Description

Chapter: 7 -Problem: 1 >> For each of the following examples, explain whether it is a case of external or internal economies of scale: a. A number of firms doing contract research for the drug industry are concentrated in southeastern South Carolina. b. All Hondas produced in the United States come from plants in Ohio, Indiana, or Alabama. c. All airframes for Airbus, Europe’s only producer of large aircraft, are assembled
Answer Preview: Cases a and d represent external economies of scale as indus…

, Chapter: 13 -Problem: 5 >> The nation of Pecunia had a current account deficit of $1 billion and a non-reserve financial account surplus of $500 million in 2017. a. What was the balance of payments of Pecunia in that year? What happened to the country’s net foreign assets? b. Assume that foreign central banks neither buy nor sell Pecunian assets. How did the Pecunian central bank’s foreign reserves change in 2017? How would
Answer Preview: a. Because non-central bank financial inflows fell short of the current account deficit by $500 million, the balance of payments of Pecunia (official …

, Chapter: 17 -Problem: 20 >> We can express a linear approximation to the interest parity condition (accurate for small exchange rate changes) as: R = R* + (Ee - E)/Ee. Adding this to the model of problems 14 and 19, solve for Y as a function of G. What is the government spending multiplier for temporary changes in G (those that do not alter Ee)? How does your answer depend on the parameters a, b, and d, and why? Data From P
Answer Preview: Start with the money market condition and plug in the approximation for interest rate parity R = R* …

, Chapter: 12 -Problem: 2 >> It’s widely believed that self-driving vehicles will become commonplace in the fairly new future and that their growth will be fast for years to come. Doesn’t this mean that the United States should have policies designed to ensure that we are a leader in the self-driving car industry?
Answer Preview: The assertion that the U S. government should subsidize the domestic self-driving car industry depen…

, Chapter: 16 -Problem: 7 >> At the end of World War I, the Treaty of Versailles imposed an indemnity on Germany, a large annual payment from it to the victorious Allies. (Many historians believe this indemnity played a role in destabilizing financial markets in the interwar period and even in bringing on World War II.) In the 1920s, economists John Maynard Keynes and Bertil Ohlin had a spirited debate in the Economic Journal
Answer Preview: The mechanism would work through expenditure effects with a permanent tran…

, Chapter: 13 -Problem: 10 >> If you go to the BEA website for “U.S. International Transactions” (http://wwwbea.gov/iTable/iTable.cfm?reqid=62&step=1&isuri=1#reqid=62&step=6&isuri=1&6210=1&6200=1), table 1.1, you will find that in 2015, U.S. income receipts on its foreign assets were $775.85 billion (line 6), while the country’s payments on liabilities to foreigners were $582.47 billion (line 14). Yet we saw in this chapter th
Answer Preview: The United States receives a substantially hig…

, Chapter: 3 -Problem: 5 >> Suppose that Home has 2,400 workers, but they are only half as productive in both industries as we have been assuming. Construct the world relative supply curve and determine the equilibrium relative price. How do the gains from trade compare with those in the case described in problem 4?
Answer Preview: The amount of effective labo…

, Chapter: 14 -Problem: 2 >> As defined in footnote 3, cross exchange rates are exchange rates quoted against currencies other than the U.S. dollar. If you return to Table 14-1, you will notice that it lists not only exchange rates against the dollar, but also cross rates against the euro and the pound sterling. The fact that we can derive the Swiss franc/Israeli shekel exchange rate, say, from the dollar/franc rate and the d
Answer Preview: If it were cheaper to buy Israeli shekels with Swi…

, Chapter: 11 -Problem: 4 >> Brazil and Mexico have both liberalized trade since the 1980s. However, Mexican trade liberalization has gone much further; Brazil is still a fairly inward-looking economy. What might account for this difference in paths?
Answer Preview: One explanation for this divergence is the 1994 North American Free Trade Agreement (NAFTA). Mexicos …

, Chapter: 14 -Problem: 18 >> The interest rate on U.S. three-month Treasury bills dropped to very low levels at the end of 2008 and remained there for several years. Starting in January 2009 and ending in December 2016, find data on the three-month Treasury bill rate from Federal Reserve Economic Data (FRED) at the Federal Reserve Bank of St. Louis; find data on the exchange rate of the U.S. dollar against the Korean won fro
Answer Preview: They key here is to compute the return on the carry trade by accounting for not only t…

, Chapter: 12 -Problem: 5 >> Some retailers in advanced countries sell products from developing countries with low wages but assure customers that these goods are produced under tolerable working conditions. Is demanding that kind of guarantee the same thing as putting a tariff on low-wage exports? Is there any way it can benefit workers overseas?
Answer Preview: A label guaranteeing that a product was produced by labor being paid a fair wage is …

, Chapter: 7 -Problem: 9 >> As we saw in the text, Bangladesh has seen rapidly growing apparel exports as Chinese wages rise. One problem, however, is that Bangladeshi producers are mainly in or near the capital city of Dhaka, which literally has the world’s worst traffic. What does this combination tell you about comparative advantage versus external economies in clothing production?
Answer Preview: The fact that Bangladeshi apparel producers are clustered in or near Dhaka despite the …

, Chapter: 11 -Problem: 2 >> Look back at Figure 10-5, specifically at the left part of the figure. How does the historical trade policy of the United States compare with that of developing countries in the 20th century? Why do you think the results seem to have been so different?  Transcribed Image Text: Tariff rate (percent)
Answer Preview: The historical trade policy of the United States in terms of tariff rates is fairly similar to that …

, Chapter: 3 -Problem: 9 >> Modern communications technology is making it possible to perform many services— e.g., reading X-rays or even doing legal research—from remote locations. How does this affect the potential gains from trade?
Answer Preview: As more and more services become trad-able, the gains from trade will increase, b…

, Chapter: 3 -Problem: 6 >> It has been all downhill for the West since China entered the world market; we just can’t compete with hundreds of millions of people willing to work for almost nothing. Discuss.
Answer Preview: This statement fails to connect wages and productivity. Though wag…

, Chapter: 14 -Problem: 5 >> Calculate the dollar rates of return on the following assets: a. A painting whose price rises from $200,000 to $250,000 in a year. b. A bottle of a rare Burgundy, Domaine de la Romanée-Conti 2011, whose price rises from $255 to $275 between 2013 and 2014. c. A £10,000 deposit in a London bank in a year when the interest rate on pounds is 10 percent and the $/£ exchange rate moves from $1.50 per p
Answer Preview: The dollar rates of return are as follows: a. ($250,…

, Chapter: 3 -Problem: 7 >> Despite major gains, Chinese manufacturing workers have much lower productivity than their U.S. counterparts. Chinese service workers are relatively more productive, but most services aren’t trad able. So which matters for Chinese wages—manufacturing or service productivity?
Answer Preview: Wages in China will be determined by productivity in both the manufactur…

, Chapter: 19 -Problem: 16 >> Like its neighbor New Zealand, Australia has had a long string of current account deficits and is an international debtor. Go to the Australian Bureau of Statistics website at http://www.abs.gov.au/AUSSTATS and find the data you need to carry out an “external sustainability” analysis of the current account such as the one for New Zealand in the chapter. You will need data starting in 1992 for nomi
Answer Preview: You may find navigating the Australian Bureau of Statistics website challenging, given the l…

, Chapter: 21 -Problem: 16 >> Imagine that a single large country within the euro area, for example, Germany, carries out a fiscal expansion, in which its government purchases more of its own country’s output. What would be the effect on the other members of the euro area? a. Start by using the DD-AA model, considering the euro area to be a single economy with an exchange rate that floats against the rest of the world. Then co
Answer Preview: a. A fiscal expansion in Germany would shift the euro area DD curve to the right. If this is a perma…

, Chapter: 14 -Problem: 3 >> Table 14-1 reports exchange rates not only against the U.S. dollar, but also against the euro and the pound sterling. (Each row gives the price of the dollar, euro, and pound, respectively, in terms of a different currency.) At the same time, the table gives the spot dollar prices of the euro ($1.1332 per euro) and the pound sterling ($1.4518 per pound). Pick any five currencies from the table and
Answer Preview: Take for example the exchange rate between the Argentine peso, the US dollar, the euro, and the Brit…

, Chapter: 12 -Problem: 9 >> Our usual models of trade assume that jobs lost in one industry will be offset by jobs gained in other industries. The Autor et al. paper argued, however, that communities that lose manufacturing jobs to imports end up losing other jobs as well. Is this a contradiction?
Answer Preview: The Autor et al. paper found that the losses from trade tend to be geographically concentrated. Indu…

, Chapter: 3 -Problem: 8 >> The overall cost of living is a lot less in China than it is in the United States or Europe. Why might this be?
Answer Preview: One explanation for a lower cost of living in China is that th…

Additional Information

11 Reviews for International Economics Theory and Policy Textbook Questions And Answers