CHAPTER 11
ECONOMIC GROWTH AND INTERNATIONAL TRADE
B. Multiple-Choice Questions
9. In the analysis of growth and trade, if a country’s national income growth leads to an
absolute increase in imports but to a slower relative growth in imports than in national
income, this growth pattern is called __________ growth.
10. In a Heckscher-Ohlin context, other things equal, growth of the relatively-abundant factor
of production in a country that is a “large” country will lead to __________ willingness
to
trade and to __________ in the country’s terms of trade.
d. a decreased willingness; an improvement
11. Growth of the scarce factor in the large-country case will, other things equal,
a. always expand trade and improve the terms of trade.
12. In the two-commodity context, you are given the following information pertaining to
country I in the year 2012 and the year 2017:
production of good X in 2012 = 200 units
production of good X in 2017 = 198 units
consumption of good X in 2012 = 160 units
consumption of good X in 2017 = 176 units
production of good Y in 2012 = 100 units
production of good Y in 2017 = 120 units
consumption of good Y in 2012 = 120 units
consumption of good Y in 2017 = 131 units
Given this information, this country, in 2012, is __________ and, in 2012, the country is
__________.
a. exporting good Y and importing good X; exporting 20 units of good Y and
importing 40 units of good X
13. Given the information in Question #12 above, it can be validly concluded that the type of
“production effect” that takes place between 2012 and 2017 in country I is __________
production effect.
14. Given the information in Question #12 above, it can be validly concluded that the type of
“consumption effect” that takes place between 2012 and 2017 in country I is __________
consumption effect.
15. With economic growth (where the growth reflects the “net” or “overall” effect of the
production and consumption effects), a country’s offer curve (with the export good on the
horizontal axis)
16. Assuming a two-country world, suppose that country I’s income elasticity of demand for
imports is 1.2 and that country II’s income elasticity of demand for imports is 0.9.
Suppose also that, during 2015, country I’s GDP grows by 5 percent and country II’s
GDP grows by 6 percent. Given these income elasticities of demand for imports and
these growth rates and with other things equal, the terms of trade of country I with
country II during 2015 would __________.
17. If the “net” or “overall” effect (which is the net result of the production and consumption
effects) of a country’s growth is “protrade” in nature, then the country’s offer curve (with
the export good on the horizontal axis) will shift or pivot __________; if the “net” or
“overall” effect is “antitrade” in nature, then the country’s offer curve (with the export
good on the horizontal axis) __________.
18. If population growth is taking place,
a. one can no longer meaningfully compare community indifference curves to evaluate
the impact of growth and trade.
19. Suppose that country I’s income elasticity of demand for imports (YEM) is 0.8. This
YEM means that, as country I’s national income rises, the “overall” or “net” effect of its
growth on its trade sector is an __________ overall or net effect. In the context of the
offer curve diagram, if country I is a “large” country and it grows (and assuming no
growth occurs in its trading partner), this type of net effect means that country I’s terms
of trade, other things equal, will __________.
20. Other things equal, which one of the following types of growth in a large country will
have the most adverse impact upon that country’s terms of trade?
a. ultra-antitrade growth
21. Suppose that, prior to a technological change (innovation) in an industry, at existing
factor prices, it takes 30 units of capital and 100 units of labor to produce 500 units of
good X. (Assume that capital and labor are the only two factors of production.) After the
innovation, it takes 25 units of capital and 50 units of labor to produce 500 units of good
X (at the same factor prices as before the innovation). In this situation, the technological
change would be classified as a __________ technological change.
22. If, when a country grows, its home production of its export good increases by 10 percent
and its home consumption of its export good also increases by 10 percent, then, with the
economic growth and with other things equal, the country’s absolute quantity of exports
will __________.
(Note: The answer is “a” because the good is being exported and therefore a 10 percent
increase in home production is absolutely greater than a 10 percent increase in home
consumption.)
23. Suppose that country I’s income elasticity of demand for imports is 0.8 and that country
II’s income elasticity of demand for imports is 1.5. These income elasticities indicate
that growth in country I would be classified as __________ and that growth in country II
would __________.
a. “antitrade” growth; also be classified as “antitrade” growth
24. If a country’s total output grows by 10 percent and its imports fall by 6 percent because of
the growth, this growth pattern would be classified as __________ growth.
d. ultra-protrade
25. If, at constant relative prices in a two-commodity and two-factor world, growth in a
country’s labor force causes an expansion in output of the labor-intensive good and a
contraction in output of the capital-intensive good, this situation is an example of the
a. Stolper-Samuelson theorem.
26. If a country grows such that, at constant relative prices, the production of its export good
rises by 5 percent and the production of its import-competing good rises by 15 percent
(and these are the only two goods produced in the economy), this production pattern
would be called __________ production effect.
a. a “neutral”
27. If technological change in an industry results, at given relative factor prices, in a
reduction in the amount of both capital and labor used to produce a given amount of
output, but the reduction in labor requirements is greater than the reduction in capital
requirements, this technological change would be called __________ in nature.
a. neutral
28. In the new endogenous growth models
29. If growth in national income is due entirely to growth in the labor force, under the
Heckscher-Ohlin assumptions,
d. there will be an increase in trade and welfare.
30. In the analysis of growth and trade, growth in the labor force (coupled with no growth in
the capital stock) in a relatively capital-abundant country would lead to what type of
“production effect” in the country?
31. With economic growth, a country’s offer curve (with the export good on the horizontal
axis)
32. If, when a country grows, its home production of its import good increases by 15 percent
and its home consumption of the import good also increases by 15 percent, then, with the
economic growth, the country’s absolute quantity of imports will __________.
33. Suppose that the “net” or “total” effect of the consumption and production effects of a
country’s growth is that the country’s offer curve shifts or pivots outward (i.e., the
country is more willing to trade). In this situation, it can validly be concluded that this
country’s growth can be characterized as __________ (where UP = ultra-protrade
growth, P = protrade growth, N = neutral growth, A = antitrade growth, and UA = ultra-
antitrade growth).
34. Other things equal, which one of the following factors would likely NOT contribute to a
worsening of the terms of trade of emerging/developing countries?
a. heavy reliance on primary product exports