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International Economics > Lecture Notes > Flashcards

Lecture Notes Flashcards

1
Q

Explain the gravity model of trade

A

The trade level between two countries depend on the two economies size as well as the distance between them, a constant is also added

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2
Q

What does the Rickardian model pose as the reason for trade

A

Different productivity in different sectors leading to oppertunity cost

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3
Q

What does the Heckscher-Ohlin model pose as the reason for trade

A

Different supply of factors

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4
Q

What gives a country comparative advantage

A

The ability to produce a good at lower opertunity cost

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5
Q

What are the assumptions of the rickardian model

A

Two countrues, 2 goods, 1 factor of production (labor), diferent productivity in diferent sectors

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6
Q

How do you calculate oppertunity cost

A

One good / other good, how many good 2 you loose for 1 good 1

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7
Q

What are the assumptiions of the specific factor model

A

Two entities, Two goods, two specific factors, one mobile factor and the production fucntion has decreasing return to the movable factor

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8
Q

What does decreasing marginal returns to labor mean

A

That the more labor you add the less you get out of it although you still gain something

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9
Q

The oppertunity cost increases the more a country specializes according to the specific factor model

A

Yes if the return to the movable factor is marginal

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10
Q

Why is free trade resisted according to the specific factor model

A

Becouse rare factor owners loose, agregate gain though so they could be compensated

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11
Q

What are the assumptions of the Heckscher-Ohlin model

A

2 nations, 2 goods, 2 factors, differing supply of factors, production of goods require different combination, factors can move between sectors, deminishing returns, same inherent productivity

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12
Q

The production along the possibility fronteir depends on price in all models

A

True

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13
Q

What is the effect of changing prices of factors in the Heckscher-Ohlin model

A

What is increased will be produced more and purchasing power of factor owners is increased to the detriment of all other factor owners, Rybczynskis theorem

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14
Q

What is exported according to the Heckscher-Ohlin theorem

A

Goods that are intensive in factors in which the nation is abundant

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15
Q

The Heckscher-Ohlin theorem holds when other factors such as tecknology are held constant

A

true

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16
Q

There are mobile factors in the Heckscher-Ohlin model

A

False

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17
Q

In the specific factor model a price change has an abigous effect on the owners of a movable factor

A

true

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18
Q

What are the assumptions of the general trade model

A

two countries, two goods, smouth bowed production possibility curve, countries differ in factors and productivity and a country can supply relative to world supply creating different terms of trade

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19
Q

What is exported according to the general trade model

A

Exports that the country has a comparative advantage in like the rickardian model

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20
Q

What is terms of trad

A

price of exports divided by price of imports

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21
Q

If terms of trade improve you gain more imports for your exports

A

true

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22
Q

How do you get comparative advantage in the general trade model

A

You can produce for cheaper than world average price in one sector

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23
Q

What is the source of growth in the general model

A

Productivity improvements or increased abundance in factors

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24
Q

How does export biased growth effect terms of trade

A

It deteriorates it

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25
Q

Small countries can improve their terms of trade using tariffs

A

no, only large countries and even they are dependent on a lack of retaliation

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26
Q

Internal economics of scale leads to imperfect competition

A

True

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27
Q

What are the reasons for external economies of scale

A

Labor market pooling, specialized subcontractors and dissemination of knowledge

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28
Q

Economies of scale is when there is decreased overall cost as production increases

A

false, it is per unit cost that have to decrease

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29
Q

Economies of scale lead to lower prices everyware

A

True

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30
Q

Give fore reasons for the infant industry argument

A
  1. Economies of scale and 2. dynamically increasasing returns as when advancing up the learning curve might give locations with a head start an otherwise unbeatable advantage. Market failures like the 3. problem of apropriation and 4. insuficient capital markets might lead to unrealised potential
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31
Q

When does a monopoly stop producing

A

When marginal costs equal marginal revenue

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32
Q

When does an oligopoly stop producing

A

When it is strategically good according to game theory

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32
Q

When does monopolistic commpetitors stop producing

A

When marginal costs equal the price

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33
Q

When are companies price takers

A

When there is perfect competition

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34
Q

In oligopolies all other companies prices are taken as given and wont change by one companies actions

A

No, that is in the case of monopolistic competition

35
Q

Monopolistic competative firms produce less when there is increased competition

A

True, or rather they cannot sell as much for the same price

36
Q

If a country opens a market characterised by monopolistic competition up to trade the amount of companies in the country will sink

A

Yes, the weak are weaned

37
Q

Why is there intra industry trade in markets characterised by monopolistic competition

A

Becouse the products are diferentiated

38
Q

Intra industry trade is based on comparative advantage

A

False

39
Q

Small countries have more to gain from free trade

A

True, they only get efficiency loss from tariffs

40
Q

Smaller companies gain more from opening up to trade

A

False larger multinationals gain the most as they are more efficient with their economies of scale, they gain from bigger markets while the small loose to the increased competition

41
Q

Profitability diferences exhist without trade barriers

A

True, also with them though

42
Q

What is the diference between specific sum tariffs and ad valorem tariffs

A

ad valorem ar in percentage of value while specifics are a specific number

43
Q

A tariff can create an efficiency loss and a terms of trade gain in large countries

A

True

44
Q

Give five arguments for free trade

A

Efficient allocation of resources, economies of scale, encentivices innovation, less corruption and rentseeking waste on liscences and it sets a political presedent

45
Q

Market failures like poor financial markets and the problem of apropriation are the only valid reason for infant industry protection

A

True, according to our education

46
Q

What is Rodricks trilemma hypothesis

A

That a country must choose 2 of democratic principles, globalization and national soverignty. Makes little sense but a hypothesis

47
Q

What has worked historically to develop countries import substitution or export led growth

A

Export led growth like in asia

48
Q

What is indirect nominal exchange rate

A

foreign / domestic -> exchange rate (not used in this corse)

49
Q

What is direct nominal exchange rate

A

domestic / foreign -> exchange rate. So when there is a depreciation the exchange rate increases

50
Q

If there is a depreciation you have to pay more for foreign imports

A

True

51
Q

A domestic depreciation is the same as a foreign apreciation

A

True

52
Q

Apreciation deteriorates terms of trade

A

No it makes imports cheaper

53
Q

The nominal exchange rates depends on the expected return on fainancial assets in the country

A

True, in the short run

54
Q

What is the interest parity condition

A

That the rate of return must be equal to foreign rate of return plus the expected rate appreciation of the exchange rate

55
Q

What is the effect of a contractionary monetary policy at home

A

A short term depreciation but long term apreciation if not temporary

56
Q

What are the effects of a contractionary monetary policy abroad

A

A short term apreciation but long term depreciation if not temporary

57
Q

Real demand for money is a function off…

A

interest rate and national output aka GDP

58
Q

How is demand effected by increased interest rates

A

It decreases demand

59
Q

How is increased output effecting demand

A

it increases it

60
Q

What happens when monetary policies are expansionary

A

Money supply increases which decreases interest rate

61
Q

The foreign exchange market is effected by the money market

A

True, depreciating value increases the exchange rate

62
Q

Price levels are constant in the short term and interest rates depend on the money supply

A

True

63
Q

In the long run output and interest rates are effected by the money supply

A

False

64
Q

In the long run prices are increased by monetary expansion

A

true, not interest and output

65
Q

What is absolute purchasing power parity

A

That domestic prices are the same as foreign prices times the exchange rate

66
Q

What is relative purchasing power parity

A

That exchanfe rate diferences are due to inflation diferences

67
Q

What is the monetary aproach to the exchange rate

A

That the exchange rate is domestic divided by foreign money supply

68
Q

Higher money supply leads to increased exchange rate accordinng to PPP

A

True

69
Q

Why does PPP fail

A

Demand is diferent in diferent regions, there are barriers to tarade and imperfect competition

70
Q

What is the real exchange rate

A

the exchange rate times foreign divided by domestic price diferences aka how many foreign goods baskets can you get for one domestic

71
Q

Terms of trade decreases when there is a real depreciation

A

True

72
Q

The monetary aproach states that the nominal exchange rate depends on fiscal factors in the long run

A

No, monetary

73
Q

Permanent increase in productivity creates depreciation

A

True

74
Q

What is the Marshall Lerner condition

A

Exports increase with depreciation

75
Q

GDP increases with deprciation in the short run

A

True

76
Q

How does the money market and foreign exchange market balance themselves

A

increased output increases rate of return which lowers the exchange rate through an apreciation which lowers demand and thus decreases output swinging back the pengelum

77
Q

Fiscal expansion apreciates the exchange rate

A

Yes by temporarily increasing output

78
Q

Monetary expansion depreciates exchange rate

A

True

79
Q

Fiscal policy is more powerful when exchange rate is fixed

A

True, it is not as bad for exports then

80
Q

Devaluation decreases the risk of a balance of payment crisis

A

False, when it happens once people think it may happen again and move out

81
Q

How do you construct a world relative supply curve

A

If there are two goods at first one country moves all its production to that sector when the price is over the relative oppertunity cost, when the price reaches above the oppertunity cost of the other country both put all their means to produce that good

82
Q

Decreased world demand for import improves terms of trade

A

True

83
Q

What is rent seeking

A

When countries compete to host monopolistic industries

84
Q

What is beggar thy neighbour policies

A

Trade war

85
Q

A fiscal expansion decreases the current account

A

Yes it comes at the cost of exports

International Economics (19 decks)

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