Part A. [48 points] Write your name and student number atop this page. Answer all the questions in this section, writing the answers on this test paper.
The table below presents the major components of a national balance-of-payments account. Assume that rows 29 and 63 equal zero.
1 Exports of goods, services, income = (2) + (3) + (10) + (11)
2 Goods, excluding military
3 Services (travel, royalties, private
services)
10 U.S. Government misc. services
11 Income receipts on U.S. assets abroad
15 Imports of goods, services, and income = (16) + (17) + (25)
16 Goods, excluding military
17 Services (travel, royalties, private
services)
25 Income payments on foreign assets
in U.S.
29 Unilateral transfers, net
33 U.S. assets abroad, net change
48 Foreign assets in U.S., net change
63 Statistical discrepancy
64 Balance on goods
65 Balance on services
66 Balance on goods and services
70 Balance on current account
1. [4 points] Write the appropriate row numbers below.
Which rows should be added to yield row 64?
Which rows should be added to yield row 65?
Which rows should be added to yield row 66?
Which rows should be added to yield row 70?
2. [4 points] What’s the fundamental identity of this table?
(Let’s assume that row 63 equals zero). Please express the answer
in two ways:
a) the sum of which rows must equal the sum of which other rows?
b) In plain English, a negative balance on the current account must
be matched by what?
3. [1 point] GDP = C + I + G + X - M is the basic
equation of national income accounting, where “GDP” is Gross Domestic Product
of a country (or any other economic unit). U.S. GDP was $7.6 billion
in 1996. Which of the following most closely approximates the distribution
of this income among the five components named above (in the order in which
the components are named above)?
a) 82% + 3% + 15% + 4% - 3%
b) 68% + 15% + 18% + 11% -13%
c) 32% + 40% + 15% + 43% - 30%
d) 54% + 5% + 42% + 3% - 3%
e) 62% + 16% + 21% + 5% - 4%
4. [1 point] Which of the distributions above depicts the
economy of a fairly closed economy engaged in a massive, publicly-funded
war effort (the U.S. in 1945)?
5. [1 point] From what we know of Singapore (recall the
Krugman lecture “The Myth of Asia’s Miracle”), which of the distributions
above might depict the dynamic, relatively open, Singapore economy in 1990?
6. [1 point] What is the goal of a mercantilist trade policy
(in the context of 16th and 17th-century European countries)?
7. [1 point] What should be the goal of a national trade
policy, according to Adam Smith?
8. [1 point] How would such a goal be accomplished (i.e.,
what would the trade policy look like)?
9. [1 point] What might be the goal of a strategic trade
policy based on “new” trade theory?
10. [1 point] How would such a goal be accomplished (i.e.,
what would the trade policy look like)?
11. [8 points] The questions below refer to the simple 1-resource, 2-country, 2-product world in the table below. Resources are finite in each country, and never move between countries.
Cell entries indicate the units of resources required to produce
a unit of each product in the given country.
| Guns | Butter | |
| Republic of Retep | 5 | 3 |
| Union of Yellek | 8 | 8 |
a. Which country has an absolute advantage in gun production?
b. Which country has an absolute advantage in butter production?
c. What’s the opportunity cost of producing a unit of guns in Retep?
d. What’s the opportunity cost of producing a unit of guns in Yellek?
e. What’s the opportunity cost of producing a unit of butter in Retep?
f. What’s the opportunity cost of producing a unit of butter in Yellek?
g. In this simple world, what’s Retep’s comparative advantage?
h. In this simple world, what’s Yellek’s comparative advantage?
12. [2 points] The equation below describes the exporting
country’s gain (G) from exporting commodity a to country
2, where ai refers to the domestic cost of producing
commodity a within country i, and C2/C1
refers to the number of units of country 2’s currency per unit of country
1’s currency.
a. According to this equation, what happens to the exporting country’s share of the gains from trade as its currency falls against that of its trading partner?
b. According to this equation, what happens to the exporting country’s
share of the gains from trade as its opportunity cost of producing the
export item increases?
13. [6 points] Name and define three forms of nontariff
barriers.
14. [4 points] Present two common arguments for protectionist
trade policies, and their counter-arguments.
15. [8 points] Name and define the four levels of regional
economic integration.
16. [2 points] What’s the basic reason for trade creation
after regional economic integration?
17. [2 points] What’s the basic reason for trade diversion
after regional economic integration?
Part B. [20 points] Answer two of the following questions, in paragraph form. Use the remainder of this sheet, the back, and the next page, or use your own paper. Write legibly!
1. Write a brief essay about the Leontief paradox. You should include: what data Leontief used, what he expected to find (to do this, you must identity the theoretical basis for a country’s comparative advantage), what he actually found, why it was surprising, and at least two potential explanations of why he found what he found.
2. Describe the stages of the product-life-cycle model of international production, emphasizing the relative location of production and of markets in each stage, and the changes in the key production factor that influences the location of production.
3. What does Castells list as the four key sources of international competitiveness? Provide a brief explanation of each, with examples where possible and helpful.
4. Castells suggests that the increased global prominence of the Asian Pacific region is based on five interlinking networks: what are these?
5. How does Castells explain the very different economic circumstances
and international-trade outcomes in South American versus sub-Saharan African
countries in the past 25 years?