Author Question: Refer to Table 2-16. Does either Estonia or Finland have an absolute advantage and if so, in what ... (Read 78 times)

washai · **on:** Jun 29, 2018

Refer to Table 2-16. Does either Estonia or Finland have an absolute advantage and if so, in what product?

A) Estonia has an absolute advantage in lumber.
B) Finland has an absolute advantage in lumber.
C) Estonia has an absolute advantage in cell phones.
D) Finland has an absolute advantage in both products.

Question 2

Calculate the new real GDP and explain why real GDP increases by more than 5 billion.

What will be an ideal response?

frogdreck123456 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

D

Answer to Question 2

Real GDP was initially 150 billion. The increase in investment increased real GDP by 25 billion, so real GDP increases to 175 billion. Real GDP increases by more than the initial increase in investment because the increase in investment increases disposable income which induces additional increases in consumption expenditure. So real GDP increases both because investment increases and also because of induced increases in consumption expenditure.