MacroEcon Exam
Balance of Trade
(Exports-Imports) (X-M)
Imports (M)
A good or service bought from international sellers
Exports (X)
A good or service sold to foreign buyers
Specialization
A method of production where a business, area or economy focuses on the production of a limited scope of products or services to gain greater degrees of productive efficiency within an overall system.
Trade Deficit
A negative trade balance
Trade Surplus
A positive trade balance
Tariff
A tax imposed on imported goods
How can an Economy be made better off? (In terms of Comparative Advantage)
An economy can be made BETTER OFF in general, relative to self sufficiency, if it 1. specializes in producing the good in which it has a comparative advantage AND 2. trades some of that good for some of the good in which it does NOT have a comparative advantage.
Based on export ratios, which of the following countries is closest to being a closed economy?
Belgium. China. Saudi Arabia. -Myanmar.
It's not likely that a country will specialize completely in one good even if it has a lower opportunity cost because
Comparative advantage is not a workable concept in the world economy. -Opportunity costs increase as more of a good is produced. The country would want to save some of the good for its own citizens. The country would end up inside its production possibilities curve.
he amount of good A given up for good B in trade is the
Comparative advantage. Absolute advantage. -Terms of trade. Exploitation of consumers.
What does the new trade theory explain?
Consumers desire product variety & Producers benefit from economies of scale in production
If the dollar appreciates then it?
Depreciates in the foreign countries and vice versa
When tariffs are imposed, the losers include
Domestic consumers and the domestic government. Foreign consumers and domestic producers of import-competing goods. Domestic consumers and domestic producers of import-competing goods. -Domestic consumers and foreign producers.
How do you calculate Net Exports?
Exports - Imports
The supply of U.S. dollars is determined by all of the following except
Foreign demand for American exports.
What does the WTO: the World Trade Organization try to enforce?
Free-Trade rules
Infant Industries
Imported goods make it more difficult for a domestic firm to start up. Costs are high at start-up, so low-cost imports may kill the business at birth. Some U.S. furniture firms got restrictions put into place in the late 1700s. Developing countries today want to protect their infant industries from competition from developed countries.
Humanitarian argument
Imported goods may be manufactured using child labor and/or without much concern for the environment.
National Security
Imported shoes drive U.S. shoe firms out of business. Who would make shoes for the army in case we go to war?
Dumping
Importers may be selling goods at prices below what is charged in the foreign country. So we get them cheap, which is a problem to the import-competing firms.
If trade is mutually beneficial, then increasing trade
Increases the welfare of producers that compete with importers. Makes countries less interdependent. -Leads to increased output in export industries. Reduces income for workers in export industries.
Open Economy
International trade exists. Each country produces according to its comparative advantage and trades with others.
Production possibilities frontier
Is a curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors. The PPF assumes that all inputs are used efficiently.
When a country has a lower opportunity cost in producing a good than any other country,
It has an absolute advantage in producing the good. It has favorable terms of trade in producing the good. -Consumption possibilities will increase with specialization and trade. Production possibilities are no longer limited
What is the TPP? Trans Pacific Partnership
It would be a trading network from the US to other foreign nations that would help to limit the tariffs and taxes put on trade and would help all of the economies become stronger.
Except for a statistical error under flexible exchange rates, any current account deficit
Must be completely offset by a capital account surplus.
What is the balance of trade otherwise called?
Net Exports
Closed Economy
No international trade. Each country produces for its own consumption.
If exports are being excluded unfairly from a market, the World Trade Organization (WTO) may authorize
Retaliatory tariffs.
Protectionism
Saving jobs: firms losing sales and workers losing jobs do not want to do so.
Which of the following countries has the lowest export ratio?
The United States. India. Haiti. -Myanmar.
Absolute advantage
The ability of a party (an individual, or firm, or country) to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources.
A beggar-thy-neighbor policy is
The imposition of trade barriers to increase domestic employment
In a floating exchange rate system, the capital account balance equals
The negative of the current account balance.
What is opportunity cost?
The opportunity cost of 1 more unit of a good is the amount of the other good given up to get it.
GATT: the General Agreement on Tariffs and Trade
They promise to reduce trade barriers and provide equal access to markets
Under floating exchange rates, the capital account balance is equal to the negative of
Trade balance + unilateral transfers
When does an economy have a comparative advantage?
When it can produce a good at a lower opportunity cost than the other economy.
Total trade with a company is defined as ...
X + M
Quota
a limit on the quantity of a good allowed to be imported.
What is the "terms of trade"?
the rate at which goods are exchanged or the amount of good A given up to get good B in trade.
Exchange Rate
the rate at which the currency of one country can be traded for the currency of another
Embargo
this is simply a prohibition on imported goods.
Ceteris paribus
with all things remaining the same or constant