Name: _________________________________

Module 2 Homework: Comparative Advantage and GDP

1. South Korea can produce 2 cars or 5 computers in one hour. Japan can produce 1 car or 2 computers in one hour.
a) Which country has the absolute advantage in producing cars? Which country has the absolute advantage
in producing computers?
b) What opportunity cost of making cars in South Korea? Of making cars in Japan?
c) What opportunity cost of making computers in South Korea? Of making computers in Japan?
d) Which country has the comparative advantage in making cars? Which country has the comparative
advantage in making computers?
e) Which country should specialize in cars? Which country should specialize in computes? Explain
f) Are the following rates of exchange beneficial to both nations: 1 car for 2.5 computers. Explain. (Hint:
Graph the domestic productions possibilities with and without trade for each country)

2. Gross Domestic Product equals $1.2 trillion. If consumption equals $690 billion, investment equals $200 billion,
and government spending equals $260 billion. Does the country's exports exceed their imports? Explain.

3. Explain whether each of the following are included in the United States 2015 GDP.

a) Unsold inventories of shoes from 2014

b) Saudia Arabia purchases $20 million of automobilies from the U.S.

c) Ford purchases tires from Good Year used for the production of new trucks.

4. Interest rates rise in the United States relative to its major trading partners. Explain the likely impact on the value of the
dollar, net exports, and GDP in the United States.

5. Brazil has a Nominal GDP of $27 Trillion Real. The exchange rate is 13.5 Real per U.S. Dollar. A Big Mac costs
US$4.79 in the United States and US$4.28 in Brazil.

a) What is the GDP per capita of the Brazilian Real expressed in U.S. dollars?

b) Is the real under or overvalued? Explain.

Name: _________________________________
Module 2 Homework: Comparative Advantage and GDP
c) What is the GDP adjusted for Purchasing Power Parity in Brazil expressed in US dollars?