Suppose That, with Trade, the Price of Shoes (Which Are

question 19

Multiple Choice

Suppose that, with trade, the price of shoes (which are labor intensive) increases by 10%. Then which of the following can you say for sure about returns to labor and capital in the country?

• A) Wages will rise by more than 10%.
• B) Rental rates will rise by more than 10%.
• C) Wages will rise by no more than 10%.
• D) Rental rates will fall by at least 10%.

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Definitions:

Price Level

The price level is an aggregate measure that reflects the average of current prices across the entire spectrum of goods and services produced in the economy.

Consumption Spending

Consumption spending refers to the total amount of money spent by households and individuals on goods and services for personal use.

Aggregate Demand Curve

A graphical representation showing the overall demand for all goods and services in an economy at various price levels, typically downward sloping.

Real Gross Domestic Product

An inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year, expressing the total economic output in constant prices.