Why is it that North-South trade in manufactures seems to be consistent with the results or expectations generated by the factor-proportions theory of international trade, whereas North-North trade is not?
What will be an ideal response?
There is a clear difference in relative factor availabilities between North and South countries, no matter how we define and measure the factors of production. Hence, the factor-proportions theory of trade may be sensibly expected to explain the pattern (though not the volume) of trade between these two groups of countries. However, the North North trade partners do not vary significantly in their relative factor availabilities, so that other forces, such as scale economies play a relatively large role in determining trade patterns.
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Refer to the diagrams. The case of complementary goods is represented by figure:
A. A.
B. B.
C. C.
D. D.
Use the following graph to answer the next question.
Suppose an economy's full employment output is at the level Q1, and the economy's current aggregate demand is represented by AD2. If the government swiftly implements contractionary fiscal policy that immediately shifts the economy's aggregate demand to AD1, the short-to-medium term aggregate demand would be most closely represented by
A. AD0. B. AD1. C. AD2. D. AD3.