How is an exchange rate depreciation likely to affect imports and exports in the short run and over a longer period of time?
What will be an ideal response?
Question 2
The graph above shows the PPC for a country that can produce oil, which is labor intensive, or televisions, which are capital intensive. The country is currently producing at point A and not trading with the rest of the world. With trade, the world price can be represented by slope of the straight line through Point A. Which of the following is a true statement?
A) When this country produces the optimal amount with trade, workers in this country will be better off.
B) When this country produces the optimal amount with trade, capital in this country will be better off.
C) When this country produces the optimal amount with trade, both factors of production will be better off.
D) When this country produces the optimal amount with trade, the income of factors of production will not change.
Cation binding and exchange.
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