In the presence of free trade, how are the effects of economic growth different for a large country than for a small country?
What will be an ideal response?
POSSIBLE RESPONSE: If a country is small, then its growth and the subsequent change in its international trade volumes will have no impact on the international price ratio or its terms of trade. Small countries gain from growth. Their citizens reach a higher community indifference curve as a result of growth and the expansion of the country's production-possibilities curve.
If a country is large, however, then its growth and willingness to trade can have an impact on the equilibrium international price ratio. The change in the international price ratio is also a change in the country's terms of trade.
If the large country's terms of trade improve (an increase in the international relative price of its export products), then the well-being of the country increases because of both the growth and the better terms of trade.
If the large country's terms of trade deteriorate, then the well-being of the country tends to increase because of the growth but to decrease because of the decline in the terms of trade. If the terms of trade decline a great deal in response to growth, the well-being of a large country may decline. This possibility is referred to as an immiserizing growth.
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A) raise the trade balance. B) decrease foreign portfolio investment. C) cause the dollar to depreciate. D) increase net exports. E) lead to a current account deficit.
A monopoly is defined as a firm that has the largest market share in an industry
Indicate whether the statement is true or false