FINANCIAL AND ECONOMIC GLOBAL STRATEGY
INSTRUCTIONS
I. YOU SHOULD WRITE MINIMUM ½ OF A PAGE SINGLE SPACED PER QUESTION
Rubric for Balance of Payments Test
1. You should talk about the concept of Comparative Advantage coined by David Ricardo. That is further elaborated by Heckscher and Ohlin in their theory of “factor endowments” Does the theory receive empirical support, and if so what is the definitiveness of that support?
2. The empirical support also supports the economies of scale concept of Paul Krugman.
What is his theory?
3. China has had surpluses in the current and Capital accounts. What are the causes, and what ae the effects of this issue, inter temporally?
4. Talk about one of the key accounts of the balance of payments, the current account. Also, analyze the subaccounts of the aforementioned account.
5. The 2 reasons given affect the exports and imports in the current account. Talk about how they do that. This question partially relates to question #2.
6. What are the benefits and costs of flexible and fixed exchange rates?
7. Elucidate the direction of trade. Do rich nations trade with other rich nations, or with poor nations or do poor nations trade a lot with other poor nations? Based on your answers, which theory is given more support by scientific studies?
(Please do some research on answering these questions.)
ESSAYS
*1. Elaborate on the Factor Endowments Theory. This theory is based on the Comparative Advantage reason for trade, which stems from cost.
*2. Expound on the Economies of Scale theory of Paul Krugman, as a reason for trade, which also relates to cost.
*3. Analyze the reasons China has a twin surplus. What are the repercussions of this fact over a long period of time.
4. Describe the different accounts of the Current Account of the balance of payments.
5. Two factors influence exports and imports of goods and services. They are competitiveness of the nation and the income level of it. Expound.
6. Discuss the trilemma
7. Discuss the type of goods and services, which nations trade mainly. Ascertain that you separate poor from rich nations in trading. Also, what is the direction of the majority of trade?
