Explain the theory behind convergence and why it is a deceptively ...

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Explain the theory behind convergence and why it is a deceptively simple theory.
 
  What will be an ideal response?

Question 2

What are the three types of transactions between the residents of different countries?
 
  What will be an ideal response?

[LP]

Answer to Question 1

Convergence is the tendency for gaps between industrialized countries' living standards (i.e. per capita income) to narrow. If trade is free, if capital can move to countries offering the highest returns, and if knowledge itself moves across political borders so that countries always have access to new production technologies, then there is no reason for international income differences to persist for long. Some differences, however, do exist because of policy differences across industrial countries.

Answer to Question 2

The three types are:
(1 ) Trades of goods and services for goods or services
(2 ) Trades of goods and services for assets, and
(3 ) Trades of assets for assets.

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