eco4451: International Trade and Finance

International Trade and Finance: Review questions for final exam
1. Suppose the American Association of University Professors (AAUP) successfully coordinated and
lobbied congress to pass a requirement that all professors at U.S. universities must have
graduate degrees from U.S. universities.
a. How would this requirement affect the market for 4-year college degrees in the U.S.? Graph
and explain your answer. What would happen to tuition and the number of degrees
conferred?
b. How would this requirement affect the market for graduate degrees at universities outside
the U.S.? Again, graph your answer and explain what would happen to both tuition and the
number of degrees conferred.
c. Suppose that the requirement were instead that all professors at U.S. universities had to be
U.S. citizens, but there was no requirement that professors’ graduate degrees be conferred
by U.S. universities. How would this policy change your answers to Parts a and b?
2. Medical Doctors earn much higher salaries in the U.S. than in most of the world. Salaries vary
widely by specialty and region, but the average for all physicians is roughly $200,000 per year.
Explain why, in 3-4 paragraphs. You may give more than one reason, but use the labor market
for doctors’ services to explain your answer. A graph is not required, but it can clarify your
thinking.
3. Using consumer behavior theory, i.e. utility-maximization theory, to explain how international
trade makes consumers better off in terms of individual utility. Who is harmed by international
trade? Explain how, using the tools of microeconomics. Your answer should be 3-4 paragraphs
long and should include supply and demand graphs where appropriate.
4. Some macroeconomists believe that Long-Run Aggregate Supply (LRAS) is perfectly inelastic.
a. Explain why they would believe so in 3-4 sentences.
b. If LRAS is perfectly inelastic, what are the implications for monetary policy? Explain in 2-3
sentences.
c. If LRAS is perfectly inelastic, what are the implications for countries considering fixed
exchange rates?
5. On foreign aid to developing countries:
a. What are the circumstances under which foreign aid can help a developing country? Explain
your answer in 3-4 sentences.
b. How can foreign aid harm a developing country? Explain in 3-4 sentences.
c. What are the problems with sending money as foreign aid? Explain in 2-3 sentences.
d. What are the problems with sending goods as foreign aid? Explain in 2-3 sentences.
6. On international economic development:
a. What do you believe is the key to international economic development, i.e. what is the root
cause of sustainable economic growth in poor countries? (2-3 sentences)
b. What do you believe are the necessary conditions for growth, i.e. what conditions MUST
already exist for growth to occur? (2-3 sentences)
c. How can the U.S. government best promote economic growth in the developing world? (3-4
sentences)