ECONOMICS-2015: Daily Answer Writing Challenge -24

ECONOMICS-2015: Daily Answer Writing Challenge – 24

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1. Explain the conditions under which complete specialisation will be possible for two nations in case of comparative advantage.

Suppose productivity per unit of labour for two antions, India and UK, is given as under:

India                UK

Wheat (kg/manhour)               06                    03

Cloth (yard/manhour)             04                    02

Will mutually beneficial trade be possible for the two nations? If yes, explain whether specialisation shall be                    complete or not. (2014 – 10 marks)

2. What are the two key conclusions of the Heckscher-Ohlin model of international? Under what assumptions are             these conclusions arrived at? (2013 – 15 marks)

3. Why is it that in a pure flexible exchange rate system, foreign xchange market has no direct effects on the monetary base and money supply? Does this mean that the foreign exchange market has no effect on the monetary policy? (2014 – 20 marks)