Essentials of International Economics 2nd Edition by Robert C. Feenstra – Test Bank

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Name TestBanks Chapter 5: Movement of Labor and Capital between Countries
Description Question pool for TestBanks Chapter 5: Movement of Labor and Capital between Countries
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Question
The Mariel boatlift of Cuban immigrants into Miami caused the:
Answer population of unskilled workers in Miami to decline.
population of skilled workers in Miami to decline.
supply of labor to increase, but it did not decrease the wages.
wages of all workers to decline.
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The immigration of Russian Jews to Israel:
Answer increased the population of Israel and caused wages to plummet.
decreased the native population of Israel.
increased the population of skilled workers but did not decrease wages.
caused wages of skilled workers to decrease.
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Question
The results of the influx of workers into Miami in 1980 as a result of the Mariel boatlift and from Russia to Israel in 1989
after the fall of the Soviet Union:
Answer were different: wages fell in Miami but rose in Israel.
were similar: wages fell in Israel but rose in Miami.
surprised most people because the outcome was no reduction in wages in either area.
were that wages fell in both regions, confirming that immigration hurts domestic workers.
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Question
Interesting real-life examples tell us that labor migration often:
Answer reduces wages in both the source nation and the destination nation.
has no negative effect on wages in the destination nation.
increases labor productivity.
changes the labor market so that competition for workers rises.
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Question
When some factors are fixed, it is a short-run model. This is called the ____________ model:
Answer Heckscher-Ohlin
Ricardian
specific-factors
purchasing power parity
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Question
To study labor migration using the specific-factors model, we assume ________ and ________ cannot move within the
domestic economy, but we allow ________ to move both domestically and internationally.
Answer land; capital; labor
labor; land; capital
land; loanable funds; capital
labor; capital; land
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Question
When we use the specific-factors model to study immigration, we assume that:
Answer land is immobile internationally but capital and labor are internationally mobile.
land and capital are immobile internationally but labor is internationally mobile.
land, labor, and capital are internationally mobile.
land, labor, and capital are internationally immobile.
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Question
Which model can we use to analyze the short-run effects of migration?
Answer specific-factors
Ricardian
Heckscher-Ohlin
purchasing power parity
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When the supply of labor increases, according to the specific-factors model, which of the following is not likely to
happen?
Answer The number of workers employed will increase.
The wages for workers will decline.
The marginal product of labor shifts to the right.
The overall wage in the economy increases in the short run.
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When the supply of labor increases, according to the specific-factors model, which of the following is likely to happen in
the sending country?
Answer The number of workers employed will decrease.
The wages for workers will rise.
The marginal product of labor shifts to the right.
All of the answers are likely to happen in the sending country.
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The specific-factors model predicts that after immigration, the equilibrium wage in both industries in the destination
nation:
Answer rises.
falls.
remains the same.
cannot be determined with the information given.
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Question
If a person leaves Sweden to work in the United States, she is said to ________from Sweden and __________to the
United States.
Answer immigrate; emigrate
emigrate; immigrate
immigrate; immigrate
emigrate; emigrate
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One example of emigration from Europe was during the period between 1870 and 1913. Wages grew rather than
declined in the destination nations of the United States, Canada, and Australia. Why?
Answer The economic theory did not predict well.
Workers from Europe were highly skilled and raised the equilibrium wage.
The government stepped in and raised the minimum wage.
Wages rose due to the industrial revolution and higher levels of capital but grew more slowly because of
the immigration.
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Question
Large-scale immigration into the New World, between 1870 and 1913 caused the real wages to:
Answer decrease in comparison to Europe.
increase at a slower pace in comparison to Europe.
increase at a higher pace in comparison to Europe.
stay constant.
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The large-scale labor migration that occurred during 1870 to 1913 from Europe to America ____ wages in the
destination nations and ____ wages in the source nations, thus leading to _____ of wages between the regions.
Answer lowered; raised; convergence
raised; raised; divergence
lowered; lowered; divergence
raised; lowered; convergence
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Between 1870 and 1913, labor migration from the “Old World” (Europe) to the “New World” (the United States,
Canada, and Australia) caused:
Answer real wages to rise in the New World.
real wages to fall in the Old World.
real wages to diverge between the New and Old Worlds.
real wages to converge between the New and Old Worlds.
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Between 1870 and 1913, labor migration from the “Old World” (Europe) to the “New World” (the United States,
Canada, and Australia):
Answer decreased the rate of growth of real wages in the New World and increased the rate of growth of real
wages in the Old World.
increased the rate of growth of real wages in the New World and decreased the rate of growth of real
wages in the Old World.
decreased the rate of growth of real wages in both the New and Old Worlds.
increased the rate of growth of real wages in both the New and Old Worlds.
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Emigration and immigration are:
Answer when workers leave and workers come in.
two ways of saying workers are coming in.
when workers come in and workers leave.
two ways of saying workers leave.
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The specific-factors model can also apply to recent immigration into the United States. There are two major categories
of U.S. immigrants:
Answer male and female.
young and middle-aged.
very low skill and highly educated and skilled.
middle-income artisans and performance artists.
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U.S. immigrants from Mexico are mainly _________workers and U.S. immigrants from India are mainly
___________workers.
Answer low-skilled; highly skilled
middle-income artisans; performance artists
male; female
younger; older
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Which group of U.S. citizens competes with illegal immigrants in the United States?
Answer medical doctors
high school dropouts
college graduates
all U.S. citizens
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The H1-B visa program is designed to:
Answer keep out undocumented workers.
encourage bright U.S. college students to study abroad.
attract scientists and engineers from other nations to help U.S. industry prosper.
have a way to force foreign students to go back to their native lands after graduation.
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Of the 10% of the U.S. work force with advanced degrees, the share of those who are foreign born is:
Answer more than 50%.
between 17 and 30%.
less than 15%.
less than 5%.
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Question
The combination of legal and illegal immigrants in the United States creates a U-shaped pattern between the number
of immigrants and:
Answer wages of competing American workers.
their wages.
their educational level.
their jobs.
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Foreign-born workers in the United States tend to:
Answer be poorly educated (high school dropouts) or very highly educated (graduate degrees).
be mainly very poorly educated.
be mainly very highly educated.
have educational levels similar to U.S.-born workers.
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In the United States the share of foreign-born workers with 8 years of education or less is:
Answer less than 10%.
less than 50%.
more than 70%.
negligible.
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Illegal immigrants into the United States tend to compete mainly with:
Answer highly educated American workers.
poorly educated American workers.
all American workers.
each other.
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Legal immigrants into the United States tend to compete mainly with:
Answer highly educated American workers.
poorly educated American workers.
all American workers.
each other.
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Because most immigrants into the United States are either highly skilled or unskilled, the majority of workers:
Answer see very little impact on their wages as a result of immigration.
have difficulty finding jobs and getting raises because of all the competition from immigrants.
feel a big hit on wages and unemployment.
must rely on trade adjustment assistance for help retraining and relocating.
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In Europe, which of the following industries welcomed immigrants from Eastern Europe prior to the 2008–2009
recession?
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Answer construction and restaurants
education
medicine
banking
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In the specific-factors model, migration of labor will cause:
Answer the wage to rise in the receiving country and the wage to fall in the sending country.
the wage to fall in the receiving country and the wage to rise in the sending country.
the wage to rise in both the receiving and sending countries.
the wage to fall in both the receiving and sending countries.
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In the specific-factors model, labor migration from Mexico to the United States will cause _________ in U.S. low-skilled
wages and _________ in Mexican low-skilled wages.
Answer increases; decreases
increases; increases
decreases; decreases
decreases; increases
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If capital is specific to manufacturing and land is specific to agriculture, then migration of labor from low-income to
high-income countries will cause:
Answer the wage to rise in the high-income country and the wage to fall in the low-income country.
the wage to fall in the high-income country and the wage to rise in the low-income country.
the wage to rise in both the high-income and low-income countries.
the wage to fall in both the high-income and low-income countries.
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Emigration causes __________ in the capital–labor ratio and __________ in the return to capital.
Answer increases; decreases
increases; increases
decreases; decreases
decreases; increases
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Immigration causes __________ in the capital–labor ratio and __________ in the return to capital.
Answer increases; decreases
increases; increases
decreases; decreases
decreases; increases
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What would the owners of capital and land do?
Answer support closing the borders to foreign labor
support more open borders and an influx of workers
not worry about immigration issues
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reject legislation easing rules on immigration
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In destination countries, as immigration occurs and more labor is employed, in the short run, wages fall and the
marginal products of land and capital (fixed resources):
Answer are unaffected.
both rise.
both fall.
rise for one and fall for the other.
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In destination countries, as immigration occurs and more labor is employed, in the short run, wages fall and the rental
(return to) of land and capital (fixed resources):
Answer are unaffected.
both rise.
both fall.
rise for one and fall for the other.
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Because immigration raises the marginal products and the return to nonlabor factors of production, in the short run
owners of nonlabor resources often support:
Answer open borders.
tighter restrictions on immigration.
controls on the flow of foreign direct investment (FDI).
immigration of persons only for humanitarian reasons.
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U.S. and European immigration policies are best described as welcoming:
Answer all foreign workers.
foreign workers in most industries.
foreign workers in select industries.
no foreign workers.
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The effect of immigration on industry output in the short run is:
Answer to lower it across all industry.
to raise it in sectors that do not get immigrant workers but lower it where immigrants are employed.
that, surprisingly, additional workers are employed, but there is no effect on industry output.
that it raises industry output overall, and the rise is skewed so industries employing immigrants rise by
more—thus shifting the PPF.
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Which of the following would U.S. labor unions support?
Answer lobbying for legislation to eliminate all restrictions on immigration
lobbying for legislation to increase direct foreign investment in the United States
lobbying for legislation to ease rules on immigration
Labor unions would support all of the listed measures.
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In the specific-factors model, immigration causes:
Answer a rightward shift in the receiving country’s production possibilities frontier.
a leftward shift in the receiving country’s production possibilities frontier.
no change in the receiving country’s production possibilities frontier.
a rightward shift in the sending country’s production possibilities frontier.
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Suppose labor and capital are the only two resources used for production. In the short run:
Answer only capital can move freely between sectors.
only labor can move freely between sectors.
both capital and labor can move freely between sectors.
both resources are restricted in their movement.
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Suppose labor and capital are the only two resources used for production. In the long run:
Answer both capital and labor can move freely between sectors.
only labor can move between sectors.
only capital can move between sectors.
both capital and labor are blocked from moving between sectors.
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In order to analyze migration in the long run, it is appropriate to use:
Answer the specific-factors model with free movement of labor across borders.
the Heckscher-Ohlin model with free movement of labor across borders.
the Ricardian model with no movement of labor across borders.
the PPF modified for three goods, three factors of production (all fixed), and three nations.
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Which of the following events will cause the production possibility frontier to shift outward?
Answer a natural disaster that causes widespread damage
a computer problem that affects all business that rely on computers
a wave of immigration caused by new easier rules
a war that destroys the nation’s infrastructure
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In the specific-factors model, how will immigration affect the sending country’s production possibilities frontier?
Answer It will shift it to the right.
It will shift it to the left.
It will not affect its production possibilities curve.
It will first shift it to the left, then shift it back to its original position.
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Which is the best approach to analyzing migration in the long run?
Answer the specific-factors model with no resource mobility across borders
the specific-factors model with free movement of labor across borders
the Heckscher-Ohlin model with free movement of labor across borders
the Heckscher-Ohlin model with no resource mobility across borders
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Question
Consider an economy that only produces steel and shoes; steel is capital intensive and shoes are labor intensive.
Which industry has a lower capital-labor ratio?
Answer steel
shoes
The capital-labor ratios are identical in steel and shoes.
neither steel nor shoes
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Immigration will lead to a rightward shift in the receiving country’s production possibilities frontier. As a result, this shift
will:
Answer favor the labor-intensive good.
favor the capital-intensive good.
equally favor the labor-intensive and the capital-intensive good.
cause an increase in the production of the labor-intensive good and a decrease in the capital-intensive
good.
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Immigration will shift the sending country’s production possibilities frontier inward. This shift will cause:
Answer a larger decline in the potential output of the capital-intensive good.
a larger decline in the potential output of the labor-intensive good.
equal declines in the potential output of both the labor-intensive and the capital-intensive good.
a decline in the potential output of the labor-intensive good and an increase in the potential output of the
capital-intensive good.
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In the HO model, a “box diagram” describes the distribution of:
Answer output between the two producing sectors in a country.
output between the two countries of the model.
labor and capital between the two producing sectors of a country.
labor between the two countries of the model.
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When factors of production are not fixed (as per the long run) and labor immigrates, capital will:
Answer remain fixed because capital is never mobile.
increase in the capital-intensive industry.
move to the higher productivity use in the labor-intensive industry until returns are again equalized.
become idled as owners of capital seek more profitable opportunities.
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Question
Consider a hypothetical economy in which only computers and shoes are produced and in which computer production
is capital intensive as compared with shoe production. If two resources are being used, labor and capital, then the
capital-labor ratio would be:
Answer higher in the shoe industry.
lower in the computer industry.
the same in both industries.
higher in the computer industry.
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Consider an economy that only produces steel and shoes; steel is capital intensive and shoes are labor intensive. How
will emigration of labor from this economy affect the marginal productivity of labor?
Answer It will fall.
It will not change.
It will rise.
It will fall in the short run and rise in the long run.
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In the long run (the HO model), immigration will lead to:
Answer an increase in the production of both the labor-intensive and the capital-intensive goods in the receiving
country.
an increase in the production of the labor-intensive good and a decrease in the production of the capital-
intensive good in the receiving country.
a decrease in the production of both the labor-intensive and the capital-intensive goods in the receiving
country.
a decrease in the production of the labor-intensive and an increase in the production of the capital-
intensive good in the receiving country.
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In the long run, when there is immigration of labor and all domestic factors of production are mobile:
Answer resources move out of the labor-intensive industry into the other sectors of the economy.
the excess labor cannot be absorbed into the economy, and eventually workers will seek to emigrate.
the excess labor is absorbed, but it raises the unemployment rate and drives down wages, and the owners
of capital are the clear winners.
the capital-labor ratio in each industry is unchanged, and the additional labor in the economy is fully
employed.
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Consider an economy that only produces steel and shoes; steel is capital intensive and shoes are labor intensive. How
will emigration of labor from this economy affect production?
Answer Production of both the labor-intensive and the capital-intensive good will rise.
Production of both the labor-intensive and capital-intensive good will fall.
Production of the labor-intensive good will rise and production of the capital-intensive good will fall.
Production of the labor-intensive good will fall and production of the capital-intensive good will rise.
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Because the capital-labor ratio will be unchanged in the long run, immigration causes the MPs and returns to the
factors will:
Answer remain constant.
fall.
rise.
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rise in the short run, but fall in the long run.
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In the long run (the HO model), immigration will lead to:
Answer an increase in the price of both the labor-intensive and the capital-intensive goods in the receiving country.
an increase in the price of the labor-intensive good and a decrease in the price of the capital-intensive
good in the receiving country.
a decrease in the price of both the labor-intensive and the capital-intensive goods in the receiving country.
no change in the price of either the labor-intensive or the capital-intensive good in the receiving country.
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In the long run, which of the following will occur if the U.S. federal government eliminates restrictions on migration of
Mexican workers to the United States?
Answer The United States’ total K/L ratio will rise.
Mexico’s total K/L ratio will fall.
Wages of American workers who compete with Mexican workers for jobs will rise.
The returns to U.S. owners of capital will remain unchanged.
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In the long run (the HO model), immigration will lead to:
Answer an increase in the wage and a decrease in the return to capital in the receiving country.
an increase in both the wage and the return to capital in the receiving country.
a decrease in the wage and an increase in the return to capital in the receiving country.
no change in the wage and the return to capital in the receiving country.
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For the sending country, what will be the long-run effects of immigration on wages and the return to capital?
Answer The wage will increase, and the return to capital will decrease.
The wage will decrease, and the return to capital will increase.
Both the wage and the return to capital will increase.
There will be no change in the wage and the return to capital.
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Consider a hypothetical economy in which only computers and shoes are produced and in which computer production
is capital intensive compared with shoe production. If two resources are being used, labor and capital, then any
increase in immigration in the long run will:
Answer cause the capital-labor ratio to increase in the computer industry.
cause the capital-labor ratio to increase in the shoe industry.
cause the capital-labor ratio to increase in both the industries.
increase the number of workers employed in the shoe industry.
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Consider a hypothetical economy in which only computers and shoes are produced. If two resources are being used,
labor and capital, then any increase in immigration in the long run will:
Answer decrease the wages in the shoe industry.
decrease the wages in the computer industry.
increase the wages in the shoe industry.
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keep the wages constant, because the marginal products do not change.
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In an economy with two industries, an increase in immigration will:
Answer cause employment to increase in both in the long run.
cause employment to increase in one and decrease in the other in the short run.
cause employment to increase in one and decrease in the other in the long run.
cause a decline in wages in both industries in the long run.
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In the long run (the HO model), immigration will lead to:
Answer a rightward shift in the receiving country’s production possibilities frontier.
a leftward shift in the receiving country’s production possibilities frontier.
no change in the receiving country’s production possibilities frontier.
a rightward shift in the sending country’s production possibilities frontier.
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What is the long-run effect of immigration on capital use in the receiving country?
Answer No change because the remaining capital is not mobile.
Capital will move to the capital-intensive industry.
The return to capital (rental) will fall.
Capital will move to the labor-intensive industry.
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The labor-intensive industry’s output in the long run will ______ after immigration.
Answer remain constant
fall
rise
equal zero
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Which of the following does NOT reflect a long-run impact of labor immigration?
Answer an increase in production in the labor-intensive industry
a decrease in production in the capital-intensive industry
a shift of labor and capital into labor-intensive industries
the PPF shifts inward
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In the Heckscher-Ohlin model with two goods and two factors, an increase in one factor will cause:
Answer an increase in the production of the good that uses the factor intensively.
a decrease in the production of the good that use the factor intensively.
an increase in the production of the good that does not use the factor intensively.
no change in the production of both goods.
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Question
What is the effect of immigration in the long run?
Answer an increase in output
an increase in factor prices
no change in factor prices
an increase in output and no change in factor prices
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The overall long-run impact of labor immigration on returns to factors:
Answer increases returns to labor and decreases returns to capital.
increases returns to labor and increases returns to capital.
leaves both relative and absolute returns constant.
raises both relative and absolute returns.
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The hypothesis that the results of a long-run Heckscher-Ohlin model with labor immigration will result in an increase in
production for the labor-intensive industry while reducing production in the capital-intensive industry is known as the
_____ theorem.
Answer Stolper-Samuelson
specific-factors
Ricardian
Rybczynski
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A corollary to the Rybczynski theorem is that in the long run, prices of factors will not be affected. This is known as:
Answer the Friedman corollary.
the Marshall-Lerner condition.
the factor price insensitivity result.
the Stolper-Samuelson prediction.
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According to the Rybczynski theorem, immigration will cause:
Answer an increase in the output of the labor-intensive good and a decrease in the output of the capital-intensive
good in the receiving country.
an increase in the output of both the labor-intensive and the capital-intensive goods in the receiving
country.
a decrease in the output of the labor-intensive good and an increase in the output of the capital-intensive
good in the receiving country.
decreases in the output of both the labor-intensive the capital-intensive goods in the receiving country.
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According to the Rybczynski theorem, immigration of unskilled labor from Mexico to the United States will cause:
Answer a decrease in Mexico’s output of capital-intensive products.
a decrease in Mexico’s output of labor-intensive products.
an increase in Mexican wages.
a decrease in Mexican wages.
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Question
In the Heckscher-Ohlin model, what is the term used to describe the absorption of an increase in a factor with changes
in sector outputs without any change in factor prices?
Answer factor price insensitivity
factor price equalization
factor price theorem
factor price absorption
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Question
According to the Rybczynski theorem, immigration will affect production in the sending country through __________ in
the output of the labor-intensive good and __________ in the output of the capital-intensive good.
Answer increases; decreases
increases; increases
decreases; increases
decreases; decreases
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In the long run, which of the following will occur if the U.S. federal government eliminates restrictions on migration of
Mexican workers to the United States?
Answer U.S. production of labor-intensive goods will increase.
U.S. production of both labor-intensive and capital-intensive goods will increase.
U.S. production of capital-intensive goods will increase.
Mexican production of labor-intensive goods will increase.
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During the past 10 to 20 years, a considerable amount of foreign capital has flowed into China. What is an implication
of capital flow upon the composition of Chinese trade?
Answer There should be no change in the composition of China’s trade.
There should be a shift toward the export of more labor-intensive products.
There should be a shift toward the export of more capital-intensive products.
There should be a shift toward the import of more capital-intensive products.
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A study of the results of the Mariel boatlift on wages in Miami found:
Answer significant declines in wages for unskilled workers.
no significant decline in wages for unskilled workers due to a trend to substitute employment of low-skill
workers for more expensive technology such as computers.
an ironic
rise in wages and salaries paid to low-skill workers because the boatlift immigrants had superior
technical skills.
that wages in the apparel industry collapsed, raising unemployment across the board and lowering wages
of all workers in all skill categories.
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Skill-biased technological changes:
Answer benefit educated workers more than uneducated workers.
benefit all workers equally.
benefit uneducated workers more than educated workers.
benefit no workers.
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Multiple Choice 0 points
Question
In 2005, approximately what percentage of the U.S. population was foreign born?
Answer 3%
13%
23%
33%
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A number of studies of the effect of immigration on U.S. wages has found:
Answer no effect on any wage group.
significant rises in wages for unskilled workers and the highest skill levels but a negative impact for
middle-skill occupations.
significant declines in wages for unskilled workers and the highest skill levels but a positive impact for
middle-skill occupations.
no effect on other groups but significant declines in wages for mid-skill occupations, which comprise most
manufacturing and white collar jobs.
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Question
Foreign direct investment may take the form of purchasing an existing plant or operation called:
Answer acquisition FDI.
greenfield FDI.
requisition FDI.
brownstone FDI.
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Question
Foreign direct investment may take the form of a new startup facility called a(n):
Answer acquisition FDI.
greenfield FDI.
intermediary FDI.
brownfield FDI.
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Question
According to the U.S. Department of Commerce, a foreign direct investment inflow to the United States occurs
whenever a foreign company acquires ____ or more of a U.S. firm.
Answer 10%
25%
51%
100%
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Foreign direct investment is defined by the commerce department as:
Answer a minimum 51% ownership of an American company.
a minimum increase in employment of 10 American workers.
at least 10% ownership of an American company.
only investment by foreign governments in American companies.
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Question
“Greenfield investment” is defined as:
Answer a takeover of an existing company.
construction of a new factory in a foreign company.
the hiring of at least 25 workers in a foreign company.
renting space in an office building.
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Question
Modeling FDI movement from one nation to another, if we use the short-run (specific-factors) model, the wages of labor
in the recipient nation:
Answer decline absolutely.
rise as a result of the rise in the MP of labor.
are not affected.
decline relatively as capital competes with labor, but not absolutely.
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Question
In the short-run (specific-factors) model, foreign direct investment is expected to ________the marginal product of
labor and ________wages in the receiving country.
Answer decrease; decrease
increase; decrease
decrease; increase
increase; increase
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Question
According to the short-run (specific-factors) model, how will FDI affect wages in the recipient nation?
Answer They will rise.
They will fall.
They will not affect wages.
They will fall in comparison to wages in the sending country.
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According to the short-run (specific-factors) model, how will FDI affect the marginal productivity of labor in the recipient
nation?
Answer The MPL will rise in the production of both the labor- and capital-intensive goods.
The MPL will rise only in the production of the labor-intensive good.
The MPL will rise only in the production of the capital-intensive good.
The MPL will fall in the production of both the labor and capital-intensive goods.
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Question
As FDI flows into a nation, the marginal product of labor always _______________ in the short run.
Answer rises
falls
remains the same
falls then rises
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According to the short-run (specific-factors) model, how will FDI affect the return to capital and the return to land in the
recipient nation?
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Answer The returns to land and capital will both decrease.
The return to land will decrease; the return to capital will increase.
The return to land will increase; the return to capital will decrease.
The returns to land and capital will both increase.
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Question
In the short-run (specific-factors) model, foreign direct investment is expected to cause a(n) ________in the production
of the capital-intensive good and a(n) ________in the production of the land-intensive good in the receiving country.
Answer decrease; decrease
increase; decrease
decrease; increase
increase; increase
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Question
In the short-run (specific-factors) model, foreign direct investment is expected to cause a(n) ________in the return to
capital and a(n) ________in the return to land in the receiving country.
Answer decrease; decrease
increase; decrease
decrease; increase
increase; increase
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Question
In the short run, the FDI inflow into a country in the manufacturing sector will cause:
Answer an increase in the output of the agricultural sector.
an increase in the employment in the agricultural sector.
a decrease in the employment in the manufacturing sector.
an increase in the output and employment in the manufacturing sector.
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Question
In the short run, assuming there are two sectors in an economy, agriculture and manufacturing, an increase in the FDI
in the manufacturing sector will cause the production possibility frontier to:
Answer shift outward for both sectors.
shift inward.
shift outward for manufacturing only.
stay the same.
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In the short run, when FDI increases in a country, the rental rate on capital will _____ and the wage rate will ______.
Answer increase; increase
decrease; decrease
increase; decrease
decrease; increase
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With fixed factors of production in the short-run (specific factors), when FDI occurs, in the recipient nation there is
_______________ in the return to capital and land and _______________ in the return to labor.
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Answer an increase; a decrease
a decrease; an increase
no change; an increase
a decrease; no change
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During the past 20 years, there has been substantial FDI in China. What are the expected short-run effects of this FDI
upon the rental rate on capital and wages in China?
Answer The rental rate should increase and wages should decrease.
The rental rate and wages should both increase.
The rental rate and wages should both decrease.
The rental rate should decrease and wages should increase.
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In the long run, when FDI occurs, industry output in the recipient nation is affected in the following way(s):
Answer There is no change in either the output of the capital-intensive or the labor-intensive industry.
The labor-intensive industry expands; the capital-intensive industry contracts.
The capital-intensive industry expands; the labor-intensive industry contracts.
Both capital- and labor-intensive industries expand in the same proportion.
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In the long run, an increase in FDI in the manufacturing sector will:
Answer increase marginal product of labor in the agriculture sector.
increase marginal product of labor in the manufacturing sector.
decrease marginal product of labor in the agriculture sector.
not change the marginal product of labor in either sector.
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Question
We model FDI flows in the long run using a method similar to that in which we model labor migration in the long run, by
using:
Answer a simple supply-and-demand approach.
the Ricardian comparative advantage model.
the Heckscher-Ohlin model with the assumption that capital can migrate.
the Rybczynski theorem.
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According to the long-run model, generally when FDI takes place, the investment capital moves from:
Answer southern hemisphere nations to northern hemisphere nations.
high-wage nations to low-wage nations.
Eastern Europe to Western Europe.
privately owned enterprises to government-owned enterprises.
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In the long run, if all resources can move within a nation, an inflow of FDI will:
Answer increase production in the capital-intensive sectors as capital becomes cheaper.
lower the productivity of the agricultural sector.
lower wages.
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decrease the production of capital-intensive goods.
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The international movement of factors of production:
Answer is prohibited by the Geneva Convention.
is completely free of restrictions everywhere in the world.
tends to make the prices paid to factors of production among countries move further apart over time.
tends to make the prices paid to the factors of production among countries more similar over time.
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Question
SCENARIO: TRADE IN GOODS BETWEEN CHINA AND THE UNITED STATES
(1) China has 1,000 units of capital and 3,000 workers; (2) the United States has 3,000 units of capital and 1,000
workers; (3) clothing production is labor intensive; and (4) chemical production is capital intensive.
Reference: Ref 5-1
(Scenario: Trade in Goods Between China and the United States) Suppose that the United States eliminates all
restrictions on immigration and Chinese workers are free to emigrate from China to the United States. How many
Chinese workers must emigrate from China to the United States in order for factor price equalization to occur?
Answer 1,000
2,000
3,000
4,000
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Question
In the long run, returns to capital and wages do not change when FDI or labor immigration occurs because:
Answer world prices of output are unchanged.
marginal productivities are unchanged.
there is no change in the capital-labor ration in either industry.
world prices of output and marginal productivities are unchanged.
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Question
In the long run, an increase in FDI in the manufacturing sector will __________ the return to capital in the
____________ sector.
Answer decrease; agriculture
increase; manufacturing
decrease; manufacturing
not change; manufacturing or agriculture
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Question
SCENARIO: TRADE IN GOODS BETWEEN MEXICO AND THE UNITED STATES
(1) Mexico has 2,000 units of capital and 2,000 workers; (2) the United States has 6,000 units of capital and 4,000
workers; (3) clothing production is labor intensive; and (4) chemical production is capital intensive.
Reference: Ref 5-2
(Scenario: Trade in Goods Between Mexico and the United States) Suppose that the United States eliminates all
restrictions on immigration from Mexico. How many Mexican workers must emigrate to the United States in order for
factor price equalization to occur?
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Answer 500
1,000
1,500
2,000
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Which of the following is a key assumption in factor price insensitivity in response to a fall in FDI?
Answer Technology is changing in the capital-intensive sector.
Technology is changing in the labor-intensive sector.
Prices are changing for the capital-intensive good.
None of these answer choices are correct.
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FDI inflows to Singapore during the latter part of the twentieth century in the short run:
Answer contradicted the specific-factors model because wages fell while the rental on capital rose.
confirmed the specific-factors model because wages rose while the rental on capital fell.
did not have any measurable effects on either wages or the rental on capital.
confounded economists because the rental on capital rose and wages rose as well.
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Question
If FDI has “spillover” benefits for the recipient nation (such as spurring technological innovation, more FDI, or growth in
labor productivity), then it could explain why in Singapore:
Answer wages fell in the short run.
in the long run, wages fell and returns to capital rose.
in the long run, contradicting the HO model, wages rose and returns to capital were close to original levels
(depending on the calculation used).
absolutely nothing changed in either the short or long run.
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Without productivity growth, in the long run the effect of labor migration is:
Answer an increase in production in the sector using labor (or capital) intensively.
clear gains to owners of capital versus labor.
clear gains to labor versus owners of capital.
a shift of world resources toward the high-income nations.
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Without productivity growth, the long-run effect(s) of labor migration on the receiving country is(are):
Answer an increase in production of the labor-intensive good.
lower wages.
higher returns to capital.
None of the answers listed are correct.
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Measuring the effects of labor immigration shows that:
Answer as workers move, they disrupt their families and cause huge costs in the recipient nation.
most immigrants spend months trying to find work.
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immigration benefits the recipient nation by raising the marginal product of capital, expanding labor-
intensive production, and lowering prices of labor-intensive goods.
immigration is very harmful to the host nation because of a huge increase in the unemployment rate.
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Question
In the short run, which of the following will cause gains from labor migration to the recipient nation to be lower?
Answer Workers remit less than the value of their marginal products.
Migrant workers have a declining marginal product so that the equilibrium wage is lower than MPs of
earlier immigrants.
Immigrants are low cost in terms of adjustment costs such as crime prevention, language assimilation, and
few children enrolled in school.
Workers remit more than the value of their marginal products.
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If there were no trade in goods, which of the following would one expect?
Answer labor to immigrate from the capital-abundant country
labor to emigrate to the capital-abundant country
labor to emigrate to the capital-scarce country
labor to immigrate from the capital-scarce country
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Which of the following statements does NOT describe the effect(s) of labor immigration?
Answer The source nation benefits from remittances and a rise in the overall marginal product of labor as surplus
workers emigrate.
Emigrating workers take skills and talent, and the marginal product of labor declines in the source nation,
thus reducing the benefit.
Emigration of workers usually raises the real wage of workers left behind in the source nation.
The source nation experiences a decline in the overall marginal product of labor as surplus workers
emigrate.
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Question
In the very long run, theoretically there will be equilibrium with full migration of capital and labor. If and when this ever
happens, what will the global economy experience?
Answer an equality of wages and marginal product
an equality of returns to the owners of capital
a fully Pareto-efficient world economy with the highest standard of living possible
an equality of wages and marginal product, an equality of returns to the owners of capital, and a fully
Pareto-efficient world economy with the highest standard of living possible
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A key assumption in proving the gains from immigration is that:
Answer immigrants are generally high skilled.
the productivity of labor is rising in the number of workers used.
immigrants are generally low skilled.
the productivity of labor is falling in the number of workers used.
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Payments made by foreign resident workers to their home nations (taxes) or to their families is called:
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Answer worker redistribution.
worker earnings.
worker remittances.
worker repayments.
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Some economists have proposed a “brain drain” tax to be administered though the United Nations. This would:
Answer tax firms that hire people who need remedial reading and writing skills to be able to function in an
advanced economy.
tax earnings of highly educated immigrants and repay the nation of origin for their losses.
force immigrants to pay taxes where they work instead of where they live.
require the national government to pay taxes to states to recover the cost of educating immigrants.
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Question
The gains from immigration of labor or capital to the recipient nation can be summarized as the:
Answer total cost of acquiring new resources versus the cost of using domestic resources.
increase in prices minus the increase in the unemployment rate.
gain in domestic real GDP minus costs as a result of the immigration.
impact on the ability of labor unions to attract new members and the ability of domestic firms to retain
profits.
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Which of the following is nearly always true of highly educated immigrants?
Answer They impose high costs on the recipient nation.
They move from high-wage nations to low-wage nations.
They cost the source nation in terms of lost opportunity and benefit the recipient nation.
They impose high costs on the recipient nation, and they move from high-wage nations to low-wage
nations.
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The economic benefit to immigrating workers is:
Answer political freedom and ideological peace.
living in a nation where they do not have to pay taxes and receive many free social services.
the chance to be free from discrimination and poverty.
the present value of higher wages minus the value of the costs involved with the immigration process.
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Question
Economists conclude that the effect on our world’s standard of living as a result of labor and capital migration has
been:
Answer negative overall.
positive overall as resources move to their highest-valued use.
positive in some respects but very harmful in the long run to workers.
so small worldwide that the effect is not worth measuring.
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Economist George Borjas has estimated the net benefits (+)/costs (–) to the United States from labor immigration to be
approximately:
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Answer +10% of GDP.
–5% of GDP.
+0.1% of GDP.
0.5% capital loses and 0.8% labor gains.
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Question
Economists who have studied the impact of immigration on world welfare generally find after considering impacts on all
constituencies that world GDP has _______ as a result of immigration of workers and FDI.
Answer decreased
risen
remained constant
decreased sharply
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Question
As of 2005 the European Union had:
Answer 5 members.
15 members.
25 members.
40 members.
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Question
Figure: Wages in Home and Foreign
Reference: Ref 5-3
(Figure: Wages in Home and Foreign) Calculate the value gains to the home country if some of its workers are allowed
to migrate to the foreign country.
Answer 200 workers
$300
$500
$7,500
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Figure: Wages in Home and Foreign
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Reference: Ref 5-3
(Figure: Wages in Home and Foreign) What potential costs might offset some of the gains determined above?
Answer moving costs
higher living costs
payments to agents to arrange migration (such as traffickers who arrange illegal migration or lawyers who
arrange legal migration).
All of the answers listed are potential costs of migration.
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Question
According to economists, which of the following statements about international capital mobility is correct?
Answer International resource mobility has had no effect upon world GDP.
International resource mobility has had a negative effect upon world GDP.
International resource mobility has had a positive effect upon world GDP.
International resource mobility has had such a small effect upon world GDP that it is not worth measuring.
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Question
The mass migration to the United States in the nineteenth century caused wages to fall in the United States.
Answer True
False
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Question
Immigration of workers will always be harmful to the country receiving the workers.
Answer True
False
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Question
It is reasonable to assume that the amount of capital and land in a country is fixed in the short run.
Answer True
False
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Question
In the long run, capital is mobile among countries.
Answer True
False
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Question
“Gastarbeiters” are illegal immigrant workers in Germany.
Answer True
False
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Question
Owners of capital and land usually support the reduction of restrictions on immigration.
Answer True
False
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Question
If wages rise due to immigration, the marginal products of the specific factors (capital and land) rise, and therefore their
rentals also increase.
Answer True
False
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Question
One would expect the owners of capital and land to support increased immigration more than increased imports.
Answer True
False
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Question
According to the Rybczynski theorem, immigration will lead to an increase in output in the labor-intensive industry and
a decrease in the output of the capital-intensive industry.
Answer True
False
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Question
According to the Rybczynski theorem, when labor migrates from one country to another, the sending country will
experience an increase in output in the labor-intensive industry and a decrease in the output of the capital-intensive
industry.
Answer True
False
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Question
According to the Rybczynski theorem, when labor migrates from one country to another, the sending country will
experience a decrease in the output of the labor-intensive industry and an increase in the output of the capital-intensive
industry.
Answer True
False
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True/False 0 points
Question
Factor price insensitivity occurs when labor immigration causes changes in capital-labor ratios, but not in wages and
rentals.
Answer True
False
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Question
Between 1990 and 2004, immigration caused a 20% decrease in the wages of the majority of U.S. workers.
Answer True
False
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Question
General Motor’s construction of a plant to produce Buicks in China is an example of U.S. foreign direct investment.
Answer True
False
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Question
In the long run, the output of the capital-intensive good will increase if the amount of capital increases in a country due
to FDI.
Answer True
False
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Question
In the short-run, foreign direct investment in China is expected to lower returns to capital and raise wages.
Answer True
False
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Question
The Rybczynski theorem predicts that FDI will lead to an increase in the output of the capital-intensive industry and a
decrease in the output of the labor-intensive industry.
Answer True
False
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Question
In the long run, the output of the labor-intensive good will increase if the amount of capital increases in a country due to
FDI.
Answer True
False
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Question
In the long run, wages will increase if the amount of capital increases in a country due to FDI.
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Answer True
False
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Question
In the long run, returns to capital will increase if the amount of capital increases in a country due to FDI.
Answer True
False
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Question
In the long run, returns to capital will increase if a country’s labor force increases due to increased immigration.
Answer True
False
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Question
In the long run, wages will increase if a country’s labor force increases due to increased immigration.
Answer True
False
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Question
Immigration in the United States is a controversial subject because groups oppose spending public funds on
foreigners.
Answer True
False
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Question
There are no significant costs for immigrants to move to a country.
Answer True
False
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Question
In a two-country model, with migration of labor we will see wages equalize in the long run.
Answer True
False
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Question
Suppose that an economy has 1,500 units of capital and 1,000 workers. This economy produces computers and
shoes. Computer production requires 4 units of capital per worker and shirt production requires 1 unit of capital per
worker.
A. Solve for the amount of labor and capital used in each industry.
If you answered Question 6 at the end of chapter 5, you know that:
(1)
KC + KS = the total capital stock, and
LC +
LS = the total labor force; and
(2)
K = 4 ×
LC, and
KS = 1 ×
LS .
B. Suppose that the number of workers increases to 1,250 due to immigration, keeping total capital fixed
at 1,000. Solve for the distribution of labor and capital between the two sectors.
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Answer A. Rewrite as:
(1)
KC + KS = 1,500, and
LC +
LS = 1,000; and
KC = 4 ×
LC and
KS = 1 ×
LS implies 4
LC + 1
LS = 1,500 and
LC = 1,000 –
LS = 4(1000 –
LS) +
LS = 1,500
or 4,000 – 1,500 = 3
LS and
LS = 833.33.
(2)
KC = 4 ×
LC and
KS = 1 ×
LS implies 4
LC = 1,000 – 833.33 = 167.67;
KC = 4 × 167.33 = 667.67 and
KS = 1 × 833.33.
B. The shoe sector’s labor force will rise to 1,167.67; the computer sector’s labor force falls to 67.67.
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Question
In the short run, immigration lowers wages in both sectors because of what feature of production?
Answer In the short run, immigration lowers wages in both sectors due to diminishing marginal productivity created by
the fixed amount of the specific factors.
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Question
Immigrants were recruited to work in the iron and copper mines of Michigan’s Upper Peninsula from the mid-1800s to
the early 1900s. The first immigrants were recruited from the tin mining area of Cornwall (United Kingdom); later
immigrants came from Finland, Sweden, northern Italy, and the Balkan countries.
A. Give some plausible reasons why the later immigrants originated in Scandinavia and other parts of
Europe.
B. Give some reasons why Cornish immigrants tended to be paid more than later immigrants.
C. Immigration more or less ceased around 1920. One reason was the introduction of one-man drilling
techniques; another was the end of World War I. Why did these two events cause cessation of
immigration to Michigan’s Upper Peninsula.
Answer A. Later immigrants came from European countries with severe climates similar to those prevailing in
Michigan’s Upper Peninsula; later immigrants often came to the United States because they were
displaced from family agriculture land because of land tenure laws and customs. Some later immigrants
originated in countries with political difficulties. Later immigrants tended to be unskilled workers subject
to low incomes in their home countries.
B. The first wave of immigrants consisted mainly of skilled miners who required a higher premium to
induce them to immigrate. Over time, they became mine supervisors of the unskilled immigrants who
followed.
C. One-man drilling techniques displaced sizable numbers of workers. Previously, drilling required two
persons: one to hold the drill and the other to use a sledgehammer to drive the drill into ore formations.
The end of World War I reduced the demand for copper used in armaments.
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Question
In spring 2010, an explosion on an offshore oil-drilling rig caused 11 deaths and a major oil spill in the Gulf of Mexico.
Shortly thereafter, the U.S. government declared a moratorium on oil drilling in U.S. territorial waters in the Gulf of
Mexico and a re-examination of offshore drilling regulations. What are the expected short- and long-run effects of these
actions on labor in Gulf coastal states?
Answer In the short run, there will be unemployment of workers directly employed in oil drilling and production as well
as workers indirectly employed by firms supplying the oil industry, accompanied by a short-run downward
pressure on wages. In the long run, the effects will depend upon the length of the moratorium and changes in
offshore drilling regulations. There is likely to be migration of labor from the Gulf states to other parts of the
United States if these events curtail Gulf coast offshore oil drilling.
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Question
When Irish immigrants first came to the United States, they were widely discriminated against. A century after a wave
of Irish immigration, however, Americans generally look favorably on Irish heritage. How can our models explain this?
Answer In the short run, these immigrants lowered wages. In the long run, this effect dissipated. As a result, the
discrimination against them did as well.
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Question
Assume two nations, two products, and two factors of production, labor and capital. Compare the situation of FDI in the
short run and the long run regarding wages, returns to capital, industry output, and prices of goods.
Answer In the short run, we use the specific-factors model to analyze the inflow of capital, which assumes that labor
can move but capital is fixed. As new capital enters, the K/L ratio in the capital-intensive industry rises, the
marginal product of labor in the capital-intensive industry rises, and wages of labor rise, while the marginal
product of capital declines. The result is an expansion in capital-intensive production, a decline in the price of
capital-intensive goods, a movement of labor into the capital-intensive industry (which raises the MP in the
labor-intensive industry as well), a decline in production in labor-intensive industries, and a decline in the
return to capital.
In the long run, when capital can move as well, there is a further long-run adjustment; as returns fall in the
capital-intensive industry, existing capital moves from the capital-intensive industry to the labor-intensive
industry, raising the MP of labor and causing a reverse flow of labor back to the labor-intensive industry. At the
long-run equilibrium, the MPs, the K/L ratios, and returns to both factors are unchanged, but production in
capital-intensive industries rises while production in labor-intensive industries declines. The relative price of
capital-intensive goods declines.
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Question
There is a large amount of Pakistani, Indian, Bangladeshi, and Philippine labor working (mainly in low skilled jobs) in
Arabian Peninsula countries (e.g., Qatar, Saudi Arabia, United Arab Emirates). Suppose that you are an Indian worker
who could earn $1,000 annually at home and $3,000 in Saudi Arabia.
A. Compare the productivity of this worker at home and in Saudi Arabia.
B. Why might these productivities differ?
C. Often, a broker arranges visas for foreigners to work in Saudi Arabia. What is the maximum amount
that an Indian worker might be willing to pay a broker to arrange a work visa for Saudi Arabia?
Answer A. The productivity of the worker is $1,000 in India and $3,000 in Saudi Arabia.
B. There must be more of other resources (capital and land) with which the worker is employed in order to
increase his or her productivity to $3,000 in Saudi Arabia.
C. The worker should be willing to pay up to $2,000 for the broker to arrange a visa. In practice, there are
other costs associated with migration (e.g., travel to and from India and non-pecuniary costs associated
with working in the Saudi environment) so the actual payment to the broker may be much less than
$2,000.
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29 of 29 9/17/2012 07:36 ص

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