Balance of Payments, Mobility of Labor and Capital, Trade and Wages

Balance of Payments

1. Will a country running a trade deficit import or export capital?  Explain.

2. Under what circumstances would a trade deficit be expected to raise a country's future income?  When would you expect it to lower a country's future income?

3. What connection, if any, is there between a country's demographic profile and international borrowing?

4. Singapore is a small open economy facing a fixed world interest rate that is above Singpore's autarky interest rate.  Suppose productivity in Singapore falls sharply.  What should happen to the quantity of investment, the quantity of savings supplied, and Singapore's current account?

Migration

5. We have a one good economy in which labor and land are used to produce food.   The ratio of land/labor is higher in Argentina than in Spain, and the technology for farming is the same in both places.

a. With no international mobility of labor, compare labor wages and the returns to land ownership in Argentina and Spain.

b. If migration is allowed, where should workers move, and how does this affect wages and land rents in both countries.

c. Show in a diagram how to measure the gains from migration in each country.

6. We have a two good economy in which capital and labor are used to produce capital-intensive cars and labor-intensive shoes.  China has a lower ratio of K/L than the US.

a. Use a relative supply relative demand curve to describe differences in factor prices across the two countries in autarky.

b. Describe three ways to arbitrage away these factor prices differences.  In each case,  show the effect using the RS-RD curve and describe the resulting changes in the production of cars and shoes.

7. How does the Rybczynski effect explain the effect of Cuban migration to Miami on unskilled worker wages?

Trade and Wages

8. What are the leading theories explaining the rise in the skill premium in the US?  Explain the channel through which the wages of skilled / unskilled workers are affected.

9. What has happened to the use of skilled labor relative to unskilled labor in the US?  How can a Heckscher-Ohlin model modified to include outsourcing explain this fact?

10. If trade is responsible for rising inequality in the US, do you think this is a reason to oppose further efforts to promote globalization?