1. Considering 2 countries, each producing 2 goods, which of the following state
ID: 1124255 • Letter: 1
Question
1. Considering 2 countries, each producing 2 goods, which of the following statements about trade is false?
a) Countries should specialize in producing the good for which they have the lowest opportunity cost.
b) If neither country has an absolute advantage, no gains from trade are possible.
c) If neither country has a comparat
d) It is possible for gains from trade to exist even if one country has an absolute advantage in both goods.
2. According to the AD/AS model we discussed in class, a recession is most closely associated with a decrease in which of the following? a) Short run aggregate supply (SRAS)
b) Inflation (I)
c) Long run aggregate supply (LRAS)
d) Short run aggregate demand (AD)
Explanation / Answer
Answer.)
Q1.) b) If neither country has an absolute advantage, no gains from trade are possible.
Primarily , its comparative advantage that define flow of trade.
Q2.) d) Short run aggregate demand (AD)
Recession decreases private spending and therefore must negatively affect Short run aggregate demand.
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