Explain how trade will tend to emerge along the lines of comparative advantage if markets are allowed to work freely
What will be an ideal response?
Comparative advantage is determined by autarky prices. Foreign demand will tend to drive up (down) the autarky price of a country's comparative advantage (disadvantage) good, raising short term profits and attracting resources to that industry. These resources come from the import competing comparative disadvantage sector.
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Suppose the Okun's law coefficient is 2, the full-employment level of output is $5000 billion, and the natural rate of unemployment is 6%
(a) What is the current level of output if the current unemployment rate is 8%? (b) Suppose the unemployment rate falls to 5%; what is the current level of output? (c) Suppose structural changes in the economy raise the natural rate of unemployment to 7%, and lower the full-employment level of output to $4800 billion. If the current unemployment rate is 8%, what is the current level of output?
Assuming that the exchange rate rises by 5 percent, hence, the dollar volume of exports rises by 5 percent, then foreign exchange earnings would
a. remain constant. b. increase by 5 percent. c. actually decrease by 5 percent. d. increase by 10 percent.