Microeconomics

McConnell, Campbell R, Thomas Paul Barbiero, Stanley L. Brue

Chapter 5

Canada in the Global Economy - all with Video Answers

Educators

Chapter Questions

Problem 1

Describe the four major economic flows that link Canada with other nations. Provide a specific example to illustrate each flow. Explain the relationships between the top and bottom flows in Figure 5-1.

Prashant Bana

Prashant Bana

Numerade Educator

Problem 2

How important is international trade to the Canadian economy? Who is Canada's most important trade partner? How can persistent trade deficits be financed? "Trade deficits mean we get more merchandise from the rest of the world than we provide them in return. Therefore, trade deficits are economically desirable." Do you agree? Why or why not?

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 3

What factors account for the rapid growth of world trade since World War II? Who are the major players in international trade today? Who are the "Asian tigers" and how important are they in world trade?

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 4

Use the circular flow model (Figure 5-3) to explain how an increase in exports would affect the revenues of domestic firms, the money income of domestic households, and imports from abroad. Use Figure 5-2 to find the amounts (in 2000) of Canada's exports (flow 13) and imports (flow 16) in the circular flow model. What do these amounts imply for flows 14 and 15 ?

Oluwadamilola Ameobi

Oluwadamilola Ameobi

Numerade Educator

Problem 5

The following are production possibilities tables for South Korea and Canada. Assume that before specialization and trade the optimal product mix for South Korea is alternative B and for Canada alternative D.
(Table Cant Copy)
(Table Cant Copy)
a. Are comparative-cost conditions such that the two areas should specialize? If so, what product should each produce?
b. What is the total gain in radio and chemical output that results from this specialization?
c. What are the limits of the terms of trade? Suppose actual terms of trade are 1 unit of radios for $1 \frac{1}{2}$ units of chemicals and that 4 units of radios are exchanged for 6 units of chemicals. What are the gains from specialization and trade for each area?
d. Can you conclude from this illustration that specialization according to comparative advantage results in more efficient use of world resources? Explain.

Oluwadamilola Ameobi

Oluwadamilola Ameobi

Numerade Educator

Problem 6

Suppose that the comparative-cost ratios of two products-baby formula and tuna fishare as follows in the hypothetical nations of Canswicki and Tunata.
Canswicki: 1 can baby formula $\equiv 2$ cans tuna fish
Tunata: 1 can baby formula $\equiv 4$ cans tuna fish
In what product should each nation specialize? Explain why terms of trade of 1 can baby formula $=2 \frac{1}{2}$ cans tuna fish would be acceptable to both nations.

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 7

True or false? "Canadian exports create a demand for foreign currencies; foreign imports of our goods generate supplies of foreign currencies." Explain. Would a decline in Canadian incomes or a weakening of Canadian preferences for foreign products cause the dollar to depreciate or appreciate? What would be the effects of that depreciation or appreciation on our exports and imports?

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 8

If the European euro were to decline in value (depreciate) in the foreign exchange market, will it be easier or harder for the French to sell their wine in Canada? If you were planning a trip to Paris, how would the depreciation of the euro change the dollar cost of this trip?

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 9

True or false? "An increase in the Canadian dollar price of the euro implies that the euro has depreciated in value." Explain.

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 10

What measures do governments use to promote exports and restrict imports? Who benefits and who loses from protectionist policies? What is the net outcome for society?

Daniel Cisneros

Daniel Cisneros

Numerade Educator

Problem 11

Identify and state the significance of each of the following: (a) WTO; (b) EU; (c) euro; and (d) NAFTA. What commonality do they share?

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 12

Explain: "Free-trade zones such as the EU and NAFTA lead a double life: they can promote free trade among members, but they pose serious trade obstacles for non-members." Do you think the net effects of trade blocs are good or bad for world trade? Why? How do the efforts of the WTO relate to these trade blocs?

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 13

Speculate as to why some Canadian firms strongly support trade liberalization while other Canadian firms favour protectionism. Speculate as to why some Canadian labour unions strongly support trade liberalization while other Canadian labour unions strongly oppose it.

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 14

What explains why millions of economic resources tend to get arranged logically and productively rather than haphazardly and unproductivley?

Tina Pavlovich

Numerade Educator