Chapter 4: The macroeconomy Flashcards
Terms of Trade Formula
(Index of Exports/ Index of Imports) * 100
X/M times 100
Terms of Trade Definition
a numerical measure of the relationship between export and import prices
ratio of export and import prices
Increase of index
this indicates a favorable movement / improvement in the terms of trade
ex. fewer exports have to be sold to buy any given quantity of imports
Decrease in index
unfavorable
decrease in terms of trade
more exports have to be exchanged to gain the same quantity of imports
Free Trade Areas
trade bloc where member governments agree to remove trade restrictions among themselves
NAFTA
example of free trade area
North American Free Trade Agreement
USA, Mexico and Canada
est in 1994
Customs Union
a trade bloc with free trade between member countries and a common external tariff on imports from non-member countries
SACU
South Africa Customs Union
ex. of customs union
Botswana, Lesotho, Namibia, South Africa and Swaziland
share tariff revenues and coordinate some trading policies
Economic Union
a trade bloc where there is free trade between member countries, a common external tariff and some common economic policies
-common currency
European Union
- single market
- members have adopted the same policies in labor and social issues
- same currency: euro
- European Central Bank: single interest rate
-28 countries
Trade Creation
high cost domestic production is replaced by more efficiently produced imports from within the customs union
-alo
Trade Creation
high cost domestic production is replaced by more efficiently produced imports from within the customs union
-allows for comparative advantage
Examples of Trade Blocs
ASEAN CARICOM EAC ECOWAS GCC
Arguments for Protectionism
- Protect sunrise/ sunset industries
- Prevent dumping
- Raise revenue
- Retaliate
- Protect strategic industries
Measures of protectionism
Tariffs Quotas Embargoes Subsidies Administrative delays Government purchasing policies (exchange control) Voluntary export restraints
