Chapter 13: The United States in a Global Economy Flashcards
measures of the degree of international economic integration
trade flows
capital flows
people flows,
the similarity of prices in separate markets
the similarity of prices in separate markets
refers to the fact that integrated economies have price differences that are relatively small
the differences are due mainly to differences in transportation costs
gross domestic product (GDP)
a measure of total domestic production
trade-to- GDP ratio
meaning and formula
measure of the importance of international trade in a nation’s economy
Trade to GDP ratio = (Exports + Imports) / GDP
why are large countries generally less dependent on international trade?
because their firms can reach an optimal production size without having to sell to foreign markets
which type of countries tend to have higher ratios of trade-to-GDP?
smaller countries
which entities have become a crucial player in world trade since the 1950s?
multinational corporations
is labor more mobile now or in the 1900s?+
why?
in the 1900s
In 1900, many nations had open door immigration policies, and passport controls, immigration visas, and work permits were exceptions rather than rules
the most basic distinction in capital flows?
the distinction between flows of financial capital and flows of capital representing physical assets
the distinction is immaterial
foreign direct investment (FDI)
flows of capital representing physical assets such as real estate, factories, and businesses
flows of financial capital
represent paper assets such as stocks, bonds, currencies, and bank accounts
flows of capital representing physical assets
such as real estate, factories, and businesses
why is the distinction between flows of financial capital and flows of capital representing physical assets immaterial?
because both represent shifts in wealth across national boundaries
both make one nation’s savings available to another
two points to keep in mind when comparing international capital flows today to a century ago
First, savings and investment are highly correlated
Second, a variety of technological improvements increased capital flows in the 1800s, as they are doing today
how are savings and investment highly correlated?
countries with high savings tend to have high rates of investment, and low savings is correlated with low investment
main difference and reason between size of cash flows today and size of cash flows a century ago?
flows today are much larger but mainly because economies are larger
important qualitative differences in the quantity of capital flows between now and a century ago?
there are many more financial instruments available now than there were a century ago
the role of foreign exchange transactions
the role of foreign exchange transactions now and a century ago?
In 1900, countries had fixed exchange rates and firms in international trade or finance had less day-to-day risk from a sudden change in the value of a foreign currency
Many firms today spend significant resources to protect themselves from sudden shifts in currency values
the costs of foreign financial transactions
what is the the largest component of international capital movements?
the buying and selling assets denominated in foreign currencies
why is the buying and selling assets denominated in foreign currencies the largest component of international capital movements?
the role of foreign exchange transactions
Many firms today spend significant resources to protect themselves from sudden shifts in currency values
the costs of foreign financial transactions today and a century ago
the costs of foreign financial transactions have fallen significantly
transaction costs
the costs of obtaining market information, negotiating an agreement, and enforcing the agreement
are transaction costs higher in domestic or international markets?
international markets
Features of Contemporary International Economic Relations
Deeper Integration
Multilateral Organizations
Regional Trade Agreements
the two trends created by lower barriers to international trade?
lower trade barriers exposed the fact that most countries have domestic policies that are obstacles to international trade
technologically complicated goods such as smart phones and automobiles are made of components produced in more than one country
shallow integration
the reduction of tariffs and the elimination of quotas
deep integration
more contentious than shallow integration
much more difficult to accomplish than shallow integration
why is deep integration much more difficult to accomplish than shallow integration?
because it involves domestic policy changes that align a country with rules that are created abroad, or at least negotiated with foreign powers
Multilateral Organizations
organizations created by the United States, Great Britain, and their allies after WW2
serve as forums for discussing and establishing rules, as mediators of disputes, and as organizers of actions to resolve problems
negative stuff people thing about the multilateral organizations?
controversial and have come under increasing fire from critics who charge that they promote unsustainable economic policies or that they protect the interests of wealthy countries
they are unnecessary foreign entanglements that severely limit the scope for national action
examples of regional trade agreements (RTAs)
The North American Free Trade Agreement (NAFTA)
the European Union (EU)
the Mercado Común del Sur (MERCOSUR)
the Asia Pacific Economic Cooperation (APEC)
evidence pointed out by economists that the benefits of trade outweigh the costs
■ Casual empirical evidence of historical experience
■ Evidence based on economic models and deductive reasoning
■ Evidence from statistical comparisons of countries
While none of these is conclusive by itself, together they provide solid support for the idea that open economies generally grow faster and prosper more than closed ones
Why is international trade desirable?
economic analysis clearly demonstrates that the benefits of international trade outweigh the costs
International trade raises or decreases national welfare?
raises national welfare
does international trade benefit every member of society?
no
Twelve Key Themes in International Economics
The Gains from Trade and New Trade Theory
Wages, Jobs, and Protection
Trade Deficits
Regional Trade Agreements
The Resolution of Trade Conflicts
The Role of International Institutions
Exchange Rates and the Macroeconomy
Financial Crises and Global Contagion
Capital Flows and the Debt of Developing Countries
Latin America and the World Economy
Export-Led Growth in East Asia
The Integration of the BRICs into the World Economy
how must a country cover its trade deficit?
it must borrow from abroad
basically selling a piece of its future output in order to obtain more goods and services today
Regional Trade Agreements
eliminating many of the economic barriers separating nations
ex: NAFTA
trade conflicts or trade wars
not real wars, but they are harmful nonetheless
Exchange Rates and the Macroeconomy
They can help protect a country against harmful developments outside its borders
they can also magnify and transmit those developments to the domestic economy
Exchange rates play a key role in the international economy
Financial Crises and Global Contagion
effects of modern capital flows
brought many desirable things, such as investment, new technology, and higher consumption
they also often outpaced our ability to monitor and supervise
were frequently at the root of financial crises, including the severe global crisis that began in 2007
Highly Indebted Poor Countries (HIPC)
debt relief program for a group of forty-two countries
created by the world bank in 1996
In Latin America, why are the 1980s known as the Lost Decade?
High levels of debt, deep recessions, and hyperinflation caused the region to lose a decade of growth and development
the Washington Consensus
helped to bring an end to the Lost Decade
latin countries opened markets, allowed increased foreign investment, signed trade agreements, and ended a long period of relative isolation from the world economy
was the Washington Consensus consensus successful?
meh
Growth remained relatively low in many places
financial crises continued to undermine economic gains
traditional issues of economic fairness were largely ignored
the asian miracle of the 1980s and 1990s
Asian countries grinded and beasted
they were absolute units on even on the 2000 recessions
heavily relied on exports
BRIC
Brazil, Russia, India, and China
Between 1995 and 2001, their exports grew almost tenfold
Foreign direct investment (FDI)
The capital flow that allows for the purchase of real assets
