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Chapter 1 Introduction .1  Chapter Organization What Is International Economics About?   The Gains from Trade   The Pattern of Trade   How Much Trade?   Balance of Payments   Exchange Rate Determination   International Policy Coordination   The International Capital Market International Economics: Trade and Money […]

48  Krugman/Obstfeld/Melitz •   International Economics: Theory & Policy, Ninth Edition Chapter 10 The Political Economy of Trade Policy .1  Chapter Organization The Case for Free Trade   Free Trade and Efficiency   Additional Gains from Free Trade   Rent-Seeking   Political Argument for Free Trade […]

nAnswers to Textbook Problems  1. The arguments for free trade in this quote include: Free trade allows consumers and producers to make decisions based upon the marginal cost and benefits associated with a good when costs and prices are undistorted […]

54  Krugman/Obstfeld/Melitz •   International Economics: Theory & Policy, Ninth Edition Chapter 11 Trade Policy in Developing Countries .1 nChapter Organization  Import-Substituting Industrialization   The Infant Industry Argument   Promoting Manufacturing Through Protectionism   Case Study: Mexico Abandons Import-Substituting Industrialization Results of Favoring Manufacturing: Problems […]

nAnswers to Textbook Problems  1. The countries that seem to benefit most from international trade include many of the countries of the Pacific Rim: South Korea, Taiwan, Singapore, Hong Kong, Malaysia, Indonesia, and others. Though the experience of each country […]

Chapter 12 Controversies in Trade Policy    57 Chapter 12 Controversies in Trade Policy .1  Chapter Organization Sophisticated Arguments for Activist Trade Policy   Technology and Externalities   Imperfect Competition and Strategic Trade Policy Box: A Warning from Intel’s Founder   Case Study: When […]

Answers to Textbook Problems 1. The main disadvantage is that it can lead to both “rent-seeking” and beggar-thy-neighbor policies, which can increase one country’s welfare at the other country’s expense. Such policies can lead to a 2. If everyone knows […]

Chapter 13 National Income Accounting and the Balance of Payments    63 Overview of Section III: Exchange Rates and Open-Economy Macroeconomics Section III of the textbook consists of six chapters: Chapter 13 National Income Accounting and the Balance of Payments   Chapter […]

1. The reason for including only the value of final goods and services in GNP, as stated in the question, is to avoid the problem of double counting. Double counting will not occur if intermediate imports 2. Equation 13-2 can […]

Chapter 14 Exchange Rates and the Foreign Exchange Market: An Asset Approach    69 Chapter 14 Exchange Rates and the Foreign Exchange Market: An Asset Approach .1  Chapter Organization Exchange Rates and International Transactions   Domestic and Foreign Prices   Exchange Rates and […]

nAnswers to Textbook Problems  1. At an exchange rate of 1.05 $ per euro, a 5 euro bratwurst costs 1.05$/euro  5 euros  $5.25. Thus, 3. When the yen depreciates vs. the dollar, its costs go up. This depresses […]

76  Krugman/Obstfeld/Melitz •   International Economics: Theory & Policy, Ninth Edition Chapter 15 Money, Interest Rates, and Exchange Rates .1  Chapter Organization Money Defined: A Brief Review   Money as a Medium of Exchange   Money as a Unit of Account   Money as a […]

n Answers to Textbook Problems 1. A reduction in the home money demand causes interest rates in the home country to fall from Rh,1 to 2. A fall in a country’s population would reduce money demand, all else being equal, since […]

82  Krugman/Obstfeld/Melitz •   International Economics: Theory & Policy, Ninth Edition Chapter 16 Price Levels and the Exchange Rate in the Long Run .1 nChapter Organization  The Law of One Price Purchasing Power Parity   The Relationship Between PPP and the Law of […]

nAnswers to Textbook Problems  1. Relative PPP predicts that inflation differentials are matched by changes in the exchange rate. 2. A real currency appreciation may result from an increase in the demand for nontraded goods relative to tradables which would […]

88  Krugman/Obstfeld/Melitz •   International Economics: Theory & Policy, Ninth Edition Chapter 17 Output and the Exchange Rate in the Short Run .1  Chapter Organization Determinants of Aggregate Demand in an Open Economy   Determinants of Consumption Demand   Determinants of the Current Account […]

n Answers to Textbook Problems 1. A decline in investment demand decreases the level of aggregate demand for any level of the 2. A tariff is a tax on the consumption of imports. The demand for domestic goods, and thus the […]

Chapter 22 Developing Countries: Growth, Crisis, and Reform    125 Chapter 18 Developing Countries: Growth, Crisis, and Reform .1 n Chapter Organization Income, Wealth, and Growth in the World Economy   The Gap Between Rich and Poor   Has the World Income Gap Narrowed […]

n Answers to Textbook Problems 1. The amount of seigniorage governments collect does not grow monotonically with the rate of monetary expansion. The real revenue from seigniorage equals the money growth rate times the real balances held by the public. But […]

Chapter 19 International Monetary Systems: An Historical Overview    107 Overview of Section IV: International Macroeconomic Policy Section IV of the text consists of four chapters: Chapter 19 International Monetary Systems: An Historical Overview   Chapter 20 Optimum Currency Areas and the […]

1. a. Since it takes considerable investment to develop uranium mines, you would want a larger b. A permanent increase in the world price of copper would cause a short-term current account deficit if the price rise leads you to […]

Chapter 2 World Trade: An Overview  5 Overview of Section I: International Trade Theory Section I of the text consists of seven chapters: Chapter 2 World Trade: An Overview   Chapter 3 Labor Productivity and Comparative Advantage: The Ricardian Model   Chapter 4 Specific […]

Answers to Textbook Problems 1. We saw that not only is GDP important in explaining how much two countries trade, but also, 2. Mexico is quite close to the United States, but it is far from the European Union (EU), […]

Chapter 21 Financial Globalization: Opportunity and Crisis     121 Chapter 20 Financial Globalization: Opportunity and Crisis .1 n Chapter Organization The International Capital Market and the Gains from Trade   Three Types of Gains from Trade   Risk Aversion   Portfolio Diversification as a […]

nAnswers to Textbook Problems  1. The better diversified portfolio is the one that contains stock in the dental company and the dairy 2. Our two-country model (Chapter 19) showed that under a floating exchange rate, monetary expansion at home causes […]

8  Krugman/Obstfeld/Melitz •   International Economics: Theory & Policy, Ninth Edition Chapter 3 Labor Productivity and Comparative Advantage: The Ricardian Model .1  Chapter Organization The Concept of Comparative Advantage A One-Factor Economy   Production Possibilities   Relative Prices and Supply Trade in a One-Factor […]

Answers to Textbook Problems  1. a. The production possibility curve is a straight line that intercepts the apple axis at 400 (1200/3) b. The opportunity cost of apples in terms of bananas is 3/2. It takes 3 units of labor […]

12  Krugman/Obstfeld/Melitz •   International Economics: Theory & Policy, Ninth Edition Chapter 4 Specific Factors and Income Distribution .1  Chapter Organization The Specific Factors Model   Box: What Is a Specific Factor?   Assumptions of the Model   Production Possibilities   Prices, Wages, and Labor Allocation […]

Answers to Textbook Problems  1. Texas and Louisiana are both oil-producing states. A decrease in the price of oil will reduce output in these two states, hurting owners of capital and workers in the oil industry. While some capital will […]

18  Krugman/Obstfeld/Melitz •   International Economics: Theory & Policy, Ninth Edition Chapter 5 Resources and Trade: The Heckscher-Ohlin Model .1  Chapter Organization Model of a Two-Factor Economy   Prices and Production   Choosing the Mix of Inputs   Factor Prices and Goods Prices   Resources and […]

nAnswers to Textbook Problems  1. a. The first step is to compute the opportunity cost of both cloth and food. We are given the following resource constraints: Solve these two constraints for the quantity of food produced: QF  2,000 […]

24  Krugman/Obstfeld/Melitz •   International Economics: Theory & Policy, Ninth Edition Chapter 6 The Standard Trade Model .1  Chapter Organization A Standard Model of a Trading Economy   Production Possibilities and Relative Supply   Relative Prices and Demand   The Welfare Effect of Changes in […]

1. 2. In panel a, the reduction of Norway’s production possibilities away from fish cause the production of fish relative to automobiles to fall. Thus, despite the higher relative price of fish exports, Norway moves down to a lower indifference […]

30  Krugman/Obstfeld/Melitz •   International Economics: Theory & Policy, Ninth Edition Chapter 7 External Economies of Scale and the International Location of Production .1  Chapter Organization Economies of Scale and International Trade: An Overview Economies of Scale and Market Structure The Theory […]

1. Cases a and d reflect external economies of scale since concentration of the production of an industry in a few locations reduces the industry’s costs even when the scale of operation of individual firms remains small. External economies need […]

Chapter 8 Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises    35 Chapter 8 Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises .1  Chapter Organization The Theory of Imperfect Competition   Monopoly: A Brief Review   Monopolistic […]

n Answers to Textbook Problems 1. With internal economies of scale, there is imperfect competition and firms set marginal revenue equal to marginal cost. Unlike the case of perfectly competitive markets, under monopoly marginal revenue 2. To solve this problem, we […]

42  Krugman/Obstfeld/Melitz •   International Economics: Theory & Policy, Ninth Edition Overview of Section II: International Trade Policy Section II of the text consists of four chapters: Chapter 9 The Instruments of Trade Policy   Chapter 10 The Political Economy of Trade Policy   […]

nAnswers to Textbook Problems  1. The import demand equation, MD, is found by subtracting the home supply equation from the Home 2. a. Foreign’s export supply curve, XS, is XS  40  40  P. In the absence of […]

Contents Chapter 1 Introduction 1 Overview of Section I: International Trade Theory 3 Chapter 2 World Trade: An Overview 5 Chapter 3 Labor Productivity and Comparative Advantage: The Ricardian Model 8 Chapter 4 Specific Factors and Income Distribution 12 Chapter […]

International Economics, 9e (Krugman et al.) Chapter 1 Introduction 1.1 What Is International Economics About? 1) Historians of economic thought often describe ________ written by ________ and published in ________ as the first real exposition of an economic model. A) […]

International Economics, 9e (Krugman et al.) Chapter 10 The Political Economy of Trade Policy 10.1 The Case for Free Trade 1) The efficiency case made for free trade is that as trade distortions such as tariffs are dismantled and removed, […]

International Economics, 9e (Krugman et al.) Chapter 11 Trade Policy in Developing Countries 11.1 Import–Substituting Industrialization 1) The infant industry argument was an important theoretical basis for A) neo-colonialist theory of international exploitation. B) import-substituting industrialization. C) historiography of the […]

International Economics, 9e (Krugman et al.) Chapter 12 Controversies in Trade Policy 12.1 Sophisticated Arguments for Activist Trade Policy 1) The existence of positive externalities due to the impossibility of full appropriability A) supports the conclusions of the Heckscher-Ohlin model. […]

International Economics, 9e (Krugman et al.) Chapter 13 National Income Accounting and the Balance of Payments 13.1 The National Income Accounts 1) A country’s gross national product (GNP) is A) the value of all final goods and services produced by […]

32) Discuss the effects of government deficits on the current account. Answer: A hard and difficult issue. During the Reagan administration, the creation of twin deficits, where by slashing taxes, government deficits increased, which was accompanied with increased current account […]

International Economics, 9e (Krugman et al.) Chapter 14 Exchange Rates and the Foreign Exchange Market: An Asset Approach 14.1 Exchange Rates and International Transactions 1) How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 […]

13) For the following 15 cases, compare the dollar rates of return on dollar and euro deposits: 21 Answer: Page Ref: 328-337 22 14) For the table below calculate the EXACT relationship. Difficulty: Moderate Question Status: Previous Edition AACSB Codes: […]

International Economics, 9e (Krugman et al.) Chapter 15 Money, Interest Rates, and Exchange Rates 15.1 Money Defined: A Brief Review 1) The exchange rate between currencies depends on A) the interest rate that can be earned on deposits of those […]

10) Combine the graph showing the interest parity condition and one showing money demand and supply to demonstrate simultaneous equilibrium in the money market and the foreign exchange market. How would an increase in the U.S. money supply affect the […]

International Economics, 9e (Krugman et al.) Chapter 16 Price Levels and the Exchange Rate in the Long Run 16.1 The Law of One Price 1) Which of the following statements is the most accurate? The law of one price states: […]

24) To answer the following question, please refer to the figure below. Concentrating only at the lower left quadrant, discuss the relationship between the U.S. real money supply and the dollar/euro exchange rate, E$/E. 18 Answer: The lower left quadrant […]

International Economics, 9e (Krugman et al.) Chapter 17 Output and the Exchange Rate in the Short Run 17.1 Determinants of Aggregate Demand in an Open Economy 1) How does an increase in the real exchange rate affect exports and imports? […]

5) The interest parity condition requires that: A) all countries have the same interest rate. B) there is a unique exchange rate for every output level. C) purchasing power parity hold. D) interest rates are fixed in the short run. […]

International Economics, 9e (Krugman et al.) Chapter 18 Fixed Exchange Rates and Foreign Exchange Intervention 18.1 Why Study Fixed Exchange Rates? 1) Central banks often intervene in currency markets. This activity is called A) managed floating. B) fixing exchange rates. […]

fixed exchange rate. 17 Answer: With an aim toward increasing output, the government could use fiscal policy to shift the DD curve outward. The central bank will have to take steps to maintain a fixed exchange rate E0, among the […]

International Economics, 9e (Krugman et al.) Chapter 19 International Monetary Systems: An Historical Overview 19.1 Macroeconomic Policy Goals in an Open Economy 1) A country seeking to maintain internal balance would be most concerned with: A) attaining low levels of […]

13) How did the international monetary system created at Bretton Woods in 1944 allow its members to reconcile their external commitments with their internal goals of full employment and price stability? Answer: As the world economy evolved in the years […]

18) Which one of the following statements is true? A) By devaluing its currency, that is, by lowering the domestic currency price of foreign currency, a country can insulate itself completely from an inflationary increase in foreign prices. B) By […]

International Economics, 9e (Krugman et al.) Chapter 2 World Trade: An Overview 2.1 Who Trades with Whom? 1) Approximately what percent of all world production of goods and services is exported to other countries? A) 10% B) 30% C) 50% […]

International Economics, 9e (Krugman et al.) Chapter 20 Optimum Currency Areas and the European Experience 20.1 How the European Single Currency Evolved 1) The European Economic and Monetary Union A) set up a single currency and sole bank for European […]

16) Which one of the following statements is true for Norway, a non-euro country? A) Of course, owners of capital that cannot be moved cannot avoid more of the economic stability loss due to fixed exchange rates when Norway’s economy […]

International Economics, 9e (Krugman et al.) Chapter 21 Financial Globalization: Opportunity and Crisis 21.1 The International Capital Market and the Gains from Trade 1) If you are offered a gamble in which you win 500 dollars 3/8 of the time […]

17) Rising inflationary pressure caused the U.S. to tighten its monetary policy at the end of the 1960s. As a result, market interest rates rose above the Regulation Q ceiling and American banks found it impossible to attract time deposits […]

33) Explain the issues involved with the Fed acting as a lender of Last Resort (LLR). Answer: On the one hand, LLR enables the Fed to avoid panic and disturbance to proper functioning of financial markets. On the other hand, […]

International Economics, 9e (Krugman et al.) Chapter 22 Developing Countries: Growth, Crisis, and Reform 22.1 Income, Wealth, and Growth in the World Economy 1) The world’s economies can be divided into four main categories according to their annual per-capita income […]

17) Explain the extensive economic role of government within a developing country. Answer: An open question. Students should include 2 of the following in their answer along with discussion; (1) Restrictions on international trade (2) Government control over large industrial […]

38) List and explain 3 major channels through which developing countries have financed their external deficits. Answer: Any of the 3 below along with clear explanation will suffice: (1) Bond Finance (2) Bank Finance (3) Official Lending (4) Foreign Direct […]

1 International Economics, 9e (Krugman et al.) Chapter 3 Labor Productivity and Comparative Advantage: The Ricardian Model 3.1 The Concept of Comparative Advantage 1) Trade between two countries can benefit both countries if A) each country exports that good in […]

21) If two countries engage in Free Trade following the principles of comparative advantage, then A) neither relative prices nor relative marginal costs (marginal rates of transformation-MRTs) in one country will equal those in the other country. B) both relative […]

International Economics, 9e (Krugman et al.) Chapter 4 Specific Factors and Income Distribution 4.1 The Specific Factors Model 1) The Ricardian model of international trade demonstrates that trade can be mutually beneficial. Why, then, do governments restrict imports of some […]

41) Refer to the production possibility graph above. Assume that the economy is in equilibrium at point e. If the price of good B increases, the new equilibrium is most likely to be A) point f. B) point d. C) […]

International Economics, 9e (Krugman et al.) Chapter 5 Resources and Trade: The Heckscher–Ohlin Model 5.1 A Model of a Two–Factor Economy 1) In the 2-factor, 2 good Heckscher-Ohlin model, an influx of workers from across the border would A) move […]

International Economics, 9e (Krugman et al.) Chapter 6 The Standard Trade Model 6.1 A Standard Model of a Trading Economy 1) The meaning of “terms of trade” is A) the price of a country’s exports divided by the price of […]

International Economics, 9e (Krugman et al.) Chapter 7 External Economies of Scale and the International Location of Production 7.1 Economies of Scale and International Trade: An Overview 1) External economies of scale arise when the cost per unit A) falls […]

International Economics, 9e (Krugman et al.) Chapter 8 Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises 8.1 The Theory of Imperfect Competition 1) A monopolistic firm A) will never sell a product whose demand is inelastic at […]

International Economics, 9e (Krugman et al.) Chapter 9 The Instruments of Trade Policy 9.1 Basic Tariff Analysis 1) Specific tariffs are A) import taxes stated in specific legal statutes. B) import taxes calculated as a fixed charge for each unit […]