Question & Answer

If countries are so keen to reduce the barriers to trade, why do many countries frequently attempt to erect barriers?

Go through each of the arguments for restricting trade (both those of general validity and those having some validity for specific countries) and provide a counter-argument for not restricting trade.

What factors determine a country’s terms of trade?

If capital moves from developed to less developed countries, and labour moves from less developed to developed countries, what effects will these factor movements have on wage rates and the return on capital in the two types of country?

Imagine that two countries, Richland and Poorland, can produce just two goods, computers and coal. Assume that for a given amount of land and capital, the output of these two products requires the following constant amounts of labour:

         Assume that each country has 20 million workers.

(a)  Draw the production possibility curves for the two countries (on two separate diagrams).

(b)  If there is no trade, and in each country 12 million workers produce computers and 8 million workers produce coal, how many computers and tonnes of coal much will each country produce? What will be the total production of each product?

(c)  What is the opportunity cost of a computer in (i) Richland; (ii) Poorland?

(d)  What is the opportunity cost of 100 tonnes of coal in (i) Richland; (ii) Poorland?

(e)  Which country has a comparative advantage in which product?

(f)   Assuming that price equals marginal cost, which of the following would represent possible exchange ratios? (i) 1 computer for 40 tonnes of coal; (ii) 2 computers for 140 tonnes of coal; (iii) 1 computer for 100 tonnes of coal; (iv) 1 computer for 60 tonnes of coal; (v) 4 computers for 360 tonnes of coal.

(g)  Assume that trade now takes place and that 1 computer exchanges for 65 tonnes of coal. Both countries specialise completely in the product in which they have a comparative advantage. How much does each country produce of its respective product?

(h)  The country producing computers sells 6 million domestically. How many does it export to the other country?

(i)   How much coal does the other country consume?

(j)   Construct a table like Table 24.4 to show the no-trade and with-trade positions of each country?

Select a European country other than the UK and compare its regional and urban policy with that of the UK.

What are the arguments for and against relying entirely on discretionary regional and urban policy?

In what ways can interventionist industrial policy work with the market, rather than against it? What are the arguments for and against such policy?

Is deindustrialisation necessarily undesirable?

What types of tax cuts are likely to create the greatest (a) incentives; (b) disincentives to effort?

Why might market-orientated supply-side policies have undesirable side effects on aggregate demand?

What is the relationship between ‘successful’ supply-side policies and unemployment in (i) the short run and (ii) the long run, according to (a) Keynesian and (b) monetarist assumptions?

For what possible reasons may a country experience a persistently faster rate of economic growth than another?

What policy prescriptions do the neoclassical and endogenous growth theories offer policy makers who are looking to raise their country’s long-run growth rate?

What determines the rate of growth in total factor productivity?

Under what circumstances would a higher rate of investment lead to a higher rate of economic growth?

What is the significance of the term ‘endogenous’ in endogenous growth theory? What, according to this theory, determines the long-run rate of economic growth?

What is meant by the ‘steady-state economic growth path’? What determines its slope?

What determines the rate of depreciation of capital? What would happen if the rate of depreciation fell?

If increased investment (using current technology) does not lead to increased long-run economic growth, does it bring any benefits?

Why do developed countries experience a degree of convergence over time? Would you expect there to be total convergence of GDP per head?

For what reasons do countries experience very different long-run rates of economic growth from each other?

Is there a compromise between purely discretionary policy and adhering to strict targets?

Compare the relative merits of targeting (a) the money supply; (b) the exchange rate; (c) the rate of inflation.

‘It is easier to control the monetary base than broader money, but it is less relevant to do so.’ Do you agree with this statement?