Chapter 2

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. How does this fit in with the changing types of goods that make up world​ trade?

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.

Why does the gravity model work?

Large economies tend to have large incomes and tend to spend more on imports

In​ general, which of the following tends to promote the probability of trade volumes between two​ countries?

Linguistic​ and/or cultural affinity, sizes of economies, mutual membership in preferential trade agreements, and historical ties

Does this mean that if the GDP of every country in the world​ doubled, world trade would​ quadruple?

No

Over the last few decades, East Asian economies have increased their share of world GDP. Similarly, intra-East Asian trade 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.

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

Canada and Australia are​ 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. Why is this the case?

Transportation costs for imports and exports are higher in Australia because the distance goods must travel and Canada is close to a major economy

Mexico is quite close to the​ U.S., but it is far from the European Union​. 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. T/F?

True. 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.

A century ago each​ country's exports were shaped largely by

climate and natural resources

The sources of modern trade are largely rooted in

country differences in human and​ human-created resources

The Ricardian trade model put forth by British economist David Ricardo nearly two centuries ago is one that

expounds principles still valid in​ today's world

Since World War II​ (the early​ 1950s), the proportion of most​ countries' production being used in some other country

increased

Since the early​ 1970s, world's trade as a share of world production has

increased

The current process of increasing economic integration among national economies, better known as globalization,

is actually the​ world's second wave of such integration. According to economic​ historians, the ongoing enhancement of economic linkages between nations is not new. The​ world's first wave of globalization began around 1840 and ended in 1914.

In the current​ Post-Industrial economy, international trade in services​ (including banking and financial​ services)

is relatively small

In the early 20th​ century, the United Kingdom exported mainly

manufactured goods

In the​ present, most of the exports from China are in

manufactured goods

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 nature of political battles over trade in the modern era

typically centers on issues involving the​ trade-induced devaluation of labor​ skills. Particularly in the developed​ world, where workers are seeing the value of their skills diminished by imports coming increasingly from the developing countries.