Tentafrågor 2

Question 1

What theorem is included in this model?

Answer 1

Factor price equalization (FPE-theorem) says that the prices of production factors converges between countries

Question 2

What model says that good poduced using advanced technology will be exported?

Answer 2

Ricardian model

Question 3

What models says that goods produced with economies of scale will be exported?

Answer 3

New trade theory (NTT)

Question 4

What does return to capital mean?

Answer 4

Income generated by using capital such as machinery

Question 5

What does return to labor mean?

Answer 5

This is the income of the workforce, usually measured in terms of wages and benefits

Question 6

What does return to land mean?

Answer 6

The land generates returns as rent or the value of what is produced in the land

Question 7

Which model says that countries trade if they have different technology?

Answer 7

Ricardian model

Question 8

What is the primary purpose of the International Monetary Fund? (IMF)

Answer 8

To provide short term financial assistance to countries facing balance-of-payments problems

Question 9

What is the main advantage of a country adopting a floating exchange rate system?

Answer 9

The central bank has greater control over domestic monetary policy (styrränta)

Question 10

In the content of Trade policy, what is the purpose of and export subsidy

Answer 10

To encourage domestic producers to sell goods in the foreign markets

Question 11

What is the concept of trade diversion in the concept of regional trade agreements?

Answer 11

When trade shifts from a more efficient exporter to a less efficient one within the trade bloc

Question 12

According to Linder hypothesis, what determines the types of goods two countries trade?

Answer 12

Similarities in income levels and demand patterns

Question 13

What are the key terms of trade balance?

Answer 13

Trade balance = Value of exports - Value of imports

Exports > imports = surplus
Imports > exports = deficit

Question 14

What is the optimal tariff theory?

Answer 14

A tariff that maximizes a country’s welfare by exploiting its market power in international trade

Question 15

What is the main purpose of a country using capital controls?

Answer 15

To stabilize exchange rates by restricting capital outflows or inflows

Question 16

What is the primary cause of trade deficits?

Answer 16

Excessive government budget deficits

Question 17

What does the twin-deficits hypothesis suggest?

Answer 17

That there is a link between a country’s government budget deficit and its trade deficit

Question 18

Describe the key features in free trade area (FTA)

Answer 18

No tariffs or restrictions on food traded between members, but each country sets its own tariffs for non-members

Question 19

Describe the key features in customs union

Answer 19

The members adopt a common external tariff for imports from non-member countries. They have the same trade policy toward non- members

Question 20

What are the key features in a common market?

Answer 20

Builds on a customs union by allowing free movement of goods, services, labor and capital across member states. Removal of barriers to labor and capital mobility.

Question 21

What is the trilemma about and what are the three goals?

Answer 21

The trilemma states that a country only can achieve two out of the following three goals

• Fixed exchange rate
• Free capital mobility
• Independent monetary policy

Question 22

When does the trade balance improve according to the Marshall-Lerner condition?

Answer 22

The trade balance improves if the sum of the price elasticities of exports and imports is greater than 1