Explain the elasticities and absorption approaches to the BOT. What is the most notable shortcoming of these approaches?
What will be an ideal response?
The elasticities approach analyzes the effect of devaluation on the trade balance based on elasticities of supply and demand for foreign exchange and international trade. The absorption approach views the trade balance as the difference between what the economy produces and what it takes for domestic use or absorbs. Neither approach considers capital flows.
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Goods can be classified on the basis of whether their consumption is
A) includable and cooperative. B) rival and excludable. C) internal and excludable. D) rival and competitive.
A person has an absolute advantage in producing a good if he can
a. produce it using fewer resources than another person b. produce it while sacrificing less than another person in terms of foregone output c. corner the market d. use other peoples' money to produce it e. work out some long term payment plan for financing the good