Is the international adjustment mechanism for fixed and flexible exchange rates the same? Discuss briefly.
What will be an ideal response?
Question 2 - Suppose that there are two factors, capital and land, and that the United States is relatively capital abundant while Canada is relatively land abundant. According to the HO model,
A) Canadian landowners should support Canada-U.S. free trade.
B) Canadian capital owners should oppose Canada-U.S. free trade.
C) U.S. capital owners should support Canada-U.S. free trade.
D) All of the above.
Question 3 - According to OLI theory, a firm might be unwilling to license its production to a foreign firm for fear that its technology may be stolen or its brand name harmed, which leads the firm to internalize control over its asset and set up its own foreign
subsidiary. Indicate whether the statement is true or false
Question 4 - As Europe explored monetary union, evidence to date suggests that increased variability in exchange rates
A) reduces foreign trade and investment.
B) increases foreign trade and investment.
C) does not seem to have an impact on foreign trade and investment.
D) hurts foreign investment but not trade.
E) hurts foreign trade but not investment.
Question 5 - Write down a model that will allow you to analyze the BOP and exchange rate in a monetary framework. Then, discuss the consequences of an increase in the foreign inflation rate under fixed, flexible, and managed floating systems.
What will be an ideal response?
Question 6 - The Ricardian model demonstrates that
A) trade between two countries will benefit both countries.
B) trade between two countries may benefit both regardless of which good each exports.
C) trade between two countries may benefit both if each exports the product in which it has a comparative advantage.
D) trade between two countries may benefit one but harm the other.
E) trade between two countries always benefits the country with a larger labor force.
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