Question 1

Suppose a capital-abundant country experiences a significant increase in its capital stock. This change in endowments is most likely to lead to:

Accepted Answer

A) an improvement in the country's terms of trade. 
B) a decreased willingness to trade. 
C) an increase in the price of the capital-intensive goods relative to the labor-intensive goods. 
D) an increased willingness to trade. 
A) an improvement in the country's terms of trade. 
B) a decreased willingness to trade. 
C) an increase in the price of the capital-intensive goods relative to the labor-intensive goods. 
D) an increased willingness to trade. D

Question 2

Suppose country X partially specializes in the production of only two goods, food and clothing. At the initial free trade equilibrium, the country produced 40 units of food and 20 units of clothing. At the same time10 units of food were exported and 10 units of clothing were imported by country X. Now suppose a technological innovation in country X leads to a balanced growth while leaving the relative prices of food and clothing unchanged in the international market. Production of food in country X rises to 50 units and that of clothing rises to 25 units. If consumption of food rises to 42 units, the consumption of clothing:

Accepted Answer

A) rises to 33 units. 
B) declines to 25 units. 
C) rises to 35 units. 
D) declines to less than 20 units. 
A) rises to 33 units. 
B) declines to 25 units. 
C) rises to 35 units. 
D) declines to less than 20 units. A

Question 3

Explain carefully, with a diagram, the crucial conditions for immiserizing growth to occur. In particular, discuss the effect of the size of the country, the volume of foreign trade, the type of growth the country experiences, and foreign demand for the exports of the country.

Accepted Answer

Immiserizing growth can occur when a country's growth is biased toward the production of the good which the country exports. If the country is large enough, the additional supply of this good will cause the international price of this good to decline relative to the prices of other goods. This effect will be more pronounced the more inelastic is the foreign demand for this good. Further, the country will stand to lose more from the worsening of the terms of trade the more this country exports the good.. If the loss from the worsening of the terms of trade exceeds the gain from being able to produce more, the country experiences immiserizing growth-reduction in the well-being of the country in spite of the growth in production. In the figure given above we see that a country is experiencing expansion in its capital endowment. Its production point shifts from S₁ to S₂. Considering this to be a large country, its willingness to trade influences the international price ratio (terms of trade) and makes the price line steeper from P₁ to P₂. Here the country experiences immiserizing growth. Its economic well-being declines as the consumption point shifts to a lower community indifference curve, from C₁ to C₂.

Question 4

The figure given below shows a shift in the production-possibility curve of a country from AB to AC. Here, S1 and C1 are the initial production and consumption points respectively. S2 and C2, on the other hand, are the final production and consumption points respectively. Which of the following is illustrated by this figure?

Accepted Answer

A) A small country experiencing a balanced growth 
B) A large country experiencing a balanced growth 
C) A small country experiencing growth biased toward cloth production 
D) A large country experiencing growth biased toward wheat production. 
A) A small country experiencing a balanced growth 
B) A large country experiencing a balanced growth 
C) A small country experiencing growth biased toward cloth production 
D) A large country experiencing growth biased toward wheat production.

Question 5

Immiserizing growth is most likely to occur when:

Accepted Answer

A) the import payments of a country decline relative to its export earnings 
B) the increase in population exceeds the increase in national income of a country. 
C) the benefits of economic growth are not shared equally by all the residents of the country. 
D) economic growth leads to a deterioration of a country's terms of trade. 
A) the import payments of a country decline relative to its export earnings 
B) the increase in population exceeds the increase in national income of a country. 
C) the benefits of economic growth are not shared equally by all the residents of the country. 
D) economic growth leads to a deterioration of a country's terms of trade.

Question 6

Which of the following conditions is NOT necessary for immiserizing growth to arise in a country?

Accepted Answer

A) The country's growth must be strongly biased toward expanding the country's supply of exports and the increase in exports must be large enough to have a noticeable impact on world prices. 
B) The foreign demand for the country's exports must be price inelastic so that an expansion in the country's export supply leads to a large drop in the international price of the export product. 
C) Before the growth, the country must be heavily engaged in trade so that the welfare loss from the decline in the terms of trade is great enough to offset the gains from being able to produce more. 
D) The country must specialize in the production of a single exportable good and import all the other goods consumed in the economy. 
A) The country's growth must be strongly biased toward expanding the country's supply of exports and the increase in exports must be large enough to have a noticeable impact on world prices. 
B) The foreign demand for the country's exports must be price inelastic so that an expansion in the country's export supply leads to a large drop in the international price of the export product. 
C) Before the growth, the country must be heavily engaged in trade so that the welfare loss from the decline in the terms of trade is great enough to offset the gains from being able to produce more. 
D) The country must specialize in the production of a single exportable good and import all the other goods consumed in the economy.

Question 7

In the figure given below, we see an expansion of the production-possibility curve (from PPC1 to PPC2). The two goods produced are wheat and cloth, which are land-intensive and labor-intensive respectively. The outward shift of the production-possibility curve shows: $$\text { Wheat }$$

Accepted Answer

A) biased growth. 
B) balanced growth. 
C) a move from a no-trade situation to free trade. 
D) a fall in production costs of both the goods. 
A) biased growth. 
B) balanced growth. 
C) a move from a no-trade situation to free trade. 
D) a fall in production costs of both the goods.

Question 8

Economic growth with an increased willingness to engage in international trade will always improve the economic well-being of a large country.

Accepted Answer

A) True 
 B)False

Question 9

The possibility of immiserizing growth can arise when:

Accepted Answer

A) a large country expands the production of its export-oriented goods. 
B) there is a decline in the research and development investments in a large country. 
C) the terms of trade of a small country decline due to changes in the rest of the world. 
D) the import-competing goods are overproduced in a large country. 
A) a large country expands the production of its export-oriented goods. 
B) there is a decline in the research and development investments in a large country. 
C) the terms of trade of a small country decline due to changes in the rest of the world. 
D) the import-competing goods are overproduced in a large country.

Question 10

Suppose a small country experiences economic growth which leads to an increased willingness to trade. The country's terms of trade will _____ because the prices of its exports will _____ relative to the price that it has to pay for its imports.

Accepted Answer

A) worsen; fall 
B) improve; not change 
C) remain unaffected; not change 
D) remain constant; fall 
A) worsen; fall 
B) improve; not change 
C) remain unaffected; not change 
D) remain constant; fall

Question 11

The rapid accumulation of capital and worker skills in the United States in the 1800's:

Accepted Answer

A) resulted in an increase in the export of natural resources by the country. 
B) made the United States more dependent on imported minerals. 
C) made the United States more self-sufficient and led to a reduction in its trade volume. 
D) resulted in rapid deindustrialization in the country. 
A) resulted in an increase in the export of natural resources by the country. 
B) made the United States more dependent on imported minerals. 
C) made the United States more self-sufficient and led to a reduction in its trade volume. 
D) resulted in rapid deindustrialization in the country.

Question 12

Countries that are open to international trade:

Accepted Answer

A) cannot suffer from immiserizing growth. 
B) tend to grow faster than the closed economies. 
C) tend to lose out on the benefits of technological diffusion. 
D) do not experience biased growth. 
A) cannot suffer from immiserizing growth. 
B) tend to grow faster than the closed economies. 
C) tend to lose out on the benefits of technological diffusion. 
D) do not experience biased growth.

Question 13

According to the Rybczynski theorem, in a two-good world, with constant product prices, growth in a country's endowment of any one input results in an increase in the production of the good which does not use this input intensively.

Accepted Answer

A) True 
 B)False

Question 14

Immiserizing growth is the situation in which the expansion of a country's exporting industry results in an increase in the world price of the exported good and an increase in the economic welfare of the country.

Accepted Answer

A) True 
 B)False

Question 15

Discuss how openness to trade can influence economic growth in a country.

Accepted Answer

Openness to trade can have an impact on

Question 16

Assume a country produces only wine and guns. Both wine and gun production use land and labor as their only inputs. Wine production is relatively land-intensive while gun production is relatively labor-intensive. According to the Rybczynski theorem, a significant rise in immigration is most likely to lead to:

Accepted Answer

A) an increase in the production of both wine and guns. 
B) an increase in wine production by a greater proportion than the increase in the size of the labor force due to immigration. 
C) an increase in the production of guns by a greater proportion than the increase in the size of the labor force due to immigration. 
D) an increase in wine production by a greater proportion than the increase in the production of guns. 
A) an increase in the production of both wine and guns. 
B) an increase in wine production by a greater proportion than the increase in the size of the labor force due to immigration. 
C) an increase in the production of guns by a greater proportion than the increase in the size of the labor force due to immigration. 
D) an increase in wine production by a greater proportion than the increase in the production of guns.

Question 17

Suppose country A produces two goods, good X and good Y. Production of good X involves an intensive use of highly skilled workers. However, good Y is a relatively capital-intensive good. If the country experiences a wave of immigration of highly skilled workers, investment in physical capital remaining unchanged, the Rybczynski theorem will predict that:

Accepted Answer

A) the production of good Y will contract. 
B) the production of both the goods will expand in the same proportion. 
C) the production of good X will contract. 
D) the production of both the goods will increase, but increase in good X will be much higher than increase in good Y. 
A) the production of good Y will contract. 
B) the production of both the goods will expand in the same proportion. 
C) the production of good X will contract. 
D) the production of both the goods will increase, but increase in good X will be much higher than increase in good Y.

Question 18

Suppose a labor-abundant country, exporting a labor-intensive good, experiences a significant increase in its capital stock. This change in endowments can:

Accepted Answer

A) lead to an immiserizing growth. 
B) lead to an increase in the export of labor-intensive goods by the country. 
C) lead to a reversal of the country's trade pattern. 
D) lead to reduced growth rates. 
A) lead to an immiserizing growth. 
B) lead to an increase in the export of labor-intensive goods by the country. 
C) lead to a reversal of the country's trade pattern. 
D) lead to reduced growth rates.

Question 19

Assume that a large capital-abundant country trades only two goods with the rest of the world, medical equipment and corn. Medical equipment is relatively capital-intensive. An increase in the country's endowment of capital will cause the price of medical equipment relative to the price of corn to:

Accepted Answer

A) rise. 
B) fall. 
C) stay the same. 
D) rise at first and then fall. 
A) rise. 
B) fall. 
C) stay the same. 
D) rise at first and then fall.

Question 20

Assume a country that produces only cloth and paddy. Cloth production requires significant amounts of labor and capital, but relatively less land. Assume that paddy production requires relatively less labor and capital, but relatively large amounts of fertile arable land. If there is an increase in the country's endowments of capital and labor, the Rybczynski theorem would predict that:

Accepted Answer

A) the production of both paddy and cloth will increase. 
B) the production of cloth will increase, but that of paddy will remain unchanged. 
C) the production of cloth will increase, but that of paddy will decline. 
D) the production of paddy will increase, but that of cloth will remain unchanged. 
A) the production of both paddy and cloth will increase. 
B) the production of cloth will increase, but that of paddy will remain unchanged. 
C) the production of cloth will increase, but that of paddy will decline. 
D) the production of paddy will increase, but that of cloth will remain unchanged.

Suppose a capital-abundant country experiences a significant increase in its capital stock. This change in endowments is most likely to lead to:

Explain carefully, with a diagram, the crucial conditions for immiserizing growth to occur. In particular, discuss the effect of the size of the country, the volume of foreign trade, the type of growth the country experiences, and foreign demand for the exports of the country.

Immiserizing growth is most likely to occur when:

Which of the following conditions is NOT necessary for immiserizing growth to arise in a country?

Economic growth with an increased willingness to engage in international trade will always improve the economic well-being of a large country.

The possibility of immiserizing growth can arise when:

Suppose a small country experiences economic growth which leads to an increased willingness to trade. The country's terms of trade will _ because the prices of its exports will _ relative to the price that it has to pay for its imports.

The rapid accumulation of capital and worker skills in the United States in the 1800's:

Countries that are open to international trade:

According to the Rybczynski theorem, in a two-good world, with constant product prices, growth in a country's endowment of any one input results in an increase in the production of the good which does not use this input intensively.

Immiserizing growth is the situation in which the expansion of a country's exporting industry results in an increase in the world price of the exported good and an increase in the economic welfare of the country.

Discuss how openness to trade can influence economic growth in a country.

Suppose a labor-abundant country, exporting a labor-intensive good, experiences a significant increase in its capital stock. This change in endowments can:

Assume that a large capital-abundant country trades only two goods with the rest of the world, medical equipment and corn. Medical equipment is relatively capital-intensive. An increase in the country's endowment of capital will cause the price of medical equipment relative to the price of corn to:

International Economics Is Different

The Basic Theory Using Demand and Supply

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Who Gains and Who Loses From Trade

Scale Economies, Imperfect Competition, and Trade

Analysis of a Tariff

Nontariff Barriers to Imports

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Trade Policies for Developing Countries

Multinationals and Migration: International Factor Movements

Payments Among Nations

The Foreign Exchange Market

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

International Lending and Financial Crises

How Does the Open Macroeconomy Work

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

National and Global Choices: Floating Rates and the Alternatives

Filters

Exam 7: Growth and Trade Part II: Trade Policy

Suppose a capital-abundant country experiences a significant increase in its capital stock. This change in endowments is most likely to lead to:

Explain carefully, with a diagram, the crucial conditions for immiserizing growth to occur. In particular, discuss the effect of the size of the country, the volume of foreign trade, the type of growth the country experiences, and foreign demand for the exports of the country.

Immiserizing growth is most likely to occur when:

Which of the following conditions is NOT necessary for immiserizing growth to arise in a country?

In the figure given below, we see an expansion of the production-possibility curve (from PPC1 to PPC2). The two goods produced are wheat and cloth, which are land-intensive and labor-intensive respectively. The outward shift of the production-possibility curve shows: Wheat \text { Wheat } Wheat

Economic growth with an increased willingness to engage in international trade will always improve the economic well-being of a large country.

The possibility of immiserizing growth can arise when:

Suppose a small country experiences economic growth which leads to an increased willingness to trade. The country's terms of trade will _____ because the prices of its exports will _____ relative to the price that it has to pay for its imports.

The rapid accumulation of capital and worker skills in the United States in the 1800's:

Countries that are open to international trade:

According to the Rybczynski theorem, in a two-good world, with constant product prices, growth in a country's endowment of any one input results in an increase in the production of the good which does not use this input intensively.

Immiserizing growth is the situation in which the expansion of a country's exporting industry results in an increase in the world price of the exported good and an increase in the economic welfare of the country.

Discuss how openness to trade can influence economic growth in a country.

Suppose a labor-abundant country, exporting a labor-intensive good, experiences a significant increase in its capital stock. This change in endowments can:

Assume that a large capital-abundant country trades only two goods with the rest of the world, medical equipment and corn. Medical equipment is relatively capital-intensive. An increase in the country's endowment of capital will cause the price of medical equipment relative to the price of corn to:

International Economics Is Different

The Basic Theory Using Demand and Supply

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Who Gains and Who Loses From Trade

Scale Economies, Imperfect Competition, and Trade

Analysis of a Tariff

Nontariff Barriers to Imports

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Trade Policies for Developing Countries

Multinationals and Migration: International Factor Movements

Payments Among Nations

The Foreign Exchange Market

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

International Lending and Financial Crises

How Does the Open Macroeconomy Work

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

National and Global Choices: Floating Rates and the Alternatives

Filters

Suppose a small country experiences economic growth which leads to an increased willingness to trade. The country's terms of trade will _ because the prices of its exports will _ relative to the price that it has to pay for its imports.