In a Two-Good,one-Period Model,an Increase in the Terms of Trade

question 41

Multiple Choice

In a two-good,one-period model,an increase in the terms of trade when good b is initially imported implies

• A) the income and substitution effects for good a move in the same direction.
• B) a negative income effect for the SOE.
• C) the income and substitution effects for good b move in the same direction.
• D) the income effects and subsitution effects for good b cancel each other out.
• E) a negative substitution effect for the SOE.

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Definitions:

Salvage Value

An asset's forecasted residual value once it has fulfilled its period of usefulness.

Sales

The total amount of revenue generated from the sale of goods or services by a company.

Net Present Value Method

A financial analysis tool used to evaluate the profitability of an investment by determining the present value of expected future cash flows.

Working Capital

The difference between a company's current assets and its current liabilities, indicating short-term financial health.