What insights about international trade came from Adam Smith and David Ricardo?
What will be an ideal response?
Adam Smith observed in 1776 that specialization and trade increase the productivity of a nation’s resources and permit greater total output than would otherwise be possible without specialization and trade. His observation was related to the principle of absolute advantage in which a country should buy goods from other countries if those countries can supply it cheaper than the first country can make it.
The basic principle of comparative advantage was first observed and explained in the early 1800 by David Ricardo. This principle says that it pays for a person or a country to specialize and exchange even if that person or nation is more productive than potential trading partners in all economic activities. Specialization should take place if there are relative cost differences in production of different items.
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Where is the interest rate determined in the classical model?
a. In the goods market b. In the loanable funds market c. By the federal government d. By the Fed e. Where aggregate expenditure equals GDP.
The production possibilities curve bows out because
A. of the law of increasing additional cost. B. resources are not being fully utilized. C. production is efficient. D. production is inefficient.
There is widespread agreement across the political spectrum that the only way to break the cycle of poverty and welfare dependency is to
A. provide abortion on demand. B. put every able-bodied person to work. C. enact a negative income tax. D. throw everyone off welfare.
If a central bank increases the money supply growth rate, then in the short run
a. unemployment rises. In the long run the short-run Phillips curve shifts right. b. unemployment rises. In the long run the short-run Phillips curve shifts left. c. unemployment falls. In the long run the short-run Phillips curve shifts right. d. unemployment falls. In the long run the short-run Phillips curve shifts left.