50 questions EIT

TRADE MODELS

1. Explain the General Equilibrium Framework of the Heckscher-Ohlin Theory which deals with and predicts the pattern of trade.
2. Discuss the main assumption of the Ricardian model and Standard Trade Theory, and analyse the gains from trade in both partial and general equilibrium analysis    
3. Explain the difference between Adam Smith’s absolute advantage theory of trade and David Ricardo’s comparative advantage theory of trade and why factor mobility/immobility is an important consideration.    
4. What are absolute and comparative advantages? Explain how gains from exchange and gains from specialisation can be achieved when trade is based on A Absolute Advantage, and B, Comparative      
5. Explaining any two of the New Trade Theories and how they affect Heckscher-Ohlin Theorem.         
6. Compare and contrast the laws of Absolute and Comparative advantage? Explain how gains from exchange and gains from specialisation can be achieved when trade is based on Comparative Advantage Theory.    
7. Using the Heckscher-Ohlin Model, explain how different factor endowments in countries can give rise to gains from trade. How will this determine the pattern of trade and effect the distribution of income within these countries?
8. Explain the differences of the Heckscher-Ohlin Model and the New Trade Theories by considering the assumptions. Two examples will be sufficient            .
9. Explain the difference between inter-trade and intra-industry trade. What is required for intra-industry trade to occur?            
10. Partial Equilibrium Analysis to derive the Equilibrium-Relative Commodity Price of Commodity X graphically and briefly explain the process       
11. What determines capital profit and labour wage and welfare level before and after labour flow is possible between two economies? Assume capital is immobile.  
12. Factor Intensity Reversal        
13. Grid (China & UK ) showing trade based on opportunity costs, etc.

TRADE BARRIERS & TRADE PROTECTION & INTERNATIONAL TRADE

1. Fill in the Grid: The 5 Different Types of Trade Blocs  
2. What are the major differences between imposing a tariff and imposing a quota on imports?
3. "Following the imposition of a tariff there will be gains and losses experienced in the domestic economy. Use partial equilibrium analysis to illustrate and explain the gains or losses felt by:

a)      the consumer,

b)      the domestic producer,

c)      the government.

1. What are the nominal and real protection rates of tariff and who are affected?
2. What is the difference between nominal and effective tariff levels and what determines the size of the effective protection rate of a tariff?
3. Evaluate the Theory of Effective Protection.

1. Explain the concept of optimum tariff. Assume the large economy case. What problems might arise for an economy imposing such a tariff? 
2. Critically evaluate the general equilibrium effects of tariff in a Small Country case. Also, illustrate your answer graphically.     
3. Use both General Equilibrium and Partial Equilibrium analyses to explain the effects of a tariff in the small country case taking into consideration the seven effects of a tariff.       

1. What is meant by a ‘customs union’? Explain how the formation of a customs union leads to trade creation and trade diversion, and discuss the associated economics implications. What other economic factors might be important in the decision to form a customs union?       
2. What is meant by a ‘customs union’? What are the advantages and disadvantages of joining a customs union for a nation? Under what circumstances would a nation experience an increase in its economic welfare as a member of a customs union?           
3. In customs union theory what determines the relative sizes of the elements of trade creation and trade diversion? What then determines the level of advantage to the union members of a new economy joining the union? What are the implications for employment, profit, balance of payments, consumers and Government revenue of the economies involved?
4. The formation of custom unions can be beneficial to its member countries because of the new volume of trade created, but the net welfare effect depends on whether it leads to trade creation or trade diversion. Explain and discuss this statement  
5. Briefly explain:

a)      Two advantages from being a member of a Customs Union

b)      Two disadvantages of a Customs Union

c)      Three conditions/ situations when a nation may gain increased Welfare as a member of a Customs Union."          

1. Explain at least three of the five acceptable arguments for trade protection      
2. Explain and discuss four of the Nontariff Barriers to trade                   
3. "List and briefly explain the following categories of arguments for protection:

a)      One of the arguments which is a fallacy/misleading

b)      One of the  questionable arguments

c)      Three of the acceptable economic arguments" 

1. What determines the commodity terms of trade and what factors might cause the terms of trade to change?   
2. Compare and Contrast industrialisation processes carried out by the Import Substitution method and Export Orientation method.    
3. How do Policy Mix and the Principle of Effective Market Classification address the issue of internal and external balance in an open economy?
4. Assess the strengths and weaknesses of the Export Orientation approaches to industrialisation. Identify a developing country as a case study and explain which of the two approaches is more likely to enable such a nation to gain the advantages of industrialisation in the 21st Century.      
5. Assess the view that a policy of import substitution is the best way for developing countries to gain the advantages of industrialisation and therefore traditional trade theory is irrelevant for these countries.  
6. Assess the view that a policy of import substitution is the best way for developing countries to gain the advantages of industrialisation and therefore traditional trade theory is irrelevant for these countries.

FINANCING: BALANCE OF PAYMENTS, FOREIGN EXCHANG MARKET

1. Using the Mundell-Fleming model, illustrate and explain the impact of both fiscal and monetary policies
2. fixed and flexible exchange rates and perfect capital mobility ;
3. fixed and flexible exchange rates and imperfect capital mobility
4. How does “arbitrage” help to stabilize foreign exchange markets?       
5. "Evaluate critically two of the four approaches used to correct disequilibrium in the balance of payments.

1.  
   1. The elasticities approach
   2. The absorption approach

                                                               i.      The monetary approach

                                                             ii.      The portfolio balance or asset market approach

1. What is “purchasing power parity” theory and why is it a less than perfect explanation of exchange rates?      
2. What determines a nation’s foreign exchange rate? Explain the derivation of a nation’s supply and demand curves for foreign exchange.        
3. The USA has dollar “seigniorage”. What is it, what advantages does it confer and what problems does it pose for both the USA and other economies?   
4. What are the advantages and disadvantages of a nation maintaining 1) A fixed exchange rate regime 2) A flexible exchange rate regime              

OPEN-ECONOMY MACROECONOMICS

1. An economy has balance of payments deficit, unemployment and low interest rates. Real and money markets are in balance. Capital is less than perfectly mobile. Exchange rate is flexible. Demonstrate the location of this economy with reference to the IS-LM-BP model. Identify policy measures that would cure the balance of payments deficit. Identify the opportunity cost of your proposed measures. Explain why the slopes of the three schedules are an important consideration.
2. Using the IS-LM-BP model of the open economy, evaluate which exchange rate regime will be most effective in solving disequilibrium in the Goods, Money and Balance of Payments Markets in a situation when: (A) Capital is perfectly mobile; and B) When Capital is relatively immobile   
3. What advantages accrue to the company investing in a developing economy and what advantages accrue to the developing economy? What disadvantages might arise for both as a consequence of the investment?  
4. Why was the Bretton Woods system required? How did it operate, what were its advantages and disadvantages and what caused it to fail? What problems is the international monetary system now facing?
5. What is the meaning and significance, for an economy in difficulty, of the concept of the “J” curve?                 

IS-LM-BP       18                                                                             

Export Orientation       11                                                                             

Fixed vs Flexible Exchange Rates        17                                                                             

Exchange Rate Determinaion    14.3,

Customs Union            10

Foreign Exchange Arbitrage     14, 20