Answer True or False 9. According to the price-specie-flow-doctrine, a trade-surplus nation would experience gold...

Answer True or False

9. According to the price-specie-flow-doctrine, a trade-surplus nation would experience gold outflows, a decrease in its money supply, and a fall in its price level.

10. Constant opportunity costs suggest that the relative cost of producing one product in terms of the other will remain the same no matter where a nation chooses to locate on its production-possibilities frontier.

Expert Solution

Answer 9: The answer is false. This is because according to the price specie flow mechanism, a trade surplus nation would effectively engage in importing gold in exchange for their imports. Moreover, this increase in imports of gold is associated with an increase in the price level in the economy leading to an overall inflation.

Answer 10: The answer is true. This is true because according to the definition of opportunity cost we know that the amount of say good Y that we need to give up for an additional unit of X is given by the slope of the PPF. In the case of constant opportunity cost the PPF is not concave to the origin and bowed out, rather it's a download sloping straight line which has a constant slope. A straight line with a constant slope simply means that the amount of one good that we need to give up for the production of the other good remains same. If the PPF would have been concave to the origin this MRS is not constant and it usually increases as we move along the PPF towards south east direction.

Rahul Sunny answered 2 years ago

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