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    Basic Trade Model

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    Consider two large countries, A and B. A imports good x and exports good y, while B imports good y and exports good x.

    (a) Using the Basic Trade Model, illustrate the distinct terms-of-trade effects of(i) import-biased growth in country A and (ii) export-biased growth in country A. All else equal, which kind of growth would the government of A like to foster if it seeks to increase the aggregate income of its economy? Which kind of growth would the government of B like A's government to foster if the government of B seeks to increase the aggregate income of its economy?

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    https://brainmass.com/economics/economic-growth/basic-trade-model-international-economics-116270

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    Please see the attached file.

    Consider two large countries, A and B. A imports good x and exports good y, while B imports good y and exports good x.

    (a) Using the Basic Trade Model, illustrate the distinct terms-of-trade effects of(i) import-biased growth in country A and (ii) export-biased growth in country A. All else equal, which kind of growth would the government of A like to foster if it seeks to increase the aggregate income of its economy? Which kind of growth would the government of B like A's government to foster if the government of B seeks to increase the aggregate income of its economy?

    SOLUTION:
    Bias of growth refers to economic growth through factor accumulation and/or technological progress and whether if favors one sector or another. Growth is said to be export biased if the export sector expands faster than the rest of the economy, import biased if the import-competing sector does so. Growth is usually biased: it occurs in one sector more than others, causing relative supply to shift. Biased growth and the resulting shift in relative supply cause a change in the ...

    Solution Summary

    Using the Basic Trade Model, illustrate the distinct terms-of-trade effects of(i) import-biased growth in country A and (ii) export-biased growth in country A.

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