International Economics Quiz # 1 notes

What are the seven themes of the study of international economics?

(1) The gains from trade (2) The pattern of trade (3) Protectionism (4) The balance of payments (5) Exchange rate determination (6) International policy coordination (7) The international capital market.

GDP Formula

(Personal Consumption Expenditures) + (Business Investment) + (Government Spending) + (Exports - Imports). GDP = C + I + G + (X-M)

What are some of the major patterns of trade?

1. Climate and resources 2. Labor productivity 3. national resources such as capital, labor, and land

Approximately what percent of all world production of goods and services is exported to other​ countries?

30%

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

All listed below: -Historical ties. -Mutual membership in preferential trade agreements. -Linguistic​ and/or cultural affinity. -Sizes of economies.

Although international trade can make two nations better off, how can it be potentially harmful?

Although nations generally gain from international trade, it is quite possible that inter- national trade may hurt particular groups within nations—in other words, that interna- tional trade will have strong effects on the distribution of income.

The earliest statement of the principle of comparative advantage is associated with?

David Ricardo.

The international financial crisis of 2007 was the result of _______________

Default on US mortgage - backed securities

What has governed international trade for 70 years?

For almost 70 years, international trade policies have been governed by an international treaty known as the General Agreement on Tariffs and Trade (GATT).

What is GDP?

Gross domestic product is the best way to measure a country's economy. GDP is the total value of everything produced by all the people and companies in the country.

Are the goods the only thing that can be traded internationally? What else can be traded?

International migration and international borrowing and lending are also forms of mutually beneficial trade—the first a trade of labor for goods and services (Chapter 4), the second a trade of current goods for the promise of future goods (Chapter 6).

What does international monetary analysis focus on?

International monetary analysis focuses on the monetary side of the international economy, that is, on financial transactions such as foreign purchases of U.S. dollars.

What does international trade analysis focus on?

International trade analysis focuses primarily on the real transactions in the international economy, that is, on those transactions that involve a physical movement of goods or a tangible commitment of economic resources.

What does it mean if one country has less imports/exports than another?

It relies less on trade to sustain itself.

Why does the gravity model​ work?

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

Is Foreigners purchase US Dollars an example of International Monetary or Trade analysis ?

Monetary

Is The chinese currency is seen as being undervalued an example of International Monetary or Trade analysis ?

Monetary

Is The chinese government purchasing US treasury bonds an example of International Monetary or Trade analysis ?

Monetary

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.

What are the two broad subfields of international economics?

The economics of the international economy can be divided into two broad subfields: the study of international trade and the study of international money.

The gravity model predicts trade volume is proportional to the product of ___________ of the trading partners and ________________ to the distance from each other.

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 Ricardian Model Assumptions are?

The modern version of the Ricardian Model assumes that there are two countries, producing two goods, using one factor of production, usually labor. The model is a general equilibrium model in which all markets

What has the single most consistent mission of international economics been?

The single most consistent mission of international economics has been to analyze the effects of these so-called protectionist policies—and usually, though not always, to criti- cize protectionism and show the advantages of freer international trade.

How have exports and imports changed over time? Which has increased more?

They have both increased dramatically due to international trade. Imports have increased more than exports. The U.S. Imports more than it exports because so many countries invest in the US economy it can afford o import a lot.

Is The US imposes tariffs on foreign steel an example of International Monetary or Trade analysis ?

Trade

Is The us Imports crude oil from the middle east an example of International Monetary or Trade analysis ?

Trade

T/F the motives and behavior of individuals are the same in international trade as they are in domestic transactions.

True

Tij = Ax ((Y(ai) * Y(bj)) / (D(cij)

Where Tij is the volume of trade between two countries i and j. Yi and Yj are the GDPs of countries i and​ j, respectively. Dij is the distance between countries i and j.​ A, a,​ b, and c are parameters to be estimated.

how to find Unit Labor Requirement?

a(LC) / a(LW) < a*(LC) / a*(LW)

Cost benefit analysis focuses...

attention on conflicts of interest within countries.

Trade between two countries can benefit both countries if?

each country exports that good in which it has a comparative advantage.

The Ricardian model demonstrates that trade between two countries may benefit both if __________ the product in which it has a __________________.

exports, comparative advantage.

Large economies tend to have large incomes and tend to spend more on imports.This is consistent with predictions from

gravity models.

Which of the following is most likely to be an untraded good in a Ricardian two − ​country, multi − good ​model out of: -haircuts, -telemarketer services, -steel, -petroleum, -and textiles?

haircuts

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

manufactured goods.

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

manufactured goods.

A production possibility frontier (PPF) has endpoints that indicate the ____________ amount of each product a country can produce.

maximum

Over the course of history, what are some of the international debt crises that have occurred?

n 1982, however, first Mexico, then a number of other countries, found themselves unable to pay back the money they owed. The resulting "debt crisis" persisted until 1990. In the 1990s, investors once again became willing to put hundreds of billions of dollars into "emerging markets," both in Latin America and in the rapidly growing economies of Asia. All too soon, however, this investment boom came to grief as well; Mexico experienced another financial crisis at the end of 1994, much of Asia was caught up in a massive crisis beginning in the summer of 1997, and Argentina had a severe crisis in 2002. This roller coaster history contains many lessons, the most undisputed of which is the growing importance of the interna- tional capital market.

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 : Since the GDP of East Asian countries has​ grown, the ________ of any two East Asian​ countries' GDP is now larger. And as the gravity model​ predicts, the trade volume between them has grown.

product,

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.

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.

In order to find the maximum amount of each good that Home can​ produce, it is necessary to divide its total number of available labor hours​ (L) by each​ good's _________________.

unit labor requirement