Author Question: The case of New Zealand, described in the text, concludes that a country's current account deficits ... (Read 57 times)

ishan · **on:** Jun 30, 2018

The case of New Zealand, described in the text, concludes that a country's current account deficits are not sustainable if a country's

A) prospects for long term economic growth are above its global deficit growth.
B) ability to sustain current account deficits is questionable.
C) unproductive industrial sectors and its prospects for long run growth.
D) labor productivity is below that of most other countries.
E) exchange rate has fallen relative to other currencies.

Question 2

A good cannot be both land- and labor-intensive. Discuss.

What will be an ideal response?

Ddddd · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

B

Answer to Question 2

In a two good, two factor model, such as the original Heckscher-Ohlin framework, the factor intensities are relative intensities. Hence, the relevant statistic is either workers per acre (or acres per worker); or wage per rental unit (or rental per wage). In order to illustrate the logic of the statement above, let us assume that the production of a broom requires 4 workers and 1 acre. Also, let us assume that the production of one bushel of wheat requires 40 workers and 80 acres. In this case the acres per person required to produce a broom is one quarter, whereas to produce a bushel of wheat requires 2 acres per person. The wheat is therefore (relatively) land intensive, and the broom is (relatively) labor intensive.