Chapter 2

Question 1

events that increase trade volume

Answer 1

Growth in international trade

Question 2

Factors affecting international trade flow (2)

Answer 2

inflation, policies

Question 3

International capital flow (mostly DFI) (3)

Answer 3

restrictions, privatizations, taxes, etc.

Question 4

The ____ account keeps track of the flow of goods and services in and out of the US

Answer 4

current

Question 5

Current account summarizes the flow of funds between one specified country and all other countries due to four transaction types:

Answer 5

• purchases of goods
• purchases of services
• income on financial assets
• transfer payments

Question 6

U.S. was a net importer of ___

• U.S. was a net exporter of ____

Answer 6

goods (Merchandise) ; services

Question 7

Bureau of Economic Analysis (BEA)Information about BEA’s international

Answer 7

transactions (balance of payments) accounts, including all transactions between U.S. and foreign residents

Question 8

• 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

Answer 8

Growth in international trade

Question 9

A relative increase in a country’s inflation rate will decrease its ____ ___, as imports ____ and exports _____.

Answer 9

current account; increase; decrease

Question 10

Impact of National Income - A relative increase in a country’s income level will ____ its current account, as imports ____.

Answer 10

decrease; increase

Question 11

A government may reduce its country’s imports by imposing a ____________, or by enforcing a _____; labor laws, business laws, subsidies, tax breaks, security laws

Answer 11

tariff on imported goods; quota

Question 12

If a country’s currency begins to rise in value, its current account balance will decrease as imports ____ and exports ____.

Answer 12

increase; decrease

Question 13

BOT Deficit:

Answer 13

Excess supply of domestic currency

Question 14

• domestic currency becomes weaker
• more export demand
• Less import demand
• trade imbalance corrects automatically in long run

Answer 14

BOT Deficit

Question 15

Changes in Restrictions

Answer 15

New opportunities may arise from the removal of government barriers.

Question 16

Potential Economic Growth

Answer 16

Countries that have higher potential for economic growth are more attractive.

Question 17

Tax Rates

Answer 17

Countries that impose relatively low tax rates on corporate earnings are more likely to attract DFI.

Question 18

Exchange Rates

Answer 18

Firms typically prefer to invest in countries where the local currency is expected to strengthen against their own.

Question 19

Privatization

Answer 19

DFI has also been stimulated by the selling of government operations.

Question 20

Tax Rates on Interest or Dividends

Answer 20

Investors will normally prefer countries where the tax rates are relatively low.

Question 21

Money tends to flow to countries with ____ interest rates.

Answer 21

high

Question 22

Foreign investors may be attracted if the local currency is expected to ____.

Answer 22

strengthen

Question 23

promote cooperation, stability in exchange rates, provide temporary funds to members, promote free mobility of capital and free trade

Answer 23

International Monetary Fund (IMF)

Question 24

reduce poverty and enhance economic development

Answer 24

World Bank

Question 25

trade disputes and other issues

Answer 25

World Trade Organization (WTO)

Question 26

promote private enterprise within countries

Answer 26

International Finance Corporation (IFC)

Question 27

promote relationships that lead to globalization

Answer 27

Organization for Economic Co-operation and Development (OECD)

Question 28

US importers must use their dollars to buy foreign currency – they will represent the ___ of dollars

Answer 28

supply

Question 29

Foreigners buying US exports must use their foreign currency to buy dollars – they represent the ___ for dollars

Answer 29

demand

Question 30

what is the Percentage change in the nominal exchange rate (dollars per foreign currency) –

Answer 30

a positive number represents a currency depreciation

Question 31

what is the Parameters to be estimated –

Answer 31

would suggest that beta should be negative

Question 32

In the short run, exchange rates are highly correlated with ___ ___, but are poorly correlated with ____ ____

Answer 32

each other; trade balances

Question 33

describes a typical response of trade balances to currency depreciations

Answer 33

The J-Curve

Question 34

A trade deficit exists at time 0 –

Answer 34

the currency begins to depreciate

Question 35

The current account keeps track of the flow of

Answer 35

goods and services in and out of the US

Question 36

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

Answer 36

trade deficit

Question 37

Changes in Assets are recorded in the

Answer 37

Capital and Financial Account

Question 38

Capital account summarizes the flow of funds resulting from the ________ between one specified country and all other countries.

Answer 38

sale of assets

Question 39

Association of countries that adopt common policies regarding global economic change relative to other countries that are not members of the trade bloc

Answer 39

trade blocs

Question 40

Trade blocs usually involved countries that are at a similar level of (3)

Answer 40

development, geographically close, sharing borders

Question 41

Initiative started by the United States after WWII (to bring at the table as many countries as possible)

Answer 41

Multilateralism

Question 42

started in 1947 (with no more than 25 countries), more countries joined through the years, up until 2001, more than 140 countries

Answer 42

GATT

Question 43

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.

Answer 43

World trade organization (WTO) Blocs

Question 44

is a free trade area that also has a free movement of capital

Answer 44

NAFTA

Question 45

Eurozone is a

Answer 45

monetary union

Question 46

______ _____ is a single market – coordinate tax policies and regulatory policies

Answer 46

European union

Question 47

First trade bloc

Answer 47

1834 in Germany

Question 48

- Agreement between 15 countries - 3.5 billon people - Signed Nov. 2020 - 1/3 of global GDP

Answer 48

RCEP - Regional Comprehensive Economic Partnership (largest organization)