How international immobility of resources is compensated by international flow of goods
What will be an ideal response?
Ans: Every country has different natural resources. There would be no need for specialization in a product and engaging in trade if resources were mobile. But inmost cases, human and physical resources are somewhat immobile (especially transfer of tacit knowledge in human resources eg. transfer knowledge of talent). In such a situation, the cost differences and comparative advantage in production arises due to the different resources utilized. A country abundant in one resource uses the most to produce a particular product. It engages in international trade by exporting that product to the world. Hence, international trade occurs through the exchange of goods rather than the exchange of resources.
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A reduction in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant
A) rise; LM; right B) fall; IS; left C) fall; LM; left D) rise; IS; right
The proposition that decreases in taxes that raise the government budget deficit has no effect on aggregate demand is called the
A) open-economy effect. B) federalism effect. C) Ricardian equivalence theorem. D) interest-rate effect.
Suppose the marginal propensity to import for country A is 0.4 . Calculate the change in the total value of imports of the country if national income increases by $100,000
a. $16,000 b. $20,000 c. $60,000 d. $40,000 e. $25,000
The substitution effect and the output effect work in the
A. same direction some of the time. B. same direction all of the time. C. opposite direction some of the time. D. opposite direction all of the time.