HW2 - International Economics ECON-UA 238.004 New York...

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1 International Economics ECON-UA 238.004 New York University, Fall 2011 by Arhan Ertan HW2 Due: Thursday, November 17, in class. 1. Home and Foreign countries have two factors of production, capital and labor; Home is capital abundant and Foreign is labor abundant. They produce two goods, X (capital intensive) and Y (labor intensive). Analyze the effect of the following events on the terms of trade and the welfare of both economies using the standard trade model of Chapter 5: a) an increase in Home’s capital stock, b) an increase in Home’s labor supply, c) an increase in Foreign’s capital stock, d) an increase in Foreign’s labor supply. Which one(s) of these cases may result in ‘immiserizing growth’ ? Explain. 2. Suppose there are: 2 countries: Home (labor abundant) and Foreign (land abundant). 2 goods: cloth (labor intensive) and food (land intensive). Suppose the size of the Home economy much larger compared to the Foreign economy. Using the Standard Trade Model, analyze the effects of a cloth biased growth at Home on the national welfare levels of both the Home and Foreign countries. Is there any possibility of “immiserizing
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This note was uploaded on 04/06/2012 for the course ECON UA 23 taught by Professor Arhan during the Fall '11 term at NYU.

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HW2 - International Economics ECON-UA 238.004 New York...

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