International Economics 12th Edition Salvatore Test Bank

International Economics 12th Edition Salvatore Test

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Salvatore’s International Economics – 12th Edition Test Bank

File: Ch07; Chapter 7: Economic Growth and International Trade

Multiple Choice

1. Dynamic factors in trade theory refer to changes in all of the above except:
a. factor endowments
b. technology
c. tastes
d. tariff structure

Ans: d
Level: Easy
Heading: Introduction

2. Doubling the amount of L and K under constant returns to scale does all of the following except:
a. doubles the output of the L-intensive commodity
b. doubles the output of the K-intensive commodity
c. leaves output unchanged.
d. leaves the shape of the production frontier unchanged

Ans: d
Level: Medium
Heading: Growth of Factors of Production

3. Doubling only the amount of L available under constant returns to scale:

a. less than doubles the output of the L-intensive commodity
b. more than doubles the output of the L-intensive commodity
c. doubles the output of the K-intensive commodity
d. leaves the output of the K-intensive commodity unchanged

Ans: b
Level: Medium
Heading: Growth of Factors of Production

4. The Rybczynski theorem postulates that doubling L at constant relative commodity prices:
a. doubles the output of the L-intensive commodity
b. reduces the output of the K-intensive commodity
c. increases the output of both commodities
d. reduces the output of both commodities

Ans: b
Level: Medium
Heading: Growth of Factors of Production

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Salvatore’s International Economics – 12th Edition Test Bank

5. Doubling L is likely to:

a. increases the relative price of the L-intensive commodity
b. reduces the relative price of the K-intensive commodity
c. reduces the relative price of the L-intensive commodity
d. any of the above

Ans: c
Level: Medium
Heading: Growth of Factors of Production

6. Technical progress that increases the productivity of L proportionately more than the
productivity of K is called:
a. capital saving
b. labor saving
c. neutral
d. any of the above

Ans: a
Level: Easy
Heading: Technical Progress

7. In the absence of trade, technical progress

a. tends to increase the nation’s welfare.
b. increases the nation’s welfare only if it is labor-saving.
c. increases the nation’s welfare only if it is capital-saving.
d. tends to decrease the nation’s welfare.

Ans: a
Level: Medium
Heading: Technical Progress

8. Doubling L with trade in a small L-abundant nation:

a. reduces the welfare of representative citizens.
b. reduces the nation's terms of trade
c. reduces the volume of trade
d. reduces national consumption.

Ans: a
Level: Medium
Heading: Growth and Trade: The Small Country Case

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Salvatore’s International Economics – 12th Edition Test Bank

9. Doubling L with trade in a large L-abundant nation is most likely to:

a. increase the nation's social welfare
b. reduces the nation's terms of trade
c. reduces the volume of trade
d. increase the welfare of individual citizens.

Ans: b
Level: Medium
Heading: Growth and Trade: The Large Country Case

10. If, at unchanged terms of trade, a nation wants to trade more after growth, then for a large
country, the nation's terms of trade can be expected to:
a. deteriorate
b. improve
c. remain unchanged
d. any of the above

Ans: a
Level: Medium
Heading: Growth and Trade: The Large Country Case

11. A proportionately greater increase in the nation's supply of labor than of capital is likely to
result in a deterioration in the nation's terms of trade if the nation exports:
a. the K-intensive commodity
b. the L-intensive commodity
c. either commodity
d. both commodities

Ans: b
Level: Hard
Heading: Growth and Trade: The Large Country Case

12. Technical progress in the nation's export commodity:

a. may reduce the nation's welfare
b. will reduce the nation's welfare
c. will increase the nation's welfare
d. leaves the nation's welfare unchanged

Ans: a
Level: Easy
Heading: Technical Progress

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Salvatore’s International Economics – 12th Edition Test Bank

13. Doubling K with trade in a large L-abundant nation:

a. increases the nation's welfare
b. improves the nation's terms of trade
c. reduces the volume of trade
d. all of the above

Ans: d
Level: Medium
Heading: Growth and Trade: The Large Country Case

14. An increase in tastes for the import commodity in both nations:

a. reduces the volume of trade
b. increases the volume of trade
c. leaves the volume of trade unchanged
d. any of the above

Ans: b
Level: Medium
Heading: Growth, Changes in Tastes, and Trade in Both Nations

15. An increase in tastes of the import commodity of Nation A and export in B:

a. will reduce the terms of trade of Nation A
b. will increase the terms of trade of Nation A
c. will reduce the terms of trade of Nation B
d. any of the above

Ans: a
Level: Hard
Heading: Growth, Changes in Tastes, and Trade in Both Nations

16. Technical progress is usually classified into all of the following except
a. neutral
b. negative
c. labor saving
d. capital saving

Ans: b
Level: Easy
Heading: Technical Progress

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Salvatore’s International Economics – 12th Edition Test Bank

17. The capital to labor ratios of countries over the last three decades has generally
a. risen
b. fallen
c. remained relatively unchanged
d. risen in developed nations and fallen in developing nations

Ans: a
Level: Medium
Heading: Technical Progress

18. If the output of a nations exportable commodity increases proportionally more than the
output of its importable commodity the output changes in considered
a. neutral
b. negative
c. anti-trade
d. pro-trade

Ans: d
Level: Medium
Heading: Growth and Trade: The Small Country Case

19. Empirical studies have generally shown that most of the real per capita income increase in
industrialized countries is due to
a. capital accumulation
b. population growth
c. technical progress
d. infrastructure improvements

Ans: c
Level: Easy
Heading: Technical Progress

20. When a nation’s growth deteriorates its terms of trade to the point that its welfare drops it is
experiencing
a. debilitating growth
b. immiserizing growth
c. population growth
d. GDP per capital growth

Ans: b
Level: Medium
Heading: Growth and Trade: The Large Country Case

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Salvatore’s International Economics – 12th Edition Test Bank

21. The Rybczynski theorem postulates that doubling K at constant relative commodity prices:
a. doubles the output of the L-intensive commodity
b. more than doubles the output of the K-intensive commodity
c. reduces the output of the K-intensive commodity
d. increases the output of both commodities

Ans: b
Level: Medium
Heading: Growth of Factors of Production

22. Immiserizing growth is most likely in which of the following cases?

a. When the country is small.
b. When the demand for the nation’s export good is inelastic.
c. In developed countries.
d. When growth causes the terms of trade to improve.

Ans: b
Level: Hard
Heading: Growth and Trade: The Large-Country Case

23. A shift in a nation’s offer curve toward the axis measuring the exportable commodity tends
to ____________ trade at constant prices, and __________ the nation’s terms of trade.
a. expand, improve
b. expand, decrease
c. decrease, improve
d. decrease, decrease

Ans: b
Level: Hard
Heading: Growth, Change in Tastes, and Trade in Both Nations

Short Answer

24. What does it mean for a nation’s production to be pro-trade?

Ans: A nation’s production is pro-trade if it leads to a greater than proportionate increase in trade
at constant prices.
Level: Medium
Heading: Growth and Trade: The Small Country Case

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Salvatore’s International Economics – 12th Edition Test Bank

25. What is meant by comparative static analysis?

Ans: Static analysis holds factor endowments, technology and tastes constant. Comparative static
analysis explores how equilibrium changes in response to a change in one of these constants
without regard to the transitional process of adjustment.
Level: Medium
Heading: Introduction

26. What does the Rybczynski theorem postulate?

Ans: The Rybczynski theorem postulates that at constant commodity prices, an increase in the
endowment of one factor will increase by a greater proportion the output of the commodity
intensive in that factor and will reduce the output of the other commodity.
Level: Hard
Heading: Growth of Factors of Production

27. How does a change in tastes that shifts in a nation’s offer curve toward the axis measuring its
exportable commodity impact the nation?

Ans: Such a shift tends to expand trade at constant prices and reduce the nation’s terms of trade.
Level: Hard
Heading: Growth, Changes in Tastes, and Trade in Both Nations

Essay

28. Carefully identify and discuss the conditions which can lead to immiserizing growth.

Ans: The overall impact of growth depends on how it impacts the terms-of-trade and wealth effects.
The terms or trade are the import export price ratio. The wealth effect refers to the change in output
per worker as a result of growth. If the both effects are favorable (i.e. the price of exports increases
and worker productivity increases) the nation’s welfare will improve. However, if the terms-of trade
deteriorate and overwhelm worker productivity increases, the net effect will be a an overall decline
in welfare, or immiserizing growth.
Level: Medium
Heading: Growth and Trade: The Large Country Case

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Salvatore’s International Economics – 12th Edition Test Bank

29. Using the data presented in the chapter, explain how growth, trade, and welfare have changed in
the leading industrial countries over the 1990-2010 period.

Ans: Answers will vary, but should include that the average growth rate of GDP has been about 2%,
that the volume of exports has increased by about 5%, that per capita GDP has increased by 1.6%,
and that the terms of trade have deteriorated slightly. The fact that exports rose much faster than GDP
shows that they certainly played a role in growth, offsetting some other negative factors during the
period. Students may pick out particular countries to discuss; notably, the terms of trade have not
deteriorated for all countries, although the change has been relatively small in all cases.

Level: Hard
Heading: Growth, Changes in Tastes, and Trade in Both Nations

Problems

30. Use graphs to demonstrate the effect of an increase in a small country’s capital stock at constant
commodity prices.

Ans: See graphs below. Numbers are optional and based on text example. Use of Edgeworth box
analysis is optional.
Level: Medium
Heading: Growth of Factors of Production

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International Economics 12th Edition Salvatore Test Bank

Salvatore’s International Economics – 12th Edition Test Bank

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