2.7 International Trade and Capital Flows Flashcards
Gross domestic product (GDP)
the market value of final goods and services produced by factors located within a country.
includes contributions from foreign citizens in the country
Gross national product (GNP)
he market value of final goods and services produced by factors supplied by citizens of a country
includes the production of goods and services by domestic citizens operating in other countries
The terms of trade
the ratio of export prices to import prices
n increase in this ratio allows a country to purchase more imports with the funds received from exports.
foreign direct investment (FDI)
investment by companies in physical productive assets in foreign countries
FDI tends to be longer-term in nature than FPI.
Through FDI, multinational companies have been able to shift production to wherever it can be done most efficiently as countries compete to become part of a global supply chain
foreign portfolio investment (FPI)
involves holding securities such as stocks or bonds issued by foreign companies or governments
Many arguments support international trade, including:
- Gains from exchange
- Greater economies of scale
- Greater product variety
- Increased competition
- More efficient allocation of resources
Opponents of free trade point to what?
income inequality
job losses in developed countries due to competition from countries with lower-cost operations
when does a country has an absolute advantage in gains from trade?
if it can produce a good or service at a lower total cost than its trading partner.
when does a country has a comparative advantage in gains from trade?
if its opportunity cost of producing a good or service is less than its trading partner
what does the Ricardian model assume?
assumes that labor is the only factor of production
what does the The Heckscher-Ohlin model use?
uses both capital and labor as factors of production.
Both factors can trigger comparative advantages
Which of the following statements best describes the costs of international trade?
A
Countries without an absolute advantage in producing a good cannot benefit significantly from international trade
B
Loss of manufacturing jobs in developed countries as a result of import competition means that developed countries benefit far less than developing countries from trade
C
Resources may need to be allocated into or out of an industry and less-efficient companies may be forced to exit an industry, which in turn may lead to higher unemployment
C
Resources may need to be allocated into or out of an industry and less-efficient companies may be forced to exit an industry, which in turn may lead to higher unemployment
Trade restrictions
measures that limit the free exchange of goods and services between countries
They include tariffs, import quotas, voluntary export restraints, subsidies, embargoes, and domestic content requirements
They may be implemented for several reasons, ranging from increasing government revenues to national security concerns.
Capital restrictions
impose limits on the ability of foreign investors to own domestic assets and the ability of domestic investors to own foreign assets.
Tariffs
taxes levied on foreign goods, often to protect domestic industries
According to the infant industries argument, tariffs can be used to shield companies in emerging sectors until they can compete with larger international firms.
Tariffs can also be used as a source of revenue or to reduce a country’s trade deficit.
in the context of international trade, a country is considered to be large if?
in the context of international trade, a country is considered to be large if
