contribute less than 10 percent of U.S. imports. Consumer possibilities: U.S. economy exports those goods that are consumed less than its production in the domestic market, and it imports those goods that are consumed more than its production in the domestic market. Because of international trade, the consumers are able to consume more of industrial supplies, manufactured consumer goods, capital goods, and foods and minerals than its production. Hence, the international trade changes the consumer possibilities.

Reason for international trade: Since production of goods and services of a country depends on the weather condition, availability of natural resources, and fertility of land, a country gets comparative advantage by specializing in some product that can be produced more with low cost. Therefore, each country produces and exports such goods and services to other countries, which have less comparative advantage on producing such goods and services and vice-versa.Since countries exchange goods and services in which they have comparative advantage, both the countries will get mutual benefit from trade.

a.When a nation has no economic interaction with foreigners and produces everything it consumes, the nation is in a state of autarky. b. According to the law of comparative advantage, each nation should specialize in producing the goods in which it has the lowest opportunity cost. c.The amount of one goods that a nation can exchange for one unit of another goods is known as the terms of trade. d.Specializing according to comparative advantage and trading with other nations results in mutual gains from trade.

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