Suppose That the Home Country in the Two­sector

question 102

Multiple Choice

Suppose that the Home country in the two­sector
(manufacturing and agriculture) specific­factors model
Has a comparative advantage in agricultural output.
What will happen to the return (rental) on capital when
Trade occurs?

• A)It will fall.
• B)It will rise.
• C)It will not change.
• D)It will first fall, then rise.

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Definitions:

Nominal Variables

Variables that are measured in terms of money and have not been adjusted for inflation, as opposed to real variables which are inflation-adjusted.

Money Supply

The total amount of money in circulation or in existence within a country's economy.

Exchange Rate

The price of one country's currency expressed in the currency of another country; it determines how much foreign currency one can get with a unit of domestic currency.

Price Level

The general cost of goods and services in an economy at a given time.