Chapter 2 Flashcards
events that increase trade volume
Growth in international trade
Factors affecting international trade flow (2)
inflation, policies
International capital flow (mostly DFI) (3)
restrictions, privatizations, taxes, etc.
The ____ account keeps track of the flow of goods and services in and out of the US
current
Current account summarizes the flow of funds between one specified country and all other countries due to four transaction types:
- purchases of goods
- purchases of services
- income on financial assets
- transfer payments
U.S. was a net importer of ___
- U.S. was a net exporter of ____
goods (Merchandise) ; services
Bureau of Economic Analysis (BEA)Information about BEA’s international
transactions (balance of payments) accounts, including all transactions between U.S. and foreign residents
- Fall of the Berlin Wall
- Single European Act
- NAFTA
- GATT
- European Union
- Inception of the Euro
- Other trade agreements
- Outsourcing
- Trends in US balance of trade
Growth in international trade
A relative increase in a country’s inflation rate will decrease its ____ ___, as imports ____ and exports _____.
current account; increase; decrease
Impact of National Income - A relative increase in a country’s income level will ____ its current account, as imports ____.
decrease; increase
A government may reduce its country’s imports by imposing a ____________, or by enforcing a _____; labor laws, business laws, subsidies, tax breaks, security laws
tariff on imported goods; quota
If a country’s currency begins to rise in value, its current account balance will decrease as imports ____ and exports ____.
increase; decrease
BOT Deficit:
Excess supply of domestic currency
- domestic currency becomes weaker
- more export demand
- Less import demand
- trade imbalance corrects automatically in long run
BOT Deficit
Changes in Restrictions
New opportunities may arise from the removal of government barriers.
Potential Economic Growth
Countries that have higher potential for economic growth are more attractive.
Tax Rates
Countries that impose relatively low tax rates on corporate earnings are more likely to attract DFI.
Exchange Rates
Firms typically prefer to invest in countries where the local currency is expected to strengthen against their own.
Privatization
DFI has also been stimulated by the selling of government operations.
Tax Rates on Interest or Dividends
Investors will normally prefer countries where the tax rates are relatively low.
Money tends to flow to countries with ____ interest rates.
high
Foreign investors may be attracted if the local currency is expected to ____.
strengthen
promote cooperation, stability in exchange rates, provide temporary funds to members, promote free mobility of capital and free trade
International Monetary Fund (IMF)
reduce poverty and enhance economic development
World Bank
trade disputes and other issues
World Trade Organization (WTO)
promote private enterprise within countries
International Finance Corporation (IFC)
promote relationships that lead to globalization
Organization for Economic Co-operation and Development (OECD)
US importers must use their dollars to buy foreign currency – they will represent the ___ of dollars
supply
Foreigners buying US exports must use their foreign currency to buy dollars – they represent the ___ for dollars
demand
what is the Percentage change in the nominal exchange rate (dollars per foreign currency) –
a positive number represents a currency depreciation
what is the Parameters to be estimated –
would suggest that beta should be negative
In the short run, exchange rates are highly correlated with ___ ___, but are poorly correlated with ____ ____
each other; trade balances
describes a typical response of trade balances to currency depreciations
The J-Curve
A trade deficit exists at time 0 –
the currency begins to depreciate
The current account keeps track of the flow of
goods and services in and out of the US
A ___ ____ implies that the US is borrowing from the rest of the world (currently, we are borrowing at the rate of $2B per day). A equivalent statement is that the rest of the world is acquiring US assets
trade deficit
Changes in Assets are recorded in the
Capital and Financial Account
Capital account summarizes the flow of funds resulting from the ________ between one specified country and all other countries.
sale of assets
Association of countries that adopt common policies regarding global economic change relative to other countries that are not members of the trade bloc
trade blocs
Trade blocs usually involved countries that are at a similar level of (3)
development, geographically close, sharing borders
Initiative started by the United States after WWII (to bring at the table as many countries as possible)
Multilateralism
started in 1947 (with no more than 25 countries), more countries joined through the years, up until 2001, more than 140 countries
GATT
group of countries agree on:
- Reduce tariffs for certain goods
- (preferential trade)
- Remove internal trade barriers (free trade)
- Coordinate external trade barrier (customs union)
- Free movement of capital and/or labor
- Coordinate tax policy
- Tax, monetary policy, banking, etc.
World trade organization (WTO) Blocs
is a free trade area that also has a free movement of capital
NAFTA
Eurozone is a
monetary union
______ _____ is a single market – coordinate tax policies and regulatory policies
European union
First trade bloc
1834 in Germany
- Agreement between 15 countries
- 3.5 billon people
- Signed Nov. 2020
- 1/3 of global GDP
RCEP - Regional Comprehensive Economic Partnership
(largest organization)
