1. a)Economic growth is just as likely to worsen a country's terms of trade as it is to improve them. Explain the statement utilizing the Standard trade model. (4 marks)

b)Suppose South Korea subsidizes its exports of automobiles to Canada and Canada imposes a "countervailing" tariff that offsets the subsidy's effect, so that in the end, relative prices in Canada are unchanged. What happens to the terms of trade and welfare of the two countries? Suppose, on the other hand, that Canada retaliates with a subsidy of its exports of wheat. Contrast the results. (For this question, assume South Korea exports automobiles to Canada and imports wheat from Canada). (8 marks)