Explain briefly the vent-for-surplus theory of international trade. What is the relevance of this theory to the current development experience of low-income economies?
What will be an ideal response?
Answer: The vent-for-surplus theory is the idea that opening world markets to developing countries through international trade allows these countries to make better use of formerly under-utilized land and labor resources so as to produce larger primary-product outputs, the surpluses of which can be exported. For low-income economies, this implies that they would become more profitable and even potentially be able to move up to the middle-income category.
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An efficient allocation of resources is reached in the figure above when output equals
A) 1 million. B) 2 million. C) 3 million. D) 4 million.
How will the exchange rate (foreign currency per dollar) respond to a decrease in the relative rate of productivity growth in the United States in the long run?
A) Exchange rates will fall. B) Exchange rates will be unaffected by changes in the relative rate of productivity growth in the United States, both in the short run and in the long run. C) Exchange rates will rise. D) The exchange rate will be affected in the short run, but not in the long run.
In 1991, the French mineral water Perrier was temporarily taken off the market in the United States because of suspected impurities. Other things equal, this action brought about:
a. an increase in the demand for Perrier. b. a decrease in the price of Perrier in terms of French francs. c. a depreciation of the French franc relative to the U.S. dollar. d. an appreciation of the French franc relative to the U.S. dollar. e. an increased supply of dollars in the foreign exchange market.
A rising budget deficit created through government spending may result in a fall in domestic investment, a rise in private savings, or a rise in the _________ deficit.
a. economic b. trade c. government d. savings