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