ECS3702 EXAM
PACK 2024
QUESTIONS AND
ANSWERS
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Dominick Salvatore’s International Economics – 10th Edition Instructor’s Manual
SUGGESTED ANSWERS TO PROBLEMS
1. Go through your daily newspaper and identify:
(a) Seven or eight news items of an international economic character.
International economic problems reported in our daily newspapers are likely to include:
• trade controversies between the United States, Europe, Japan, and China;
• great volatility of exchange rates;
• Increasing international competition from China and fear of job losses in the United
States and other advanced countries.
• structural unemployment and slow growth in Europe, and stagnation in Japan;
• financial crises in emerging market economies;
• restructuring problems of transition economies;
• deep poverty in many developing nations in the world.
(b) the importance or effect of each of these problems on the United States
economy;
Can result in trade restrictions or even a trade war, which reduce the volume and the gains from
trade;
• discourage foreign trade and investments, and thus reduce the benefits from trade;
• Can result in trade restrictions or even a trade war, which reduce the volume and the
gains from trade;
• reduces European and Japanese imports and the volume and the benefits from trade;
• financial crises in emerging market economies could spread to the United States;
• can lead to political instability, which will adversely affect the United States;
can lead to political instability in these countries - which also adversely affect the United States
(c) the importance of each of these news items to you personally. .
Can result in your paying higher prices for imported products;
• lead to great fluctuations in the price of imported products and cost of foreign travel;
• Can lead higher prices for imported products and increases the chances that you will
have to change jobs;
• can lead you to support demands for trade protection in the United States;
• can reduce the value of your investments (such as a stocks) in the United States;
• can lead to your paying higher taxes for the United States to respond to these threats;
• can result in your paying higher taxes to help these nations.
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Dominick Salvatore’s International Economics – 10th Edition Instructor’s Manual
2. This question will involve you in measuring the economic interdependence of
some nations.
(a) Identify any five industrial nations not shown in Figure 1.1.
Five industrial nations not mentioned are: Italy, France, Canada, Austria, and Ireland.
(b) Go to your school library and find the latest edition of International Financial
Statistics and construct a table showing the degree of economic interdependence
for the nations you have chosen. Is the economic inter-dependence of the smaller
nations in each group greater than that of the larger nations?
See Table 1A.
Table 1A
Economic Interdependence as Measured by Imports and Exports as a
Percentage of GDP, 2004
Nation Imports as % of GDP Exports as % of GDP
Italy 25.8 26.6
France 25.7 25.9
Canada 34 38.2
Austria 46.1 51
Ireland 63.7 79
*Source: International Financial Statistics (Washington, D.C., IMF, March 2006).
Smaller nations, such as Ireland and Austria, are more interdependent than the larger
ones. Note that interdependence was measured by the percentage of the value of imports and
exports (line 98c and 90c, respectively in IFS) to GDP (line 99b).
3. Do the same as for Problem 2 for any five developing countries not shown in
Figure 1.1.
a) Five developing nations not mentioned in the text are: Brazil, Pakistan, Colombia, Nepal, and
Tunisia.
b) See Table 1B.
Table 1B
Economic Interdependence as Measured by Imports and Exports as a
Percentage of GDP, 2004
Nation Imports as % of GDP Exports as % of GDP
Brazil 13.4 18
Pakistan 16.7 16
Columbia 20.7 19.4
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Dominick Salvatore’s International Economics – 10th Edition Instructor’s Manual
Nepal 31.7 17.3
Tunisia 49.6 46.7
*Source: International Financial Statistics (Washington, D.C., IMF, March 2006).
In general, the smaller the nation, the greater is its economic interdependence. Note that
interdependence was measured by the percentage of the value of imports and exports (line 98c
and 90c, respectively in IFS) to GDP (line 99b).
4. Does the trade between the United States and Brazil and Argentina follow the
predication of the gravity model?
Trade between the United States and Brazil is much larger than trade between the United States
and Argentina. Since Brazil is larger and closer than Argentina, this trade does follow the
predictions of the gravity model.
5. Take your principles of economics text (even if you have already had
intermediate theory) and from the table of contents:
(a) identify the topics presented in the microeconomics parts of the text;
Mankiw’s Economics (4th., 2007) includes the following microeconomics topics:
• The market forces of demand and supply;
• elasticity and its application;
• the theory of consumer choice;
• consumers, producers, and the efficiency of markets;
• the costs of production;
• firms in competitive markets;
• monopoly;
• oligopoly;
• monopolistic competition;
• markets for the factors of production
(b) compare the contents of the micro-economic parts of your principles text with
the contents of Part One and Part Two of this text.
Just as the microeconomics parts of your principles text deal with individual consumers and
firms, and with the price of individual commodities and factors of production, so do Parts One
and Two of this text deal with production and consumption of individual nations with nations
with and without trade, and with the relative price of individual commodities and factors of
production.
(c) identify the topics presented in the macroeconomics parts of the text;
c) Mankiw’s Economics (4th. 2007) includes the following microeconomics topics: measuring a
nation’s income and the cost of living;
• production and growth;
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