Exam 11: Economic Growth and International Trade

Assuming a two-country world, suppose that country I's income elasticity of demand for Imports is 1.2 and that country II's income elasticity of demand for imports is 0.9.Suppose also that, during 2010, country I's GDP grows by 5 percent and country II's GDP grows by 6 percent. Given these income elasticities of demand for imports and These growth rates and with other things equal, the terms of trade of country I with Country II during 2010 would __________.

Suppose that country I's income elasticity of demand for imports (YEM) is 0.8. This YEM means that, as country I's national income rises, the "overall" or "net" effect of its growth on its trade sector is an __________ overall or net effect. In the context of the offer curve diagram, if country I is a "large" country and it grows (and assuming no growth occurs in its trading partner), this type of net effect means that country I's terms of trade, other things equal, will __________.

If a country grows such that, at constant relative prices, the production of its export good Rises by 5 percent and the production of its import-competing good rises by 15 percent (and these are the only two goods produced in the economy), this production pattern Would be called __________ production effect.

Given the information in Question #14 above, it can be validly concluded that the type of "consumption effect" that takes place between 2009 and 2014 in country I is __________ Consumption effect.

In the analysis of growth and trade, if a country's national income growth leads to an absolute increase in imports but to a slower relative growth in imports than in national income, this growth pattern is called __________ growth.

With economic growth, a country's offer curve (with the export good on the horizontal Axis)

It is likely that a protrade production growth effect will lead to an expansion of trade since the presence of inferior goods is relatively rare. Explain.

(a) State the Rybczynski theorem. Then, in a two-factor, two-good Heckscher-Ohlin context, illustrate and explain the "production effect" of growth in the labor force in a relatively capital-abundant country, other things equal. (b) In the situation of the labor force growth in part (a) above, suppose that the country is a "large" country. Define the meaning of a "large" country in international trade. Then, and assuming that the "net" or "overall" effect of the labor force growth in part (a) is of the same type as the "production effect," illustrate and explain, other things equal, the impact of that labor force growth on the country's willingness to trade and the country's terms of trade. (c) Finally, define "immiserizing growth." Then very briefly explain how "immiserizing growth" could or could not happen in the situation of part (b) above.

In the analysis of growth and trade, growth in the labor force (coupled with no growth in the capital stock) in a relatively capital-abundant country would lead to what type of "production effect" in the country?

If a country's total output grows by 10 percent and its imports fall by 6 percent because ofThe growth, this growth pattern would be classified as __________ growth.

(a) Define the five types of "production effects" of economic growth in a country and the five types of "consumption effects" of the economic growth. Then define the types of possible "overall" or "net" effects of the country's growth on the relative importance of the trade sector. (b) Developing countries are often concerned that their terms of trade might deteriorate as economic growth occurs. In terms of the analysis of part (a) of this question, other things equal, what type(s) of growth must occur and what type of country ("large" or "small") must a developing country be in order for the country's terms of trade to deteriorate as the country grows? Explain.

Suppose that the "net" or "total" effect of the consumption and production effects of a Country's growth is that the country's offer curve shifts or pivots outward (i.e., the Country is more willing to trade). In this situation, it can validly be concluded that this Country's growth can be characterized as __________ (where UP = ltra-protrade Growth, P = protrade growth, N = neutral growth, A = antitrade growth, and UA = ultra-Antitrade growth).

Why is it difficult to analyze the welfare implications of growth in the neoclassical model? What proxy is often used to reach a conclusion about the effects of growth? What leads to the conclusion that, if welfare is to improve with growth in the labor force, there must be accompanying growth in the capital stock and/or improvements in labor productivity?

Suppose that country I's income elasticity of demand for imports is 0.8 and that country II's income elasticity of demand for imports is 1.5. These income elasticities indicate that growth in country I would be classified as __________ and that growth in country II Would __________.

Given the information in Question #14 above, it can be validly concluded that the type of "production effect" that takes place between 2009 and 2014 in country I is __________ production effect.

Suppose that, prior to a technological change (innovation) in an industry, at existing Factor prices, it takes 30 units of capital and 100 units of labor to produce 500 units of Good X. (Assume that capital and labor are the only two factors of production.) After the Innovation, it takes 25 units of capital and 50 units of labor to produce 500 units of good X (at the same factor prices as before the innovation). In this situation, the technological Change would be classified as a __________ technological change.

If, when a country grows, its home production of its import good increases by 15 percent And its home consumption of the import good also increases by 15 percent, then, with the Economic growth, the country's absolute quantity of imports will __________.

In recent years, trade has been growing faster than income for many countries. What combination of trade effects is sufficient for this to come about? Is this behavior consistent with the Rybczynski theorem? Under what circumstances?

(a) Define the five types of "production effects" of economic growth in a country. Other things equal, if one factor of production in a country (either labor or capital) grows, what are the only two types of production effects that are possible because of the growth in this factor? Briefly explain. (b) Define the five types of "consumption effects" of economic growth in a country? Why can economists usually rule out two of these types when discussing likely possibilities in the "real-world" growth of countries? (c) Define the five types of possible "net" or "overall" effects of the country's growth on the importance of the trade sector and indicate which types would, other things equal, lead to a deterioration of the growing country's terms of trade (assuming that the country is a "large" country).

Growth of the scarce factor in the large-country case will, other things equal,