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-Suppose, as a Result of Various Dynamic Factors Associated with Exposure

question 34

Essay

  -Suppose, as a result of various dynamic factors associated with exposure to international competition, Albania's economy grew, and is now represented by the rightmost production possibility frontier in the figure above. If its point of production with trade was point c, would you consider this growth to be export-biased or import biased?  If Albania were a large country with respect to the world trade of A and B, how would this growth affect Albania's terms of trade?  Its real income?
-Suppose, as a result of various dynamic factors associated with exposure to international competition, Albania's economy grew, and is now represented by the rightmost production possibility frontier in the figure above. If its point of production with trade was point c, would you consider this growth to be export-biased or import biased?
If Albania were a large country with respect to the world trade of A and B, how would this growth affect Albania's terms of trade?
Its real income?


Definitions:

Risk-Free Rate

The return on investment with no risk of financial loss, often represented by the yield on government bonds.

Market Risk Premium

The additional return investors expect for holding a risky market portfolio instead of risk-free assets.

Required Return

The minimum expected return by investors for undertaking an investment, considering its risk and the time value of money.

Index Fund

A type of mutual fund or exchange-traded fund designed to replicate the performance of a specific market index by holding the same investments as the index.

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