In a two-good,two-period model with trade,a negative total factor productivity shock abroad

Question

Quizplus · Accepted Answer

A negative total factor productivity shock abroad would decrease foreign output and decrease the supply of foreign goods in the domestic market. This would cause an increase in the price of foreign goods relative to domestic goods, leading domestic consumers to switch to domestically produced goods. As a result, domestic output would increase.

In a Two-Good,two-Period Model with Trade,a Negative Total Factor Productivity