Macroeconomics 1. In which one of the following ways international trade affects

Question

Macroeconomics

1. In which one of the following ways international trade affects the consumption possibilities curve?

a. It is less after trade.

b. It is unaffected by trade.

c. The effect in indeterminate.

d. It is greater after trade.

2. The commodity balance of trade is which one of the following?

a. Exports divided by imports.

b. The balance in the federal budget.

c. Exports minus imports.

D. Visible minus invisible items of trade.

3. Which one of the following arguments economists do not reject in favor of protectionism?

a. National security.

b. Cheap foreign labor.

c. Infant industry.

d. Macroeconomic employment.

4. Which one of the following does not cause trade specialization?

a. Complete factor substitutability.

b. Externalities.

c. Noncompetitive trading conditions.

d. Increasing costs.

Explanation / Answer

1. Answer: d.  It is greater after trade.

Explanation: Consumption possibilities increase's after the opening of an economy, more variety and goods have become available to the consumers now. So international trade affects the consumption possibilities curve in a positive way, it expands consumption.

2. Answer: c. Exports minus imports

Explanation: Commercial balance of trade is the net exports which is exports - imports

In symbols, NX = X - M where, NX is net exports, X is exports and M is imports.

3. Answer is c, Infant Industry

Explnation: Economists do not reject the argument of the infant industry, it is the job of the government to keep domestic countries alive by protecting them from foreign competition.

4. Answer is b.

Ezplanation: Externalities is defined as the consequences of any economic activity experienced by third parties. An externality can be positive or negative depending upon its impact on the third party. If the impact is positive then positive externality and if the impact is negative then the negative externality.

Externalities have negative impact on the trade specialization. If externality is positive then it will have no impact on specialization and if it is negative then it will restrict specialization.

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