Assume the economy is represented by EAPC1 in Figure 21.1. Illustrate the effects of positive and negative inflation shocks on the curve.

Imagine that you are an ambassador of a developing country at an international conference. What would you try to persuade the rich countries to do in order to help you and other poor countries overcome the debt problem? How would you set about persuading them that it was in their own interests to help you?

What are the relative advantages and disadvantages to a developing country of rescheduling its debts compared with simply defaulting on them (either temporarily or permanently)?

Consider the arguments from the perspective of an advanced country for and against protecting its industries from imports of manufactures from developing countries.

Will the adoption of labour-intensive techniques necessarily lead to a more equal distribution of income?

Why is an overvalued exchange rate likely to encourage the use of capital-intensive technology?

If a country specialises in a good in which it has a comparative disadvantage, where will it be producing with respect to its production possibility curve?

If a disastrous harvest of rice were confined to a particular country, would (a) the world price and (b) its own domestic price of rice fluctuate significantly? What would happen to the country’s export earnings and the earnings of individual farmers?

Why does this argument make GNY a better indicator of development than GDP? (See the Appendix to Chapter 15.)

1. What effect will trade have on the price of capital in developing and developed countries? 2. It is sometimes claimed that trade with developing countries is unjust because it leads to the importation of goods produced at pitifully low wages. How can the Heckscher–Ohlin theory be used to refute this claim? Is there any validity in the claim? (see Box 24.3)

How would a redistribution of income to the powerful be likely to affect GNY?

Would it be possible with this basic needs approach to say (a) that one country was more developed than another; (b) that one country was developing faster than another?

What other items might be included as basic needs?