Economics Department

International Economics
Third year, English Section
T.A: Marian Mekhael

Sheet no. 4
Q1: State whether each of the following statements is true or false with explanation:
1. Comparative static analysis analyzes the effect on the equilibrium position resulting from a
change in underlying economic conditions without regard to the transitional period or process
of adjustment. (T)
2. Capital refers to all man-made means of production such as machinery, factories, buildings and
transportation but does not include the education and training of a nations labor force. (F)
3. If labor and capital grow at the same rate, the nations production possibility frontier will not
shift. (F)
4. If the endowment of labor grows with capital stock held constant, the output of the laborintensive commodity increases but the output of the capital-intensive commodity remains
unchanged. (F)
5. When K doubles and L is held fixed, the output of Y (the capital-intensive commodity) is exactly
doubled. (F)
6. The Hecksher-Ohlin theory states that an increase in the endowment of one factor will increase
by a greater proportion the output of the commodity intensive in that factor and will reduce the
output of the other commodity, holding commodity prices constant. (F)
7. According to John Hicks, technical progress can be classified into two types: labor-saving or
capital-saving technical progress. (F)
Q2: Choose the right answer for each of the following statements:
1. For X (the labor-intensive commodity) to double:
a)
b)
c)
d)

Both L and K must double

L must double while K should remain unchanged
K must double while L must remain unchanged
Any of the above

2. After a nation faces balanced growth, the slope of its new production possibility frontier will be:
a)
b)
c)
d)

The same as the slope of the old PPF

higher
lower
It cannot be determined