Problem
i. The United States balance of payments reflects a merchandise import surplus (a net export deficit). How does this affect GDP, GNP, and the level of aggregate demand? Using the macro-model of this text, illustrate its effect on the level of employment.
ii. What is the principle of comparative advantage? How does it provide a basis for understanding how a free trade economy will allocate its resources?
iii. What are unit labor costs of production? How does labor productivity affect unit labor costs? Why are the unit labor costs of internationally traded goods calculated in the currencies of U.S. trading partners?
iv. How has the decline in U. S. productivity growth affected the ability of the United States to compete internationally? Can these effects be offset by lower increases in wage rates and or changes in the value of the dollar relative to the currencies of U.S. trading partners? Provide some recent examples.