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Econ 4040 Exam 1 Chapter 1
The Global Economy
38
Economics
Undergraduate 4
09/16/2013

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Term
Why does intl econ require some tools different from micro/macro?
Definition
Other issues arise when trade and investment occur between sovereign nations
Term
Issues of Particular Concern (7)
Definition
Gains from Trade
Pattern of Trade
Protectionism
Balance of payments
Exchange rate determination
Intl policy coordination
Intl capital market
Term
Major International Economic Problems Today (6)
Definition
Slow growth and high unemployment in advanced nations

Rise of trade protectionism in advanced countries

Excessive fluctuations and misalignment in exchange rates

Structural imbalances in advanced economies and insufficient restructuring in transition economies

Deep poverty in many developing countries

Resource scarcity, environmental degradation, climate change, unsustainable development
Term
How do we know trade is beneficial? What might we use for evidence?
Definition
Theoretical models, Data, Historical Comparison
Term
Example of Theoretical Model evidence that trade is beneficial
Definition
"The Principles of Political Economy & Taxation" (1817) by David Ricardo
Term
Example of Data evidence that trade is beneficial
Definition
Correlation between rise in trade and rise in standard of living and
Term
Example of Historical Evidence evidence that trade is beneficial
Definition
N. Korea trades only with China and have extremely low GDP; N. Korea is evidence that trade is a good thing
Term
If we decide to trade, how do we decide who to trade with?; What determines trade patterns?
Definition
Size, Distance, Barriers, Borders
Term
Who imports the most?
Definition
Europe

1 Europe,
2 Asia,
3 N. America,
4 Middle East,
5 S & C America,
6 CIS (Commonwealth of Independent States),
7 Africa
Term
What % of stuff made in N. America is traded to N. Am.?
Definition
About 50%
Term
What % of African exports go to other African countries?
Definition
13%
Term
Why do so few of Africa's exports go to Africa?
Definition
Africa exports raw materials and African countries can't do anything with raw materials
Term
What country imports 1/2 of the world's raw materials?
Definition
China
Term
What are some examples of trade barriers?
Definition
tariffs, embargos, quotas, legal, health, environmental
Term
If distance is most important factor, why do so many Canadian Provinces trade with British Columbia but U.S. states that are equidistant from from B.C. don't?
Definition
Distance matters but isn't the only important factor, borders matter too
Term
Which countries do the least amount of trading?
Definition
Countries with the highest tariffs
Term
Is trade today different than it was in the past? How?
Definition
Yes - ease of global communication, easier to travel from country to country
Term
Has trade changed before?
Definition
Yes - Panama Canal, transportation revolutions (steamship and railroads)
Term
What do we trade today? (Composition of World Trade)
Definition
Manufactures (59.32%)
Services (19.59%)
Mining (14.18%)
Agricultural (6.91%)
Term
How has the composition of developing-country exports changed?
Definition
Increase in export of manufactured goods (~10% in 1960 and ~65% in 2001)
Decrease in export of agricultural goods (~60% in 1960 and ~10% in 2001)
Term
Who is the largest international trader? #2? #3?
Definition
#1: United States
#2: Germany
#3: China
Term
What % world exports is U.S.?
Definition
10%
Term
How much money in U.S. exports? What % of U.S. production?
Definition
$1.8 trillion in exports; 13% of U.S. production
Term
What % world imports is U.S.?
Definition
15%
Term
How much money in U.S. imports? What % of U.S. production?
Definition
$2.5 trillion in imports; 18% of U.S. production
Term
How do we measure Degree of Integration (Interconnectedness)?
Definition
Physical Trade Flows
Capital Flows: Financial and Physical
Labor Flow
Price Similarities Across Markets
Term
How have capital flows (financial and physical) changed?
Definition
Used to be strict regulations but not very strict now
Term
Is labor free-flowing between Mexico and US? Free-flowing in the EU?
Definition
Labor is not free-flowing between Mexico and US but is free-flowing in EU
Term
How has openness index changed from 1913-2000 for France, Netherlands, Germany, UK, Japan, and US? Which country has consistently had highest openness index? Lowest?
Definition
1913-1950: decrease
1950-1973: increase
1973-2006: largest increase

Highest: Netherlands
Lowest: United States

(Netherlands, UK, Germany, France, Japan, US)
Term
What is Gross Domestic Product (GDP)?
Definition
a measure of total production
Term
Trade to GDP ratio
Definition
(Exports+Imports)/GDP
Term
What types of countries tend to have smaller trade to GDP ratios? Why?
Definition
Smaller countries because larger countries, in general, are less dependent on international trade because their firms can reach an optimal production size without having to trade to foreign markets
Term
Shallow Integration
Definition
Reduction of tariffs and the elimination of quotas
Term
Deep Integration
Definition
Negotiations over domestic policies that impact international trade (much more difficult to accomplish)
Term
What % of US goods are produced domestically?
Definition
~82.3%
Term
Evidence that we are in new era of trade (4)
Definition
Rapid technological change, Business and financial sector innovation, Trade policy liberalization, Widespread protests against immigration
Term
Trade Changes between 1870 and 1914 (4)
Definition
Railways, steamships, and telegraphs; New business models, development of stock market; Many nations changed policies; Popular protests
Term
What is new about trade today? (7)
Definition
Technology, Flexible exchange rates, Shallow integration, Changing mix of goods, Deep integration, RTAs, Multilateral organizations
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