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International Trade Exam January 2019 for Loughborough University
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ECC031 International Trade Exam January 2019 for Loughborough University
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INTERNATIONAL TRADE(18ECC031)
January 2019 3 Hours
Answer THREE questions in total.
All questions carry equal marks.
Calculators are not permitted.
1. (a) “We have a MASSIVE trade deficit with Germany… Very bad for U.S.” President
Donald J. Trump, Twitter, 30 May 2017.
President Trump’s tweet seems to imply that: To gain from trade, it is necessary to
have a trade surplus. Evaluate the italicised statement using the Ricardian model.
(50 marks)
(b) “Productivity is the ultimate driver of economic growth and any improvement helps
competitiveness.” David Smith, The Sunday Times, 14 October 2018.
How does productivity growth in a small open economy’s export industry affect
that industry’s unit cost (“competitiveness”) and the welfare of the country’s
citizens? (50 marks)
2. “In a one-good macroeconomic model of a closed economy, labour-force growth reduces
the real wage. However, in a small open economy that produces two goods, that effect is
completely absent.” Explain this claim using appropriate diagrams. (100 marks)
3. Tinyland, a small country, contains two factors of production, labour and capital, and is
capital-abundant relative to other trading countries. Tinyland’s finance minister says, “A
rise in the world price of our exports benefits Tinyland and everyone within it.” Evaluate
the finance minister’s claim using appropriate diagrams. (100 marks)
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