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"Education is the most powerful weapon which you can use to change the world”
– Nelson Mandela

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Tgp_Assignment 2

Tgp_Assignment 2

Q Q.1. In the public debate over the ratification of the North American Free Trade Agreement, Ross Perot said he heard a “giant sucking sound” from U.S. jobs heading south because of low wages in Mexico. Using the theory of comparative advantage, discuss whether Perot’s fears are valid.Q.2. Hyundai decided to build a new automobile assembly plant in Alabama. a. What factors do you think Hyundai considered in selecting Alabama as the site for the factory? b. Who benefits and who loses from the new plant in Alabama? c. Is the firm’s decision to build the new plant consistent with Dunning’s eclectic theory? Q.3. What parallels exist between the role of the British Pound in the nineteenth-century international monetary system and that of the U.S. dollar since 1945?Q.4. Under what conditions might a country devalue its currency today?Q.5. What connections exist between the current account and the capital account?

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Answer. The comparative advantage says that the country should import those goods and services which are relatively more productive outside and should export those goods and services whose productivity is higher in home country. If the plants moved to Mexico, the production costs will decrease tremendously and the comparative advantage will move to Mexico. This is what is termed as giant sucking sound as Perot feared the whole industry will move to Mexico, or rather Mexico will suck all the work from U.S.