According to Michael Roemer's three-sector framework, how does expansion in the thriving export sector affect the economy? Does it: I - lower the foreign exchange rate, II - hinder growth in other sectors by decreasing the motivation to export alternative products, III - diminish the drive to substitute imported goods with domestic alternatives, IV - increase factor and input costs for sectors that are not expanding?

Show Answers

Only statements I and III are trueOnly statements II and III are accurateStatements I, II, and III are correctAll statements I, II, III, and IV are trueNone of the above

Explanation

Michael Roemer's model indicates that growth in the booming export sector leads to all four outcomes: it lowers the foreign exchange price (I), slows growth in other sectors by reducing their export incentives (II), decreases the motivation to replace imports with domestic goods (III), and raises factor and input prices in non-booming sectors (IV). Hence, all statements I through IV apply.