International Trade

Question 1

if domestic inflation increases while foreign inflation remains constant, the dollar….

Answer 1

depreciates

Question 2

an expected depreciation of the dollar leads to an _____ in nominal interest rate

Answer 2

increase; investors must be incentivized to buy dollar bonds

Question 3

Impossible Trinity in Macro economics

Answer 3

You cannot have

1. A Fixed exchange rate
2. Free capital mobility
3. Independent monetary policy

Question 4

the dollar depreciates if…

Answer 4

1. money supply increases
2. there is a decline in domestic output
3. foreign interest rates increase
4. foreign price declines

Question 5

absolute advantage

Answer 5

US has and absolute advantage over China if it can produce both good A and good B with less labor than China can

Question 6

comparative advantage

Answer 6

China has a comparative advantage for produce good A if the opportunity cost of producing good A is less than the US’s opportunity cost

Question 7

autarky

Answer 7

countries cannot trade with each other

Question 8

trade makes countries…

Answer 8

better off. they can always chose not to trade, so they cannot be made worse off. The worst that can happen is that their utilities stay the same.