Author Question: Large current account deficits imply large financial account surpluses. Indicate whether the ... (Read 149 times)

Deast7027 · **on:** Jun 30, 2018

Large current account deficits imply large financial account surpluses.

Indicate whether the statement is true or false

Question 2

The evidence cited in the chapter using the examples of the East Asia New Industrializing Countries suggests that as international productivities converge, so do international wage levels.

Why do you suppose this happened for the East Asian NICs? In light of your answer, what do you think is likely to happen to the relative wages (relative to those in the United States) of China in the coming decade? Explain your reasoning.

babybsemail · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

TRUE

Answer to Question 2

Following the logic of the Ricardian model of comparative advantage, the East Asian countries played to their respective comparative advantages. This allowed the world demand to provide excess demands for their relatively abundant labor, which in turn tended to raise these wages. If China follows the same pattern, their wages levels should also be expected over time to converge to those in their industrialized country markets.