. Briefly define or explain [3 points each]
World Trade Organization
Multilateral Trade Negotiations
Most favored nation (MFN)
Leontief Paradox
2. Explain the differences between [6 points]
Merchandise trade balance
Balance on goods and services
Current account balance
3. What is the general equation for the gravity model of trade? Suppose the value of all the exponents is one. If 2 countries’ GDP doubles, by how much would you expect their trade to rise? [5 points]
4. Over the last few decades, East Asian economies have increased their share of world trade, and intra-East Asian trade has grown even faster than total East Asian trade. Can the gravity model explain this? [5 points]
5. Why has trade grown much faster than GDP for almost all countries since 1950? [6 points]
6. Why does a country have a trade surplus or a trade deficit? Use an equation to explain your answer. [5 points]
7. What did 18
thcentury mercantilists believe about the benefits of international trade? What trade policies did they support?
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Problem Set 1 1. Briefly define or explain[3 points each] World Trade Organization Multilateral Trade Negotiations Most favored nation (MFN) Leontief Paradox 2. Explain the differences between[6 points] Merchandise trade balance Balance on goods and services Current account balance 3. What is the general equation for the gravity model of trade? Suppose the value of all the exponents is one. If 2 countries’ GDP doubles, by how much would you expect their trade to rise?[5 points] 4. Over the last few decades, East Asian economies have increased their share of world trade, and intra-East Asian trade has grown even faster than total East Asian trade. Can the gravity model explain this?[5 points] 5. Why has trade grown much faster than GDP for almost all countries since 1950? [6 points] 6. Why does a country have a trade surplus or a trade deficit? Use an equation to explain your answer.[5 points] 7. What did 18th century mercantilists believe about the benefits of international trade? What trade policies did they support? [5 points] 8. Why do modern-day mercantilists support mercantilist policies, ie, what benefits do they claim will result from such policies?[6 points] 9. What was the Smoot-Hawley tariff? Why did it backfire?[5 points] 10. Explain the difference between absolute advantage and comparative advantage. Give an example of each.[6 points] 11. There are 4 workers in Home and 4 workers in Foreign. Each worker in Home can produce 4 cars or 3 TVs. Each worker in Foreign can produce 3 cars or 4 TVs. [10 points] a. Graph the production frontier for both countries on separate diagrams. b. What is the no-trade price of cars in terms of TVs in each country? c. If the 2 countries open up to trade, and the price of a car is one TV, which country will export which good? d. Use your diagrams to show that both countries are better off with trade. 12. Now answer Q 11...