All of the following are possible explanations for why it took so ...

[sam.t96]

All of the following are possible explanations for why it took so long for trade balances to respond to the depreciation of the dollar EXCEPT
 
  A) the prior increase in the value of the dollar had padded the profit margins of foreign producers.
  B) foreign trade barriers made it impossible for the United States to substantially expand exports it bought.
  C) there were still impacts from earlier appreciations working through the system.
  D) exports began to increase from a much lower base than imports.

Question 2

The graph above shows the PPC for a country that can produce oil or televisions. The straight line is the trade line and CPC if production is at Point A. Is this country producing the optimal mix of oil and televisions to maximize its income? Carefully explain how you know.
 
  What will be an ideal response?

[Cnarkel]

Answer to Question 1

B

Answer to Question 2

No, the country is not producing the optimal production mix. Since the slope of the trade line is steeper than the slope of the PPC at point A, the country could increase its income by producing relatively more oil and relatively fewer televisions, until the trade line is tangent to the PPC.