Worksheet #3:
Trade
#1. In the equation Y = C + I + G + NX, are imports part of C, I, and G?
your answer and give some examples if possible.
Explain
#2. Often we write NX as net exports, but actually this is the balance on current
account. Explain the difference.
#3. Suppose that NX rises by 100. What will be the short run and long run effect
on equilibrium Y? Be general in your answer.
#4. A trade surplus is always better than a trade deficit. Do you agree or disagree?
Explain your answer.
#5. How is it possible for the NT$ to rise and yet have an expanding real Taiwanese
trade surplus? Be sure to consider all possible answers here.
#6. What are the benefits of free trade?
What are the costs?
Are the costs always
smaller than the benefits.
#7. Most people are interested in knowing what will happen to the exchange rate.
How can you help them understand the future?
#8. Why has monopolistic competition become important in international trade?
#9. Countries relatively rich in labor will export labor-intensive goods, while
countries relatively rich in capital will export capital-intensive goods. Is this always
true for all countries and all products? Explain.
#10. A trade surplus always causes an increase in the money supply. Do you agree
or not? Explain your answer.