Exam International Money

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Universiteit van Amsterdam Faculteit Economie en Bedrijfskunde

EXAM INTERNATIONAL TRADE (Core Course)
15 January 2007 9.30-12.30 hrs.

Instructions regarding the organisation of the exam • • • • • Only the following items are allowed on your table: the exam and other materials provided by the invigilators (e.g., writing paper), your student card, a pen, pencil, eraser and a non-programmable pocket calculator. Other electronic equipment must be switched off and kept in your bag or coat. Bags must be closed and put next to your table. It is not allowed to go to the toilet during the first half hour nor during the last hour of the exam. In the meantime you can only go to the toilet with permission of an invigilator. It is not allowed to leave the exam room within the first half hour of the exam, and after that first half hour students are not allowed to start the exam. If these instructions are not followed, you can be excluded from the exam.

• • • • • •

Instructions for answering the exam questions Read the question carefully and make sure that you give an answer to the question. Do this briefly, but always clarify your answer, unless explicitly stated otherwise. So do not digress too much: incorrect or irrelevant remarks can cost you points. Write legibly; text that is difficult to read will be ignored. Write down your name and student identification number on every answering sheet. Make sure that the margins are wide enough to facilitate the assessment. The amount of points for each question is given within parentheses. The maximum amount of points is 100 of which 60 points can be earned via the multiple-choice questions and the remaining 40 points can be earned via the open questions. Redraw graphs on your answering sheet if that is needed for answering the question. The exam grades and answers will become available on Blackboard on the 29th of January 2007. You can look into your graded exam on the 6th of February 2007 at 13:45-14:45 hrs, in room E7.10.

GOOD LUCK!

1

Part A: Multiple-choice questions
(20 questions, 3 points each: 60 points in total) 1. Trade based on comparative advantage arises in which of the following set-ups? 1. A model of international factor movement with mobile labour and immobile capital. 2. The Ricardian model with multiple goods, when unit labour requirements are equal across countries. 3. A model of imperfect competition characterized by an oligopoly. 4. None of the above. Answer: Answer 4 is correct. The model of international factor movements makes no statements about comparative advantage and simply asserts that workers will migrate to that country where the real wage is highest, hence answer 1 is false. Answer 2 is false because if comparative advantages are equal across countries, there is no incentive to trade, even though the theory of comparative advantage is central to the Ricardian model with multiple goods. Imperfect competition also has nothing to do with comparative advantage since it talks about one industry alone, hence answer 3 is also wrong. 2. Consider two countries Home (H) and Foreign (F) that produce cloth and wine in autarky. The hourly time requirement it takes for one worker to produce one unit (one meter) of cloth and one unit (one liter) of wine are given in the following table: Cloth 6 10 Wine 4 5

Country H Country F

Which of the following statements is correct? 1. Country F has an absolute advantage in the production of both goods and advantage in the production of cloth. 2. Country H has an absolute advantage in the production of both goods and advantage in the production of cloth. 3. Country F has an absolute advantage in the production of both goods and advantage in the production of wine. 4. Country H has an absolute advantage in the production of both goods and advantage in the production of wine. a comparative a comparative a comparative a comparative

Answer: Answer 2 is correct. Country H needs less time to produce one unit of...
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