International Econ study guide
Canada and Australia are (mainly) English-speaking countries with populations that are not too different in size (Canada's is 60 percent larger). But Canadian trade is twice as large, relative to GDP, as Australia's.
- Canada is close to a major economy - Transportation costs for imports and exports are higher in Australia because the distance goods must travel.
Approximately what percent of all world production of goods and services is exported to other countries?
30%
In 2013, what percent of all world consumption (private and public, including real investment) was imported?
30%
A century ago, most British imports came from relatively distant locations: North America, Latin America, and Asia. Today, most British imports come from other European countries.
A century ago trade was mostly in commodities that were not produced in Europe. Today, 61 percent of trade is in manufactured goods, and as the gravity model predicts, Britain trades with the other large European economies.
The earliest statement of the principle of comparative advantage is associated with
David Ricardo
Classify each of the following transactions as belonging primarily to the sphere of international trade analysis (T) or international monetary analysis (M). (Enter T for Trade or M for Monetary.)
Foreigners purchase U.S. dollars. = M The U.S. imports crude oil from the Middle East.=T The U.S. imposes tariffs on foreign steel.=t The Chinese government purchases U.S. treasury bonds.=M The Chinese currency is seen as being undervalued.=M
Chapter 1
Intro Learning Goals 1. Distinguish b/w International & domestic econ issues 2. 7 themes recur in international econ & why 3. Distinguish b/w trade & monetary aspects of international econ
Chapter 3
Labor Productivity & Comparative Advantage: Ricardian model Learning Goals 1. Ricardian model 2. gains from trade 3. empirical evidence that wages reflect productivity and trade patterns reflect relative productivity
Why does the gravity model work?
Large economies tend to have large incomes and tend to spend more on imports.
Over the last few decades, East Asian economies have increased their share of world GDP. Similarly, intra-East Asian tradelong dash—that is, trade among East Asian nationslong dash—has grown as a share of world trade. More than that, East Asian countries do an increasing share of their trade with each other. Using the gravity model, explain why East Asian countries do an increasing share of their trade with each other.
Since the GDP of East Asian countries has grown, the product of any two East Asian countries' GDP is now larger. And as the gravity model predicts, the trade volume between them has grown.
In general, which of the following tends to promote the probability of trade volumes between two countries?
Sizes of economies. Historical ties. Linguistic and/or cultural affinity Mutual membership in preferential trade agreements.
The two neighbors of the United States do a lot more trade with the United States than European economies of equal size.
This is consistent with predictions from gravity models.
Chapter 2
World Trade Learning Goals 1. Value of trade depends on size 2. Distance & borders reduce trade 3. two ages of globalization 4. Mix of goods/services traded internationally changing over time
Mexico is quite close to the U.S., but it is far from the European Union (E.U.). So it makes sense that it trades largely with the U.S. Brazil is far from both, so its trade is split between the two. Do you agree or disagree? Based on the gravity model, I would
agree. The gravity model predicts trade volume is proportional to the product of the GDPs of the trading partners and inversely related to the distance from each other.
The benefits of international trade are derived from trade in
anything of value
For almost 70 years international trade policies have been governed
by an international treaty known as the General Agreement on Tariffs and Trade (GATT).
A century ago each country's exports were shaped largely by
climate and natural resources.
The international financial crisis of 2007 was the result of
defaults on U.S. mortgageminus−backed securities.
Trade between two countries can benefit both countries if
each country exports that good in which it has a comparative advantage.
Which of the following is most likely to be an untraded good in a Ricardian two - country, multiminus−good model?
haircuts
In general, which of the following tends to promote the probability of trade volumes between two countries?
historical ties size of economies linguistic or cultural affinity mutual membership in preferential trade agreements
Since the early 1970s, world's trade as a share of world production has
increased.
Transactions that involve the physical movement of goods or a tangible commitment of resources are the domain of
international trade analysis.
International economics can be divided into two broad subminus−fields
international trade and international money.
International economics can be divided into two broad subfields:
international trade and international money.
An important insight of international trade theory is that when countries exchange goods and services one with the other, it
is usually beneficial to both countries.
An important insight of international trade theory is that when two countries engage in voluntary trade
it is almost always beneficial to both countries.
In the early 20th century, the United Kingdom exported mainly
manufactured goods
In the present, most of the exports from China are
manufactured goods
In the present, most of the exports from China are in
manufactured goods
In a two product two country world, international trade can lead to increases in
output of both products and consumer welfare in both countries.
According to the gravity model, a characteristic that tends to affect the probability of trade existing between any two countries is
the distance between them
International monetary analysis focuses on
the monetary side of the international economy, such as currency exchange.
The gravity model suggests that over time
the value of trade between two countries will be proportional to the product of the two countries' GDP.
The gravity model explains why
trade between Sweden and Germany exceeds that between Sweden and Spain.
The Ricardian model demonstrates that
trade between two countries may benefit both if each exports the product in which it has a comparative advantage.
If there are large disparities in wage levels between countries, then
trade is likely to be harmful to neither country.
Trade theorists have proven that the gains from international trade
usually outweigh the benefits of protectionist policies
