Chapter 13: The United States in a Global Economy

Question 1

measures of the degree of international economic integration

Answer 1

trade flows

capital flows

people flows,

the similarity of prices in separate markets

Question 2

the similarity of prices in separate markets

Answer 2

refers to the fact that integrated economies have price differences that are relatively small

the differences are due mainly to differences in transportation costs

Question 3

gross domestic product (GDP)

Answer 3

a measure of total domestic production

Question 4

trade-to- GDP ratio

meaning and formula

Answer 4

measure of the importance of international trade in a nation’s economy

Trade to GDP ratio = (Exports + Imports) / GDP

Question 5

why are large countries generally less dependent on international trade?

Answer 5

because their firms can reach an optimal production size without having to sell to foreign markets

Question 6

which type of countries tend to have higher ratios of trade-to-GDP?

Answer 6

smaller countries

Question 7

which entities have become a crucial player in world trade since the 1950s?

Answer 7

multinational corporations

Question 8

is labor more mobile now or in the 1900s?+

why?

Answer 8

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

Question 9

the most basic distinction in capital flows?

Answer 9

the distinction between flows of financial capital and flows of capital representing physical assets

the distinction is immaterial

Question 10

foreign direct investment (FDI)

Answer 10

flows of capital representing physical assets such as real estate, factories, and businesses

Question 11

flows of financial capital

Answer 11

represent paper assets such as stocks, bonds, currencies, and bank accounts

Question 12

flows of capital representing physical assets

Answer 12

such as real estate, factories, and businesses

Question 13

why is the distinction between flows of financial capital and flows of capital representing physical assets immaterial?

Answer 13

because both represent shifts in wealth across national boundaries

both make one nation’s savings available to another

Question 14

two points to keep in mind when comparing international capital flows today to a century ago

Answer 14

First, savings and investment are highly correlated

Second, a variety of technological improvements increased capital flows in the 1800s, as they are doing today

Question 15

how are savings and investment highly correlated?

Answer 15

countries with high savings tend to have high rates of investment, and low savings is correlated with low investment

Question 16

main difference and reason between size of cash flows today and size of cash flows a century ago?

Answer 16

flows today are much larger but mainly because economies are larger

Question 17

important qualitative differences in the quantity of capital flows between now and a century ago?

Answer 17

there are many more financial instruments available now than there were a century ago

the role of foreign exchange transactions

Question 18

the role of foreign exchange transactions now and a century ago?

Answer 18

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

Question 19

what is the the largest component of international capital movements?

Answer 19

the buying and selling assets denominated in foreign currencies

Question 20

why is the buying and selling assets denominated in foreign currencies the largest component of international capital movements?

Answer 20

the role of foreign exchange transactions

Many firms today spend significant resources to protect themselves from sudden shifts in currency values

Question 21

the costs of foreign financial transactions today and a century ago

Answer 21

the costs of foreign financial transactions have fallen significantly

Question 22

transaction costs

Answer 22

the costs of obtaining market information, negotiating an agreement, and enforcing the agreement

Question 23

are transaction costs higher in domestic or international markets?

Answer 23

international markets

Question 24

Features of Contemporary International Economic Relations

Answer 24

Deeper Integration

Multilateral Organizations

Regional Trade Agreements

Question 25

the two trends created by lower barriers to international trade?

Answer 25

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

Question 26

shallow integration

Answer 26

the reduction of tariffs and the elimination of quotas

Question 27

deep integration

Answer 27

more contentious than shallow integration

much more difficult to accomplish than shallow integration

Question 28

why is deep integration much more difficult to accomplish than shallow integration?

Answer 28

because it involves domestic policy changes that align a country with rules that are created abroad, or at least negotiated with foreign powers

Question 29

Multilateral Organizations

Answer 29

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

Question 30

negative stuff people thing about the multilateral organizations?

Answer 30

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

Question 31

examples of regional trade agreements (RTAs)

Answer 31

The North American Free Trade Agreement (NAFTA)

the European Union (EU)

the Mercado Común del Sur (MERCOSUR)

the Asia Pacific Economic Cooperation (APEC)

Question 32

evidence pointed out by economists that the benefits of trade outweigh the costs

Answer 32

■ 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

Question 33

Why is international trade desirable?

Answer 33

economic analysis clearly demonstrates that the benefits of international trade outweigh the costs

Question 34

International trade raises or decreases national welfare?

Answer 34

raises national welfare

Question 35

does international trade benefit every member of society?

Answer 35

no

Question 36

Twelve Key Themes in International Economics

Answer 36

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

Question 37

how must a country cover its trade deficit?

Answer 37

it must borrow from abroad

basically selling a piece of its future output in order to obtain more goods and services today

Question 38

Regional Trade Agreements

Answer 38

eliminating many of the economic barriers separating nations

ex: NAFTA

Question 39

trade conflicts or trade wars

Answer 39

not real wars, but they are harmful nonetheless

Question 40

Exchange Rates and the Macroeconomy

Answer 40

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

Question 41

Financial Crises and Global Contagion

effects of modern capital flows

Answer 41

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

Question 42

Highly Indebted Poor Countries (HIPC)

Answer 42

debt relief program for a group of forty-two countries

created by the world bank in 1996

Question 43

In Latin America, why are the 1980s known as the Lost Decade?

Answer 43

High levels of debt, deep recessions, and hyperinflation caused the region to lose a decade of growth and development

Question 44

the Washington Consensus

Answer 44

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

Question 45

was the Washington Consensus consensus successful?

Answer 45

meh

Growth remained relatively low in many places

financial crises continued to undermine economic gains

traditional issues of economic fairness were largely ignored

Question 46

the asian miracle of the 1980s and 1990s

Answer 46

Asian countries grinded and beasted

they were absolute units on even on the 2000 recessions

heavily relied on exports

Question 47

BRIC

Answer 47

Brazil, Russia, India, and China

Between 1995 and 2001, their exports grew almost tenfold

Question 48

Foreign direct investment (FDI)

Answer 48

The capital flow that allows for the purchase of real assets