maam dungca chap 6

• Export-biased growth

• is growth that expands a country's production possibilities dispro- portionately in that country's export sector.

• Import-biased growth

• is growth that expands a country's production possibilities dispro- portionately in that country's import sector.

• Import tariffs

• are taxes levied on imports.

• Export subsidies

• are payments given to domestic producers that export.

• intertemporal production possibility frontier

• A special kind of production possibility frontier, an ___, depicts different possible combinations of current output and future output.

• the real interest rate.

• If you borrow 1 unit of output, you must repay principal
  + interest = 1 + r in the future, where r is ___

EFFECTS OF AN EXPORT SUBSIDY

• If the home country imposes a subsidy on cloth exports, the price of cloth relative to the price of food rises for domestic consumers.

• Domestic producers will receive a higher relative price of cloth when they export, and therefore will be more willing to switch to cloth production: relative supply of cloth will increase.

• Domestic consumers must pay a higher relative price of cloth to producers, and therefore will be more willing to switch to food consumption: relative demand for cloth will decrease.

RELATIVE PRICE AND SUPPLY EFFECTS OF A TARIFF

• If the home country imposes a tariff on food imports, the price of food relative to the price of cloth rises for domestic consumers.

• Likewise, the price of cloth relative to the price of food falls for domestic consumers.

• Domestic producers will receive a lower relative price of cloth, and therefore will be more willing to switch to food production: relative supply of cloth will decrease.

• Domestic consumers will pay a lower relative price for cloth, and therefore will be more willing to switch to cloth consumption: relative demand for cloth will increase.