ECO 202 Test #4 Review

Describe the main features of the GATT (1947)

-Equal non-discriminatory trade treatment for all member nations -Reduction of tariffs by multilateral negotiatons -Elimination of import quotas

Define the factors that promoted the growth of international trade after WW2

-Improvements in transportation technology -Improvements in communication technology -General decline in tariffs -World peace(?)

Describe the world trade barriers

-Protective Tariffs -Import Quotas -Non Tariff Barrriers

Advantages of international trade

-free trade helps to maximize world output -Increased communication allows the sharing of vital economic information (new innovations) -Increased cooperation among countries promotes world peace

Explain the determinants of foreign exchange rate

EXCHANGE RATES WILL CHANGE DUE TO: INCREASE IN DEMAND FOR YEN (the dollar price of yen will increase or the value of the dollar will depreciate) A) INCREASE IN INCOME IN THE U.S B) PREFERENCE FOR JAPANESE GOODS

sporadic dumping

production goes over target

Predatory Dumping

sells in a foreign country at a very low price to drive out competition

What is the meaning of depreciation and appreciation of the dollar in relation to the yen.

$.01=1 YEN 20,000Y * .01= $200.00 20,000Y * .02= $400.00 (depreciation of the dollar)

What are the cost of trade barriers to society?

-Domestic consumers pay higher prices for imported goods or have to buy lower quality domestic goods -Hurts domestic industries that use protected goods as inputs -Reduce competition reduces incentive for new innovation

What is the foreign exchange market?

A market for converting the currency of one country into that of another country which is a competitive market that links domestic and foreign prices.

What is the World Trade Organization?

An international organization that ensures that the terms of the General Agreement on Tariffs and Trade (GATT) are carried out. Consists of 145 countries with the duties of overseeing the provisions of current world trade agreements, resolve trade disputes among countries and holds forums for further rounds of negotiations.

Define globalization and describe the unexpected consequences of globalization.

It is the integration of economies and societies around the world (interdependent world). It also refers to the movement of people and knowledge across international borders. Some unexpected consequences are the rich get rich and the poor get poorer, economic disruptions can affect all others, WTO infringes on national sovereignty, and multinational corporations take advantage of weak environmental regulations in other locations.

Describe how specialization is economically desirable

Mutually beneficial exchange is possible when production costs are different

What is dumping?

Selling goods in another country below the cost of production

Describe the causes and consequences of NAFTA

The cause of NAFTA was in response to the creation of the EU. The consequences of NAFTA for Mexico were an increase in the GDP of Mexico from 40 to 280 billion, Exports increased from 50 to 140 billion, and Foreign investment increased from 11 billion to 21 billion. The consequences on the U.S. were reduced bargaining power for labor unions, and loss of factory jobs to cheaper jobs in mexico

Describe the main features of the Reciprocal Trade Agreement Act (1934)

The purpose was to reduce tariffs. This allowed the president of the U.S. authority to negotiate trade agreements and U.S. president can name most favored nation which is not subject to trade barriers.

persistent dumping

when a producer consistently sells products abroad at lower prices than at home