ECON 3421 - CH. 1 The United States in a Global Economy

Suppose Turkey has exports of 2 billion Turkish Lira, while imports are 2 billion Turkish Lira. Calculate Turkey's "Index of Openness" (Trade-to-GDP ratio) assuming Turkey has 10 billion Turkish Lira of output, or GDP. Turkey's Trade-to-GDP ratio = ______? (Quiz?*)

($2 + $2) / $10 = 0.4

The trade-to-GDP ratio is computed using

(Exports + Imports) / GDP

In 2005, total world imports were estimated to be ___ percent of world gross domestic product (GDP).

20.5%

International capital markets (Quiz?*)

A and B only (may have smaller capital flows [relative to the size of their GDP] today than around the late 19th/early 20th century, and often have higher transaction costs than domestic capital markets)

A high correlation of national savings and investment is:

A signal that countries may not be able to lend and borrow as freely as we thought.

According to the figure to the right, trade is least important for country: (Quiz?*) ... trade is most important for country:

Alpha; Delta

How is current day trade different than earlier trade?

B and C only (the fraction of current international trade is organized and conducted by multinational firms has grow since 1950, and the share of manufacturing trade has risen, while the share of agricultural trade has fallen.)

Which of the following is not one of the three kinds of evidence that economists use to support the assertion that open economies grow faster than economies that are closed to the world economy? Use the following key to identify the evidence types listed in the table below. (Key A - Evidence of statistical comparisons of countries; B - Casual empirical evidence of historical experience; C - Economic logic and deductive reasoning) ___ Countries with the same background that were divide by war indicate that those who closed their economies from the rest of the world suffered. ___ Larger markets create incentives for firms to engage in research and development, allow countries to import important production inputs and foreign capital, and facilitate the transfer of technology and managerial skills. ___ Comparative advantage leads to trade and this in turn leads to the reallocation of resources and the improvement of the standard of living of nay nation, large or small. (Quiz?*)

Forensic analysis of the growth equation B C C

Which of the following is not of the three kinds of evidence that economists use to support the assertion that open economies grow faster than economies that are closed to the world economy?** Use the following key to identify the evidence types listed in the table below. Key A (Evidence of statistical comparisons of countries), B (Casual empirical evidence of historical experience), C (Economic logic and deductive reasoning) East Asia integrated itself into the world economy and watched growth take off, while Latin America chose to remain partially closed and, as a result, experience mediocre growth. ___ Open trade fosters competition, innovation, and learning by doing and brings international best practices to the attention of domestic producers, spurring greater efficiency, export expansion, and economic growth. ___ Comparative advantage leads to trade and this in turn leads to the reallocation of resources and the improvement of the standard of living of any nation, large or small. __

Forensic analysis of the growth equation B; C; C

Which of the following is NOT an example of international factor movement?

International trade in intermediate goods

Classify each of the following transactions as belonging primarily to the sphere of international trade flow (T) or international capital flow (M). (Enter T for Trade or M for Capital) Foreigners purchase U.S. dollars. __ The U.S. imports crude oil from the Middle East ___ The U.S. imposes tariffs on foreign steel. ___ The Chinese government purchases U.S. Treasury bonds. ___ The Chinese currency is seen as being undervalued. ___

M T T M M

Which of the following is not among the measures economists examine to assess the degree globalization and international economic integration? (Quiz?*)

Number and complexity of trade agreements

Which of the following is true about international asset trade:

Recent years have shown a dramatic upswing in the size and scale of international asset flows.

Which one of the following "observation pairs" most accurately describes the pattern exhibited over the 1913-2010 period by the trade-to-GDP ratios for the six selected industrial economies shown above?

The ratios fell between 1913 and 1950 but have risen relatively rapidly since AND the smaller countries tend to be more open than the larger countries.

The International Monetary Fund (IMF), the World Bank, the General Agreement on Tariffs and Trade (GATT) were formed (Quiz?*)

after World War II.

A typical measure or criteria for judging the degree of international economic integration is

all of the above (capital flows, people flows, trade flows, and similarity of prices)

To judge the degree of international integration, economists turn to information on

all of the above (flows of goods, the similarity of prices in different markets, and flows of capital and people)

Free trade in goods is predicted to

all of the above (provide consumers with greater variety, increase competition for workers and firms, and provide consumers with lower prices)

The relative size of international capital flows may not be much greater today than they were 100 years ago, although they are certainly greater than they were 50 years ago. Qualitatively, however, capital flows are different today in that

all of the above accurately describe the difference in capital flows over the past century.

When world capital is allowed to flow freely between countries, it is expected that capital will flow from (Quiz?*)

countries with abundant savings and capital to countries with low savings and capital.

The elimination or reduction of trade barriers caused by non-trade-related domestic policies is referred to as

deep integration.

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

is actually the world's second wave of such integration.

The new issues in international trade and investment largely involve policy difference that until recently were considered the exclusive responsibility of _______. To the extent that negotiations occur between nations to resolve the new issues associated with trade and investment, the possibility arises that

local or national governments. all of the above (foreign interest will acquire a voice in setting domestic policy, domestic policy concerns may be subjugated to foreign entities, and policies that only tangentially impact trade may become homogenized across nations)

Statistical empirical evidence consistently show that counties that are more open (Quiz?*)

tend to grow faster than countries that are closed.

Trade and capital flows were described and measured in relative terms rather than absolute terms. The difference between the two is that With respect to indicating the importance of trade and capital flows to an economy, the terms that seem more valid are _____ terms because such terms are _____ the size of national economies. (Quiz?*)

the latter are the dollar amounts of trade and capital flows and the former are the ratio of dollar values to GDP. relative; proportional to

International economics can be divided into two broad subfields:

trade of production output (products and services), and trade of production input (capital and labor)

International economies can be divided into two broad subfields:

trade of production output (products and services), and trade of production input (capital and labor)

Compared to a century ago, the U.S. economy today appears more integrated with the world economy as signified by its increased ______. Alternatively, an indicator that today the U.S> economy is less integrated with the world than it was a century ago is its reduced proportion of ______. (Quiz?*)

trade-to-GDP ratio. foreign-born citizens.