Briefly explain the Heckscher-Olin (H-O) Theory.
What will be an ideal response?
POSSIBLE RESPONSE: The H-O theory focuses on an important source of production-side differences that cause countries' production-possibility curves (PPC) to skew in different ways. International differences in the shapes of bowed-out PPCs can occur because (1) different products use the factors of production in different proportions and (2) countries differ in their relative factor endowments. The H-O theory of trade patterns predicts that a country exports products that are produced with more intensive use of the country's relatively abundant factors in exchange for imports of products that use the country's relatively scarce factors more intensively.
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What is the "reverse causality" problem in determining cause and effect?
A) It is a problem that occurs when one concludes that a change in variable X caused a change in variable Y when in actual fact, it is a change in variable Z that caused a change in variable Y. B) It is a problem that arises when two variables are inter-connected so that a change in variable X causes a change in variable Y, and a change in variable Y causes a change in variable X. C) It is a problem that occurs when one concludes that a change in variable X caused a change in variable Y when in actual fact, it is a change in variable Y that caused a change in variable X. D) It is a problem that occurs when one observes that a change in variable X caused a change in variable Y which caused a change in variable Z and concludes that a change in variable X caused a change in variable Z.
An increase in the amount and time period for which unemployment compensation is paid will most likely
A) increase the structural rate of unemployment. B) leave the natural rate of unemployment unchanged. C) decrease the natural rate of unemployment. D) increase turnover unemployment.
The income effect of a price change is:
A. always consistent with the Law of Demand. B. never consistent with the Law of Demand. C. consistent with the Law of Demand only for normal goods. D. consistent with the Law of Demand only for inferior goods.
During the past 20 years, there has been substantial FDI in China. What are the expected shortrun effects of this FDI upon the rental rate on capital and wages in China?
a. The rental rate should increase and wages should decrease. b. The rental rate and wages should both increase. c. The rental rate and wages should both decrease. d. The rental rate should decrease and wages should increase.