Krugman (1993)

Question 1

What are the 6 believes that Krugman (1993) provided rebuttal for?

Answer 1

• 1. We don’t need a new economic paradigm
• 2. Not ‘Competing in the world market place’
• 3. The need to increase productivity for countries is not for the purpose of out-competing other countries in trade, but because increase in productivity simply allows a country to produce more, and hence consume more.
• 4. Countries should not strive to secure the ‘High value sectors.’
• 5. Protectionism doesn’t actually significantly protect jobs.
• 6. Government should not liaise with domestic firms.

Question 2

How did Krugman (1993) argue against the notion of competing in the world market place?

Answer 2

International trade is always mutually beneficial – and import is the purpose of trade, rather than export (simply a way to fund imports)

Question 3

How did Krugman (1993) argue against the notion of striving to dominate the ‘high-value sectors’?

Question 4

How did Krugman (1993) argue against the notion of protectionism protecting jobs

Answer 4

Unemployment rate is determined by aggregate demand in the short-term, and is determined by natural rate of unemployment in the long-term. Tariffs have little net effect on domestic employment.

Question 5

How did Krugman (1993) argue against the notion that government should liaise with domestic firms?

Answer 5

the main competition going on is one of U.S. industries against each other, over which sector is going to get the scarce resources of capital, skill, and, yes, labor. Government support of an industry may help that industry compete against foreigners, but it also draws resources away from other domestic industries