ProblemSet5bANSWERS - UBGA 118: International Trade Fall...

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UBGA 118: International Trade Fall 2008 Problem Set #5b ANSWERS (Due Tuesday, October 14, 2008) 1. Article Analysis: Read this article and answer the following questions. David Barboza, “China Says Its Economy Grew by 10.7% in 2006, With Little Inflation”. The New York Times, January 26, 2007. The URL is: = a. The article states growth in the export sector has been one factor contributing to over all growth. How would we represent growth in the export sector and how is it predicted to affect the terms of trade? Growth in the export sector is called export-biased growth. We would represent this growth by shifting the production possibilities curve outward in a biased fashion in the direction of the goods that China exports and by increasing China's supply of export goods relative to import goods. An increase in export goods relative to import goods on world markets is predicted to decrease China's terms of trade. (However, in the short run the terms of trade depend also on the value of the domestic currency relative to the value of foreign currency.) b. The article states China could face protectionist policies, say tariffs, from other countries. How are protectionist policies predicted to affect China's terms of trade? An import tariff by other countries will decrease their supply of goods that are exported relative to
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This note was uploaded on 07/31/2009 for the course ECON 181 taught by Professor Kasa during the Spring '07 term at University of California, Berkeley.

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ProblemSet5bANSWERS - UBGA 118: International Trade Fall...

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