Explain briefly the following: (i) Fallacies of International Trade (ii) David Hume’s price-specie-flow mechanism

Explain briefly the following:

(i) Fallacies of International Trade

(ii) David Hume’s price-specie-flow mechanism

Expert Solution

Answer part a)

Fallacies of International Trade

1: Manufacturing jobs are the basis of American prosperity.

Fallacy 2: Imports make us poorer.

Fallacy 3: Success of foreign firms always helps foreign countries, success of U.S. firms always helps the US economy.

Fallacy 4: To export, firms must sell to buyers in foreign countries.

Answer part b)David Hume’s price-specie-flow mechanism

The price-specie flow mechanism is a model developed by David Hume to explain how trade imbalances can be automatically adjusted under the gold standard. In its original form, the model assumes that only gold coins are circulated and the role of central bank is negligible.

Rahul Sunny answered 2 years ago

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