Book Title
International Economics: Theory and Policy 9th Edition

978-0132146654 Chapter 2 Solution Manual

December 18, 2019
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), so it makes sense
3. No, if every country’s GDP were to double, world trade would not quadruple. Consider a simple
example with only two countries: A and B. Let country A have a GDP of $6 trillion and B have a
GDP of $4 trillion. Furthermore, the share of world spending on each country’s production is
proportional to each country’s share of world GDP (stated differently, the exponents on GDP in
Equation 2-2, a and b, are both equal to 1). Thus, our example is characterized by the table below:
Country GDP Share of World Spending
What happens if we double GDP in both countries? Now GDP in country A is $12 trillion and GDP in
country B is $8 trillion. However, the share of world income (and spending) in each country has not
© 2012 Pearson Education, Inc. Publishing as Addison-Wesley
Chapter 2World Trade: An Overview  6
4. As the share of world GDP which belongs to East Asian economies grows, then in every trade
relationship which involves an East Asian economy, the size of the East Asian economy has grown.
5. As the chapter discusses, a century ago much of world trade was in commodities that in many ways
were climate or geography determined. Thus, the United Kingdom imported goods that it could not
make itself. This meant importing things like cotton or rubber from countries in the Western Hemisphere
© 2012 Pearson Education, Inc. Publishing as Addison-Wesley