International Trade and Capital Flows

Question 1

The terms of trade are defined as __________.

Answer 1

the ratio of the price of exports to the price of

imports, representing those prices by export and import price indexes, respectively

Question 2

______ is a state in which a country does not trade with other countries.

Answer 2

Autarky

Question 3

In the _________ (also known as the factor- proportions theory),
both capital and labor are variable factors of production. That is, each good can be
produced with varying combinations of labor and capital. According to this model,
differences in the relative endowment of these factors are the source of a country’s
comparative advantage.

Answer 3

Heckscher–Ohlin Model

Question 4

A ________ is a trade barrier under which the exporting

country agrees to limit its exports of the good to its trading partners to a specific number of units

Answer 4

voluntary export restraint (VER)

Question 5

The ___________ is a double- entry bookkeeping system that summarizes a country’s economic transactions with the rest of the world for a particular
period of time, typically a calendar quarter or year.

Answer 5

balance of payments (BOP)

Question 6

BOP =

Answer 6

Curr A + Cap A + Fin A

Question 7

The current account can be decomposed into four sub- accounts:

Answer 7

1. Merchandise trade
2. Services
3. Income receipts
4. Unilateral transfers

Question 8

The capital account can be decomposed into two sub- accounts:

Answer 8

1. Capital transfers

2. Sales and purchases of non- produced, non- financial assets

Question 9

The financial account can be decomposed into two sub- accounts:

Answer 9

1. Financial assets abroad

2. Foreign- owned financial assets within the reporting country

Question 10

A current account deficit tends to result from ___ private saving, ____ private investment, ____ government savings, or a combination of the three.

Answer 10

low, high, low