Author Question: Which of the following is NOT a major concern of international economic theory? A) protectionism ... (Read 87 times)

Bernana · **on:** Jun 30, 2018

Which of the following is NOT a major concern of international economic theory?

A) protectionism
B) the balance of payments
C) exchange rate determination
D) bilateral trade relations with China
E) the international capital market

Question 2

Suppose, as a result of various dynamic factors associated with exposure to international competition, Albania's economy grew, and is now represented by the rightmost production possibility frontier in the figure above.

If its point of production with trade was point c, would you consider this growth to be export-biased or import biased? If Albania were a large country with respect to the world trade of A and B, how would this growth affect Albania's terms of trade? Its real income?

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

Answer to Question 1

D

Answer to Question 2

If point c is the production point with trade, then Albania has a comparative advantage in good B. Therefore, from the shape of the new production possibility frontier (as compared to the original one), this is clearly an export-biased growth. This ceteris paribus would tend to worsen Albania's terms of trade. The terms of trade effect would, again ceteris paribus, worsen its real income. However, the growth itself acts in the opposite direction.