1.6 Global Economy & Economic Interdependence:

Would you like a banana for lunch tomorrow? If you live in the small part of the nation that is warm enough to grow bananas, you might pick one off a banana plant. More likely, though, you have to go to a store to buy a banana grown in another country. Importing bananas is one example of global interdependence. _____________ __________________________ means that people and nations rely on one another for goods and services. If Americans want bananas, or other tropical fruit, they must trade with other nations to get them. (II. Global Interdependence and Issues)

Global interdependence!!!!!!!!

The benefits of free trade encouraged 27 European nations to form the largest economy in the world, the European Union (EU). The purpose of the EU is to integrate, or combine, the economies of ________ its members. The EU creates a large free trade zone. Within this area, goods, services, and workers can travel freely across national borders. Most EU nations even share a common currency called the euro, making trade easier. (Free Trade Agreements)

all!!!!

A country may sell more or fewer goods and services to another country than it buys from that country. The difference between the value of a nation's imports and the value of its exports is the _________________ _________ ___________________. That balance of trade can be positive or negative. When the value of a nation's exports is greater than the value of its imports, it has a positive balance of trade. If a country's exports are worth $100 billion and its imports are worth $70 billion, the country has a positive balance of trade of $30 billion. A positive balance of trade is called a _____________ _________________. A country that has a trade surplus for a long period of time will find that the value of its currency goes up in the international currency markets. Currencies are bought and sold just like goods and services. As a result, the value of a currency, like the value of a good or service, can go up or down. When a nation imports more than exports, it has a negative balance of trade. Suppose a country exports $70 billion in goods and imports $100 billion. If so, it has a negative balance of trade of $30 billion. This is called a _____________ ______________. If a trade deficit happens year after year, they hurt a nation in two ways. First, low demand for domestic goods will slow production of those goods at home. That can lead to job losses. Second, a country with ongoing trade deficits will see the value of its currency fall. (Balance of Trade)

balance of trade; trade surplus; trade deficit!!!!!!!!

A country's factors of production, natural resources, labor, capital, and entrepreneurs often determine its ____________________ ______________________. For example, China's vast population gives it a large labor force. Many of the people in China are unskilled workers who earn low wages. As a result, China has a comparative advantage in manufacturing goods that need a lot of labor to produce. Nations with large areas of farm and ranch land-like Brazil and the United States-have a comparative advantage in farm exports. Brazil is the world's largest exporter of beef. (I. Trade Between Nations)

comparative advantage!!!!

The main reason countries trade is because of _______________________ ______________________. Comparative advantage is the ability to produce something at a lower opportunity cost than another country can. A simple example will explain how this works. Suppose that two countries could produce only two goods, bicycles and bread. In each country, the opportunity cost of making bicycles is the bread it cannot produce while its resources are being used to make bicycles. Suppose that Country A could produce one bicycle or 10 units of bread while Country B could produce one bicycle or 15 units of bread. Country A has a lower opportunity cost. As a result, it has the comparative advantage in producing bicycles. (I. Trade Between Nations)

comparative advantage!!!!

Global interdependence has made people aware of issues that affect the world as a while. Therefore, nations must ________________________ to find solutions to the challenges brought by increasing global contacts. However, a variety of political and cultural forces are also at work around the globe. Those forces do not always encourage nations to work together. (Global Issues)

cooperate!!!!

The United States also ______________________________ on other nations for resources and products. For example, Americans use oil and natural gas to heat homes, run factories and power cars. The United States uses almost 20 million barrels of oil per day. More than half of that oil is imported. Canada, Saudi Arabia, Venezuela and Mexico supply most of that oil. (Global Trade)

depends!!!!

Global trade occurs because nations have ____________________________ needs, comparative advantages and resources. These factors make trade among nations worthwhile and perhaps even necessary. The United States is both a large exporter and a large importer. Many countries need things from the United States. The United States sells wheat, corn, computer software, aircraft, medical equipment and machinery to nations that cannot produce these goods on their own. Poorer nations look to the United States for food, medicine and defense weapons. People around the world are also eager to buy American entertainment products such as movies, music and video games. (Global Trade)

different!!!!

After World War II, several countries joined together to begin the process of restoring the world economy and promoting free trade. These efforts led to the 1995 founding of a group that now has 153 member nations, the World Trade Organization (WTO). The WTO oversees trade agreements and tries to settled trade __________________ among its member nations. One of its goals is to help countries that are trying to build their economies. Some critics say that the WTO actually hurts poor countries, however. They charge that its policies favor big corporations and hurt workers, the environment, and poor countries. (The World Trade Organization)

disputes!!!!

A major challenge in the world today is the growing ______________________ __________________ among nations. Unequal levels of economic growth have led to a large gap between rich and poor nations. This gap is getting wider as well. Developing nations are making some economic progress, but many of them are not growing fast enough to catch up to the developed nations. Nations that have grown wealthy because their economies are doing well are called developed nations. They generally have high per capita GDP. They usually have political systems that are stable, or not subject to major changes. Other countries, called developing countries, have low per capita GDPs and low rates of economic growth. Several factors contribute to these problems. Some of these countries have a lack of natural resources or have unskilled workers. Some struggle with political unrest and some have poor schools. Many face serious health problems, such as a lack of clean water or high rates of infectious diseases. (Rich and Poor Nations)

economic inequality!!!!!!!!

Nations like to use their own currency to carry out trade. American companies want to use the dollar and Japanese companies want to use the yen. The two currencies differ in value, however. Their value in relation to each other is set by supply and demand. The value of one currency in terms of another is its ___________________ _____________. (Role of Currency and Exchange Rates)

exchange rate!!!!

People around the world ______________________________ what they have to make things they need. This exchange involves both developed and developing nations. Developed nations usually buy raw materials and local products, such as bananas, from developing nations. Developing nations buy things like technology and medicine from developed countries. (II. Global Interdependence and Issues)

exchange!!!!

Almost all economists agree that the total cost of trade barriers is _______________ than their benefits. For this reason, most countries now try to reduce trade barriers, a policy known as free trade. To increase free trade, countries often join together with a few key trading partners to set up areas of free trade. (Free Trade Agreements)

higher!!!!

Suppose the United States wants to import goods from Japan. Japan wants to be paid in its own currency. As a result, the United States must sell dollars and buy yen. This makes more dollars available in the markets where currencies are bought and sold. The ________________________ supply of dollars in these markets drives down the value of the dollar. In this way, excessive imports hurt a nation by lowering the value of its own currency. (Role of Currency and Exchange Rates)

higher!!!!

How is it that you can enjoy fresh summer fruit year-round? Why do Americans import cars from Japan or Korea, even though we can produce them at home? Why does the United States produce more than half of the world's corn? Individual nations do not always have the necessary resources to make the products their people need and want. To solve this problem of scarcity, nations trade with one another. They trade food, manufactured goods, services, and even raw materials. Nations ___________, or bring into the country, goods produced in other nations. They ___________, or sell to other nations, goods they produce. (I. Trade Between Nations)

import; export!!!!

Global interdependence has __________________ trade and led to prosperity in many parts of the world. More free trade usually results in lower prices and more choices for consumers. However, trade can cause problems too. Companies may decide to move factories to other countries with lower labor costs. The cost of doing business or decreasing sales could cause some companies to close. In both cases, people lose their jobs. Many workers may not be able to find new jobs that pay as well as their former ones. They might have a difficult time learning new job skills. They might even have to sell their homes and move to other parts of the country to get jobs. (Costs of Competition and Trade)

increased!!!!

Some _______________ advanced economies specialize in a single export. These economies are known as single-resource economies. Reliance on a single export, however, makes a nation's economy vulnerable to price changes in the marketplace. Diversified economies, which export a variety of products, are better able to respond to market changes. (I. Trade Between Nations)

less!!!!

The ________________________ currency value might not be completely bad. It should help the country increase its exports. The reason is simple. Because its currency is worth less, the prices of its goods go down. That makes them more attractive to other countries. The reverse is also true. If a country has an ongoing trade surplus, the value of its currency will rise. (Role of Currency and Exchange Rates)

lower!!!!

Not all trade is based on ________________ though. Comparative advantage also contributes to global trade. As stated earlier, low manufacturing costs in China make the cost of Chinese goods attractive to other nations. As a result, China sells the electronics, textiles, plastics, furniture and toys it makes around the world. Finally, differing sets of natural resources play a role in global trade. The United States needs industrial diamonds to make certain goods. Since our nation does not have that resource, we must import them from various African countries. (Global Trade)

need!!!!

When you shop, how important to you is the ________________ of an item? To most people, it is very important. Because many consumers want low prices, many of the nation's stores line their shelves with products from nations with low labor costs, such as China. China can produce many goods more cheaply than the United States can. Consumers benefit when they buy these less costly products. When they do, however, they take business away from domestic companies, or companies operating in the United States. This can hurt those companies, leading them to cut production and lay off their workers. (Managing Trade)

price!!!!

Countries with industries that are hurt in this way by foreign trade often resort to ________________________. Protectionism is the use of tactics that make imported goods more expensive than domestic goods. Governments try to protect home industries in three ways: tariffs, import quotas and subsidies. (Trade Barriers)

protectionism!!!!

People may want a product so badly that higher prices do not stop them from buying it. In this case, a country can block trade by using a _____________________. An import quota limits the amount of a particular good that enters a country. For example, the United States has a long history of putting quotas on sugar imports. These limits help keep prices higher for domestic producers. (Trade Barriers)

quota!!!!

Another way governments protect domestic industries is with subsidies. A __________________ is a payment or other benefit given by the government to help a domestic producer. The United States and many European nations pay subsidies to farmers. These payments help farmers keep their prices competitive. These methods to limit imports have a major drawback. In exchange for protecting jobs, they raise prices on goods. (Trade Barriers)

subsidy!!!!

A _______________________________ is a tax on imports. The goal is to make the price of imported goods higher than the price of those goods produced at home. For example, in the past few years, several United States tire manufacturers stopped making tires. They could not compete with cheap tires made in China. To help the United States tire industry, President Obama placed a tariff on Chinese tires. The tariff added 35% to the cost of tires made in China. (Trade Barriers)

tariff!!!!

Nations sometimes act to protect their industries from imports produced in other countries that have cheaper labor. Countries may put up barriers to trade. These barriers have a cost though. Tariffs may help home industries, but they hurt consumers by raising prices. Another problem with trade barriers is that one set of barriers can lead to additional ones. In response to tariffs placed on the goods it produces, for example, a nation may put up its own trade barriers. A _________________ ______________ could develop. In a trade war, one or more nations put up trade barriers to punish another nation for its trade barriers against them. The result is higher prices for everyone and fewer choices for consumers. (Costs of Competition and Trade)

trade war!!!!

In 1994, the United States, Canada and Mexico joined together to create the largest free trade zone in the world. In the North American Free Trade Agreement (NAFTA), the three countries agreed to remove most trade barriers. Since then, trade among the three nations has more than ___________________. This increase in trade has brought lower prices and a greater variety of goods to consumers in all three countries. However, many companies hurt by these imports lost sales and had to close factories. As a result, thousands of jobs have been lost. (Free Trade Agreements)

tripled!!!!