MACROECONOMICS CHAPTER 12

Workers who are displaced due to foreign imports are eligible for what kinds of benefits under the Trade Adjustment Assistance Act?

- reimbursement for relocation expenses - refundable tax credits for health insurance - cash assistance up to 78 weeks

What have been the economic impacts of NAFTA?

- standard of living increased for the 3 countries - employment in the U.S. rose - trade increased between participating countries

Which of the following are causes of the large and rising U.S. trade deficits since 2001?

- the U.S. economy grew more rapidly than the economies of several of its major trading partners - an enormous trade imbalance

What problems did critics fear NAFTA would cause?

- higher unemployment in the U.S. - the migration of U.S. firms to Mexico

Specialization according to comparative advantage will:

- increase total output - resources are used more efficiently

3 basic principles of the General Agreement on Tariffs and Trade (GATT)

- reduce tariffs using multilateral negotiations - equal, nondiscriminatory treatment of members - eliminate import quotes

There is an increase in total output and a more efficient use of scarce resources when countries specialize based upon:

comparative advantage

The North American Free Trade Agreement (NAFTA) created a _________ zone between Mexico, the U.S., and Canada.

free-trade

Which argument against free trade becomes particularly popular when the economy goes into a recession?

increased domestic employment

The price or exchange rate is determined by the intersection of the:

supply and demand curves of the currency that is to be purchased

One major cause of the large U.S. trade deficit is:

the strong growth of U.S. income between 2003-2007, enabling Americans to buy more imported goods

When a currency _________ in value, more units of it are needed to buy a single unit of some other currency.

decreases

A trade _______ occurs when imports exceed exports.

deficit

The price or exchange rate is determined by the intersection of...

the supply and demand curves of the currency that is to be purchased

The European Union (EU) is an example of:

a regional free-trade zone

4 direct effects of tariffs:

- decline in consumption - increased domestic production - tariff revenue - decline in imports

Many people incorrectly believe that the benefits from trade lie with the increase in exports, but what are the true benefits from trade?

- extra output obtained from abroad - imports obtained at lower opportunity costs

A trade deficit is considered unfavorable because it must be financed by...

- borrowing from the rest of the world - selling off assets - dipping into official reserves

3 ways that protection raises the consumer price of a product?

1) (thought tariffs) the price of imports increase 2) the higher price of imports cause some consumers to shift to higher-priced domestic goods 3) the prices of domestically produced goods rise due to a decline in import competition

When was GATT originally signed?

1947

Foreign exchange market

a place where various national currencies are exchanged for one another

The ___ oversees trade agreements by member nations and rules on trade disputes.

WTO (World Trade Organization)

Tariff

a tax on imported goods

The U.S. has experienced large and persistent trade ________ over the past several years.

deficits

The argument for tariffs to "save U.S. jobs" refers to the increased ________ employment argument.

domestic

If a firm charges a foreign market a lower price than it charges the domestic market, that firm is said to be _______ its product.

dumping

As a nation increases the output of one good, they must sacrifice larger and larger amounts of another good. What is this called?

increasing costs

When resources that are less and less suitable to the production of one good are allocated to the production of that good, what are the consequences?

increasing costs

Why do economists generally support the Trade Adjustment Assistance Act?

it helps create political support for free trade

With an open economy, ____ resources are allocated to the export industry while ____ resources are shifted to the import industry.

more; fewer

The true benefit from international trade is the extra output obtained from abroad and imports obtained at lower ___________ costs than if produced domestically.

opportunity

Currency speculators

people who buy and sell currencies with an eye toward reselling and repurchasing them at a profit

Cheap Foreign Labor Argument

says that domestic firms and workers must be shielded from countries where wages are low

The Cheap Foreign Labor Argument says that...

trade protection is required to ensure that cheap imports do not flood the U.S. markets, dragging prices of goods and U.S. wages down